THE  LIBRARY 

OF 

THE  UNIVERSITY 
OF  CALIFORNIA 

LOS  ANGELES 

SCHOOL  OF  LAW 


it 

1-A 
CHICAO 


A  TREATISE 


LAW  OF  RAILROADS 


CONTAINING   A   CONSIDERATION    OF    THE    ORGANIZATION,   STATUS   AND 

POWERS  OF  RAILROAD  CORPORATIONS,  AND  OF  THE  RIGHTS  AND 

LIABILITIES  INCIDENT  TO  THE  LOCATION,  CONSTRUCTION  AND 

OPERATION   OF   RAILROADS;  TOGETHER   WITH   THEIR 

DUTIES,  RIGHTS  AND  LIABILITIES  AS  CARRIERS 


STREET  AND  INTERURBAN  RAILWAYS 


BY  BYRON  K.  ELLIOTT 


in 

AND 


WILLIAM  F.  ELLIOTT 

Authors  of  "  Roads  and  Streets,"  "  General  Practice,"  "  Evidence. 


Second  Edition 
VOLUME  I 


INDIANAPOLIS 

THE  BOBBS-MERRILL  COMPANY 
1907 


COPYRIGHT  1897 
BY  THE  BOWEN-MERRILL  COMPANY 

COPYRIGHT  1907 
BY  THE  BOBBS-MERRILL  COMPANY 


T 


THE  HOLLENBECK  PRESS 
INDIANAPOLIS 


PREFACE  TO  THE  SECOND  EDITION 


Railroads,  in  this  country,  are  of  comparatively  recent  date,  and  the 
law  upon  the  subject  is  growing  rapidly.  Almost,  if  not  quite,  as 
many  decisions  upon  the  subject  have  been  rendered  and  reported 
since  the  first  edition  of  this  work  was  published  as  were  rendered 
within  the  entire  period  of  about  fifty  years  between  the  time  of  the 
first  important  decision  in  a  railroad  case  in  this  country  and  the 
publication  of  the  first  edition.  Many  changes  have  been  made  both 
by  statute  and  by  judicial  decision,  and  many  new  questions  have 
arisen.  As  no  work  upon  the  subject,  purporting  to  be  at  all  exhaust- 
ive or  complete,  has  been  published  in  the  meantime,  further  justifi- 
cation for  a  second  edition  of  this  work  seems  unnecessary. 

Many  new  sections  have  been  added  and  so  have  several  new  chap- 
ters. Among  the  new  chapters  will  be  found  two  on  street  railways 
and  one  on  the  new  and  important  subject  of  interurban  railroads. 
The  latter  subject,  we  believe,  is  not  treated  at  any  length  in  any 
other  text-book.  New  chapters  are  also  added  on  actions  by  and 
against  railroad  companies.  Many  practical  suggestions  are  made 
and  many  points  that  often  arise  in  such  cases  are  considered,  and 
authorities  cited,  that  are  not  ordinarily  found  in  text-books  upon  the 
subject.  It  is  believed  that  the  new  sections  and  chapters  on  actions 
will  be  found  particularly  useful  in  the  trial  of  railroad  cases. 

There  is  a  full  treatment  of  the  interstate  commerce  law  and  rail- 
road rate  regulation  generally,  and  the  latest  authorities  are  cited, 
many  of  which  are  decisions  rendered  within  the  last  few  months  and 
cited  in  no  other  text-book.  This  is  also  true  as  to  other  recent  acts 
of  Congress,  especially  the  employer's  liability  act  of  June  11,  1906. 

The  text  has  been  thoroughly  revised  in  all  respects.  Many  thou- 
sand new  cases  are  cited,  and  the  general  subject  is  fully  covered,  we 
believe,  in  all  its  branches. 

BYRON  K.  ELLIOTT. 
WILLIAM  F.  ELLIOTT. 


111 


729424 


TABLE  OF  CONTENTS 


THE  CORPORATION 


CHAPTER  I. 

DEFINITIONS. 
SECTION 

1.  Railroad  companies — Definition  and  characteristics. 

la.  Usually  but  not  always  corporations — Other  characteristics. 

2.  Dual  nature  of  railroad  corporations. 

3.  "Railroad"  or  "railway." 

4.  "What  are  railroads. 

5.  "Railroad  track" — "Right  of  way" — "Road-bed"  and  "roadway.' 

6.  Street  railways. 

6a.  Street  railways  further  considered. 

7.  Elevated  railroads. 

8.  Electric  railroads. 

9.  Cable  railroads. 

9a.  Interurban  railroads. 


CHAPTER  II. 

PROMOTION  AND  FORMATION   OF  THE  CORPORATION. 
SECTION 

10.  Promoters — Who  are. 

11.  Fiduciary  relation  of  promoters — Duties  and  liabilities. 

12.  Promoter  may  sell  property  to  the  corporation. 

13.  Personal  liability  of  promoters — When  partners. 
13a.  Representations  by  promoters.       ' 

14.  Contracts  of  promoters — When  binding  on  corporation. 

15.  Legislative  authority  essential  to  creation  of  corporation. 

16.  Creation  by  special  charter. 

17.  Acceptance  of  charter. 

18.  Incorporation  under  general  laws. 

19.  Perfecting  the  organization. 

20.  Defective  organization — Waiver — Collateral  attack, 

v 


TABLE  OF   CONTENTS. 


CHAPTER  III. 

LEGAL  STATUS. 

SECTION 

21.  As  individual,  person,  citizen. 

22.  Corporation  confined  to  jurisdiction  creating  it — Business  elsewhere 

— Comity. 

23.  Citizenship — Removal  of  causes. 

24.  Residence  and  domicile — Jurisdiction. 

25.  Federal  corporations. 

26.  Railroad  in  more  than  one  state — Citizenship. 

27.  Control  of  railroads  in  more  than  one  state. 

28.  Result  of  consolidation  or  concurrent  action  of  several  states  creating 

new  corporations. 

29.  Railroad  only  a  citizen  or  domestic  corporation  of  the  states  that 

charter  it — Effect  of  mere  license. 

30.  Foreign  corporations — Condition  of  admission  to  state. 

31.  Railroads  as  property. 

32.  Railroads  as  monopolies. 

33.  Railroads  as  public  highways. 


CHAPTER  IV. 


CHARTERS. 

SECTION 

34.  Special  charters  and  general  laws. 

35.  Acceptance  of  charter. 

36.  Terms  upon  which  charter  is  granted  must  be  complied  with — Pro- 

visions in  general  laws. 

37.  Particular  corporation  must  be  authorized. 

38.  Construction  of  charter — General  rules. 

39.  Grants  of  monopolies  and  powers  in  derogation  of  public  rights — Per- 

petuity. 

40.  Practical  construction. 

41.  Charter  to  build  and  operate  a  railroad — What  powers  are  included. 

42.  Other  powers  of  railroad  companies — Implied  powers  included  in  cer- 

tain grants. 

43.  Amendment — Power  must  be  reserved. 

44.  Police  regulations. 

45.  Material  amendments  require  unanimous  consent  of  stockholders — 

What  are  material. 

46.  Statutory  provisions  authorizing  amendments. 

47.  Forfeiture — Statutory  provisions  dispensing  with  judicial  determina- 

tion. 


„  TABLE  OF   CONTENTS.  Vll 

SECTION 

48.  Implied  condition  that  corporate  franchise  is  subject  to  forfeiture — 

Judicial  determination — Causes  for  forfeiture. 

49.  Grounds  of  forfeiture — Illustrative  cases. 

50.  When  duty  to  declare  forfeiture  is  mandatory  and  when  discretionary. 

51.  What  is  not  cause  for  forfeiture. 

52.  Waiver  of  forfeiture — Collateral  proceedings. 

53.  Proceedings  to  forfeit — Quo  warranto — Parties. 

54.  Proceedings  must  generally  be  in  court  of  law — Statutory  provisions. 

55.  Collateral  proceedings — Pleadings  and   judgment  in  forfeiture   pro- 

ceedings. 

56.  Repeal  of  charter — Reserved  power. 

57.  Repeal  where  conditional  power  is  reserved. 

58.  Rule  where  power  to  repeal  is  not  reserved. 

59.  Effect  of  repeal. 

60.  Repeal  of  by  general  laws. 

61.  Charter  is  subject  to  general  laws  reserving  power  to  repeal. 

62.  Expiration  of  charter. 


CHAPTER  V. 

SECTION  FRANCHISES. 

63.  Definition. 

64.  Charter  and  franchise  distinguished. 

65.  Grant  of  corporate  franchises. 

66.  Consideration  for  the  grant  of  a  franchise. 

67.  Nature  of  a  franchise  further  considered. 

68.  Franchise  of  being  a  corporation. 

69.  Difference  between  a  franchise  and  a  license. 

70.  Sale  of  corporate  property  essential  to  exercise  of  franchises — Limi- 

tations of  right  to  sell. 

71.  Effect  of  attempt  to  sell  franchise. 

72.  Judicial  sale  of  franchises. 

73.  Sequestration. 

74.  Seizure  of  corporate  franchise  under  power  of  eminent  domain. 

75.  Dissolution  effected  by  authorized  sale  of  franchises. 


CHAPTER  VI. 

SECTION  STOCK. 

76.  Definition. 

77.  Classes  of  stock. 

78.  Shares  of  stock — Certificates. 

79.  Certificates — How  far  negotiable — Shares  are  personal  property. 

80.  New  certificates  in  place  of  lost — Fraud. 


Vlii  TABLE   OF   CONTENTS. 

SECTION 

81.  Preferred  stock. 

82.  When  preferred  stock  may  be  issued — Rights  and  remedies  of  dis- 

senting stockholders. 

83.  Holder  of  preferred  stock  not  a  creditor — His  rights  and  remedies. 

84.  Rights  of  preferred  stockholders  after  payment  of  guaranteed  divi- 

dend— Future  dividend. 

85.  Rights  of  preferred  stockholders  on  dissolution. 

86.  Guaranteed,  interest-bearing,  income  and  debenture  stock. 

87.  Increase  and  reduction  of  capital  stock. 

88.  Watered  stock. 

89.  Watered  stock  not  absolutely  void. 

90.  Rights  of  creditors  and  liabilities  of  holders  of  watered  stock. 

91.  Stock  paid  for  by  overvalued  property — Sale  of  stock  on  market. 

92.  Sale  and  transfer  of  stock. 

93.  Who  may  own  and  transfer  shares. 

94.  Purchase  and  sale  by  trustees  and  fiduciaries. 

95.  Right  of  corporation  to  buy  and  sell  stock. 

96.  Gifts  and  bequests  of  stock. 

97.  Formalities  of  transfer. 

98.  Registry  of  transfer. 

99.  Lien  of  corporation  on  stock. 

100.  When  and  to  what  the  lien  attaches. 

101.  Waiver  of  lien — Enforcement  of  lien. 
lOla.  Condemnation  of  stock. 


CHAPTER  VII. 


SUBSCRIPTIONS. 

SECTION 

102.  Preliminary  agreements  to  subscribe. 

103.  Subscriptions  generally — Form. 

104.  Construction  of  contract  ot  subscription. 

105.  Contracts  of  subscription  are  several. 

106.  Effect  of  statutes  requiring  cash  deposit  to  complete  subscription. 

107.  Who  may  subscribe  for  stock. 

108.  Presumption  that  one  whose  name  is  subscribed  is  a  stockholder. 

109.  Implied  promise  to  pay  subscription — Consideration. 

110.  Payment  of  subscription — Trust  fund  doctrine. 

111.  Conditional  subscription. 
Ilia.  Implied  conditions. 

112.  Valid  and  invalid  conditions. 

113.  Conditional  subscription  is  a  mere  offer  until  accepted. 

114.  Subscriptions  in  escrow — Parol  evidence. 

115.  Waiver  of  conditions. 

116.  When  conditional  subscription  becomes  payable. 


TABLE   OF  CONTENTS  ix 

SECTION 

117.  Construction  of  conditional  subscriptions — What  is  a  sufficient  com- 

pliance with  conditions  as  to  time  of  beginning  and  completing 
road. 

118.  Subscriptions  payable  as  work  progresses  or  upon  expenditure  of  a 

certain  amount. 

119.  Failure  to  perform  parol  condition  will  not  defeat  subscription. 

120.  Conditions  in  notes. 

121.  Subscriptions  conditioned  upon  location  or  construction  of  the  road. 

122.  Effect  of  alteration  in  route  fixed  by  charter. 

123.  Effect  of  abandonment  or  sale  of  road. 

124.  Condition  as  to  terminus — Question  of  intention  for  jury. 

125.  What  is  sufficient  compliance  with  condition  as  to  terminus  or  loca- 

tion of  depot  at  a  certain  place. 

126.  General  rule  of  construction — Performance  of  condition  by  consoli- 

dated company 

127.  Fraudulent  representations  in  obtaining  subscriptions. 

128.  Misrepresentations  in  prospectus  and  by  agents  generally. 

129.  Fraud  may  be  shown  by  parol  evidence. 

130.  Subscriber  must  be  free  from  negligence  in  order  to  be  released  upon 

the  ground  of  fraud. 

131.  Subscription  induced  by  fraud  is  merely  voidable — When  it  will  be 

enforced. 

132.  Ratification  and  estoppel — Rescission. 


CHAPTER  VIII. 

CALLS  AND  ASSESSMENTS. 
SECTION 

133.  When  payment  of  subscription  must  be  made. 

134.  Calls — Nature  and  effect  of. 

135.  Directors  may  make  calls — Delegation  and  ratification. 

136.  Directors  must  act  as  a  body — De  facto  board — Illegal  calls. 

137.  Discretion  of  board  in  making  calls. 

138.  Charter   and   statutory   limitations   upon   discretion — Periodical   in- 

stalments. 

139.  Call  should  affect  all  alike — Motive  and  expediency. 

140.  Subscriptions  payable  upon  demand — Notice. 

141.  Requisites  of  notice. 

142.  Constructive  notice.  », 

143.  Waiver  by  stockholder  of  notice  and  formalities  of  call — Estoppel. 

144.  Demand  and  suit  for  assessment. 

145.  Assignment  of  right  to  collect  subscription  or  assessment. 

146.  When  courts  may  compel  call  and  payment. 

147.  Extent  of  stockholder's  liability  for  assessments — Agreements  as  af- 

fecting liability. 

148.  Construction  of  charter  and  statutory  provisions  regarding  assess- 

ments. 


I  TABLE  OF  CONTENTS. 

SECTION 

149.  Remedies  where  stockholder  fails  to  pay  subscription  or  assessment 

— Forfeiture. 

150.  Cumulative  remedies — Election. 

151.  Effect  of  forfeiture. 

152.  Statutory  method  of  forfeiture  must  be  pursued. 

153.  Notice  of  forfeiture. 

154.  Defeating  and  annulling  forfeiture — Estoppel. 


CHAPTER  IX. 

STOCKHOLDERS. 
SECTION 

155.  When  one  becomes  a  stockholder. 

156.  Rights  of  stockholders — Right  to  vote. 

157.  Who  has  right  to  vote — How  determined. 

158.  Right  of  trustees  and  receivers  to  vote. 

159.  Right  of  corporations  and  voting  trusts  to  vote. 

160.  Number  of  votes  to  which  stockholder  is  entitled — Cumulative  vot- 

ing. 

161.  Quorum  must  be  present. 

162.  Voting  by  proxy. 

163.  Other  powers  of  stockholders — Rights  of  minority. 

164.  Stockholders'  meetings. 

165.  Remedies  of  stockholders. 

166.  Unregistered  assignees  and  third  persons  cannot  sue. 

167.  When  stockholders  may  sue  or  become  parties. 

168.  Right  to  recover  insurance. 

169.  Other  rights  and  remedies  of  stockholders. 

170.  Stockholders  as  agents  of  the  corporation. 

171.  Notice  to  stockholders. 

172.  Stockholders'  right  to  inspect  books. 

173.  Stockholder  is  disqualified  to  serve  as  judge  or  juror  where  corpo- 

ration is  interested. 

174.  Unlawful  combinations  and  conspiracies  to  vote  or  prevent  voting — 

Injunction. 

175.  Liability  of  stockholders  for  unpaid  subscriptions. 

176.  Release  of  stockholders — Withdrawal.  » 

177.  Compromises  with  stockholders. 

178.  Liability  where  stock  is  transferred. 

179.  When  creditors  may  enforce  unpaid   subscriptions — Judgment  and 

execution  against  corporation. 

180.  Effect,  as  against  stockholder,  of  judgment  against  the  corporation. 

181.  Stockholder's  defense. 

182.  Methods  of  enforcing  stockholder's  liability. 

183.  Contribution. 

184.  Suits  by  assignees  and  receivers. 


TABLE   OF   CONTENTS.  xi 

SECTION 

185.  Statutory  liability  of  stockholders. 

186.  Defenses  to  actions  to  enforce  statutory  liability. 

187.  Who  may  institute  action  to  enforce  statutory  liability. 

188.  How  statutory  liability  is  enforced — Judgment  and  execution  against 

the  corporation. 

189.  Priority  among  creditors — Forum — Contribution. 

190.  When  stockholders  are  liable  as  partners. 


CHAPTER  X. 

BY-LAWS,  RULES  AND  REGULATIONS. 
SECTION 

191.  Power  to  make  by-laws. 

192.  Who  are  affected  by  corporate  by-laws. 

193.  Limits  of  power  to  make  by-laws — Reasonableness  a  question  for  the 

court. 

194.  Power  to   make   by-laws   resides   in   stockholders — When   directors 

may  make. 

195.  Formalities  of  enactment — Proof. 

196.  Amendment  and  repeal. 

197.  Enforcement  of  by-laws. 

198.  Rules  and  regulations  in  England. 

199.  Distinction   between  by-laws   and   rules   and   regulations — Right   of 

railroad  company  to  make  rules  and  regulations. 

200.  Examples  of  rules  and  regulations  which  railroad  companies  may 

make — Rules  affecting  passengers. 
200a.  Rules  affecting  shippers  and  freight. 
200b.  Rules  affecting  employes. 

201.  Enforcement  of  rules — Penalties. 

202.  Reasonableness  of  rules — When  a  question  of  fact  and  when  a  ques- 

tion of  law. 
202a.  Failure  to  enforce  rules — Waiver  or  abrogation. 


CHAPTEE  XI. 

CORPORATE  REPRESENTATIVES. 

SECTION 

203.  Railroad  corporations  act  through  officers,  agents  or  other  repre- 

sentatives. 

204.  Appointment  of  officers  and  agents — General  doctrine. 

205.  Statutory  privileges  bestowed  on  agents. 

206.  Officers  generally. 

207.  Qualifications  of  officers. 

208.  Election  of  officers — Generally. 


Xll  TABLE   OF   CONTENTS. 

SECTION 

209.  Agents  generally. 

210.  Proof  of  the  existence  of  the  relation  of  principal  and  agent. 

211.  Proof  of  authority. 

212.  Agency  inferred. 

213.  Powers,  duties  and  authority  of  officers  and  agents  generally. 

214.  Authority  of  agent — Line  of  duty. 

215.  Scope  of  authority — General  conclusions. 

216.  Contracts  by  agents — General  doctrine. 

217.  Declarations  and  admissions  of  agents. 

218.  Declarations  of  agent — Res  gestae. 

219.  Declarations  must  relate  to  transaction  or  event  in  controversy. 

220.  Exercise  of  authority  by  agents — Illustrative  cases.  , 

221.  Scope  of  authority — Illustrative  cases. 

221a.  Authority  of  agent — Emergencies  and  special  circumstances. 

222.  Authority  of  agents— Employment  of  surgeons. 

223.  Physicians  and  surgeons. 

224.  Delegation  of  power  by  directors. 

225.  Employment  of  sub-agents  and  servants. 

226.  Notice  to  agents  or  officers. 

227.  Ratification. 

228.  Acts  that  may  be  ratified. 

229.  Ratification — What  constitutes. 

230.  Compensation  of  officers. 

231.  Liability  of  agents  for  their  torts. 

232.  Bonds  of  officers  and  agents. 

233.  Sureties — Bonds  of  officers  and  agents. 


CHAPTEK  XII. 

DIRECTORS. 
SECTION 

234.  Different  classes  of  officers — Generally. 

235.  The  governing  board — Generally. 

236.  Governing  board  not  the  corporation. 

237.  The  board  of  directors  represents  the  corporation. 

238.  Directors — Generally. 

239.  Number  of  directors. 

240.  Directors — How  chosen — Generally. 

241.  Eligibility  to  the  office  of  director. 

242.  Ineligibility  because  of  connection  with  competing  lines. 

243.  Election  of  ineligible  person  to  office  of  director. 

244.  Officers  de  facto — Generally. 

245.  Election  of  ineligible  person — Who  may  question  right  to  office. 

246.  Directors  de  facto — Illustrative  cases. 

247.  De  facto  directors — Two  boards. 

248.  Holding  over — Failure  to  elect. 


TABLE  OF   CONTENTS.  Xlii 

SECTION 

249.  Powers  of  directors — Source  of. 

250.  Powers  of  directors — Generally. 

251.  Powers  of  directors — Illustrative  cases. 

252.  Directors — Powers  of — Organic  changes. 

253.  Directors — Extent  of  authority — Generally. 

254.  Powers  of  directors,  general  conclusion. 

255.  Directors — Official  action — Preliminary. 

256.  Directors — Official  action. 

257.  Directors — Delegation  of  authority. 

258.  Directors — Delegation  of  authority — Illustrative  cases. 

259.  Directors — Action  where  the  mode  is  prescribed. 

260.  Directors — Meetings. 

261.  Directors — Meetings — Stated  and  special. 

262.  Directors — Meetings — Notice. 

263.  Directors — Meetings — Proxies — Quorum. 

264.  Directors — Meetings  outside  of  the  state. 

265.  Directors — Proceedings — Record. 

266.  Directors — Corporate  records  as  evidence. 

267.  Proof  of  the  proceedings  of  the  board  of  directors. 

268.  Notice  to  directors. 

269.  Directors — Admissions  and  declarations. 

270.  Ratification  of  the  acts  of  directors. 

271.  Directors — Removal  from  office. 

272.  Compensation  of  directors. 

273.  Directors — Relation  jto  stockholders — Preliminary. 

274.  Directors  considered  trustees. 

275.  Directors  as  trustees — Illustrative  cases. 

276.  Directors — Dealings  with  corporation. 

277.  Termination  of  fiduciary  relations. 

278.  Directors — Liability  of — Generally. 

279.  Directors — Liability  in  matter  of  contract. 

280.  Directors — Errors  of  judgment. 

281.  Directors — Liability  for  negligence. 

282.  Directors — Fraud  on  third  persons. 


CHAPTER  XIII. 

EXECUTIVE  AND  MINISTERIAL  OFFICERS  AND  AGENTS. 
SECTION 

283.  President — Generally 

284.  President — Incidental  powers  of. 

285.  President — Implied  powers. 

286.  President — Powers  implied  from  grant  of  authority  by  the  board  of 

directors. 

287.  President — Influence  of  usage. 

288.  President — Apparent  authority. 

289.  President — Ratification  of  unauthorized  acts. 


Xiv  TABLE  OF   CONTENTS. 

SECTION 

290.  President — Dealings  with  corporation. 

291.  President — Relation  to  shareholders. 

292.  Treasurer — Generally. 

293.  Treasurer — Duties — Liabilities. 

294.  Treasurer — Care  of  corporate  funds. 

295.  Secretary. 

296.  Managing  agents. 

297.  Superintendent. 

298.  Superintendent — General  conclusion. 

299.  Intermediate  agents. 

300.  Intermediate  agents — Agent  for  one  purpose  not  for  another. 

301.  Intermediate  agents  and  servants  distinguished. 

302.  Conductors. 

303.  Station  agents. 

CHAPTER  XIV. 


DIVIDENDS. 

SECTION 

304.  Rights  of  stockholders — Dividends. 

305.  When  dividend  belongs  to  stockholder — Assignment. 

306.  To  whom  dividend  should  be  paid. 

307.  Rights  of  life  tenant  and  remainderman — Apportionment  of  divi- 

dends. 

308.  Duties  of  life  tenant — Transfers. 

309.  Dividend  is  not  property  of  the  corporation — Rights  of  creditors  and 

stockholders. 

310.  Dividend  is  irrevocable — Actions  concerning. 

311.  Demand — Necessity  and  effect  of. 

312.  Declaration  of  dividend  discretionary  with  directors. 

313.  Power  to  borrow  money  or  declare  stock  dividend. 

314.  Remedies  for  abuse  of  discretion. 

315.  Limitations  upon  authority  to  declare  a  dividend — Suits  to  reclaim. 

316.  Dividends  should  be  paid  out  of  the  profits. 

317.  Enjoining  payment  of  dividends. 

318.  •  Personal  liability  of  directors. 

319.  Dividends  payable  in  scrip. 

320.  Stock  dividends. 

321.  Dividends  payable  without  discrimination. 


CHAPTEE  XV. 

CONSOLIDATION. 
SECTION 

322.    Consolidation  must  be  authorized  by  legislature. 
322a.  What  is  sufficient  authority. 


TABLE  OF  CONTENTS.  XV 

SECTION 

323.  Statutory  mode  must  be  pursued — Collateral  attack. 

324.  Intention  to  consolidate — Difference  between  succession  and  consoli- 

dation. 

325.  Right  of  majority  to  effect  consolidation — When  minority  may  pre- 

vent— Release  of  dissenting  subscribers. 
325a.  Right  to  condemn  shares  of  dissenting  stockholder. 

326.  Statutory  provisions  for  consolidation. 

327.  Rights  of  old  stockholders  and  their  relation  to  the  new  company. 

328.  Remedies  for  old  stockholders. 

329.  Consolidated  company  succeeds  to  rights  and  liabilities  of  the  old 

companies. 

330.  Special  privileges  and  immunities — When  they  pass  to  the  new  com- 

pany. 

331.  When  special  privileges  do  not  pass. 

332.  Duties  and  obligations  of  new  company. 

333.  Liability  of  new  company  on  old  contracts. 

334.  Liability  of  new  company  for  torts — Extent  of  liability — Generally. 

335.  Constituent  companies  are  usually  dissolved — When  not. 
335a.  Duration  of  life  and  franchises  of  consolidated  company. 

336.  Effect  of  consolidation  upon  liens. 

337.  De  facto  consolidation — Estoppel — Liability  of  constituent  companies 

where  consolidation  is  set  aside. 

338.  Effect  of  consolidation  upon  pending  suits. 

339.  Consolidation  with  foreign  corporations. 


CHAPTER  XVI. 

CONTRACTS. 
SECTION 

340.  Contracts — Power  to  make — Generally. 

341.  Contracts — Scope  of  corporate  power. 

342.  General  power  to  contract — Illustrative  instances. 

343.  Power  to  contract — Control  of  by  courts. 

344.  Effect  of  changes  in  charter. 

345.  Contracts — Formal  requisites  of. 

346.  Formal  defects. 

347.  Contracts — Who  may  make — Generally. 

348.  Contracts  by  interested  persons. 

349.  Mode  prescribed  must  be  pursued. 

350.  Contracts — Parties  bound  to  take  notice  of  charter  provisions. 

351.  Contracts — Unauthorized — Notice. 

352.  Estoppel— Generally. 

353.  Ratification  of  unauthorized  acts — Rights  of  the  public  and  of  cred- 

itors. 

354.  Contracts  in  conjunction  with  other  parties. 

355.  Pledge  of  corporate  securities. 


XVI  TABLE   OF   CONTEXTS. 

SECTION 

356.  Contracts  between  connecting  lines — Division  of  fares. 

357.  Contracts  permitting  use  of  part  of  road. 

358.  Contracts  regarding  terminal  facilities. 

359.  Traffic  contracts — Surrender  to  competing  line. 

360.  Contracts  with  municipal  corporations  for  terminal  facilities. 

361.  Use  of  tracks  constructed  under  grant  from  municipal  corporation. 

362.  Contracts  for  location  of  stations. 

363.  Location  of  tracks,  switches  and  the  like. 

364.  Contracts  that  may  be  made  by  railroad  companies — Particular  in- 

stances. 

365.  Pooling  contracts — Generally. 

366.  Pooling  contracts — The  authorities. 

367.  Pooling  contracts — Presumption. 

368.  Contracts — Ultra  vires. 

369.  Contracts — Ultra  vires — General  doctrine. 

370.  Contracts — What  are  ultra  vires — Generally. 

371.  Contracts — Ultra  vires — Estoppel. 

372.  Contracts — Ultra  vires — Executed  and  executory  contracts. 

373.  Contracts — Ultra  vires — Cases  discriminated. 

374.  Contracts — Ultra  vires — Illustrative  instances. 

375.  Contracts — Ultra  vires — Rule  where  statute  prescribes  consequences. 

376.  Contracts — Ultra  vires — Injunction. 

377.  Contracts — Ultra  vires — Denial  of  relief — Laches. 

378.  Contracts — Ultra  vires — Who  may  contest. 

379.  Contracts — Ultra  vires — Creditors. 

380.  Contracts — Ultra  vires — Non-assenting  stockholders. 

381.  Prohibited  contracts — Effect  of  prescribing  penalties. 

382.  Illegal  contracts — Generally. 

383.  Illegal  contracts  and  ultra  vires  contracts  discriminated. 

384.  Classes  of  illegal  contracts. 

385.  Contracts  void  because  against  public  policy. 

386.  Contracts  against  public  policy — Location  of  stations  and  tracks. 

387.  Contracts  void  as  against  public  policy — General  conclusions. 

388.  Contracts  void  as  against  public  policy — Illustrative  cases. 


CHAPTEK  XVII. 

BEAL  ESTATE. 
SECTION 

389.  What  railroad  property  is  real  estate. 

390.  Statutory  authority  requisite. 

391.  Power  to  acquire  real  estate — Implied  power — Generally. 

392.  Implied  power  to  acquire — General  rule. 

393.  Implied  power — Illustrative  instances. 

394.  Power  to  acquire  real  estate — Instances  of  denial  of  power. 

395.  Title  to  real  estate  is  in  the  company. 


TABLE   OF    CONTENTS. 

SECTION 

396.  Title  once  vested  not  divested  because  property   subsequently  be- 

comes unnecessary. 

397.  Effect  of  conveyance  to  corporation  of  land  it  has  no  power  to  hold. 

398.  Right  of  foreign  corporation  to  hold  real  estate. 

399.  The  power  to  acquire  by  grant  broader  than  the  power  to  acquire'by 

condemnation. 

400.  Acquisition  of  the  fee  by  private  grant. 

401.  Acquisition  of  title  by  adverse  possession. 

402.  Possession  of  land — To  what  right  referred. 

403.  Rights  of  company  where  land  is  owned  in  fee. 

404.  Effect  of  conveyance  of  property  the  company  is  not  authorized  to 

acquire. 

405.  Questioning  the  right  to  hold  real  estate. 

406.  Enjoining  purchase  of  real  estate  where  no  power  to  receive  and 

hold. 

407.  Executory  contract  of  purchase  not  enforceable  where  there  is  no 

power  to  hold  the  land. 

408.  Estoppel  of  parties  to  deeds  to  deny  corporate  existence. 

409.  Deed  to  company  not  in  existence. 

410.  Formal  execution  of  conveyances  and  agreements  relating  to  real 

estate. 

411.  Contracts  under  corporate  seal — Effect  of  evidence. 

412.  Acceptance  of  deed. 

413.  Distinction  between  a  donation  of  lands  and  a  sale. 

414.  Deeds  of  company — By  whom  executed. 

415.  Construction  of  deeds  to  railroad  companies — Generally. 

416.  Deeds  to  railroad  companies — Construction  of  conditions. 

417.  Grants — Beneficial — Presumption  of  acceptance. 

418.  Incidents  pass  with  principal  thing  granted. 

419.  Effect  of  designating  in  the  deed  the  purpose  for  which  the  land  is 

granted. 

420.  Covenants  that  run  with  the  land. 

421.  Merger  of  preliminary  agreement  in  deed. 

422.  Bonds  for  conveyance — Specific  performance. 

423.  Presumption  that  there  is  power  to  hold  the  land. 

424.  Power  to  convey  real  estate. 

425.  Dedication  of  land  for  use  as  a  highway. 

426.  Disposition  of  property  corporation  has  no  power  to  receive  and 

hold — Escheat. 

CHAPTER  XVIII. 

LEASES. 

SECTION 

427.  Power  to  lease — Generally. 

428.  What  the  legislature  may  prescribe. 

429.  Power  to  lease  not  an  implied  one — Legislative  authority  requisite. 

ELL.  RAILROADS — ii 


Xviii  TABLE   OF    CONTENTS. 

SECTION 

430.  The  power  to  lease — General  rule. 

431.  The  foundation  of  the  rule. 

432.  Power  to  accept  a  lease. 

433.  Statutes  asserted  to  confer  power  to  lease  are  not  aided  by  construc- 

tion. 

434.  Statutes  strictly  construed — Illustrative  Instances. 

435.  Statutes — Construction  of. 

436.  What  is  included  in  the  authority  to  execute  a  lease. 

437.  Scope  of  authority  to  lease. 

438.  Statutes  conferring  power  to  lease  must  be  strictly  followed. 

439.  Consent  of  stockholders — Statutory  requirement  must  be  obeyed. 

440.  Concurrence  of  stockholders  necessary. 

441.  What  number  of  stockholders  must  assent  to  the  lease. 

442.  Consent  of  stockholders — Waiver  of  objections. 

443.  Lease  where  parties  are  corporations  of  different  states. 

444.  Authority  to  execute  lease  has  no  extraterritorial  effect. 

445.  Rights  of  foreign  lessors. 

446.  Leases  to  connecting-  lines. 

447.  Lease  to  competing  lines — Effect  of  statutes  prohibiting. 

448.  Effect  of  executing  unauthorized  lease. 

449.  Lease — Construction. 

450.  Lease — Dependent  and  independent  contracts. 

451.  Contract  to  permit  use  of  track  not  necessarily  a  lease. 

452.  Traffic  contract  not  valid  if  it  is  in  effect  a  lease. 

453.  Contracts  granting  right  to  use — Effect  and  construction  of. 

454.  Part  performance — Effect  of. 

455.  Duration  of  a  lease. 

456.  Effect  of  lease  on  taxation. 

457.  Public  duties  of  lessee  under  an  unauthorized  lease — Mandamus. 

458.  Authorized  lease — Duty  of  lessee  to  operate  the  road — Mandamus. 

459.  Lessee  not  liable  for  wrongs  committed  prior  to  the  execution  of  the 

lease. 

460.  Effect  of  a  lease  upon  rights  of  creditors. 

461.  Authorized  lease — Rights  and  duties  to  which  lessee  company  suc- 

ceeds. 

462.  Contract  obligation  of  lessor — Lessee  not  liable  thereon. 

463.  Recovery  of  rent  under  unauthorized  lease. 

464.  Improvements  of  road  by  lessee  operating  under  an  unauthorized 

lease. 

465.  Receiver's  power  to  lease. 

466.  Unauthorized  lease — Liability  of  lessor — Generally. 

467.  Authorized  lease — Liability  of  lessor  for  injuries  caused  by  negli- 

gence of  lessee — Cases  holding  lessor  liable.  <, 

468.  Authorized  lease — Liability  of  lessor  for  negligence  of  lessee  in  op- 

erating the  road — Authorities. 

469.  Authorized  lease — Liability  of  lessor  for  negligence  of  lessee  in  op- 

erating the  road — Views  of  the  authors. 

470.  Control  reserved  by  lessor. 


TABLE   OF   CONTENTS.  XIX 

SECTION 

471.  Liability  of  lessee  under  authorized  lease — Illustrative  cases. 

472.  Unauthorized  lease — Liability  of  lessor  to  employes  of  lessee — Gen- 

erally. 

473.  Unauthorized  lease — Liability  of  lessor — General  rule. 

474.  Liability  of  lessee  for  injuries  resulting  from  negligence  in  operat- 

ing the  road. 

475.  Contracts  of  the  lessee. 

476.  Joint  liability. 

477.  Liability  of  company  where  it  permits  another  company  to  use  track 

in  common  with  itself. 

478.  Fraudulent  leases. 

479.  Unauthorized  lease — Injunction. 


CHAPTER  XIX. 

EAILEOAD    SECURITIES. 

SECTION 

480.  Power  of  railroad  companies  to  issue  notes  and  bonds. 

481.  Power  to  guaranty  bonds. 

482.  Income  bonds. 

483.  Convertible  bonds. 

484.  Negotiability' of  bonds — Bona  fide  purchasers. 

485.  Form  and  manner  of  issuing  bonds — Effect  of  irregularities. 

486.  Interest  coupons. 

487.  Payment  of  bonds  and  interest. 

488.  No  power  to  mortgage  without  legislative  authority. 

489.  Legislative  authority  to  mortgage. 

490.  Distinction  between  authority  to  mortgage  franchises  and  authority 

to  mortgage  property. 

491.  Who  may  execute  the  mortgage. 

492.  Ratification  by  stockholders  of  unauthorized  or  improperly  executed 

mortgage. 

493.  When  ultra  vires  mortgage  may  be  made  effective. 

494.  Recording  mortgages. 

495.  Generally  as  to  what  property  is  covered  by  the  mortgage. 

496.  What  is  covered  by  a  mortgage  of  the  undertaking. 

497.  Mortgage  of  after-acquired  property. 

497a.  After-acquired  property — When  yen  attaches — What  it  includes. 

498.  Fixtures — Rolling  stock. 

499.  Reserved  power  to  create  prior  lien  or  dispose  of  unnecessary  prop- 

erty. 

500.  Priority  of  mortgages. 

501.  Trust  deeds. 

502.  Equitable  and  defective  mortgages. 

503.  Statutory  mortgages. 

504.  Debentures. 


XX  TABLE   OF    CONTENTS. 


CHAPTER  XX. 


FORECLOSURE. 

SECTION 

505.  Foreclosure — Default. 

506.  Option  to  declare  whole  debt  due — Election. 

507.  Foreclosure  for  default  in  payment  of  interest. 

508.  Parties  to  foreclosure  suit — Plaintiffs. 

509.  Bondholders  as  plaintiffs. 

510.  Pledgees,  assignees  and  others  as  plaintiffs. 

511.  Defendants  in  foreclosure  suits — Generally. 

512.  When  other  lienholders  should  be  made  defendants. 

513.  Defenses  to  foreclosure  suit. 

514.  Effect  of  provisions  giving  trustees  the  right  to  take  possession  and 

sell. 

515.  The  decree. 

516.  Consent  decree. 

517.  Deficiency  decree. 

518.  Final  and  appealable  decrees. 


CHAPTER  XXI. 

SALE   AND   REORGANIZATION. 
SECTION 

519.  Railroad    company   cannot   sell    franchise    and    necessary   property 

without  statutory  authority. 

520.  Execution  sales. 

521.  Foreclosure  sales — Authority — Purchasers. 

522.  Sale  on  default  in  payment  of  interest — Sale  of  road  as  an  entirety. 

523.  Sale  of  consolidated  road — Sale  by  receiver  pending  foreclosure. 

524.  Discretion  of  trustees  and  officers  as  to  time  and  manner  of  sale. 

525.  Effect  of  sale — Purchaser's  title. 

525a.  What  passes  to  purchaser  at  foreclosure  sale. 

526.  When  purchaser  takes  title  free  from  liabilities  and  liens. 

527.  Disposition  of  proceeds  of  sale. 

527a.  Disposition  of  proceeds — Purchaser  not  bound  to  see  that  they  are 
properly  applied. 

528.  Preferred  claims — Six  months'  rule. 

529.  Setting  sale  aside. 

530.  Redemption. 

531.  Reorganization  by  purchasers  at  sale — Power  of  legislature  to  pro- 

vide for. 
531a.  Reorganization  through  purchasing  committee. 

532.  Statutory  reorganization — Liability  of  new  corporation. 


TABLE  OF  CONTENTS.  XXI 

SECTION 

533.  Reorganization  by  agreement — Rights  of  minority. 

534.  Rights  and  obligations  of  the  parties — Laches  and  estoppel. 

535.  Fraud  in  the  sale  or  reorganization. 

536.  Reorganization  by  the  courts. 


CHAPTER  XXII. 


RECEIVERS. 

SECTION 

537.  Receivers  generally. 

538.  Jurisdiction  of  courts  of  equity — Statutory  provisions. 

539.  Jurisdiction  is  sparingly  exercised — Purpose  of  appointment. 

540.  General  rules  as  to  when  receivers  of  railroads  will  be  appointed. 

541.  Receivers  will  not  be  appointed  merely  because  parties  consent. 

542.  Extent  to  which  jurisdiction  has  been  exercised. 

543.  Insolvency  as  ground  for  appointment  of  receiver. 

544.  When  insolvency  is  sufficient  without  default. 

545.  Default  in  payment  of  indebtedness  as  ground  for  appointment. 

546.  Appointment  in  foreclosure  proceedings. 

547.  Other  grounds  for  appointment. 

548.  Appointment  upon  application  of  unsecured  creditor. 

549.  Appointment  upon  application  of  secured  creditor. 

550.  Appointment  upon  application  of  stockholders. 

551.  Appointment  upon  application  of  corporation. 

552.  What  court  may  appoint. 

553.  Court  first  obtaining  jurisdiction  retains  it — Conflict  of  jurisdiction. 

554.  Extraterritorial  jurisdiction. 

555.  Ancillary  appointment — Comity. 

556.  Procedure — Ex  parte  application. 

557.  Parties  to  proceedings  for  appointment  of  receiver. 

558.  Appointment  upon  motion  or  petition  and  notice — Affidavits. 

559.  Who  may  appoint — Appointment  in  vacation. 

560.  Suit  must  generally  be  pending. 

561.  Who  may  be  appointed  receiver. 

562.  Order  appointing  receiver. 

563.  Effect  of  appointment. 

564.  Collateral  attack  on  appointment. 

565.  Title  and  possession  of  receiver.( 

566.  Authority,  rights  and  duties  of  receiver — Control  by  court. 

567.  Contracts  of  receiver. 

568.  Suits  by  receivers — Authority  to  sue. 

569.  When  receiver  may  maintain  suit — Defenses  to  receiver's  suit. 

570.  Right  of  receiver  to  sue  in  other  jurisdictions — Comity. 

571.  Suits  against  receivers — Leave  to  sue  must  be  obtained. 

572.  Effect  of  failure  to  obtain  leave  to  sue. 

573.  Effect  of  recent  act  of  congress. 


XX11  TABLE  OF   CONTEXTS. 

SECTION 

574.  Rule  where  suit  has  been  commenced  before  appointment  of  re- 

ceiver. 

575.  Protection  of  receiver  by  the  court. 

576.  Liability  of  receivers — Generally. 

577.  Liability  for  torts. 

578.  Receiver  is  bound  to  perform  public  duties — Mandamus. 

579.  Liability  on  contracts. 

580.  Liability  on  claims  arising  from  operation  of  the  road. 

581.  Liability  of  corporation. 

582.  Receivers  of  leased  lines. 

583.  Receiver's  accounts. 

584.  Compensation  of  receiver. 

585.  Attorney's  fees. 

586.  Removal  and  discharge. 

587.  Effect  of  removal  or  discharge. 


CHAPTEE  XXIII. 

RECEIVER'S  CERTIFICATES. 
SECTION 

588.  Definition  and  nature  of  receiver's  certificates. 

589.  Power  of  courts  to  authorize. 

590.  Purposes  for  which  receiver's  certificates  may  be  issued — Extent  of 

power. 

591.  Order  giving  authority  to  issue. 

592.  Lien  created  by  receiver's  certificates. 

593.  Statutory  provisions  as  to  lien. 

594.  Negotiability  of  receiver's  certificates. 

595.  Rights  of  holders  of  receiver's  certificates. 

596.  Who  may  question  validity  of  receiver's  certificates. 

597.  Payment  and  redemption  of  certificates. 


CHAPTER  XXIV. 

INSOLVENCY   AND   DISSOLUTION. 

SECTION 

598.  Scope  of  the  chapter. 

599.  Railroad  company  is  subject  to  state  insolvency  law. 

600.  Trust  fund  doctrine. 

601.  When  a  corporation  is  deemed  insolvent — Effect  of  insolvency. 

602.  Assignments  by  corporations. 

603.  Preferences  by  corporations. 

604.  Preference  of  stockholders  and  officers. 


TABLE  OP  CONTENTS. 

SECTION 

605.  Statutory  preference  of  employes. 

606.  What  constitutes  a  dissolution. 

607.  Judicial  determination  of  dissolution. 

608.  Voluntary  dissolution — Surrender  of  charter. 

609.  Proceedings  to  dissolve. 

610.  Dissolution  in  case  of  consolidated  company. 

611.  Effect  of  dissolution. 

612.  Corporation  may  have  a  qualified  existence  after  dissolution. 

613.  Disposition  of  property  on  dissolution. 

614.  Rights  of  creditors  upon  dissolution. 


CHAPTEK  XXY. 

ACTIONS  BY  AND  AGAINST   CORPORATIONS. 

SECTION 

615.  Generally — Suits  by  corporations. 

616.  When  incorporation  must  be  alleged. 

617.  Actions  and  suits  against  corporations. 

618.  Power  of  corporation   over   litigation — Power  to   compromise  and 

arbitrate. 

619.  Estoppel  to  deny  corporate  existence. 

620.  When  stockholders  may  sue. 

621.  Service  of  process. 

621a.  Resident  agent — Rule  in  federal  courts. 

621b.  Agent  need  not  reside  in  state — Agent  casually  in  state. 

622.  Return  of  service. 

623.  Venue  of  action  against  corporations. 

624.  Attachment  and  garnishment. 

625.  Duty  and  liability  of  garnishee. 

626.  What  may  be  reached  in  garnishment. 

627.  Garnishment  of  employes'  wages. 

628.  Injunction — Generally. 

629.  Injunction  where  the  company  seeks  to  take  or  condemn  lands. 

630.  Injunction  where  railroad  is  laid  in  a  street. 

631.  Enjoining  a  nuisance. 

632.  Injunction  at  suit  of  the  company. 

633.  Enjoining  strikers. 

634.  Injunction  at  suit  of  stockholder1. 

635.  Mandatory  injunction — English  cases. 

636.  Rule  in  the  United  States — Illustrative  cases. 

637.  Mandamus — Generally. 

638.  Mandamus  to  compel  completion  and  operation  of  road. 

639.  Mandamus  to  compel  restoration  of  highway  and  construction  of 

crossings  or  viaducts. 

640.  Mandamus  to  compel  carriage  of  freight. 


TABLE  OF  CONTENTS. 

SECTION 

641.  Mandamus  to  compel  the  company  to  maintain  stations  and  furnish 

increased  facilities. 

642.  When  mandamus  will  not  lie. 

643.  Who  may  be  relator. 

644.  Quo  warranto. 


CHAPTER  XXVI. 

REMOVAL   OF    CAUSES. 

SECTION 

645.  When  removal  is  authorized — Statutes  now  in  force. 

646.  What  are  suits  of  a  civil  nature  under  the  removal  acts. 

647.  Parties. 

648.  Rights  of  removal  as  affected  by  amount  in  controversy. 

649.  Diverse  citizenship  as  a  ground  for  removal. 
.650.  Separable  controversy. 

650a.  Action  against  company  and  employe. 

651.  Prejudice  or  local  influence  as  a  ground  for  removal. 

652.  Removal  where  federal  question  is  involved. 

653.  Time  and  manner  of  making  application  for  removal. 

654.  Effect  of  application  on  jurisdiction  of  state  and  federal  court. 

655.  Remanding  and  dismissing  cause. 
655a.  Remanding — Amendment — Waiver. 

656.  Pleading  and  practice  in  federal  court  after  removal. 
656a.  Recent  cases — Miscellaneous. 


CHAPTER  I. 

DEFINITIONS. 

Sec.  Sec. 

1.    Railroad    companies — Definition    6.    Street  railways. 

and  characteristics.  6a.  Street  railways  further  consid- 

la.  Usually  but  not  always  corpora-  ered. 

tions — Other  characteristics.        7.     Elevated  railroads. 
.2.    Dual  nature  of  railroad  corpora-    8.     Electric  railroads. 

tions.  9.    Cable  railroads. 

"Railroad"  or  "railway."  9a.  Interurban  railroads. 

What  are  railroads. 
"Railroad    track"  —  "Right    of 
way"  —  "Road-bed"    and 
"roadway." 

§  1.  Railroad  companies — Definition  and  characteristics. — Railroad 
•companies  may  be  defined  or  described  in  general  as  companies  or  asso- 
ciations organized  for  the  purpose  of  constructing,  maintaining  and 
operating  railroads.  The  general  railroad  statutes  usually  provide  for 
the  incorporation  of  campanies  for  all  of  these  purposes,  and  railroad 
companies  are  usually  organized  for  all  of  these  purposes,  but  a  com- 
pany engaged  in  any  one  of  these  things  may  be  a  railroad  company. 
Railroad  companies  are  frequently  engaged  in  operating  railroads  as 
lessees  or  the  like,  although  they  had  nothing  to  do  with  the  construc- 
tion of  the  roads.  So,  while  mere  construction  companies  are  not 
railroad  companies,  a  construction  company  may  be  as  to  certain 
matters  within  a  statute  or  rule  of  law  applicable  to  railroad  com- 
panies. Thus,  a  company  running  gravel  trains  in  the  construction  of 
a  railroad  has  been  held  to  be  "operating  a  railroad"  within  the  mean- 
ing of  a  certain  statute.1  So,  a  trust  company,  operating  a  railroad 

1McKnight  v.  Iowa,  Ac.  R.  Co.  43  218;  Roe  v.  Winston,  86  Minn.  77, 
Iowa  406.  See,  also,  Coughlin  v.  90  N.  W.  122.  But  compare  Beeson 
Cambridge,  166  Mass.  268,  44  N.  E.  v.  Busenbark,  44  Kans.  669,  25  Pac. 

1 


1] 


DEFINITIONS. 


for  the  benefit  of  the  bondholders,  has  been  held  liable  for  killing 
stock  under  a  statute  applying  in  terms  to  "railroad  corporations."2 
And  the  interest  coupons  of  a  corporation  authorized  to  condemn 
land  and  to  construct  and  operate  a  railroad  in  addition  to  carrying  on 
a  mining  and  manufacturing  business  have  been  held  taxable  under 
an  act  of  congress  providing  for  the  taxation  of  the  interest  coupons 
of  railroads.3  But  it  has  been  held,  on  the  other  hand,  that  the  fact 
that  the  charter  of  a  lumber  company  authorized  it  to  build  a  railroad 
as  an  incident  to  its  business  did  not  make  It  a  railroad  company 
within  a  statute  making  railroad  companies  liable  for  injuries  to 
employes  ;*  and  that  contractors  engaged  in  constructing  a  railroad  are 


48,  10  L.  R.  A.  839;  McKivergan  v. 
Alexander,  &c.  Co.  124  Wis.  60,  102 
N.  W.  332;  Bradford,  &c.  Co.  v.  Hel- 
fin  (Miss.),  42  So.  174.  A  railroad 
company  may  construct  its  own 
road,  under  most  of  the  statutes,  at 
least,  but  as  a  matter  of  fact  the 
work  is  usually  done  in  whole  or  in 
part  by  contractors  or  construction 
companies  not  in  a  strict  sense  rail- 
road companies. 

2  Union  Trust  Co.  v.   Kendall,  20 
Kans.  515.   See,  also,  Solomon  R.  Co. 
v.  Jones,  30  Kans.  601,  2  Pac.  657. 

3  Kentucky,  &c.  Co.  v.  Slack,  100 
U.   S.  648.    See  also,  Randolph  Co. 
v.  Post,  93  U.  S.  502;   International 
Coal  Co.  v.  Cape  Breton  County,  22 
Canada  S.  C.  305;  State  v.  Eleventh 
Judicial  Court,  54  Minn.  34,  55  N. 
W.  816.     In  the  last  case  just  cited 
it  is  said  that  "it  can  make  no  dif- 
ference, as  respects  the  applicability 
of  the  statute,  whether  the  railroad 
is  three  miles  in  extent  or  three 
hundred." 

4  Ellington  v.  Beaver  Dam  Lum- 
ber Co.,  93  Ga.  53,  19  S.  E.  21.   See, 
also,  McKivergan  v.  Alexander,  &c. 
Co.  124  Wis.  60,  102  N.  W.  332  (dis- 
approving Roe  v.  Winston,  86  Minn. 
77,  90  N.  W.  122,  in  which  the  su- 
preme court  of  Minnesota  gave  the 
statute  of  Wisconsin  a  different  con- 


struction) ;  Beeson  v.  Busenbark, 
44  Kans.  669,  25  Pac.  48,  10  L.  R.  A. 
839.  So,  it  has  been  held  that  the 
North  Carolina  fellow-servant  act 
giving  the  servant  of  any  railroad 
company  operating  in  the  state 
a  right  of  action  against  the  com- 
pany for  injuries  sustained  through 
the  negligence  of  a  fellow  serv- 
ant, is  not  applicable  where  an 
injury  is  sustained  by  a  servant  as- 
sisting in  the  construction  of  a  rail- 
road at  a  point  five  or  six  miles 
from  the  completed  track,  and  still 
further  from  the  track  on  which 
trains  were  being  operated.  Nich- 
olson v.  Transylvania  R.  Co.  138  N. 
Car.  516,  51  S.  E.  40. 

But  it  has  been  held  in  Texas  that 
the  word  "railroad,"  as  used  in  the 
Texas  statute  (Sayles*  Ann.  Civ.  St. 
1897,  art.  4560f),  making  every  cor- 
poration operating  a  railroad  liable 
for  damages  to  its  servants  by  neg- 
ligence of  other  servants,  is  used 
in  the  same  sense  as  in  art.  3017, 
making  the  proprietor  of  any  rail- 
road liable  for  death  caused  by  its 
negligence,  and  includes  a  logging 
railroad  operated  by  a  corporation 
solely  for  the  purpose  of  carrying 
its  own  lumber  from  the  woods  to 
its  sawmill,  and  from  the  sawmill 
to  a  railroad  station  near  by.  L/od- 


RAILROAD   COMPANIES. 


[§    3 


not  within  the  meaning  of  a  statute  requiring  "railroad  companies" 
to  sound  a  whistle.5  Again,  railroad  companies  often  construct  and 
own,  or  own  and  maintain,  railroads  without  operating  them.  Author- 
ity is  often,  though  not  always,  given  to  lease  the  road  to  some  other 
company  to  operate  or  maintain  and  operate.  Originally,  it  seems, 
when  railroads  as  commercial  roads  first  came  into  heing  they  were 
treated  largely  as  canals  or  highways  on  which  cars  or  vehicles  were 
to  be  run  by  others  for  a  fixed  toll  or  charge,  and  the  idea  was  that 
those  who  so  used  the  road  would  furnish  and  operate  their  own 
vehicles.  In  other  words,  the  railroad  companies,  as  originally  in- 
tended, were,  primarily  at  least,  the  companies  that  constructed  and 
owned  the  roads  rather  than  the  companies  or  persons  that  operated 
and  carried  on  the  transportation  business.6  As  already  intimated, 


wick  Lumber  Co.  v.  Taylor  (Tex.), 
87  S.  W.  358,  citing  text.  See  also 
Hemphill  v.  Buck  Creek,  &c.  Co. 
(N.  Car.)  54  S.  E.  420;  Schus  v. 
Powers-Simpson  Co.  85  Minn.  447, 
89  N.  W.  68,  69  L.  R.  A.  887;  Roe  v. 
Winston,  86  Minn.  77,  90  N.  W.  122. 
For  further  consideration  of  this 
subject  as  to  employer's  liability 
statutes,  see  Vol.  Ill,  §§  1338,  1341. 

5  Griggs  v.  Houston,  104  U.  S.  553. 
It  has  also  been  held  that  a  "union 
depot  and  railroad  company"  is  not 
an  ordinary  railroad  company  and 
that  it  need  not  be  incorporated  un- 
der the  statute  providing  for  the  in- 
corporation of  railroad  companies, 
but  might  be  incorporated  under  the 
general  law  providing  for  the  incor- 
poration of  ordinary  private  corpo- 
rations. People  v.  Cheeseman,  7 
Colo.  376,  3  Pac.  716,  16  Am.  &  Eng. 
R.  Cas.  400.  But  see  Union  Depot 
Co.  v.  Morton,  83  Mich.  265,  47  N. 
W.  228.  See  also  Detroit,  &c.  Co.  v.' 
Detroit,  88  Mich.  347,  50  N.  W.  302; 
State  v.  St.  Paul,  &c.  Co.,  42  Minn. 
142,  43  N.  W.  840,  6  L.  R.  A.  234; 
Union  Depot,  &c.  Co.  v.  Chicago,  &c. 
R.  Co.  113  Mo.  213,  20  S.  W.  792. 

•Thus,  Simon  Sterne  says,  in  3 
Cyc.  of  Political  Science,  etc.  (edited 


by  John  Taylor)  500:  "It  was  sup- 
posed that,  like  the  canal,  the  rail- 
way would  be  built  by  one  class  of 
capitalists,  but  that  also,  in  the 
same  manner  as  over  canals,  the 
traffic  over  the  railway  would  be 
carried  on,  by  another  class  of  indi- 
viduals or  corporations,  of  forward- 
ers or  common  carriers,  who,  under 
regulations  and  charges  for  toll  es- 
tablished by  the  railroad  company, 
would  do  the  transportation  busi- 
ness over  the  line."  Thus,  in  the 
earliest  charters  in  this  country,  as, 
for  instance,  in  that  of  the  Ithaca, 
&c.  R.  Co.  in  1827,  the  following  pro- 
vision is  found:  "All  persons  pay- 
ing the  toll  aforesaid  may,  with  suit- 
able and  proper  carriages,  use  and 
travel  upon  said  railroad,  subject  to 
such  rules  and  regulations  as  the 
said  corporations  are  authorized  to 
make."  This  theory  and  the  history 
of  railroads  practically  controlled 
the  majority  decision  of  the  supreme 
court  of  the  United  States  in  the  im- 
portant case  of  Lake  Superior,  &c. 
R.  Co.  v.  United  States,  93  U.  S.  442. 
The  opinion  in  this  case  contains  an 
interesting  discussion  of  the  nature, 
history  and  development  of  rail- 
roads. 


§  la] 


DEFINITIONS. 


however,  most  of  the  special  charters,  and  the  general  laws  under 
which  railroad  companies  are  now  almost  universally  required  to  be 
incorporated,  usually  grant  the  power  in  express  terms  to  locate,  con- 
struct and  maintain  the  railroad,  with  proper  equipment,  and  to  oper- 
ate it  and  transport  goods  and  passengers.  Indeed,  the  great  body  of 
"railroad  law"  now  has  to  do  very  largely  with  such  companies  as 
common  carriers  and  with  rights  and  liabilities  growing  out  of  the 
operation  of  the  road. 

§  la.  Usually  but  not  always  corporations — Other  characteris- 
tics.7— An  individual  or  a  partnership  may  own  and  operate  a  rail- 
road,8 except,  perhaps,  where  the  statute  requires  that  all  railroads 
shall  be  owned  or  operated  by  corporations.9  And  it  seems  that  an 
individual,  as  well  as  a  corporation,  may,  with  legislative  authority, 


7  The  greater  part  of  this  section 
was  part  of  §  1  in  the  original  edi- 
dition. 

8  Stewart's  Appeal,  56  Pa.  St.  413; 
Bank  of  Middlebury  v.  Edgerton,  30 
Vt.   182;    Henderson  v.  Ogden  City 
R.  Co.  7  Utah  199,  26  Pac.  286,  46 
Am.   &  Eng.  R.   Cas.   95;    David  v. 
Kingscote,  6  M.  &  W.  174;  Kerr,  In 
re,  42  Barb.   (N.  Y.)  119.     See  also 
Budd  v.  Multnomah,  &c.  Co.  15  Ore. 
404,  15  Pac.  654;    People  v.  Brook- 
lyn, &c.  Co.  89  N.  Y.  75;   Southern 
Pac.  R.  Co.  v.  Orton,  32  Fed.  457; 
Lawrence  v.  Morgan's,  &c.  R.  Co.  39 
La.  Ann.   427,  2   So.  69,  4  Am.  St. 
265.    If  he  holds  himself  out  to  the 
public  as  a  common  carrier  he  will 
be  subject,  it  seems,  to  the  law  gov- 
erning common  carriers.     Bank  of 
Middlebury  v.  Edgerton,  30  Vt.  182. 

8  In  the  case  of  the  Commonwealth 
v.  Vrooman,  164  Pa.  St.  306,  30  Atl. 
217,  25  L.  R.  A.  250,  44  Am.  St.  603, 
it  was  held  that  the  legislature 
might  rightfully  require  all  persons 
desiring  to  conduct  the  business  of 
insurance  "to  obtain  a  charter  of 
incorporation."  See,  also,  Jack  v. 
Williams,  113  Fed.  823.  If  the  doc- 
trine of  the  case  from  which  we 


have  quoted  be  sound,  which  we  con- 
fess we  doubt,  then  there  can  be  no 
doubt  that  the  legislature  may  re- 
quire that  the  business  of  owning 
and  operating  railroads  be  conduct- 
ed by  corporations.  The  business  of 
operating  a  railroad  Is  unquestion- 
ably "affected  with  a  public  inter- 
est," and  there  Is  reason  for  the 
conclusion  that  where  an  associa- 
tion undertakes  to  conduct  such 
business  the  legislature  may  require 
it  to  be  incorporated.  See,  also, 
Wilder  v.  Aurora,  &c.  Co.  216  111. 
493,  75  N.  E.  194,  203,  and  cases 
there  cited.  But  the  mere  fact  that 
the  right  to  construct  and  operate 
railroads  and  to  condemn  and  ob- 
tain the  right  of  way  therefor  is 
given  by  statute  to  railroad  corpora- 
tions does  not  prevent  an  individual 
from  constructing  and  operating  a- 
railroad  on  his  own  land  or  the  land 
of  another  from  whom  he  has  pur- 
chased the  right  of  way.  Moran  v. 
Ross,  79  Cal.  159,  21  Pac.  457,  39 
Am.  &  Eng.  R.  Cas.  1.  See,  also,  Wil- 
son v.  Cunningham,  3  Cal.  241,  58 
Am.  Dec.  407;  Hall  v.  Brown,  54  N. 
H.  495. 


5  USUALLY  BUT  NOT  ALWAYS  CORPORATIONS.        [§  la 

exercise  the  right  of  eminent  domain.10  If  he  does  undertake  to  main- 
tain and  operate  a  railroad  without  legislative  authority  it  will  be  at 
the  risk  of  being  held  liable  for  maintaining  a  nuisance  or  for  injuries 
caused  by  the  operation  of  the  road,11  and  he  will,  at  least  in  the  ab- 
sence of  legislative  authority,  have  none  of  the  special  powers  and 
immunities  granted  only  to  corporations.  Although,  as  we  have  seen, 
an  individual  may  construct  and  operate  a  railroad,  yet,  with  few 
exceptions,  railroad  companies  are  corporations  created  either  by 
special  charter  or  organized  under  general  laws.  They  are  now  usually 
organized  under  general  laws.  They  are  given  certain  prerogative 
franchises  and  privileges  for  public  purposes,  in  return  for  which  the 
state  retains  a  right  of  supervision  and  control  in  excess  of  that  ex- 
ercised over  purely  private  corporations.  In  the  very  grant  of  the 
franchise  there  is,  in  effect,  an  implied  condition  that  it  shall  be  held 
as  a  public  or  quasi  public  trust.12  Although  the  stockholders  may 
derive  a  private  benefit  and  gain  therefrom,  yet  railroads  are  for  the 
use  of  the  public,  and  municipal  aid  may  be  authorized  and  granted 
to  such  corporations  for  the  purpose  of  constructing  their  roads  as  in 
the  case  of  any  other  public  work.13  This  outline  will  serve  to  show 
in  a  general  way  the  peculiar  nature  of  railroad  corporations,  but  their 
legal  status  will  be  more  fully  considered  in  a  subsequent  chapter. 

10Moran  v.  Ross,  79  Cal.  159,  21        "Messenger    v.    Pennsylvania    R. 

Pac.  547,  39  Am.  &  Eng.  R.  Gas.  1;  Co.  36  N.  J.  L.  407,  13  Am.  R.  457, 

Coe  v.  Columbus,  &c.  R.  Co.  10  Ohio  463,  affirmed  in  37  N.  J.  L.  531,  18 

St    372,    75    Am.    Dec.    518,    529;  Am.  R.  754,  759.   See,  also,  National 

Brown  v.   Beatty,  34   Miss.   227,   69  Docks  R.  Co.  v.  Railroad  Co.  32  N. 

Am.    Dec.    389.    But   an   individual  J.  Eq.  755;  State  v.  Dodge  City,  &c. 

may   not  take   by  transfer   from  a  R.  Co.  53  Kans.  377,  42  Am.  St  295; 

railroad     corporation     the     charter  Logan  v.  North  Carolina  R.  Co.  116 

right  to  build  a  railroad  and  to  in-  N.  Car.  940,  945,  21  S.  E.  959;  Moore 

vade  the  premises  of  others.    Stew-  v.  Columbia,  &c.  R.  Co.  38  S.  Car.  1, 

art's  Appeal,  56   Pa.   St.   413.    See,  16  S.  E.  781.  But  see  Pierce  v.  Com- 

also,  Finney  v.   Somerville,  80   Pa.  monwealth,  104  Pa.  St.  155. 
St.  59;  Barker  v.  Hartman  Steel  Co.        "Northern  Pac.  R.  Co.  v.  Roberts, 

6  Pa.  Co.  Ct.  183.  42   Fed.  734,  31  Am.  &  Eng.  Corp. 
uRegina  v.  Train,  3  F.  &  F.  22;-  Cas.     642,     and     authorities    there 

Wilson  v.  Cunningham,  3  Cal.  241,  cited;  Rome  v.  Rome,  18  N.  Y.  38; 
58  Am.  Dec.  407.  See,  also,  Lodwick  People  v.  Mitchell,  35  N.  Y.  551; 
Lumber  Co.  v.  Taylor  (Tex.),  87  S.  Chicago,  &c.  R.  Co.  v.  Smith,  62  111. 
W.  358,  360,  citing  text.  But  com-  268,  14  Am.  R.  99;  Davidson  v. 
pare  Austin  v.  Augusta,  &c.  R.  Co.  County  Commissioners,  18  Minn. 
108  Ga.  671,  34  S.  E.  852,  47  L.  R.  A.  482;  Leavenworth  County  v.  Miller, 
755,  764,  where  the  text  is  criticized,  7  Kans.  479,  12  Am.  R.  425;  Sharp- 
but  seems  to  be  misunderstood.  less  v.  Mayer,  21  Pa.  St.  147,  59  Am. 


DEFINITIONS. 


6 


§  2.  Dual  nature  of  railroad  corporations. — A  railroad  company 
or  corporation  is  usually  regarded  as  a  private  corporation,  and  justly 
so,  as  contrasted  with  a  strictly  public  corporation,  such  as  a  city, 
county,  township  or  the  like  governmental  subdivision,  but  it  is  not 
a  private  corporation  in  the  strict  sense  that  an  ordinary  business 
corporation  is,  for  it  is  charged  with  duties  of  a  public  nature  that 
distinguish  it  from  a  purely  and  strictly  private  corporation.  In  many 
respects  a  railroad  corporation  is  a  private  corporation  in  all  that  the 
term  implies,  but  in  other  respects  it  differs  from  a  corporation 
upon  which  no  public  duties  are  imposed.  The  property  of  a  railroad 
company  used  for  the  transportation  of  passengers  and  articles  of  com- 
merce is  devoted  to  a  public  use.  The  doctrine  of  Chief  Justice  Hale 
that,  "when  private  property  is  affected  with  a  public  interest  it  ceases 
to  be  juris  privati  only,"  applies  to  a  railroad  corporation.14  It  is  not 


Dec.  759,  and  note;  Walker  v.  Cin- 
cinnati, 21  Ohio  St.  14,  8  Am.  R. 
24;  Gelpcke  v.  Dubuque,  1  Wall. 
(U.  S.)  175;  Pine  Grove  Tp.  v.  Tal- 
cott,  19  Wall.  (U.  S.)  666;  Lafayette, 
&c.  R.  Co.  v.  Geiger,  34  Ind.  185; 
Brocaw  v.  Board,  73  Ind.  543;  Pitts- 
burgh, &c.  R.  Co.  v.  Harden,  137  Ind. 
486,  37  N.  E.  324,  15  Am.  &  Eng. 
Ency.  of  Law  1242;  2  Beach  Pub. 
Corp.,  §  896.  But  see  People  v.  Sa- 
lem, 20  Mich.  452,  4  Am.  R.  400;  El- 
lis v.  Northern  Pac.  R.  Co.  77  Wis. 
114,  31  Am.  &  Eng.  Corp.  Cas.  661; 
Merrill  v.  Smith  Co.  89  Tex.  529,  36 
S.  W.  56.  See,  also,  Brown  v.  Chi- 
cago, &c.  R.  Co.  137  Mo.  529,  38  S. 
W.  1099. 

"Chicago,  &c.  Co.  v.  Iowa,  94  U. 
S.  155;  Georgia,  &c.  Co.  v.  Smith, 
128  U.  S.  174,  9  Sup.  Ct.  47;  Peik  v. 
Chicago,  &c.  Co.  94  U.  S.  164;  Munn 
v.  Illinois,  94  U.  S.  113,  126;  Rail- 
road Commission  Cases,  116  U.  S. 
307,  6  Sup.  Ct.  334;  Chicago,  &c.  R. 
Co.  v.  Nebraska,  170  U.  S.  57,  18 
Sup.  Ct.  513;  Newburyport,  &c.  Co. 
v.  Eastern  R.  Co.  23  Pick.  (Mass.) 
326;  Holladay  v.  Patterson,  5  Ore. 
177;  Whiting  v.  Sheboygan,  &c.  Co. 
25  Wis.  167;  State  v.  Mclver,  2  S. 


Car.  25;  Mayor  v.  Baltimore,  &c. 
Co.  21  Md.  50;  McCoy  v.  Cincinnati, 
&c.  Co.  13  Fed.  3,  6  Am.  &  Eng.  R. 
Cas.  621;  State  v.  Boston,  &c.  Co. 
25  Vt.  433;  Olcott  v.  Supervisors,  16 
Wall.  (U.  S.)  678.  See,  also,  People 
v.  Boston,  &c.  R.  Co.  70  N.  Y.  569; 
Illinois  Cent.  R.  Co.  v.  People,  143 
111.  434,  33  N.  E.  173,  19  L.  R.  A. 
119.  The  principle  stated  in  the 
text  applies,  as  is  well  known,  to 
many  other  kinds  of  corporations. 
Hockett  v.  State,  105  Ind.  250,  5  N. 
E.  178,  55  Am.  R.  201;  Rushville 
v.  Rushville,  &c.  Co.  132  Ind.  575, 
584,  28  N.  E.  853;  State  v.  Iron- 
ton,  &c.  Co.  37  Ohio  St.  45;  Zanes- 
ville  v.  Zanesville  Gas  Light  Co. 
47  Ohio  St.  1,  23  N.  E.  55.  The 
later  decisions  of  the  supreme  court 
of  the  United  States  modify  the 
doctrine  asserted  in  Munn  v.  Illi- 
nois, 94  U.  S.  113,  but  we  do  not  un- 
derstand that  they  deny  the  rule 
that  railroads  are  affected  with  a 
public  interest  and  are  subject  to 
legislative  regulation  and  control. 
Chicago,  &c.  Co.  v.  Minnesota,  134 
U.  S.  418,  10  Sup.  Ct.  462;  Brass  v. 
North  Dakota,  153  U.  S.  391,  14  Sup. 
Ct.  857;  Reagan  v.  Farmers,  &c.  Co. 


"EAILROAD"  OR  "RAILWAY." 


[§  .3 


to  be  understood,  however,  from  the  fact  that  the  property  of  a  rail- 
road company  is  devoted  to  a  public  use  or  "affected  with  a  public 
interest,"  that  it  can  be  treated  as  a  public  corporation ;  on  the  con- 
trary, a  railroad  corporation  is  classed  as  a  private  corporation  and 
its  strictly  private  rights  are  as  much  beyond  legislative  control  as 
are  the  rights  of  a  purely  private  corporation.15  While  a  railroad  cor- 
poration may  for  most  purposes  be  regarded  as  a  private  corporation 
there  is,  nevertheless,  as  we  have  seen,  a  side  to  it,  as  one  may  say, 
that  is  public.  As  will  hereafter  appear,  the  element  of  public  inter- 
est which  enters  into  all  railroad  corporations  distinguishes  them  from 
purely  private  corporations  to  such  an  extent  as  to  lead  to  important 
results. 

§  3.  "Eailroad"  or  "railway." — The  words  "railroad"  and  "rail- 
way" are  practically  synonymous,  and  are  ordinarily  to  be  treated  as 
without  distinction  of  meaning.16  Thus,  in  one  of  the  cases  cited,  it 
is  said :  "  'Railroad'  and  'railway'  are  used  interchangeably.  They 
are  as  nearly  synonymous  as  any  two  words  in  the  language.  Though 
the  latter  name  was,  in  strict  accuracy,  the  corporate  name  of  the 
company  intended,  there  can  be  no  doubt  that  the  other  name  is  used 


154  U.  S.  362,  14  Sup.  Ct.  1047;  Cov- 
ington,  &c.  Co.  v.  Kentucky,  154  U. 
S.  204,  14  Sup.  Ct.  1087.  See  also 
United  States  v.  Trans-Missouri,  &c. 
Ass'n,  166  U.  S.  290,  17  Sup.  Ct. 
540;  Lake  Shore,  &c.  R.  Co.  v.  Ohio, 
173  U.  S.  285,  19  Sup.  Ct.  465. 

"Pierce  v.  Commonwealth,  104 
Pa.  St.  150;  Thorpe  v.  Rutland,  &c. 
R.  Co.  27  Vt.  140,  62  Am.  Dec.  625; 
Ohio,  &c.  R.  Co.  v.  Ridge,  5  Blackf. 
(Ind.)  78;  Sweatt  v.  Boston,  &c.  R. 
Co.  3  Cliff.  (U.  S.)  339;  Sloan  v. 
Pacific  R.  Co.  61  Mo.  24,  21  Am.  R. 
397;  Tinsman  v.  Belvidere,  &c.  R. 
Co.  26  N.  J.  L.  148,  69  Am.  Dec. 
565.  See,  also,  Lake  Erie,  &c.  R.  Co. 
v.  Witham,  155  111.  514,  40  N.  E. 
1014,  28  L.  R.  A.  612,  46  Am.  St. 
355;  Candless  v.  Richmond,  &c.  R. 
Co.  38  S.  Car.  103,  16  S.  E.  429,  18 
L.  R.  A.  440.  And  the  fact  that  the 
state  owns  -some  of  the  shares  of  a 
particular  corporation  does  not 


make  it  a  public  corporation.  Mar- 
shall v.  Western  R.  Co.  92  N.  Car. 
322;  Moore  v.  Schoppert,  22  W.  Va. 
282. 

18Gyger  v.  Philadelphia,  &c.  R. 
Co.  136  Pa.  St.  96,  46  Am.  &  Eng. 
R.  Cas.  229  n;  Hestonville,  &c.  R. 
Co.  v.  Philadelphia,  89  Pa.  St.  210; 
Borough  of  Millvale  v.  Evergreen  R. 
Co.  131  Pa.  St.  1,  18  Atl.  993,  46  Am. 
&  Eng.  R.  Cas.  219;  State  v.  Brin, 
30  Minn.  522;  Mobile,  &c.  R.  Co.  v. 
Yeates,  67  Ala.  164;  Georgia,  &c.  R. 
Co.  v.  Propst,  83  Ala.  518;  Massachu- 
setts, &c.  Co.  v.  Hamilton,  88  Fed. 
588,  32  C.  C.  A.  46;  Black  v.  St. 
Louis,  &c.  R.  Co.  110  Mo.  App.  198, 
85  S.  W.  96;  Contra,  Munkers  v. 
Kansas  City,  &c.  R.  Co.  60  Mo.  334, 
in  which  it  is  held  that  a  "railroad" 
is  the  graded  right  of  way  and  the 
"railway"  consists  of  the  rails  and 
ties  laid  thereon. 


DEFINITIONS. 


s 


as  designating  the  same  company/'17  So,  in  many  other  cases,  a  va- 
riance or  an  alleged  variance,  caused  by  using  the  term  "railroad" 
instead  of  "railway"  in  stating  the  corporate  name  in  a  pleading  or 
writ,  has  been  held  immaterial  or  curable  by  amendment.18 

§  4.  What  are  railroads. — A  railroad  has  been  defined  as  "a  road 
graded  and  having  rails  of  iron  or  other  material  for  the  wheels  of 
carriages  to  run  upon."19  This  definition  is  no  longer  as  accurate  as  it 
was  when  the  patrons  of  the  railroad  company  furnished  or  were 
supposed  to  furnish,  the  vehicles,  yet  it  is,  perhaps,  as  accurate  as 
any  brief  definition  that  can  be  given.20  It  is  impossible  to  formulate 
an  exact  or  precise  definition  giving  the  term  "railroad"  an  inflexible 


"State  v.  Brin,  30  Minn.  522.  In 
this  case  the  variance  was  in  an  in- 
dictment. 

18  Where  a  petition  is  filed  against 
the  "C.  Railroad  Co."  and  the  sum- 
mons or  citation  is  issued  against 
the  "C.  Railway  Co.,"  the  variance 
is  immaterial.    Galveston,  &c.  R.  Co. 
v.   Donahoe,   56   Tex.   162;    Central, 
&c.  R.  Co.  v.  Morris,  68  Tex.  49,  28 
Am.  &  Eng.  R.  Cas.  50.    See,  also, 
Alabama,  &c.  R.  Co.  v.  Bolding,  69 
Miss.    255,   13    So.    844,   30   Am.    St 
541.       But     compare     Vickery     v. 
Omaha,  &c.  R.   Co.   93  Mo.  App.  1. 
The  use  of  the  word  "railroad"  in- 
stead of  "railway"  in  a  writ  may 
be   cured   by   amendment  after   de- 
fault.    Chicago,  &c.  R.  Co.  v.  John- 
son, 89  Ind.  88,  13  Am.  &  Eng.  R. 
Cas.    181.      A    declaration    may    be 
similarly   amended   after   the   trial. 
East  Tennessee,  &c.   R.  Co.  v.  Ma- 
honey,  89  Tenn.  311,  15  S.  W.  652. 

19  Pierce  Railroads,  p.  2;   Trunick 
v.   Smith,  63  Pa.   St.   18;    Common- 
wealth v.  Fitchburg  R.  Co.,  12  Gray 
(Mass.)   180.     It  is  also  said  that 
where  a  railroad  is  spoken  of  as  a 
"public  highway"  it  means  "the  im- 
movable structure  extending  across 
the  country,  graded  and  railed  for 
the  use  of  the  locomotive  and  its 


train  of  cars."  Lake  Superior,  &c. 
R.  Co.  v.  United  States,  93  U.  S. 
442,  451,  and  see  further  as  to  what 
is  meant  by  the  term  railroad,  the 
same  opinion  on  pages  446,  449. 

20  For  other  definitions  see  Sey- 
mour v.  Canandaigua,  &c.  R.  Co.  25 
Barb.  (N.  Y.)  284;  Sharpless  v. 
Mayor,  &c.  21  Pa.  St.  147,  59  Am. 
Dec.  759;  Tracy  v.  Troy,  &c.  R.  Co. 
38  N.  Y.  433;  Lake  Shore,  &c.  R.  Co. 
v.  Kaste,  11  111.  App.  536;  Hall  v. 
Brown,  54  N.  H.  495;  Redfield  Rail- 
ways, 6th  ed.,  1;  19  Am.  &  Eng. 
Ency.  of  Law  777.  In  Gibbs  v. 
Drew,  16  Fla.  147,  26  Am.  R.  700, 
701,  702,  it  is  said:  "The  legal  sig- 
nification of  the  term  'railroad'  is 
not  only  a  road  or  way  on  which 
iron  rails  are  laid,  but  a  road  as 
incident  to  the  possession  or  owner- 
ship of  which  important  franchises 
and  rights  affecting  the  public  are 
attached.  *  *  *  Our  conclusion 
is  that  a  railroad  is  a  public  work, 
the  possession  of  which  is  attended 
with  the  right  and  duty  to  use  and 
employ  the  franchises  granted  by 
the  sovereign  in  connection  with 
and  as  appurtenant  to  it."  For  a 
discussion  of  the  history  of  railways 
see  10  Ency.  Americana  478. 


9  WHAT  ARE  BAILED  ADS.  [§   4 

meaning.  The  truth  is,  it  has  no  one  settled  and  invariable  meaning, 
and  what  it  includes  in  any  particular  case  depends  largely  on  the 
connection  in  which  it  is  used.21  In  one  case  it  is  held  to  mean  the 
roadbed,  tracks,  and  necessary  appurtenances,22  and  in  its  broadest 
sense  it  includes  far  more  than  the  track  and  right  of  way,  and  may 
include  all  structures  and  appurtenances  necessary  to  operation  ;23  yet, 
in  another  case,  as  used  in  a  pleading,  it  was  held  to  mean  merely  the 
track.24  Again,  it  is  said  to  include  the  main  line  over  which  cars 
are  run,  together  with  all  switches,  sidings,  and  branch  roads,25  but 
not  to  include  depot  buildings,  offices  and  warehouses.26  Where  the 
reference  is  to  a  permanent  structure  designated  as  a  public  highway, 
the  word  includes  the  graded  and  railed  way  ready  for  the  train  of 
locomotive  and  cars,  which,  together  with  other  personal  property, 
are  not  included.27  While  railroads  are  often  called  highways,  they 
are  not  included  in  the  phrase  "public  roads,  streets  and  highways," 
in  a  statute  designating  the  places  where  telegraph  companies  are  au- 
thorized to  erect  their  lines.28  In  a  statute  providing  for  the  assess- 
ment of  the  "entire  railway,"  it  is  defined  as  including  "all  prop- 
erty, real  and  personal,  exclusively  used  in  the  operation  of  such  rail- 
way."29 A  line  for  the  private /use  of  the  controlling  stockholder  in 
conveying  materials  to  his  mill,  though  built  by  a  company  organized 

21  Neither     the     kind     of     motive  a  Black  v.  Philadelphia,  &c.  R.  Co. 
power  used  nor  its  location  neces-  58  Pa.  St.  249;  St.  John  v.  Erie  R. 
sarily  determines  the  character  of  Co.  22  Wall.  (U.  S.)  136;  Cleveland, 
the    road.      Central,   &c.    R.    Co.    v.  &c.  R.  Co.  v.  Speer,  56  Pa.  St.  325, 
Twenty -third  St.  R.  Co.  54  How.  Pr.  94  Am.  Dec.  84;  Lake  Superior,  &c. 
(N.   Y.)    168.    See,   also,   Newell  v.  R.  Co.  v.  United  States,  12  Ct.  Cl. 
Minneapolis,  &c.  R.  Co.  35  Minn.  112,  35,  93  U.  S.  442.    See,  also,  Roby  v. 
27  N.  W.  839,  59  Am.  R.  303;-Carli  Farmers'  Grain,  &c.  Co.  (Neb.),  107 
v.   Stillwater,   &c.   R.   Co.   28   Minn.  N.  W.  766.    But  see  Richter  v.  Penn 
373,   41   Am.  R.   290;    Booth   Street  Co.  104  Pa.  St.  511;  Terre  Haute  R. 
R.,  §  1.  Co.  v.  Peoria  Co.,  61  111.  App.  405. 

22  State   v.    Hudson    Terminal    R.  29  South    Wales    R.    Co.    v.    Local 
Co.  46  N.  J.  L.  289.     So  in  United  Board  of  Health,  4  E.  &  B.  189,  82 
States  v.  Denver,  &c.  R.  Co.  150  U.  E.  C.  L.  188. 

S.  1,  12,  14  Sup.  Ct.  11.  ,       » Lake    Superior,    &c.    R.    Co.    v. 

23  United  States  Trust  Co.  v.  At-    United  States,  12  Ct.  Cl.  35,  93  U.  S. 
lantic,  &c.  R.  Co.  8  N.  Mex.  689,  47    442. 

Pac.    725,    729.     See,    also,    United  ""New  York  City,   &c.   R.   Co.  v. 

States  v.  Denver,  &c.  R.  Co.  150  U.  Central  Union  Tel.  Co.  21  Hun  (N. 

S.  12,  14  Sup.  Ct.  11.  Y.)  261,  1  Am.  Elec.  Gas.  315. 

24  E.    E.    Jackson    Lumber   Co.    v.  29R.  S.  Arizona  1887,  §  2649;  At- 
Cunningham,   141   Ala.   206,   37   So.  lantic,  &c.  R.  Co.  v.  Yavapai  County 
445.  (Ariz.),  21  Pac.  768. 


§4] 


DEFINITIONS. 


10 


under  the  general  law  providing  for  the  formation  and  regulation  of 
public  railroad  companies,  has  been  held  not  to  be  such  a  railroad  as 
may  exercise  the  right  of  eminent  domain,30  for  one  of  the  essential 
characteristics  of  a  railroad  authorized  to  exercise  that  right  is  said 
to  be  its  readiness  to  render,  without  discrimination,  the  services 
which  all  citizens  alike  may  claim.31  But,  as  will  hereafter  be  seen, 
roads  and  side-tracks  to  mills,  manufacturing  establishments  and  the 
like  may  constitute  a  public  as  well  as  a  private  use  for  which  the 
exercise  of  the  power  of  eminent  domain  may  oe  invoked.32  The  word 
"railroad"  is  sometimes  applied,  also,  to  the  corporation  owning  the 
road  and  running  trains  thereon  for  the  carriage  of  freight  and  pas- 
sengers.33 Ordinarily,  however,  the  corporation  is  designated  as  a 
"railroad  company"3*  or  "railroad  corporation;"35  and  the  fact  that 
it  is  authorized  to  do  other  kinds  of  business  besides  that  of  trans- 
porting freight  and  passengers  is  held  not  to  render  these  terms  in- 
applicable;36 nor  does  their  applicability  necessarily  depend  on  the 
possession  of  rolling  stock  or  on  the  control  of  the  road's  operation, 
for  a  railroad  company  or  corporation  can  exist  without  either.37 


30  Weidenfeld  v.  Sugar  Run  R.  Co. 
48  Fed.  615.  See,  also,  Split  Rock 
Cable  Co.,  In  re,  128  N.  Y.  408,  28  N. 
E.  506;  Pittsburg,  &c.  R.  Co.  v.  Ben- 
wood  Iron  Works,  31  W.  Va.  710,  8 
S.  E.  453,  2  L.  R.  A.  680  n.  But 
see  Bacot,  Ex  part'e,  36  S.  Car.  125, 
15  S.  E.  204,  16  L.  R.  A.  586,  50  Am. 
&  Eng.  R,  Cas.  597. 

"Colorado,  &c.  R.  Co.  v.  Union, 
&c.  R.  Co.  44  Am.  &  Eng.  R.  Cas.  10, 
and  note  on  page  25. 

82  Harvey  v.  Thomas,  10  Watts 
(Pa.)  63;  Philadelphia,  &c.  R.  Co.  v. 
Williams,  54  Pa.  St.  103  Getz's  Ap- 
peal, 65  Pa.  St.  1,  3  Am.  &  Eng.  R. 
Cas.  186;  Kettle  River  R.  Co.  v. 
Eastern  R.  Co.  41  Minn.  461;  South 
Chicago  R.  Co.  v.  Dix,  109  111.  237. 

S3Calhoun  v.  Paducah,  &c.  R.  Co. 
2  Flip.  (U.  S.)  442,  9  Cent.  L.  Jour. 
66.  In  the  Standard  Dictionary  it  is 
said  that  the  term  "railroad"  may 
have  any  of  the  following  mean- 
ings: 1.  A  graded  road  having  one 
or  more  tracks,  usually  of  metal 


rails  supported  by  sleepers  and  de- 
signed for  the  passage  of  rolling- 
stock.  2.  The  whole  system  of 
tracks,  stations,  rolling-stock  and 
machinery  used  in  transportation 
by  rail.  3.  The  corporation  or  per- 
sons owning  or  operating  such  a 
system. 

34Griggs  v.  Houston,  104  U.  S. 
553;  Great  Western  R.  Co.  v.  Cen- 
tral Wales  R.  Co.  52  L.  J.  Q.  B.  211, 
L.  R.  10  Q.  B.  Div.  231. 

"Union  Trust  Co.  v.  Kendall,  20 
Kans.  515. 

36  Randolph  Co.  v.  Post,  93  U.  S. 
502;  Kentucky  Imp.  Co.  v.  Slack, 
100  U.  S.  648.  The  right  to  con- 
struct a  railroad  and  to  erect  a 
ferry  may  be  granted  to  one  cor- 
poration, but  "a  ferry  is  not  a  rail- 
road, nor  a  railroad  a  ferry."  Aikin 
v.  Western  R.  Co.  20  N.  Y.  370,  376. 

ST  Pennsylvania  R.  Co.  v.  St.  Louis, 
&c.  R.  Co.  118  U.  S.  290,  6  Sup.  Ct. 
1094,  24  Am.  &  Eng.  R.  Cas.  58,  in 
which  one  of  the  parties  was  such  a 


11 


RAILROAD  TRACK — RIGHT   OF  WAY — ROADBED. 


[ 


§  5.  "Railroad  track"— "Right  of  way"— "Roadbed"  and  "road- 
way."— The  term  "railroad  track"  is  often  used  to  designate  the  right 
of  way  with  its  grades  and  superstructure  of  iron  rails.38  But,  in  a 
narrower  sense,  it  has  been  defined  as  "the  two  continuous  lines  of 
rails  on  which  the  railway  cars  run,"39  and  it  does  not  necessarily 
include  the  whole  right  of  way.40  It  may,  however,  be  so  used  as  to  in- 
clude depot  buildings,  roundhouses,  machine  shops,  coal  or  wood-sheds 
and  water-tanks,  if  they  are  on  the  right  of  way.41  The  latter  term  has 
been  defined  as  meaning  the  way  over  which  the  company  has  the  right 
to  pass  in  the  operation  of  its  trains  ;42  and  as  including  all  of  the  strip 
of  land  appropriated  by  the  company  for  its  use  and  upon  which  its 
roadbed  has  been  built.43  Primarily  it  would  seem  to  mean  the  right, 
interest  or  tenure,  but  the  term  has  a  "twofold  signification,"  and  may 
also  be  used  as  meaning  the  strip  of  land  itself.44  The  roadbed  is 


company.  See,  also,  Lake  Superior, 
&c.  Co.  v.  United  States,  93  U.  S. 
442;  Tracy  v.  Troy,  &c.  R.  Co.  38  N. 
Y.  433,  98  Am.  Dec.  54;  Interna- 
tional, &c.  Co.  v.  Anderson  Co.  59 
Tex.  654,  663. 

38  Delaware,  &c.  Co.  v.  Whitehall, 
90  N.  Y.  21,  10  Am.  &  Eng.  R.  Cas. 
227. 

39Atchison,  &c.  R.  Co.  Y.  Kansas 
City,  &c.  R.  Co.  67  Kans.  569,  70 
Pac.  939,  73  Pac.  899.  But  see  Gates 
v.  Chicago,  &c.  R.  Co.  82  Iowa  527, 
48  N.  W.  1040,  1041. 

"Drainage  Com'rs  v.  Illinois 
Cent.  R.  Co.  158  111.  361,  41  N.  E. 
1073. 

41  Pfaff  v.  Terre  Haute,  &c.  R.  Co. 
108  Ind.  144,  9  N.  E.  93,  construing 
§  6410,  R.  S.  Ind.  1881.  See  Acts 
1891,  Ind.  119,  §  78.  But  not  neces- 
sarily, nor,  perhaps,  ordinarily. 
Portland,  &c.  R.  Co.  v.  Saco,  60  Me. 
198. 

a  Pfaff  v.  Terre  Haute,  &c.  R.  Co. 
108  Ind.  144,  9  N.  E.  93;  Williams 
v.  Western,  &c.  R.  Co.  50  Wis.  71,  5 
N.  W.  482,  5  Am.  &  Eng.  R.  Cas. 
290;  Postal,  &c.  Co.  v.  Southern  R. 
Co.,  90  Fed.  30.  As  will  hereafter  be 
shown,  however,  it  is  usually  in  the 


nature  of  an  easement,  although  a 
peculiar  one,  rather  than  an  estate 
in  fee.  See  Cincinnati,  &c.  R.  Co.  v. 
Geisel,  119  Ind.  77,  78,  21  N.  E.  470, 
and  authorities  cited;  Williams  v. 
Western,  &c.  R.  Co.  50  Wis.  71,  5  N. 
W.  482,  42  Cent.  L.  J.  156. 

43  Keener  v.  Union  Pacific  R.  Co., 
31  Fed.  126.     In  the  statute,  Gen. 
Stat.  Colo.  §   2847,  which  this  case 
construes,  the  "entire   railway"    is 
defined   as   including   the   right   of 
way. 

44  New    Mexico   v.    United    States 
Trust  Co.  172  U.  S.  182,  19  Sup.  Ct. 
128,  132;  Central  Trust  Co.  v.  Wa- 
bash,  &c.   R.  Co.   29   Fed.   546;    At- 
lantic,   &c.    R.    Co.    v.    Lesueur,    2 
Ariz.  428,  19  Pac.  157,  1  L.  R.  A. 
244   n    (tenure) ;    Maysville,   &c.   R. 
Co.  v.  Ball,  108  Ky.   241,  56  S.  W. 
188;    Uhl  v.  Ohio  River  R.  Co.   51 
W.  Va.  106,  41  S.  E.  340.   See,  also, 
Western  Union  Tel.  Co.  v.  Pennsyl- 
vania R.  Co.  195  U.  S.  540,  25  Sup. 
Ct.  133.   In  Nashville,  &c.  R.  Co.  v. 
State,  129  Ala.  142,  30  So.  619,  it  is 
held  to  mean  only  the  easement  and 
not   to   include    structures    on    the 
land.    In  Bo'yce  v.  Missouri  Pac.  R. 
Co.  168  Mo.  583,  68  S.  W.  920,  58  L. 


§  6] 


DEFINITIONS. 


the  foundation45  upon  which  the  superstructure  rests,  while  the  term 
"roadway"  is  said  to  include  all  the  ground  upon  which  the  company 
is  authorized  to  construct  and  lay  its  bed  and  track.46 

§  6.  Street  railways. — A  street  railway  has  heen  defined  as  "a  rail- 
way laid  down  upon  roads  or  streets  for  the  purpose  of  carrying  pas- 
sengers."47 A  distinctive  feature  or  characteristic  of  such  a  railway, 
considered  in  relation  to  ordinary  commercial  railroads,  is  that  it  is 
intended  an.d  used  for  the  transportation  of  passengers  and  not  of 
freight.48  This,  and  the  character  of  the  use  of  the  street,  rather  than 


R.  A.  442,  it  is  said  to  be,  in  strict- 
ness, neither  an  easement  nor  a  fee, 
but  merely  an  interest  in  land.  As 
to  whether  it  includes  side  tracks, 
switches,  and  the  like,  see  Chicago, 
&c.  R.  Co.  v.  People,  98  111.  350; 
Chicago,  &c.  R.  Co.  v.  People,  99  111. 
464;  Missouri,  &c.  R.  Co.  v.  Ander- 
son, 36  Tex.  Civ.  App.  121,  81  S.  W. 
781;  Chicago,  &c.  R.  Co.  v.  Cass 
County,  8.N.  Dak.  18,  76  N.  W.  239; 
Akers  v.  United  N.  J.  R.,  &c.  Co.  43 
N.  J.  L.  110;  Chicago,  &c.  R.  Co.  v. 
Richardson  County,  61  Neb.  519,  85 
N.  W.  532. 

45  Text   quoted    with    approval    in 
Shreveport   v.    Shreveport    Belt   R. 
Co.  107  La.  Ann.  785,  32  So.  189,  190. 
See  also  Dunn  v.  Burlington,  &c.  R. 
Co.  35  Minn.  73,  27  N.  W.  448;  Mo- 
bile, &c.  R.  Co.  v.  Alabama,  &c.  Co. 
87  Ala.  520,  6  So.  407,  408,  holding 
that  it  may  include  the  track. 

46  San  Francisco  v.  Central  Pac.  R. 
Co.  63  Cal.  467,  49  Am.  R.  98;   San 
Francisco,  &c.  R.  Co.  v.  State  Board, 
60  Cal.  12,  34;  North  Beach,  &c.  Co., 
Appeal  of,  32  Cal.  499.    Fences,  how- 
ever, are  not  part  of  the  roadway 
to  be  assessed  as  such  for  purposes 
of  taxation,  but  are  to  be  assessed 
as    improvements    under    the    Cali- 
fornia statute.     Santa  Clara  County 
v.   Southern  Pac.  R.   Co.  118  U.   S. 
394,  6  Sup.  Ct.  1132,  1142.  See,  also, 


San  Francisco,  &c.  R.  Co.  v.  Stock- 
ton (Cal.),  84  Pac.  771. 

*T  Elliott  Roads  and  Streets,  557, 
quoted  in  Montgomery  v.  Santa  Ana, 
&c.  R.  Co.  104  Cal.  186,  37  Pac.  786, 
25  L.  R.  A.  654,  43  Am.  St.  89;  Louis- 
ville, &c.  R.  Co.  v.  Louisville  City  R. 
Co.  2  Duv.  (Ky.)  175.  Text  cited 
with  approval  in  Hannah  v.  Metro- 
politan St.  R.  Co.  81  Mo.  App.  78. 
See  definition  in  Harvey  v.  Aurora, 
&c.  R.  Co.  174  111.  295,  51  N.  E.  163, 
167,  and  cases  there  cited.  As  to 
whether  this  definition  is  not  too 
narrow  or  restrictive,  see  chapter 
on  street  railways. 

48  Elliott  Roads  and  Streets  (2d 
ed.),  §  732;  Booth  Street  Railw.,  §  1; 
Carli  v.  Stillwater  St.  R.  Co.  2& 
Minn.  373,  10  N.  W.  205,  41  Am.  R. 
290,  3  Am.  &  Eng.  R.  Cas.  226.  See, 
also,  Wiggins  Ferry  Co.  v.  East  St. 
Louis  R.  Co.  107  111.  450;  Atty.- 
General  v.  Chicago,  &c.  R.  Co.  112 
111.  611;  Potts  v.  Quaker  City,  &c. 
R.  Co.  12  Pa.  Co.  Ct.  593,  31  W. 
N.  Cas..  290;  Funk  v.  St.  Paul,  &c. 
R.  Co.  61  Minn.  435,  63  N.  W:  1099, 
1101,  29  L.  R.  A.  208,  52  Am.  St. 
608.  Text  cited  in  Rische  v.  Texas 
Transp.  Co.  27  Tex.  Civ.  App.  33,  66 
S.  W.  324,  327.  But  the  mere  fact 
that  some  kind  of  freight  is  carried 
may  not  always  be  a  conclusive  test 
under  recent  developments. 


13 


STREET   RAILWAYS. 


the  motive  power,  distinguish  it  from  the  ordinary  commercial  rail- 
road ;49  and  such  a  railway,  laid  in  a  street  for  the  purpose  of  carrying 
passengers  and  facilitating  its  use  by  the  public,  is  a  street  railway,  no 
matter  what  motive  power  may  be  used  to  propel  the  cars.50  So,  in- 
deed, the  fact  that  freight  of  some  character,  such  as  small  parcels,  is 
carried,  may  not  always  be  an  invariable  test  under  present  condi- 
tions and  future  developments.  But  street  railways  are  not  always 
included  when  the  term  "railroads"  is  used  in  a  statute.  The  exact 
meaning  of  that  term,  as  already  stated,  depends  upon  the  connection 
in  which  it  is  used.51  Thus,  it  has  been  held  to  include  street  rail- 
roads operated  by  horse  power,  in  statutes  giving  certain  powers  to 
"railroads  ;"52  making  the  proprietors  of  any  "railroad"  liable  for 
injuries  caused  by  the  negligence  of  its  servants;53  and  prohibiting 


"Williams  v.  City  Electric  St.  R. 
Co.  41  Fed.  556,  43  Am.  &  Eng.  R. 
Cas.  215;  Newell  v.  Minneapolis,  &c. 
R.  Co.  35  Minn.  112,  27  N.  W.  839, 
59  Am.  R.  303.  See,  also,  annotation 
in  2  Am.  Law  Reg.  &  Rev.,  N.  S. 
(Jan.,  1895)  43;  Massachusetts,  &c. 
Co.  v.  Hamilton,  88  Fed.  588,  32  C. 
C.  A.  46 ;  Wilder  v.  Aurora,  &c.  Trac- 
tion Co.  216  111.  493,  75  N.  E.  194, 
206,  207;  Linden  Land  Co.  v.  Mil- 
waukee R.  Co.  107  Wis.  511,  83  N. 
W.  851.  It  might  be  better,  how- 
ever, to  say  that  the  character  of 
the  use,  that  is,  the  fact  that  street 
railways  are  to  accommodate  local 
convenience  and  street  travel,  is  the 
main  test.  See  Harvey  v.  Aurora, 
Ac.  R.  Co.  174  111.  295,  307,  51  N.  E. 
163;  Sparks  v.  Philadelphia,  &c.  R. 
Co.  212  Pa.  St.  105,  61  Atl.  881,  882. 

50  Nichols  v.  Ann  Arbor,  &c.  St.  R. 
Co.  87  Mich.  361,  49  N.  W.  538,  16 
L.  R.  A.  371;  Briggs  v.  Lewiston, 
&c.  R.  Co.  79  Me.  363,  367,  10  Atl.  47, 
1  Am.  St.  316,  32  Am.  &  Eng.  R. 
Cas.  167;  Clement  v.  Cincinnati,  16 
Weekly  Law  Bui.  355.  See  also  New- 
ell v.  Minneapolis,  &c.  R.  Co.  35 
Minn.  112,  27  N.  W.  839,  59  Am.  R. 
303 ;  Massachusetts  &c.  Co.  v.  Hamil- 
ton, 88  Fed.  588,  32  C.  C.  A.  46.  But 


see  East  End  St.  R.  Co.  v.  Doyle,  88 
Tenn.  747,  13  S.  W.  936,  9  L.  R.  A. 
100,  17  Am.  St.  933;  Stanley  v.  Dav- 
enport, 54  Iowa  463,  2  N.  W.  164,  6 
N.  W.  706,  37  Am.  R.  216.  And  an 
underground  railway  may  be  a 
street  railway.  New  York  District 
R.  Co.,  In  re,  107  N.  Y.  42,  14  N.  E. 
187,  32  Am.  &  Eng.  R.  Cas.  202.  But 
see  Sparks  v.  Philadelphia,  &c.  R. 
Co.  212  Pa.  St.  105,  61  Atl.  881. 

"Massachusetts,  &c.  Co.  v.  Hamil- 
ton, 88  Fed.  588,  32  C.  C.  A.  46.  See, 
also,  Fidelity,  &c.  Co.  v.  Douglass, 
104  Iowa  532,  73  N.  W.  1039. 

"Chicago  v.  Evans,  24  111.  52. 
Statutes  authorizing  the  incorpora- 
tion of  railroad  companies  are  often 
comprehensive  enough  to  authorize 
the  incorporation  of  street  railway 
companies.  In  Sparks  v.  Philadel- 
phia, &c.  R.  Co.  212  Pa.  St.  105,  61 
Atl.  881,  a  statute  for  the  incor- 
poration of  railroad  companies  was 
held  to  authorize  the  construction  of 
the  road  underground  in  a  tunnel 
for  a  short  distance,  and  it  was  also 
held  that  it  was  not  a  street  pas- 
senger railroad. 

53  Johnson  v.  Louisville  City  R. 
Co.  10  Bush  (Ky.)  231.  But  see  Lax 
v.  Forty-second  St.,  &c.  R.  Co.  46  N. 


§  6] 


DEFINITIONS. 


14 


the  obstruction  of  "railroad  tracks."54  So,  a  statute  authorizing  the 
consolidation  of  "railroads"  has  been  held  to  include  street  railways,55 
and  an  act  taxing  the  property  of  "any  railroad  company"  has  been 
held  to  include  the  property  of  a  street  railway.66  But  a  statute  pro- 
hibiting the  location  within  a  certain  territory  of  railroads  other  than 
that  of  a  designated  company,  is  held  not  to  authorize  an  injunction 
restraining  a  street  railway  company  from  building  its  road  across 
such  territory.57  A  penalty  denounced  against  railroad  companies 
demanding  fares  in  excess  of  the  lawful  rate  has  been  held  not  to 
apply  to  street  railroads  ;58  nor,  according  to  one  decision,  does  a  stat- 
ute authorizing  a  laborer's  lien  on  a  railroad  apply  to  a  street  cable 
railroad.59  A  "dummy  line,"  operated  over  the  county  roads  between 
two  cities,  along  whose  streets  its  track  extends  to  termini  in  their 
centers,  is  a  "railroad"  within  the  meaning  of  a  statute  requiring  all 
trains  to  stop  within  one  hundred  feet  of  where  two  railroads  cross 
each  other;  the  court  holding,  however,  that  it  is  "not  a  street  rail- 


Y.  Super.  Ct.  448;  Funk  v.  St. 
Paul,  &c.  R.  Co.  61  Minn.  435,  63  N. 
W.  1099,  29  L.  R.  A.  208,  52  Am. 
St.  608;  Sams  v.  St.  Louis,  &c.  R. 
Co.  174  Mo.  53,  73  S.  W.  686,  61  L. 
R.  A.  475. 

54  Price  v.  State,  74  Ga.  378.    See, 
also,  Evans  v.  Utica,  &c.  R.  Co.  44 
Misc.   (N.  Y.)  345,  89  N.  Y.  S.  1089; 
Cheatham  v.  McCormick,  178  Pa.  St. 
187,  35  Atl.  631. 

55  Hestonville,  &c.  R.  Co.  v.  Phila- 
delphia, 89  Pa.  St.  210;  Washington 
St.  R.  Co.,  In  re,  115  N.  Y.  442,  22 
N.  E.  356,  40  Am.  &  Eng.  R.  Gas. 
588.    But  see  Gyger  v.  Philadelphia, 
&c.   R.   Co.   136   Pa.   St.   96,   20  Atl. 
399,  9  L.  R.  A.  369;  Shipley  v.  Conti- 
nental, &c.  R.  Co.  13  Phila.    (Pa.) 
128. 

56  Citizens'  R.  Co.  v.  Pittsburg,  104 
Pa.  St.  522,  17  Am.  &  Eng.  R.  Gas. 
438.    See  ante,  §  1,  note  1.   But  see 
San  Francisco,  &c.  R.  Co.  v.  Scott, 
142  Cal.  222,  75  Pat.  575. 

87  Louisville,  &c.  R.  Co.  v.  Louis- 
ville, &c.  R.  Co.  2  Duv.  (Ky.)  175. 
58  Moneypenny  v.  Sixth  Avenue  R. 


Co.  4  Abb.  Pr.  N.  S.  (N.  Y.)  357. 
See  also  Funk  v.  St.  Paul,  &c.  R.  Co. 
61  Minn.  435,  63  N.  W.  1099,  52  Am. 
St.  608;  Lincoln  St.  R.  Co.  v.  Mc- 
Clellan,  54  Neb.  672,  74  N.  W.  1074, 
69  Am.  St.  736. 

69  Front  St.  Cable  R.  Co.  v.  John- 
son, 2  Wash.  112,  25  Pac.  1084,  11  L. 
R.  A.  693.  See  also  Manhattan 
Trust  Co.  v.  Sioux  Cable  R.  Co.  68 
Fed.  82;  Massillon  Bridge  Co.  v.  Cam- 
bria Iron  Co.  59  Ohio  St.  179,  52  N. 
E.  192;  Central  Trust  Co.  v.  Warren, 
121  Fed.  323.  Contra,  St.  Louis,  &c. 
Co.  v.  Donohoe,  3  Mo.  App.  559;  New 
England  Engineering  Co.  v.  Oak- 
wood  St.  R.  Co.  75  Fed.  162.  See, 
also,  Egan  v.  Cheshire  St.  R.  Co.  78 
Conn.  291,  61  Atl.  950;  Koken  Iron 
Works  v.  Robberson  Ave.  R.  Co.  141 
Mo.  228,  44  S.  W.  269.  In  the  first 
case,  however,  the  statutory  lien  ex- 
tended to  the  land,  and,  as  the 
street  railway  company  did  not  own 
the  fee,  this  was  the  principal  rea- 
son for  holding  the  statute  inap- 
plicable. 


15 


STREET  RAILWAYS. 


[ 


way"  because  not  located  within  and  dependent  on  any  municipality.60 
Such  a  line,  engaged  in  the  streets  of  a  city  exclusively  in  carrying 
passengers,  is  also  held  to  be  a  "railroad"  within  a  statute  requiring 
some  person  on  the  locomotive  to  keep  a  lookout,  and  requiring  the 
whistle  to  be  sounded  to  prevent  accidents;61  but  not  a  "railroad" 
within  a  statute  prohibiting  the  occupation  of  streets  at  crossings.62 
It  is  not  easy  to  reconcile  all  of  the  decisions  and  about  all  that  can 
be  said  is  that  the  question  as  to  whether' a  street  railway  is  included 
in  the  term  railroad  in  any  particular  case  is  determined  largely  by 
the  context  or  connection  in  which  the  term  is  used.63 

§  6a.  Street  railways  further  considered.64 — As  street  railways  are 
usually  constructed  on  streets  and  do  not,  ordinarily,  constitute  an 
additional  burden,  there  is  seldom  any  necessity  for  the  exercise  of 
power  of  eminent  domain  in  order  to  obtain  a  right  of  way ;  but,  like 
commercial  railroads,  they  are  of  a  quasi  public  nature  and  may  be 
authorized  to  condemn  property  for  a  right  of  way  as  for  a  public 
use.65  But  it  has  been  held  that  a  statute  authorizing  the  condemna-. 
tion  of  a  right  of  way  by  corporations  "organized  for  the  construction 
of  any  railway"  did  not  apply  to  street  railways.66  And  it  has  also 


60  Birmingham   R.   Co.   v.   Jacobs, 
92  Ala.  187,  9  So.  320,  12  L.  R.  A. 
830,  49  Am.  &  Eng.  R.  Gas.  263. 

61  Katzenberger  v.  Lawo,  90  Term. 
238,  16  S.  W.  611,  construing  Tenn. 
code,  §  1298. 

62  Howard   v.   Union,   &c.   Co.    156 
Mass.  159,  30  N.  E.  479.    See,  also, 
Byrne  v.  Kansas  City,  &c.  R.  Co.  61 
Fed.  605,  9  C.  C.  A.  666,  24  L.  R.  A. 
693. 

63  Sams   v.   St.   Louis,   &c.   R.   Co. 
174  Mo.  53,  73  S.  W.  686,  690,  61  L. 
R.  A.  475,  479 ;  Louisville,  &c.  R.  Co. 
v.  Louisville  City  R.  Co.  63  Ky.  175; 
Bloxham  v.  Consumer's,  &c.  Co.  36 
Fla.  519,  18  So.  444,  29  L.  R.  A.  507, 
51  Am.   St.  44;    Massachusetts,  &c. 
Co.  v.  Hamilton,  88  Fed.  588,  32  C. 
C.   A.   46.     In   the   following   cases 
street  railways  were  held  to  be  in- 
cluded :    Savannah,  &c.  R.  Co.  v.  Wil- 
liams, 117  Ga.  414,  43  S.  E.  751,  61 
L.   R.  A.   249;   Rafferty  v.  Central 


Traction  Co.  147  Pa.  St.  579,  23  Atl. 
884,  30  Am.  St.  736;  Bloxham  v.  Con- 
sumer's, &c.  Co.  36  Fla.  519,  18  So. 
444,  29  L.  R.  A.  507,  51  Am.  St.  44; 
Funk  v.  St.  Paul,  &c.  R.  Co.  61  Minn. 
435,  63  N.  W.  1099,  52  Am.  St.  608, 
and  in  the  following  cases  they  were 
held  not  to  be  included:  Commis- 
sioners v.  Market  St.  R.  Co.  132  Cal. 
677,  64  Pac.  1065;  State  v.  Duluth, 
&c.  Co.  76  Minn.  96,  78  N.  W.  1032, 
57  L.  R.  A.  63;  Scott  v.  Farmer's, 
&c.  Bank,  97  Tex.  31,  75  S.  W.  7,  16. 

,M  Part  of  this  section  was  part  of 
§  6  in  the  original  edition. 
,  "Kerr,  In  re,  42  Barb.  (N.  Y.) 
119;  Union  Depot  R.  Co.  v.  South- 
ern R.  Co.  105  Mo.  562,  16  S.  W. 
920;  St.  Louis  R.  Co.  v.  Southern 
R.  Co.  105  Mo.  577,  16  S.  W.  960,  46 
Am.  &  Eng.  R.  Gas.  1;  Moran  v. 
Ross,  79  Cal.  159,  21  Pac.  547,  39 
Am.  &  Eng.  R.  Gas.  1. 

66  Thompson-Houston   Electric  Co. 


§  7] 


DEFINITIONS. 


16 


been  held  that  although  a  street  car  company  is  organized  under  the 
general  railroad  lav/,  and  has  claimed  to  exercise  the  right  of  eminent 
domain,  this  does  not  bring  it  within  the  terms  of  a  statute  making 
railroad  companies  "owning  and  operating  a  railroad"  liable  for  in- 
juries to  a  servant  "injured  in  the  work  of  operating  such  railroad" 
by  the  negligence  of  a  fellow  servant,  where  the  company  is  in  fact 
operating  only  a  street  railway.67  Street  railway  companies  are  com- 
mon carriers  of  passengers,68  and,  while  not  usually  common  car- 
riers of  freight,  may  become  liable  as  common  carriers  of  goods  by 
assuming  to  act  as  such.69  It  has  been  held  under  the  Wisconsin  stat- 
ute, that  a  city  cannot  grant  to  a  commercial  railroad,  and  that  the 
latter  cannot  accept,  a  street  railway  franchise.70 

§  7.  Elevated  railroads. — Elevated  railroads  are  so  far  "railroads" 
that  it  has  been  held  that  they  may  be  organized  under  general 
statutes  authorizing  the  incorporation  of  railroad  companies.71  But 
it  has  been  held  that  a  company  incorporated  and  organized  as 
a  street  railway  company  has  no  authority  or  right  to  build 


v.  Simon,  20  Ore.  60,  25  Pac.  147, 
10  L.  R.  A.  251,  23  Am.  St.  86,  47 
Am.  &  Eng.  R.  Gas.  57.  While  such 
statutes  should  be  strictly  construed, 
yet  the  soundness  of  the  decision  in 
the  case  just  cited  seems  to  us  to 
admit  of  some  doubt.  See  Ogden 
City  R.  Co.  v.  Ogden  City,  7  Utah 
207,  26  Pac.  288. 

67  Sams  v.   St.   Louis,   &c.   R.   Co. 
174  Mo.  53,  73  S.  W.  686,  61  L.  R.  A. 
475. 

68  Thompson-Houston  Electric  Co. 
v.  Simon,  20  Ore.  60,  25  Pac.  147,  10 
L.  R.  A.  251,  23  Am.  St.  86;  State  v. 
Spokane  St.  R.  Co.  19  Wash.  518,  53 
Pac.  719,  41  L.  R.  A.  515,  67  Am.  St. 
739;   Nelson  v.  Metropolitan  St.  R. 
Co.  113  Mo.  App.  703,  88  S.  W.  1119, 
1121. 

""Levi  v.  Lynn,  &c.  R.  Co.  93 
Mass.  300,  87  Am.  Dec.  713.  See, 
also,  Thompson-Houston  Electric 
Co.  v.  Simon,  20  Ore.  60,  25  Pac. 
147,  10  L.  R.  A.  251,  23  Am.  St.  86. 


70  State  v.  Milwaukee,  &c.  R.  Co. 
116  Wis.  142,  92  N.  W.  546. 

71  Lieberman    v.    Chicago,    &c.    R. 
Co.  141  111.  140,  30  N.  E.  544,  51  Am. 
&  Eng.  R.  Gas.  581.    See,  also,  Ful- 
ton v.   Short  Route  R.  Co.   85   Ky. 
640,  4  S.  W.  332,  7  Am.  St.  619,  32 
Am.  &  Eng.  R.  Gas.  256,  where  it  is 
held  that  a  street  railroad  may  ele- 
vate its  track  if  the  character  of  the 
country  requires  it.    Compare  Potts 
v.  Quaker  City  El.  R.  Co.  12  Pa.  Co. 
Ct.  593,  2  Pa.  Dist.  200,  161  Pa.  St. 
396,   29   Atl.  108.    And   in  Potts  v. 
Quaker  City  El.  R.  Co.  12  Pa.  Co.  Ct. 
593,  161  Pa.  St.  396,  29  Atl.  108,  it 
was  held  that  an  elevated  railroad 
through  the  streets  of  a  city  for  the 
carriage   of    passengers   exclusively 
cannot  be  organized  under  the  gen- 
eral railroad   law  of  Pennsylvania. 
See,  also,  Schaper  v.  Brooklyn,  &c. 
R.  Co.  124  N.  Y.  630,  26  N.  E.  311; 
People's,  &c.  Co.  v.  Dash,  125  N.  Y. 
93,  26  N.  E.  25,  10  L.  R.  A.  728,  46 
Am.  &  Eng.  R.  Cas.  114. 


17 


ELEVATED   RAILROADS. 


and  operate  an  elevated  railroad.72  Such  roads  are  generally  in- 
tended and  used  merely  for  the  carriage  of  passengers  along  the 
streets,  and,  where  such  is  the  case,  it  seems  to  us  that,  upon  prin- 
ciple, they  should  be  regarded  as  street  railways  rather  than  as 
ordinary  commercial  railroads,73  or  at  least  more  in  the  nature  of  the 
former  in  the  respect  indicated,  although  it  would  be  still  better, 
perhaps,  to  put  them  in  a  class  by  themselves.  But  whether  a  street 
railway  company  has  authority  to  construct  an  elevated  road  or  not 
must  depend  largely  upon  the  particular  charter  or  law  under  which 
it  is  organized,  and  the  construction  and  use  of  the  road  may  be  such 
as  to  constitute  an  additional  burden  and  entitle  the  abutting  owners 
to  damages,  where  they  would  not  be  entitled  to  compensation  if  it 
were  an  ordinary  surface  street  railroad.74  Thus,  it  has  been  held 
that  an  elevated  railroad  supported  by  posts,  with  an  overhead  road- 
bed enclosed  at  the  sides,  is  a  "railway"  and  not  a  "street  railway" 
within  the  meaning  of  a  statute  allowing  the  municipal  authorities  to 
authorize  the  construction  of  either  in  a  street,  but  requiring  compen- 
sation to  the  abutters  where  a  "railway"  is  placed  in  the  street.75 


72  Commonwealth,  v.  Northeastern 
El.  R.  Co.  161  Pa.  St.  409,  29  Atl.  112. 

73  See  Doane  v.  Lake  St.  El.  R.  Co. 
165  111.  510,  46  N.  E.  520,  36  L.  R.  A. 
97,    56    Am.    St.    265,    but    compare 
Commonwealth  v.  Northeastern  El. 
R.    Co.    3    Pa.    Dist.    104;    Potts   v. 
Quaker  City  El.  R.  Co.  12  Pa.  Co. 
Ct.  593,  2  Pa.  Dist.  200,  161  Pa.  St. 
396,  29  Atl.  108.   "There  is  no  doubt 
that  a   railway   under,   or   elevated 
above,   the   surface   of   a   street,    is 
still  a  street  railway  in  that  street." 
Per  Peckham,  J.,  People's,  &c.  Co.  v. 
Dash,  125  N.  Y.  93,  26  N.  E.  25,  10 
L.  R.  A.  728,  729,  46  Am.  &  Eng.  R. 
Gas.    114.     See,   also,   Booth    Street 
Railw.,  §  1. 

74  Story  v.  New  York  El.  R.  Co.  90 
N.  Y.  122,  43  Am.  R.  146;  American 
Bank  Note  Co.  v.  New  York  El.  R. 
Co.    129    N.   Y.   252,    29    N.   E.    302; 
Egerer  v.  New  York  Cent.,  &c.   R. 
Co.  130  N.  Y.  108,  29  N.  E.  95,  14  L. 
R.  A.  381,  and  note;    Abendroth  v. 
Manhattan  R.  Co.  122  N.  Y.  1,  25  N. 

ELL.  RAILROADS — 2 


E.  496,  11  L.  R.  A.  634  n,  19  Am. 
St.  461;  New  York  El.  R.  Co.  v. 
Fifth  Nat.  Bank,  135  U.  S.  432,  440, 
10  Sup.  Ct.  743;  Lahr  v.  Metropoli- 
tan El.  R.  Co.  104  N.  Y.  268,  10  N. 
E.  528;  Kane  v.  New  York  El.  R. 
Co.  125  N.  Y.  164,  26  N.  E.  278,  11 
L.  R.  A.  640,  46  Am.  &  Eng.  R.  Gas. 
137.  See,  also,  State  v.  Superior 
Court,  30  Wash.  282,  70  Pac.  484. 
Compare  Fulton  v.  Short  Route,  &c. 
Co.  85  Ky.  640,  4  S.  W.  332,  7  Am. 
St.  619;  Garrett  v.  Lake  Roland  El. 
R.  Co.  79  Md.  277,  29  Atl.  830,  24  L. 
R.  A.  396. 

"Freiday  v.  Sioux  City,  &c.  Co. 
92  Iowa  191,  60  N.  W.  656,  26  L.  R. 
A.  ,246.  See,  also,  People's,  &c.  Co. 
v.  Dash,  125  N.  Y.  93,  26  N.  E.  25, 
10  L.  R.  A.  728,  46  Am.  &  Eng.  R. 
Gas.  114;  Koch  v.  North  Ave.  R.  Co. 
75  Md.  222,  33  Atl.  463,  15  L.  R.  A. 
377.  A  subway  railway  with  fre- 
quent stations  from  which  the  sur- 
face could  be  reached  was  held  in 
effect  a  street  railway  in  New  York, 


DEFINITIONS. 


18 


§  8.  Electric  railroads. — Kailroads  operated  by  electricity  and  en- 
gaged in  carrying  passengers  along  the  streets  of  a  city  are  classed 
with  street  railways  rather  than  with  ordinary  commercial  railroads.78 
Their  use  being  in  furtherance  of  travel  upon  the  streets  may  be  said 
to  be  within  the  original  purposes  for  which  the  streets  were  dedicated 
and  laid  out,  and  they  do  not,  therefore,  when  properly  constructed, 
constitute  a  new  servitude  or  additional  burden  for  which  abutting 
property-owners  are  entitled  to  compensation.77  In  this  respect,  as  in 
most  respects,  they  are  governed  by  the  same  rules  that  apply  to 
ordinary  street  railways  operated  by  animal  power,  and  not  by  the 
rules  applicable  to  commercial  railroads.  But  the  more  dangerous 
nature  of  the  motive  power  may  require,  both  as  to  passengers  and  to 
other  travelers,  or  the  public  generally,  a  degree  of  care  not  required  in 
the  case  of  horse  railways,  that  is  to  say,  the  care  should  be  in  pro- 
portion to  the  danger.  A  forcible  illustration  of  the  rule  that  electric 
railways  for  carrying  passengers  along  the  streets  are  to  be  regarded 
as  street  railways  rather  than  as  commercial  railroads  is  found  in  a 
recent  case78  in  which  it  is  held  that  an  electric  railway  company  has 
the  right  to  run  its  cars  across  a  public  toll  bridge,  upon  the  payment 


&c.  R.  Co.,  In  re,  107  N.  Y.  42,  14 
N.  E.  187. 

78  See  Thompson-Houston  Electric 
Co.  v.  Simon,  20  Ore.  60,  25  Pac.  147, 
10  L.  R.  A.  251,  23  Am.  St.  86,  47 
Am.  &  Eng.  R.  Gas.  51;  Hill  v.  Rome 
St.  R.  Co.  101  Ga.  66,  28  S.  E.  631; 
Hudson  River  Tel.  Co.  v.  Water- 
vliet,  &c.  Co.  135  N.  Y.  393,  32  N.  E. 
148,  17 'L.  R.  A.  674,  31  Am.  St.  838; 
Paterson  R.  Co.  v.  Grundy,  51  N.  J. 
Eq.  213,  26  Atl.  788;  Halsey  v.  Rapid, 
&c.  R.  Co.  47  N.  J.  Eq.  380,  20 
Atl.  859;  Elliott  Roads  and  Sts.  (2d 
ed.),  §  699.  But  compare  Chicago, 
&c.  R.  Co.  v.  Milwaukee,  &c.  R.  Co. 
95  Wis.  561,  70  N.  W.  678,  37  L.  R. 
A.  856,  60  Am.  St.  137. 

"Dubois  Traction  Co.  v.  Buffalo, 
&c.  R.  Co.  149  Pa.  St.  1,  24  Atl. 
179,  11  R.  &  Corp.  L.  Jour.  6 ;  Lock- 
hart  v.  Craig  St.  R.  Co.  139  Pa.  St. 
419,  21  Atl.  26;  Taggart  v.  Newport 
St.  R.  Co.  16  R.  I.  668,  19  Atl.  326, 
7  L.  R.  A.  205;  West  Jersey  R.  Co. 


v.  Camden,  &c.  R.  Co.  52  N.  J.  452, 
29  Atl.  423;  Paterson  R.  Co.  v. 
Grundy,  51  N.  J.  213,  26  Atl.  788; 
Detroit  St.  R.  Co.  v.  Mills,  85  Mich. 
634,  48  N.  W.  1007;  Koch  v.  North 
Avenue  R.  Co.  75  Md.  22,  23  Atl. 
463;  Green  v.  City  Suburban  R.  Co. 
78  Md.  294,  28  Atl.  626,  44  Am.  St. 
288;  Chicago,  &c.  R.  Co.  v.  Whiting, 
&c.  Co.  139  Ind.  297,  38  N.  E.  604, 
26  L.  R.  A.  337,  47  Am.  St.  264; 
Cincinnati,  &c.  R.  Co.  v.  City,  &c. 
Co.  48  Ohio  St.  390,  27  N.  E.  890, 
12  L.  R.  A.  534,  29  Am.  St.  559, 
10  R.  &  Corp.  Law  Jour.  82;  Wil- 
liams v.  City  Electric  St.  R.  Co.  41 
Fed.  556;  -Cumberland,  &c.  Co.  v. 
United  Electric  R.  Co.  93  Tenn.  492, 
29  S.  W.  104;  San  Antonio,  &c.  R. 
Co.  v.  Limburger,  88  Tex.  79,  30  S. 
W.  533. 

78  Pittsburgh,  &c.  R.  Co.  v.  Point 
Bridge  Co.  165  Pa.  St.  37,  30  Atl. 
511,  26  L.  R.  A.  323. 


19  CABLE  RAILROADS.  [§    9 

of  adequate  toll,  where  the  statute  gives  it  the  right  to  use  "any 
street  or  highway."  The  court  regarded  it  as  a  use  which  was  consist- 
ent with  the  purpose  for  which  the  bridge  was  erected,  being  in  fur- 
therance of  public  travel  and  accommodation,  and  held  that  it  did  not 
constitute  a  taking  of  property  under  the  power  of  eminent  domain.79 
As  electricity  is  now  coming  into  use  for  commercial  railroads,  and  is 
used  almost  altogether  as  a  motive  power  on  interurban  railroads, 
there  is  likely  to  be  confusion,  unless  the  term  is  confined  to  such 
roads  as  were  formerly  known  as  electric  railroads,  and,  as  already 
stated,  the  mere  fact  that  electricity  is  the  motive  power  is  not  conclu- 
sive as  to  whether  the  rules  and  principles  applicable  to  commercial 
railroads  or  those  applicable  to  street  railroads  apply. 

§  9.  Cable  railroads. — Eailroads  operated  by  the  cable  system  are 
also  classed  with  street  railways.  Indeed,  as  ordinarily  located,  con- 
structed and  operated,  they  may  be  regarded  as  a  sub-class  or  particu- 
lar kind  of  street  railways.  They  do  not,  therefore,  constitute  an 
additional  burden  any  more  than  ordinary  horse  railways.80  In  one 
case,  however,  it  was  held  that  a  cable  road  is,  "as  to  one  part  of  the 
street,  surface,  and  as  to  another  part,  subterranean,"  and  that  a  com- 
pany organized  merely  as  a  surface  railway  company  had  no  right  to 
excavate  the  streets  and  construct  a  subterranean  cable  system;81  but 
the  same  court,  in  a  later  case,  held  that  such  a  company  could  be 
authorized  by  the  legislature  to  use  the  cable  system  without  the 
consent  of  the  local  authorities,  notwithstanding  a  provision  of  the 
constitution  prohibiting  the  passage  of  any  law  authorizing  the  con- 
struction or  operation  of  a  street  railroad  without  first  obtaining  the 
consent  of  the  local  authorities.82  Although  cable  roads  in  city  streets 

79  See,  also,  Covington,  &c.  Co.  v.        tt  People  v.  Newton,  112  N.  Y.  396, 
South  Covington,  &c.  Co.  93  Ky.  136,     19  N.  E.  831,  3  L.  R.  A.  174  n. 

19  S.  W.  403,  15  L.  R.  A.  828.  82  Third   Avenue   R.    Co.,   Petition 

80  Rafferty  v.  Central  Traction  Co.  of,  121  N.  Y.  536,  24  N.  E.  951,  9  L. 
147  Pa.  St.  579,  23  Atl.  884,  30  Am.  R.  A.  124.     The  court  said  that,  as 
St.  763;   Lorie  v.  North  Chicago  R.  the   railroad   had   already   been   or- 
Co.   32   Fed.   270;    Harrison  v.   Mt.  'ganized,    constructed    and    operated 
Auburn  Cable  R.  Co.  (Ohio),  17  W.  as  a  horse  street  railway,  the  act  of 
L.  Bull.  265 ;  Clement  v.  Cincinnati  the  legislature  in  question  did  not 
(Ohio),  16  W.  L.  Bull.  355;   Booth  attempt  to  grant  a  franchise  or  au- 
St.  Railw.,  §  84.    Compare  Tuebner  thorize  the  "construction  or  opera- 
v.  California  St.  R.  Co.  66  Cal.  171,  tion  of  a  street  railroad,"  but  mere- 
4  Pac.  1162.  ly  regulated  the  use  of  an  existing 

franchise. 


§  9a]  DEFINITIONS.  20 

engaged  only  in  carrying  passengers  are  usually  regarded  as  street 
railways,  yet  a  company  which  carries  freight  as  well  as  passengers, 
whose  road  is  but  three  miles  in  length,  over  two  miles  of  which  cars 
are  drawn  by  locomotives,  is  a  "railroad  company,"  taxable  as  an 
ordinary  railway,  notwithstanding  the  fact  that  one  mile  of  the  line, 
up  a  steep  ascent,  is  operated  by  cable.83 

§  9a.  Intemrban  railroads. — Interurban  railroads  have  been  de- 
fined or  described  as  "those  connecting  distant  communities,  which  are 
laid  mainly  on  highways,  and  as  to  so  much  of  them  as  lie  within  each 
of  these  communities  are  built  upon  its  streets  and  operated  so  as  to 
promote  local  convenience  and  make  these  streets  more  serviceable  to 
the  public."84  As  a  matter  of  fact,  however,  interurban  railroads  are 
now  constructed,  so  far  as  they  extend  through  the  country  between 
cities  and  towns,  mainly  upon  the  land  or  right  of  way  of  the  company 
rather  than  upon  the  country  highways.  It  is  a  vexed  question  as  to 
whether  such  a  railroad  is  an  additional  burden  on  a  country  high- 
way, and  it  is  easier  or  cheaper,  in  some  instances,  to  obtain  such  a 
right  of  way.  So,  when  the  railroad  is  thus  located  and  constructed 
there  is  less  danger  of  interfering  with  travel ;  the  cars  can  be  run  with 
more  freedom,  and  there  is  less  danger  of  liability  of  accident  to 
passengers  and  travelers  upon  the  highway.  Such  railroads  are  a  new 
development  of  a  somewhat  mixed  character,  and  the  law  applicable 
to  them  is  not  in  all  respects  well  settled.  They  usually  extend  from 
one  city  or  town  to  and  within  the  limits  of  another  city  or  town  and 
partake,  in  some  respects,  of  the  nature  of  both  street  railways  and 
ordinary  commercial  railroads.  Their  nature  and  characteristics,  and 
the  principles  of  law  applicable  to  them,  will  be  fully  considered  in 
a  separate  chapter. 

83  State  v.  Eleventh  Judicial  Dis-  so  operated  up  the  sides  of  moun- 

trict  Ct.,   54   Minn.   341,   55   N.   W.  tains  not  on  or  near  any  street,  and 

816.    Compare  Funk  v.  St.  Paul  City  we  remember  to  have  traveled  on  a 

R.  Co.  61  Minn.  435,  63  N.  W.  1099,  commercial  steam  railroad  in  Switz- 

29  L.  R.  A.  208,  52  Am.  St.  608.   And  erland  which  was  so  operated  for  a 

the  fact  that  a  railroad  is  operated  short  distance  of  its  course  up  the 

either  in  whole  or  in  part  by  a  cable  side  of  a  mountain, 

system  does  not  necessarily  make  it  M  Baldwin  Am.  Railw.  Law  9. 
a  street  railroad.     There  are  roads 


CHAPTER  II. 


PROMOTION   AND  FORMATION   OP  THE  CORPORATION. 


Sec.  Sec. 

10.  Promoters — Who  are.  15. 

11.  Fiduciary  relation  of  promoters 

—Duties  and  liabilities.  16. 

12.  Promoter  may  sell  property  to    17. 

the  corporation.  18. 

13.  Personal  liability  of  promoters 

— When  partners.  19. 

13a.  Representations  by  promoters.      20. 

14.  Contracts  of  promoters — When 

binding  on  corporation. 


Legislative  authority  essential 
to  creation  of  corporation. 

Creation  by  special  charter. 

Acceptance  of  charter. 

Incorporation  under  general 
laws. 

Perfecting  the  organization. 

Defective  organization — Waiver 
— Collateral  attack. 


§  10.  Promoters — Who  are. — The  steps  preliminary  to  the  organi- 
zation of  a  railroad  corporation  are  frequently,  if  not  generally,  taken 
by  persons  known  as  "promoters,"  who  bring  together  the  persons  in- 
terested in  the  enterprise,  aid  in  procuring  subscriptions,  and  set  in 
motion  the  machinery  which  leads  to  the  formation  of  the  corpora- 
tion,1 often,  also,  making  the  necessary  arrangements  looking  toward 
the  purchase  of  property  or  the  entering  into  contracts  by  the  new 
company.2  By  merely  subscribing  the  articles,  or  taking  stock  in  a 
company  not  yet  incorporated,  a  person  does  not  assume  the  character 
of  a  promoter.3  But  circumstances  which  show  that  one  is  assuming  to 
act  in  the  interest  of  a  project,  and  is  seeking  to  influence  others  to 
give  it  pecuniary  assistance,  will  afford  evidence  that  he  has  under- 


took Stock  and  Stockholders, 
§  651;  Dickerman  v.  Northern  Trust 
Co.  176  U.  S.  181,  203,  20  Sup.  Ct. 
311,  319;  Lee  v.  Heppenheimer  (N. 
J.  Eq.),  61  Atl.  843,  857. 

2  Beach  Law  of  Railways,  §  1; 
Twycross  v.  Grant,  L.  R.  2  C.  P. 
Div.  469,  503;  Yale  Gas  Stove  Co.  v. 
Wilcox,  quoted  in  note  to  §  11,  infra. 
See,  also,  First  Ave.  Land  Co.  v.  Hil- 
debrand,  103  Wis.  530,  79  N.  W. 


753;  Ex-Mission  Land,  &c.  Co.  v. 
Flash,  97  Cal.  610,  32  Pac.  600; 
Bosher  v.  Richmond,  &c.  Co.  89  Va. 
455,  16  S.  E.  360,  37  Am.  St.  879. 

8  St.  Louis,  &c.  R.  Co.  v.  Tiernan, 
37  Kans.  606,  40  Am.  &  Eng.  R.  Gas. 
525;  Ward  v.  Brigham,  127  Mass.  24. 
See,  also,  Taylor  Priv.  Corp.  (4th 
ed.),  §  73.  But  see  Lake  v.  Argyle, 
6  Q.  B.  477. 


11]         PROMOTION  AND  FORMATION  OF  THE  CORPORATION. 


22 


taken  the  responsibility  of  a  promoter  toward  persons  who  deal  with 
him  as  such.4 


§  11.    Fiduciary  relation  of  promoters — Duties  and  liabilities. — A 

promoter  occupies  a  fiduciary  relation  toward  the  company,  and  is  sub- 
ject, in  general,  to  the  disabilities  attached  to  trustees.5   He  is  forbid- 


*  Sidney,  &c.  Co.  v.  Bird,  L.  R.  31 
Ch.  Div.  328;  Lake  v.  Argyle,  6  Q. 
B.  477;  Woodbury,  &c.  Co.  v.  Lou- 
denslager,  55  N.  J.  78,  35  All.  436. 
The  question  is  largely  one  of  fact 
depending  upon  the  circumstances 
of  the  case.  Bagnall  v.  Carlton,  6 
Ch.  D.  371,  47  L.  J.  Ch.  30;  Lydney, 
&c.  Co.  v.  Bird,  33  Ch.  D.  85,  24  Am. 
&  Eng.  Corp.  Gas.  24. 

5  Emma  Silver  M.  Co.  v.  Grant,  L. 
R.  11  Ch.  Div.  918;  Taylor  Priv. 
Corp.  (4th  ed.),  §  82.  In  the  case 
of  Yale  Gas  Stove  Co.  v.  Wilcooc,  64 
Conn.  101,  29  Atl.  303,  25  L.  R.  A. 
90,  42  Am.  St.  159,  the  court  said: 
"Who  and  what  are  'promoters'  so- 
called,  of  corporations,  and  what 
their  relations  to  the  corporations 
which  they  help  to  form,  has  been 
more  frequently  judicially  consid- 
ered and  determined  by  the  English 
courts  than  by  those  of  this  country. 
*  *  *  A  'promoter'  has  been  de- 
fined to  be  a  person  who  organizes 
a  corporation.  It  is  said  to  be,  not 
a  legal,  but  a  business  term,  'use- 
fully summing  up  in  a  single  word, 
a  number  of  business  operations  fa- 
miliar to  the  commercial  world,  by 
which  a  company  is  generally 
brought  into  existence.'  Bowen,  J., 
in  Printing  Co.  v.  Green,  28  Wkly. 
R.  (Q.  B.  Div.  1880)  351,  352.  That 
such  persons  occupy  a  fiduciary  re- 
lation toward  the  company  or  cor- 
poration whose  organization  they 
seek  to  promote  is  well  settled  by 
the  decisions  of  both  countries. 
Lord  Cotton  prefers  to  call  them 


'trustees.'  Bagnall  v.  Carlton,  6  Ch. 
Div.  371,  385.  Sir  George  Jessel,  M. 
R.,  in  Phosphate  Co.  v.  Erlanger,  L. 
R.  5  Ch.  Div.  73,  said:  'Promoters 
stand  in  a  fiduciary  relation  to  that 
company  which  is  their  creature.' 
In  Erlanger  v.  Phosphate  Co.  3  App. 
Cas.  1218,  the  Lord  Chancellor  said 
of  promoters:  'They  stand,  in  my 
opiniont  undoubtedly  in  a  fiduciary 
position.  They  have  in  their  hands 
the  creation  and  molding  of  the 
company.  They  have  the  power  of 
defining  how,  and  when,  and  in 
what  shape,  and  under  what  super- 
vision, it  shall  start  into  existence 
and  begin  to  act  as  a  trading  cor- 
poration. If  they  are  doing  all  this 
in  order  that  the  company  may,  as 
soon  as  it  starts  into  life,  become, 
through  its  managing  directors,  the 
purchasers  of  the  property  of  them- 
selves (the  promoters)  it  is,  in  my 
opinion,  incumbent  upon  the  pro- 
moters to  take  care  that  in  forming 
the  company  they  provide  it  with  an 
executive;  that  is  to  say,  with  a 
board  of  directors,  who  shall  both 
be  aware  that  the  property  which 
they  are  asked  to  buy  is  the  prop- 
erty of  the  promoters,  and  who  shall 
be  competent  and  impartial  judges 
as  to  whether  the  purchase  ought 
or  ought  not  to  be  made.  I  do  not 
say  that  the  owner  of  property  may 
not  promote  and  form  a  joint  stock 
company  and  then  sell  his  property 
to  it;  but  I  do  say  that  if  he  does 
he  is  bound  to  take  care  that  he 
sell  it  to  the  company  through  the 


23 


FIDUCIARY   RELATION    OF    PROMOTERS. 


[§ 


den  to  make  any  secret  profits  at  the  expense  of  the  company,6  or  to 
gain  any  advantage  over  other  stockholders  arising  from  the  profits 


medium  of  a  board  of  directors  who 
can  and  do  exercise  an  independent 
and  intelligent  judgment  on  the 
transaction,  and  who  are  not  left 
under  the  belief  that  the  property 
belongs,  not  to  the  promoter,  but  to 
some  other  person.'  Lord  O'Hagan, 
referring  to  the  same  subject,  ex- 
pressed a  similar  opinion  in  even 
more  emphatic  language,  declaring 
that  while  an  original  purchase 
might  be  legitimate,  and  not  less 
so  because  the  object  of  the  pur- 
chaser was  to  sell  it  again,  and  to 
sell  it  by  forming  a  company  which 
might  afford  them  a  profit  on  the 
transaction,  yet  'the  privilege  given 
them  for  promoting  such  a  company 
for  such  an  object  involved  obliga- 
tions of  a  very  serious  kind.  It  re- 
quired, in  its  exercise,  the  utmost 
good  faith,  the  completest  truthful- 
ness, and  a  careful  regard  to  the 
protection  of  the  future  stockhold- 
ers.' The  test,  therefore,  of  the  va- 
lidity of  such  transactions  is  that 
it  must,  in  all  its  parts  be  open  and 
fair,  so  that  the  promoters  shall  not, 
in  fact,  substantially,  'act  both  as 
vendors  and  vendees,  and  in  the  lat- 
ter capacity  approve  a  transaction 
suggested  by  them  in  the  former.' 
Foss  v.  Harbottle,  2  Hare  461,  488; 
McElhenny's  Appeal,  61  Pa.  St.  188; 
Simons  v.  Mining  Co.  61  Pa.  St. 
202,  100  Am.  Dec.  628;  Oil  Co.  v. 
Densmore,  64  Pa.  St.  43;  Pittsburg 
Mining  Co.  v.  Spooner,  74  Wis.  307, 
42  N.  W.  259,  17  Am.  St.  149  n; 
South,  &c.  Co.  v.  Case,  104  Mo.  572, 
16  S.  W.  390;  British  Seamless  Pa- 
per-box Co.,  In  re,  17  Ch.  Div.  467; 
Sewage  Co.  v.  Hartmont,  5  Ch.  Div. 
394.  In  Hichens  v.  Congreve,  1 
Russ.  &  M.  150  (on  appeal,  4  Russ. 
562),  three  promoters  induced  their 


company  to  buy  a  mine  for  £25,000, 
of  which  they  received  from  the 
vendor  and  divided  among  them- 
selves, £15,000.  This  they  were  com- 
pelled to  account  for  to  the  com- 
pany. Similar  cases  are  Beck  v. 
Kantorowicz,  3  Kay  &  J.  230;  Print- 
ing Co.  v.  Green,  28  Wkly.  R.  (Q.  B. 
Div.  1880)  351,  352;  Mining  Co.  v. 
Grant,  11  Ch.  Div.  918;  Bagnall  v. 
Carlton,  6  Ch.  Div.  371,  385;  Kent 
v.  Brickmaking  Co.  17  Law  T.  (N. 
S.)  77;  Water  Co.  v.  Flash,  97  Cal. 
610,  32  Pac.  600.  *  *  *  A  care- 
ful examination  of  the  cases  will, 
we  think,  disclose  two  grounds  of 
liability  of  the  defendants  to  cor- 
porations for  undisclosed  profits  re- 
sulting from  transactions  with  such 
corporations:  First,  where  the  de- 
fendants are  corporate  fiduciaries. 
The  characteristic  of  this  relation 
is  trust.  Such  a  relation  undoubted- 
ly exists  between  companies  and 
their  officers,  such  as  directors.  Mai- 
lory  v.  Mallory- Wheeler  Co.  61  Conn. 
135,  23  Atl.  707.  With  reference  to 
promoters,  since  a  man  cannot  re- 
ceive an  appointment  from  a  non- 
existent company,  the  proof  may  be 
less  obvious;  but  it  may,  neverthe- 
less, be  shown  conclusively  by  a  va- 
riety of  representations,  admissions, 
and  acts.  The  second  ground  of  lia- 
bility is  fraud.  The  law  does  not 
prohibit  a  promoter  from  dealing 
with  his  company,  but  he  must 
irfake  full  disclosure  to  the  com- 
pany of  his  relations  to  the  prop- 
erty that  is  the  subject  of  his  deal. 
Suppression,  concealment,  or  mis- 
representation of  material  facts  is 
fraud,  upon  proof  of  which  rescis- 
sion of  contract,  or  repayment  of  the 
secret  profits,  will  be  compelled." 
"Emma  Silver  M.  Co.  v.  Grant,  L. 


12] 


PROMOTION  AND  FORMATION  OF  THE  CORPORATION. 


of  the  company's  transactions.7  He  must  generally  turn  over  to  the 
company  any  commissions  received  for  the  sale  of  property  to  the 
company,8  and  it  has  been  held  that  the  company  may  sue  the  seller  to 
recover  such  a  commission  if  it  is  not  yet  paid,0  or  it  may,  in  a  proper 
case,  upon  discovery  of  the  unfair  character  of  the  transaction,  re- 
scind the  contract  of  sale  and  sue  the  promoters  to  recover  the  moneys 
paid  them  for  the  property.10 

§  12.  Promoter  may  sell  property  to  the  corporation. — A  promoter 
may,  however,  honestly  and  fairly  sell  to  the  company  property  which 
he  owned  before  instituting  the  scheme  for  incorporation.11  This  is 
true  even  when  the  scheme  relates  to  the  development  of  the  very 
property  which  he  sells  to  the  corporation.12  But  it  seems  that  the 


R.  11  Ch.  Div.  918;  Pittsburg  Min- 
ing Co.  v.  Spooner,  74  Wis.  307,  42 
N.  W.  259,  17  Am.  St.  149,  and  note; 
Lydney,  &c.  Co.  v.  Bird,  L.  R.  33  Ch. 
Div.  85,  55  Law  T.  (N.  S.)  558; 
Emery  v.  Parrott,  107  Mass.  95;  Si- 
mons v.  Vulcan  Oil,  &c.  Co.  61  Pa. 
St.  202,  100  Am.  Dec.  628;  Plaque- 
mines,  &c.  Co.  v.  Buck,  52  N.  J.  Eq. 
219,  27  Atl.  1094.  See,  also,  Wardell 
v.  Union  Pac.  R.  Co.  103  U.  S.  651; 
Rutland,  &c.  Co.  v.  Bates,  68  Vt. 
579,  35  Atl.  480,  54  Am.  St.  904. 

7  Getty  v.   Devlin,   54   N.   Y.  403; 
Chandler  v.  Bacon,  30  Fed.  538,  540; 
Densmore  Oil  Co.  v.  Densmore,  64 
Pa.  St.  43;  Bagnall  v.  Carlton,  L.  R. 
6  Ch.  Div.  371;   Emery  v.  Parrott, 
107  Mass.  95. 

8  Emma  Silver  M.  v.  Grant,  L.  R. 
11  Ch.  Div.  918;  Lydney,  &c.  Co.  v. 
Bird,  L.  R.  33  Ch.  Div.  85,  55  Law 
T.    OST.  S.)    558;    Beck  v.   Kantoro- 
wicz,  3  Kay  &  J.  230;   Brewster  v. 
Hatch,  122  N.  Y.  349,  25  N.  E.  505, 
19  Am.  St.  498. 

"Whaley,  &c.  Co.  v.  Green,  L.  R. 
5  Q.  B.  Div.  109,  41  Law  T.  (N.  S.) 
674. 

10  St.  Louis,  &c.  Mining  Co.  v.  Jack- 
son, 5  Cent.  L.  J.  317;  Phosphate 
Sewage  Co.  v.  Hartmont,  L.  R.  5 


Ch.  Div.  394,  37  Law  T.  (N.  S.) 
9.  See  also  Dickerman  v.  Northern 
Trust  Co.  176  U.  S.  181,  20  Sup.  Ct. 
311.  "The  corporation  is  the  proper 
plaintiff  in  a  suit  to  set  aside  the 
promoter's  acts."  Taylor  Priv. 
Corp.  (4th  ed.),  §  83,  citing  Ex- 
Mission  Land  Co.  v.  Flash,  97  Cal. 
610,  32  Pac.  600.  So,  in  a  suit  to 
recover  the  avails  of  a  secret  agree- 
ment between  him  and  one  from 
whom  the  corporation  purchases 
property.  Yale  Gas  Stove  Co.  v. 
Wilcox,  64  Conn.  101,  29  Atl.  303, 
25  L.  R.  A.  90,  42  Am.  St.  159.  See, 
also,  Pittsburg  Min.  Co.  v.  Spooner, 
74  Wis.  307,  42  N.  W.  259,  17  Am. 
St.  149,  and  note;  3  Pom.  Eq.  Jur., 
§§  1094,  1096. 

"Taylor  Priv.  Corp.  (4th  ed.), 
§  83;  Burbank  v.  Dennis,  101  Cal. 
90,  35  Pac.  444;  Plaquemines,  &c. 
Co.  v.  Buck,  52  N.  J.  219,  27  Atl. 
1094.  See,  also,  note  to  Yale  Gas 
Stove  Co.  v.  Wilcox,  29  Atl.  303,  25 
L.  R.  A.  90,  42  Am.  St.  159,  and 
note  to  Pittsburg  Min.  Co.  v. 
Spooner,  74  Wis.  307,  42  N.  W.  259, 
17  Am.  St.  149;  Hess  Mfg.  Co.,  In 
re,  21  Ont.  App.  66. 

"Dorris  v.  French,  4  Hun  (N. 
Y.)  292;  Cover's  Case,  L.  R.  1  Ch. 


PERSONAL    LIABILITY   OF   PROMOTERS. 


[§  13 


corporation  may  rescind  such  a  contract,  if  the  sale  be  made  for  an 
exorbitant  price  and  without  disclosing  the  real  ownership  of  the 
property.13  And  after  the  formation  of  the  company  is  begun  a 
promoter  cannot  purchase  property  and  sell  it  to  the  corporation  at  an 
advanced  price  without  a  full  disclosure  of  the  facts.14 

§  13.  Personal  liability  of  promoters — When  partners. — The  pro- 
moters, as  a  general  rule,  are  personally  liable  on  all  contracts  entered 
into  by  them  before  the  organization  is  completed,15  except  where 
they  have  expressly  stipulated  against  personal  liability,  or  except, 
perhaps,  where  the  contract  is  made  in  the  name  of  the  proposed  cor- 
poration alone  and  the  credit  is  knowingly  given  to  it  and  not  to  the 
promoters.16  A  promoter  cannot,  ordinarily,  in  the  absence  of  evi- 
dence that  he  has  received  authority  to  act  for  his  associates,  render 
them  responsible  for  his  acts,17  for  the  several  promoters  are  not  part- 


Div.  182 ;  Seymour  v.  Spring  Forest, 
&c.  Ass'n.,  144  N.  Y.  333,  39  N.  E. 
365,  26  L.  R.  A.  859;  Densmore  Oil 
Co.  v.  Densmore,  64  Pa.  St.  43. 

13  Cape  Breton  Co.,  In  re,  L.  R.  26 
Ch.  Div.  221,  L.  R.  29  Ch.  Div.  795; 
Lindsay  Petroleum,  &c.  Co.  v.  Hurd, 
L.  R.  5  P.  C.  221;  Taylor  Priv:  Corp. 
(4th  ed.),  §  83.  But  see  Densmore 
Oil  Co.  v.  Densmore,  64  Pa.  St.  43. 

"South,  &c.  Co.  v.  Case,  104  Mo. 
572,  16  S.  W.  390;  Paducah  Land, 
&c.  Co.  v.  Mulholland,  15  Ky.  L. 
624,  24  S.  W.  624;  Ex-Mission  Land, 
&c.  Co.  v.  Flash,  97  Cal.  610,  32  Pac. 
600;  Plaquemines,  &c.  Co.  v.  Buck,  52 
N.  J.  Eq.  219,  27  Atl.  1094;  Pittsburg 
Min.  Co.  v.  Spooner,  74  Wis.  307,  42 
N.  W.  259,  17  Am.  St.  149;  Lee  v. 
Heppenheimer  (N.  J.  Eq.),  61  Atl. 
843.  Where  a  promoter  fraudulent- 
ly represents  that  he  has  bought 
property  for  a  proposed  corporation 
at  a  certain  price,  and  the  corpora- 
tion pays  him  that  price,  it  may, 
after  discovery  of  the  fraud,  sue 
him  for  the  profit  thus  made.  Si- 
mons v.  Vulcan  Oil,  &c.  Co.  61  Pa. 
St.  202,  100  Am.  Dec.  628. 

"Hurt  v.  Salisbury,  55  Mo.  310; 


Taylor  Priv.  Corp.  (4th.  ed.),  §  76; 
Kelner  v.  Baxter,  L.  R.  2  C.  P.  174; 
Scott  v.  Lord  Ebury,  36  L.  J.  C.  P. 
161.  See,  also,  Manistee  Lumber  Co. 
v.  Union  Nat.  Bank,  143  111.  490,  32 
N.  E.  449;  Hersey  v.  Tully,  8  Colo. 
App.  110,  44  Pac.  854. 

18Rennie  v.  Clarke,  5  Ex.  292; 
Higgins  v.  Hopkins,  3  Exch.  163; 
Landman  v.  Entwistle,  7  Ex.  632. 
See  note  to  Pittsburg  Min.  Co.  v. 
Spooner,  74  Wis.  307,  42  N.  W.  259, 
17  Am.  St.  149,  162,  and  post,  §  190. 
They  cannot  be  held  liable  to  one 
who  knowingly  agrees  to  accept  and 
does  accept  the  notes  of  a  corpora- 
tion then  contemplated  and  after- 
ward organized  in  payment,  and  pa- 
rol  evidence  is  admissible  to  show 
such  knowledge  and  agreement 
where  the  notes  were  signed  by  the 
company  with  the  names  and  titles 
of  the  officers,  especially  to  contra- 
dict the  contention  of  the  plaintiff 
that  the  notes  of  the  company  were 
accepted  through  a  misunderstand- 
ing. Case  Manufacturing  Co.  v.  Sox- 
man,  138  U.  S.  431,  11  Sup.  Ct.  360. 

"Patrick  v.  Reynolds,  1  Com.  B. 
N.  S.  727;  Williams  v.  Pigott,  5 


13] 


PROMOTION  AND  FORMATION  OF  THE  CORPORATION. 


ners.18  They  may,  however,  take  on  the  character  of  partners  by 
holding  themselves  out  as  such,19  or  by  fraudulently  acting  in  concert 
for  their  own  common  personal  benefit.20  If  the  scheme  prove  abortive, 
and  the  proposed  corporation  is  never  chartered,  the  expenses  incurred 
in  the  attempted  organization  must  usually  be  borne  by  the  pro- 
moters,21 and  the  subscribers,  unless  estopped  by  acquiescence  or  some 
act  of  their  own,  may  recover  back  the  money  paid  for  shares  of  its 
stock.22  The  promoters  are  also  liable  to  one  whom  they  have  induced 
to  subscribe  by  fraudulent  representations.23 


Eng.  R.  &  C.  Gas.  544;  Johnson  v. 
Corser,  34  Minn.  355,  25  N.  W.  799. 
18Reynell  v.  Lewis,  15  Mees.  &  W. 
517;  Bailey  v.  Macaulay,  13  Q.  B. 
815;  1  Thompson  Corp.,  §  421.  See 
Davidson  v.  Hobson,  1  Mo.  App.  28. 
And  they  cannot  be  held  liable  as 
partners  under  a  complaint  which 
does  not  proceed  upon  that  theory 
but  simply  seeks  to  hold  them  per- 
sonally liable  in  the  event  that  it 
is  ascertained  that  the  subsequent 
incorporation,  which  was  contem- 
plated by  all  parties  at  the  time  of 
the  contract,  was  defective,  and  to 
hold  them  liable  as  stockholders  if 
it  should  be  determined  to  be  an  ef- 
fective incorporation.  Shields  v. 
Clifton,  &c.  Co.  94  Tenn.  123,  28  S. 
W.  668,  26  L.  R.  A.  509,  45  Am.  St. 
700.  See,  also,  Buffington  v.  Bardon, 
80  Wis.  635,  50  N.  W.  776. 

19  Collingwood  v.   Berkeley,   15   C. 
B.  N.  S.  145;   Lake  v.  Duke  of  Ar- 
gyll, 6  Q.  B.  477.    See,  also,  McFall 
v.  McKeesport,  &c.   Co.  123  Pa.   St. 
259,  16  Atl.  478;  McLennan  v.  Hop- 
kins, 2  Kans.  App.  260,  41  Pac.  1061. 

20  Chandler  v.  Bacon,  30  Fed.  538; 
Colt  v.  Woollaston,  2  P.  Wms.  154, 
See  also  Hornblower  v.  Crandall,  7 
Mo.  App.  220,  affirmed  in  78  Mo.  581; 
New  Sombrero  Phosphate  Co.  v.  Er- 
langer,  L.  R.  5  Ch.  Div.  73,  36  Law 
T.  (N.  S.)  222;  Getty  v.  Devlin,  54 
N.  Y.  403. 

21  Nockels  v.  Crosby,  3  Barn.  &  C. 


814,  822;  Johnson  v.  Corser,  34 
Minn.  355,  25  N.  W.  799;  Sproat  v. 
Porter,  9  Mass.  300.  This  may,  how- 
ever, be  regulated  by  contract  or  de- 
pend upon  the  peculiar  circum- 
stances of  each  particular  case.  That 
the  corporation  is  not  necessarily 
liable  to  him,  see  Ritchie  v.  McMul- 
len,  79  Fed.  522,  25  C.  C.  A.  50;  Sey- 
mour v.  Spring  Forest,  &c.  Ass'n, 
144  N.  Y.  333,  39  N.  E.  365,  26  L.  R. 
A.  859;  Wilson  v.  Trenton,  &c.  R. 
Co.  56  N.  J.  Eq.  783,  40  Atl.  597; 
Winters  v.  Hub  Min.  Co.  57  Fed. 
287. 

22  Williams  v.  Page,  24  Beav.  654; 
Walstab   v.   Spottiswoode,   15   Mees. 
&  W.  501;   Ashpitel  v.  Sercombe,  5 
Ex.  147;  Nockels  v.  Crosby,  3  Barn. 
&  C.  814;   Grand  Trunk,  &c.  R.  Co. 
v.    Brodie,    9    Hare    823.      But   see 
Moore  v.  Garwood,  4  Ex.  681;  Tay- 
lor Priv.  Corp.,  §  104. 

23  Miller  v.  Barber,  66  N.  Y.  558; 
Paddock    v.    Fletcher,    42    Vt.    389; 
Short  v.  Stevenson,  63  Pa.  St.  95; 
Teachout  v.   Van  Hoesen,   76   Iowa 
113,  40  N.  W.  96,  1  L.  R.  A.  664,  14 
Am.  St.  206;  Cridland  v.  De  Mauley, 
1    DeGex    &    S.    459,    12    Jur.    701; 
Glasier  v.  Rolls,  60  Law  T.   (N.  S.) 
59,  L.  R.  42  Ch.  Div.  436.    See,  also, 
Brewster  v.  Hatch,  122  N.  Y.  349,  25 
N.  E.  505,  19  Am.  St.  498;  Capel  v. 
Sim's,  &c.   Co.   58  Law  T.    (N.   S.) 
807,   57  L.  J.  Ch.   713;    Gerhard  v. 
Bates,  2  El.  &  Bl.  476. 


27 


REPRESENTATIONS    BY    PROMOTERS. 


[§  13a 


§  13a.  Representations  by  promoters. — Misrepresentations  made 
by  the  promoters  of  a  corporation  at  a  public  meeting,  called  for  the 
purpose  of  procuring  subscriptions  to  stock,  will  not,  ordinarily,  vitiate 
a  subscription  made  in  reliance  thereon  by  one  of  the  class  to  whom 
the  representations  are  made,  where  such  representations  are  not  au- 
thorized by  the  corporation.24  Indeed,  as  already  stated,  those  who 
promote  or  undertake  to  organize  a  proposed  corporation  are  not,  arid 
cannot  be  in  the  nature  of  things,  its  agents  before  it  comes  into  ex- 
istence. They  cannot,  therefore,  bind  it  by  engagements  in  behalf  of 
the  corporation  not  ratified  or  adopted  by  it  after  it  comes  into  ex- 
istence, nor  by  their  declarations  and  representations.25  But  the  pro- 
moters may  render  themselves  personally  liable  by  their  own  misrep- 
resentations and  fraud  in  their  prospectus  or  at  a  public  meeting  to 
those  who  are  injured  thereby  as  a  proximate  cause.26 

§  14.    Contracts  of  promoters — When  binding  on  corporation. — 

The  promoters  cannot  bind  the  corporation  by  their  contracts  made 
before  the  organization  of  the  company,27  except  so  far  as  it  adopts 
or  ratifies  their  acts,  either  directly28  or,  in  some  cases,  by  accepting 


24  Smith  v.  Tallahassee,  &c.  Co.  30 
Ala.  650;   Mississippi,  &c.  R.  Co.  v. 
Cross,  20  Ark.  443,  454;   First  Nat. 
Bank    v.    Hurford,    29    Iowa    579; 
Vicksburg,  &c.  R.  Co.  v.  McKean,  12 
La.   Ann.   638;    St.   Johns  Mfg.   Co. 
T.  Munger,  106  Mich.  90,  64  N.  W.  3, 
68  Am.  St.  468;   Buffalo,  &c.  R.  Co. 
v.  Dudley,  14  N.  Y.  336.     Compare 
Atlanta,  &c.  R.  Co.  v.   Hodnett,  36 
Ga.  669;   Weems  v.  Georgia,  &c.  R. 
Co.  88  Ga.  303,  14  S.  E.  583;  and  see 
note  in  85  Am.  St.  385,  386. 

25  United  States,  &c.  Co.  v.  Schleg- 
el,   143   N.   Y.   537,   38   N.   E.    729; 
Lynde    v.    Anglo-Italian,    &c.     Co. 
(1896)   1  Ch.  178,  73  L.  T.  502;    7 
Thompson  Corp.  §  8282. 

26  Reese,  &c.  Min.  Co.  v.  Smith,  L. 
R.  4  H.  L.  64;   New  Brunswick  R. 
Co.   v.  Muggeridge,  1  Drew  &  Sm. 
363;  Clarke  v.  Dickson,  6  C.  B.  (N. 
S.)  453;  Walker  v.  Anglo-American, 
&c.  Co.  72  Hun  (N.  Y.)  334,  25  N.  Y. 
S.  432.    See,  also,  Tuttle  v.  George 
A.  Tuttle  Co.  (Me.)  64  Atl.  496. 


"Munson  v.  Syracuse,  &c.  R.  Co. 
103  N.  Y.  58,  8  N.  E.  355,  29  Am.  & 
Eng.  R.  Cas.  377;  Little  Rock,  &c. 
R.  Co.  v.  Perry,  37  Ark.  164;  Perry 
v.  Little  Rock,  &c.  R.  Co.  44  Ark. 
383,  25  Am.  &  Eng.  R.  Cas.  44;  Rock- 
ford,  &c.  R.  Co.  v.  Sage,  65  111.  328, 
16  Am.  R.  587;  Sellers  v.  Greer,  172 
111.  549,  50  N.  E.  246,  40  L.  R.  A. 
589;  Caledonian,  &c.  Co.  v.  Helens- 
burgh,  2  Macq.  391;  Carmody  v. 
Powers,  60  Mich.  26,  26  N.  W.  801; 
New  York,  &c.  R.  Co.  v.  Ketchum, 
27  Conn.  170;  Hill  v.  Gould,  129  Mo. 
106,  30  S.  W.  181;  Abbott  v.  Hap- 
good,  150  Mass.  248,  22  N.  E.  907,  5 
L.  R.  A.  586,  15  Am.  St.  193;  Tuttle 
V.  George  A.  Tuttle  Co.  (Me.),  64 
Atl.  496.  A  promoter  cannot  bind 
the  corporation  by  contract  made  in 
obtaining  a  subscription  before  the 
organization  of  the  corporation.  Joy 
v.  Manion,  28  Mo.  App.  55. 

28  Wood  v.  Whelen,  93  111.  153; 
Payne  v.  New  South  Wales,  &c.  Co. 
10  Exch.  283;  Hutchinson  v.  Surrey, 


PROMOTION  AND  FORMATION  OF  THE  CORPORATION. 


28 


the  benefits  of  contracts  made  for  it,29  and  impliedly  adopting  it. 
The  corporation  can  only  take  advantage  of  an  executory  contract 
entered  into  by  the  promoters  by  fulfilling  all  the  engagements  entered 
into  by  them  on  its  behalf.30  It  cannot,  as  a  rule,  accept  and  retain 
the  benefit  without  assuming  the  burden.81  But  it  has  been  held  that 


&e.  Association,  11  C.  B.  689;  Low 
v.  Connecticut,  &c.  45  N.  H.  370,  46 
N.  H.  284;  Stanton  v.  New  York,  &c. 
R.  Co.  59  Conn.  272,  22  Atl.  300,  21 
Am.  St.  110;  Pratt  v.  Oshkosh  Match 
Co.  89  Wis.  406,  62  N.  W.  84;  Cot- 
ting  v.  Grant,  &c.  R.  Co.  65  Fed.  545. 
It  has  been  held  that  the  president 
and  general  manager  may  adopt  and 
ratify  a  contract  made  by  himself 
for  the  corporation  before  it  was 
legally  created,  for  services  for  the 
company  which  he  would  have  au- 
thority to  engage  if  no  previous  con- 
tract existed.  Oakes  v.  Cattaraugus 
Water  Co.  143  N.  Y.  430,  38  N.  E. 
461,  26  L.  R.  A.  544.  See  also  Ara- 
pahoe,  &c.  Co.  v.  Platt  (Colo.),  30 
Pac.  584. 

29  Stanton  v.  New  York,  &c.  R.  Co. 
59  Conn.  272,  22  Atl.  300,  21  Am.  St. 
110;  Edwards  v.  Grand  Junction  R. 
Co.  1  Mylne  &  C.  650;  Coyote  Gold, 
&c.  Co.  v.  Ruble,  8  Oreg.  284;  Bells 
Gap  R.  Co.  v.  Christy,  79  Pa.  St.  59; 
Moore,  &c.  Co.  v.  Towers,  &c.  Co.  87 
Ala.  206,  6  So.  41,  13  Am.  St.  23; 
Schreyer  v.  Turner,  &c.  Co.  29  Oreg. 
1,  43  Pac.  719;  Stanley  v.  Birken- 
head  R.  Co.  9  Simons  264.  See,  also, 
Hall  v.  Vermont,  &c.  R.  Co.  28  Vt. 
401;  Bommer  v.  American  Spiral, 
&c.  Co.  81  N.  Y.  468;  Whitney  v. 
Wyman,  101  U.  S.  392;  Battelle  v. 
Northwestern,  &c.  Co.,  37  Minn.  89, 
33  N.  W.  327;  Frankfort,  &c.  Co.  v. 
Churchill,  6  T.  B.  Mon.  (Ky.)  427, 
17  Am.  Dec.  159;  Seymour  v.  Spring 
Forest,  &c.  Ass'n,  144  N.  Y.  333,  39 
N.  E.  365,  26  L.  R.  A.  859;  Conti- 
nental Trust  Co.  v.  Toledo,  &c.  Co. 
86  Fed.  929,  948.  In  some  cases, 


however,  it  is  denied  that  a  corpo- 
ration can  ratify  a  contract  so  as  to 
make  it  relate  back  to  its  inception 
before  the  corporation  came  into  ex- 
istence. Abbott  v.  Hapgood,  150 
Mass.  248,  22  N.  E.  907,  5  L.  R.  A. 
586,  15  Am.  St.  193,  citing  Kelner 
v.  Baxter,  L.  R.  2  C.  P.  174;  Gunn 
v.  London,  &c.  Co.  12  C.  B.  N.  S. 
694;  Melhado  v.  Porto  Alegre,  &c.  R. 
L.  R.  9  C.  P.  503;  Empress,  &c.  Co., 
In  re,  16  Ch.  Div.  125.  See,  also,  Na- 
tal Land,  &c.  Co.  v.  Pauline,  &c.  Syn- 
dicate (1904),  App.  Gas.  120,  73  L. 
J.  P.  C.  22,  11  Manson  29.  But,  as 
we  understand  these  decisions,  they 
do  not  decide  that  the  corporation 
may  not  be  held  as  upon  a  new  con- 
tract from  the  time  of  its  adoption. 
McArthur  v.  Times  Printing  Co.  48 
Minn.  319,  51  N.  W.  216,  31  Am.  St. 
653. 

30  Taylor  Priv.  Corp.  (4th  ed.) 
§  90;  Burrows  v.  Smith,  10  N.  Y. 
550;  Bedford,  &c.  R.  Co.  v.  Stanley, 
32  L.  J.  Eq.  60.  Unless  it  in  some 
way  accepts  the  contract  so  as  to 
make  it  liable  for  failure  to  perform 
the  same  it  cannot  successfully 
claim  the  right  to  enforce  the  con- 
tract to  which  it  never  became  a 
party.  Penn  Match  Co.  v.  Hapgood, 
141  Mass.  145,  7  N.  E.  22.  See,  also, 
Gent  v.  Manufacturers',  &c.  Co.  107 
111.  652,  8  Am.  &  Eng.  Corp.  Cas. 
306;  Van  Buren,  &c.  R.  Co.  v.  Lam- 
phear,  54  Mich.  575,  20  N.  W.  590; 
note  to  Moore,  &c.  Co.  v.  Towers,  &c. 
Co.  87  Ala.  206,  6  So.  41,  13  Am.  St. 
23. 

"Bell's  Gap  R.  Co.  v.  Christy,  79 
Pa.  St.  59;  Low  v.  Connecticut,  &c. 


NECESSITY  OF   LEGISLATIVE  AUTHORIZATION. 


[§15 


where  the  promoters  mutually  agree  to  perform  services  without  com- 
pensation, the  company  cannot  be  held  liable  for  such  services  although 
it  received  the  benefit.32  Where  the  contract  is  not  made  for  the  benefit 
of  the  corporation  and  the  parties  did  not  rely  in  any  way  upon  the 
corporation,  but  looked  solely  to  the  responsibility  of  the  promoters, 
the  corporation  would  not,  as  a  rule  at  least,  be  liable,  and  it  is  not 
every  contract  that  can  be  so  adopted  by  the  corporation  as  to  make  it 
liable  thereon,  for  there  may  be  an  absolute  want  of  power  on  the  part 
of  the  corporation  and  the  contract  may  be  ultra  vires  in  every  sense.33 

§  15.    Legislative  authority  essential  to  creation  of  corporation. — A 

corporation  has  been  defined  as  a  body  consisting  of  one34  or  more 
persons,  established  by  law  for  certain  specific  purposes,  with  the 
capacity  of  succession  and  with  special  privileges  not  possessed  by  in- 
dividuals, yet  acting  in  many  respects  as  an  individual.35  It  is  neces- 


R.  Co.  45  N.  H.  370,  46  N.  H.  284; 
Paxton  Cattle  Co.  v.  First  Nat. 
Bank,  21  Neb.  621,  33  N.  W.  271,  59 
Am.  R.  852;  Grand  Junction  R.  Co. 
1  Mylne  &  C.  650.  But  see  Weather- 
ford,  &c.  R.  Co.  v.  Granger,  86  Tex. 
350,  24  S.  W.  795,  40  Am.  St.  837; 
Taft  v.  Quaker,  &c.  Bank,  141  Pa. 
St.  550,  21  Atl.  660;  Davis,  &c.  Co. 
v.  Hillsboro,  &c.  Co.  10  Ind.  App.  42, 
37  N.  E.  549;  Rotherham,  &c.  Co.,  In 
re,  50  Law  T.  (N.  S.)  219.  See,  also, 
note  to  Pittsburg  Min.  Co.  v.  Spoon- 
er,  74  Wis.  307,  42  N.  W.  259,  17  Am. 
St.  149,  161,  162. 

32  Powell  v.  Georgia,  &c.  R.  Co.  121 
Ga.  803,  49  S.  E.  759. 

33  Shrewsbury   v.    North    Stafford- 
shire R.  Co.  L.  R.  1  Eq.  593,  12  Jur. 
(N.  S.)  63;  Skegness,  &c.  Tramways 
Co.  In  re,  41  Ch.  Div.  215;  Stanton 
v.  New  York,  &c.  R.  Co.  59   Conn. 
272,  22  Atl.  300,  21  Am.  St.  110;  Mar- 
shall County  v.  Schenck,  5  Wall.  (U. 
S.)    772.    But  see  Louis  Cook  Mfg. 
Co.  v.  Randall,  62  la.  244,  17  N.  W. 
507.     In    some    instances,    however, 
there  may,  perhaps,  be  a  liability  be- 
cause of  the  acceptance  and  reten- 
tion of  benefits  and  upon  the  ground 


of  estoppel,  although  not  strictly 
upon  the  contract. 

"Penobscot,  &c.  Co.  v.  Lamson,  16 
Me.  224,  33  Am.  Dec.  656.  Under 
the  general  laws  in  most  states  the 
minimum  number  of  incorporators 
is  usually  fixed  at  some  certain  num- 
ber more  than  one.  Indeed,  the 
number  required  for  the  incorpora- 
tion of  railroad  companies  as  fixed 
by  such  laws  is  often  greater  than 
the  laws  of  the  same  state  require 
for  many  other  corporations.  The 
corporation  is  a  separate  entity 
from  the  person  or  persons  who  may 
own  its  stock,  and  the  fact  that  one 
person  owns  all  the  stock  has  been 
held  not  to  make  him  and  the  cor- 
poration the  same  person.  Monon- 
gahela  Bridge  Co.  v.  Pittsburg,  &c. 
Co.  196  Pa.  St.  25,  46  Atl.  99,  79  Am. 
St.  685.  See  also  Ulmer  v.  Lime 
Rock  R.  Co.  98  Me.  579,  57  Atl.  1001, 
66  L.  R.  A.  387;  Chase  v.  Michigan, 
&c.  Co.  121  Mich.  631,  80  N.  W.  717. 

88  4  Am.  &  Eng.  Enc.  186;  Mora- 
wetz  Priv.  Corp.  (2d  ed.)  §§  1,  227; 
1  Thompson  Corp.  §§  1,  2.  Many  def- 
initions are  given  by  Judge  Thomp- 
son from  judicial  decisions.  See, 


§   16]         PROMOTION  AND  FORMATION  OF  THE  CORPORATION. 


30 


sary  to  the  creation  of  the  corporation  that  it  be  authorized  by  legis- 
lative enactment.36  It  was  formerly  a  criminal  offense  to  assume  to 
act  as  a  corporation  without  such  authority,37  and  is  still  held  to  be 
so,  in  theory  at  least,  in  some  jurisdictions.38 

§  16.  Creation  by  special  charter. — Such  legislative  authority  was 
formerly  given  by  special  act,  in  which  the  powers,  duties  and  lia- 
bilities of  the  specified  corporation  were  enumerated  at  length,  and 
it  is  still  granted  in  this  way  in  some  states,39  but  in  a  number  of  states 
special  laws  are  prohibited  by  the  constitution  and  comparatively  few 
special  charters  are  now  granted  even  where  there  is  no  such  prohibi- 
tion. It  is  not  necessary  to  the  existence  of  a  corporation  that  it  be 
expressly  declared  a  corporation  in  so  many  words.40  It  is  sufficient 
if  powers  are  granted  to  a  body  of  men  that  can  only  be  exercised 
by  a  corporation.41  Where  certain  designated  persons  are  declared 
to  be  a  corporation  and  given  corporate  powers  by  a  special  charter, 
they  have  been  held  to  become  a  corporation  eo  instanti.42  But  a  man 


also,  Taylor's  Priv.  Corp.  §  23  et 
seq.;  Clark  Corp.  1  et  seq. 

""Angell  &  Ames  Corp.  §§  66-75; 
People  v.  Assessors,  1  Hill  (N.  Y.) 
616;  Franklin  Bridge  Co.  v.  Wood, 
14  Ga.  80;  Hoadley  v.  County  Com- 
missioners, 105  Mass.  519;  Atkinson 
v.  Marietta,  &c.  R.  Co.  15  Ohio  St. 
21.  Congress  has  power  to  charter 
railroad  companies  in  the  territories 
within  its  jurisdiction.  Thomson 
v.  Pacific  R.  Co.  9  Wall.  (U.  S.) 
579;  Union  Pacific  R.  Co.  v.  Lincoln 
County,  1  Dill.  (U.  S.)  314;  Cali- 
fornia v.  Pacific  R.  Co.  127  U.  S.  1, 
39,  8  Sup.  Ct.  1073. 

8T  Duvergier  v.  Fellows,  5  Bing. 
248,  5  Moore  &  P.  403. 

38  People  v.  Ridgley,  21  111.  65.    It 
is  so  declared  by  statute  in  Iowa. 
Rev.  Stat.  Iowa,  1888,  §  1072. 

39  An  act  declaring  that  "a  com- 
pany is  hereby  created  called  the  St. 
Joseph    and    Iowa    Railroad    Com- 
pany," and  naming  the  first  board 
of  directors,  was  held  to  be  a  pres- 
ent grant  of   corporate   powers,   of 
which  the  construction  and  opera- 


tion of  part  of  its  road  by  such  com- 
pany was  a  sufficient  acceptance. 
Roosa  v.  St.  Joseph,  &c.  R.  Co.  114 
Mo.  508,  21  S.  W.  1124.  See,  also, 
Little  Rock,  &c.  R.  Co.  v.  Little 
Rock,  &c.  R.  Co.  36  Ark.  663,  68*4; 
Stoops  v.  Greensburgh,  &c.  Co.  10 
Ind.  47. 

40  Denton  v.  Jackson,  2  Johns.  Ch. 
(N.  Y.)  320;  Commonwealth  v.  West 
Chester  R.  Co.  3  Grant  Cas.    (Pa.) 
200. 

41  Atkinson  v.  Bemis,  11  N.  H.  44; 
Coburn  v.  Ellenwood,  4  N.  H.  101; 
Delaware,  &c.  Co.  v.  Commonwealth, 

50  Pa.  St.  399;  Dunn  v.  Oregon  Uni- 
versity, 9  Ore.  357;    Inhabitants  of 
Springfield  v.  Miller,  12  Mass.  415; 
Liverpool  Ins.  Co.  v.  Massachusetts, 
10  Wall.   (U.  S.)  566;  Blanchard  v. 
Kaull,  44  Cal.  440;    Dean  v.  Davis, 

51  Cal.  406.    But  see  State  v.  Davis, 
23  Ohio  St.  434;   Neil  v.  Board,  31 
Ohio   St.   15;    Shelton  v.  Banks,   10 
Gray    (Mass.)    401;    Walsh   v.   New 
York  and  Brooklyn  Bridge,  96  N.  Y. 
427. 

42  Little  Rock,  &c.  R.  Co.  v.  Little 


.31 


ACCEPTANCE   OF   CHARTER. 


[§17 


cannot  be  compelled  to  become  a  member  of  a  private  corporation 
against  his  will.43 

§  17.  Acceptance  of  charter. — For  the  reason  stated  in  the  last 
section,  a  special  charter  does  not,  ordinarily,  create  an  effective  pri- 
vate corporation  until  it  is  accepted.44  But,  as  special  charters  are 
usually  for  the  benefit  of  those  who  are  named,  an  acceptance"  may  be 
presumed  in  many  cases.45  Thus,  the  fact  that  they  had  applied  for 
the  charter,46  that  they  afterwards  exercised  the  powers  conferred,47 
or  the  like,48  is  strong,  if  not  conclusive,  evidence  of  an  acceptance. 
It  is  not,  therefore,  essential  that  an  express  acceptance  of  the  charter 
should  appear  in  the  records  of  the  corporation.49  The  acceptance 
must  usually  be  unconditional,  for  a  charter  cannot  be  accepted  in 


Rock,  &c.  R.  Co.,  36  Ark.  663,  684; 
Talledega  Ins.  Co.  v.  Landers,  43 
Ala.  115;  Stoops  v.  Greensburgh,  &c. 
Plank  Road  Co.,  10  Ind.  47.  Com- 
pare Dartmouth  College  v.  Wood- 
ward, 4  Wheat.  (U.  S.)  518;  State 
v.  Dawson,  16  Ind.  40. 

43  2  Kent  Com.  277;  Ellis  v.  Mar- 
shall, 2  Mass.  269,  3  Am.  Dec.  49; 
Lauman  v.  Railroad  Co.  30  Pa.  St. 
46,  72  Am.  Dec.  685. 

"Lexington,  &c.  R.  Co.  v.  Chand- 
ler, 13  Mete.  (Mass.)  311;  Dart- 
mouth College  v.  Woodward,  4 
Wheat.  (U.  S.)  518,  708;  Haslett  v. 
Wotherspoon,  1  Strobh.  Eq.  209; 
Quinlan  v.  Houston,  &c.  Co.  89  Tex. 
356,  34  S.  W.  738. 

«Bangor,  &c.  R.  Co.  v.  Smith,  47 
Me.  34;  Charles  River  Bridge  v. 
Warren  Bridge,  7  Pick.  (Mass.) 
344;  1  Elliott  Ev.  §106. 

"Atlanta  v.  Gate  City,  &c.  Co. 
71  Ga.  106;  St.  Joseph,  &c.  R.  Co. 
v.  Shambaugh,  106  Mo.  557,  17  S.  W. 
581;  Astor  v.  New  York  R.  Co.  48 
Hun  (N.  Y.)  562,  1  N.  Y.  S.  174; 
Mfddlesex,  &c.  v.  Davis,  3  Mete. 
(Mass.)  137.  But  the  presumption 
of  acceptance  arising  from  the  appli- 
cation for  the  charter  may,  it  seems, 
be  rebutted  by  proof  that  no  steps 


were  taken  to  organize  or  proceed 
under  it,  although  a  great  many 
years  had  elapsed  since  it  was  grant- 
ed. Newton  v.  Carbery,  5  Cranch 
(U.  S.)  632. 

"  Illinois  River  R.  Co.  v.  Zimmer, 
20  111.  654;  Eastern  R.  Co.  v.  Bos- 
ton, &c.  R.  Co.  Ill  Mass.  125,  15  Am. 
R.  13;  Newton  v.  Carbery,  5  Cranch 
(U.  S.)  632;  Talladega  Ins.  Co.  v. 
Landers,  43  Ala.  115;  Quinlan  v. 
Houston,  &c.  R.  Co.  89  Tex.  356,  34 
S.  W.  738;  Louisville  Trust  Co.  v. 
Louisville,  &c.  R.  Co.  75  Fed.  433, 
22  C.  C.  A.  378. 

48  Taylor  v.  Newberne,  55  N.  Car. 
141,  64  Am.  Dec.  566;  Gleaves  v. 
Turnpike  Co.  1  Sneed  (Tenn.)  491; 
McKay  v.  Beard,  20  S.  Car.  156;  St. 
Paul  Division  v.  Brown,  11  Minn. 
356;  Snead  v.  Indianapolis,  &c.  R. 
Co.  11  Ind.  104.  See,  also,  Glymont 
Imp.  Co.  v.  Toler,  80  Md.  278,  30  Atl. 
,651;  Cincinnati,  &c.  R.  Co.  v.  Cole, 
29  Ohio  St.  126,  23  Am.  Dec.  729;  3 
Elliott  Ev.  §§  1932,  1936. 

"Russell  v.  McLellan,  14  Pick. 
(Mass.)  63.  The  question  of  accept- 
ance is  usually  a  question  of  fact  for 
the  jury.  Hammond  v.  Straus,  53 
Md.  1. 


§    18]         PROMOTION  AND  FORMATION  OF  THE  CORPORATION.  32 

part  and  rejected  in  part,  but  must  either  be  accepted  or  rejected  as 
offered.50  Although  directors  may  sometimes  bind  a  corporation  by 
acts  performed  by  them  in  .other  states  than  that  in  which  the  corpora- 
tion was  created,  yet  the  meetings  of  the  stockholders  or  corporators 
must  usually  be  held  within  the  jurisdiction  creating  the  corporation, 
and  it  has  been  held  that  the  acceptance  of  a  charter  by  the  corpora- 
tors in  their  constituent  capacity  at  a  meeting  held  in  another  state 
for  the  purpose  of  organization  is  ineffective.51  If  a  charter  is  granted 
by  the  legislature  without  any  application  upon  the  part  of  those  to 
whom  it  is  granted,  it  is  regarded  as  a  mere  offer  upon  the  part  of 
the  state,  and  may  be  withdrawn  at  any  time  before  it  is  accepted.52 
When  accepted,  a  charter  takes  effect  immediately,53  unless  otherwise 
provided. 

§  18.  Incorporation  under  general  laws. — To  prevent  the  grant  of 
special  and  exclusive  privileges,  to  secure  uniformity  in  ^he  powers  of 
all  corporations  of  the  same  class  and  render  them  subject  to  all  such 
general  laws  as  may  be  enacted  for  the  government  of  corporations 
of  that  class,  and  to  secure  to  the  state  the  right  to  amend  or  repeal 
the  charter  at  pleasure,  provision  is  made  for  the  creation  of  cor- 
porations by  general  laws  in  most  of  the  states,54  in  several  of  which 
the  constitutions  forbid  the  passage  of  any  special  act  chartering  rail- 
roads.55 These  general  laws  usually  provide  for  the  filing  of  articles 

50  Lyons  v.  Orange,  &c.  R.  Co.  32  Mississippi  Society  v.  Musgrove,  44 

Md.    18;    Kenton    County    Court    v.  Miss.    820,    7    Am.    R.    723;    Chesa- 

Bank  Lick,  &c.  Co.  10  Bush   (Ky.)  peake,  &c.  Co.  v.  Baltimore,  &c.  R. 

529;  Rex  v.  Westwood,  2  Dow  &  Cl.  Co.  4  G.  &  J.  (Md.)  1;  Illinois  River 

21,  7  Bing.  1,  90.  R.  Co.  v.  Zimmer,  20  111.  654. 

"Miller  v.  Ewer,  27  Me.  509,  46  53 Kaiser     v.     Lawrence     Savings 

Am.  Dec.   619,  and  note;    Smith  v.  Bank,  56  Iowa  104,  8  N.  W.  772,  41 

Silver  Valley,  &c.  Co.  64  Md.  85,  20  Am.   R.   85.    See,   also,   Coleman   v. 

Atl.  1032,  54  Am.  R.  760.    See,  also,  Coleman,    78    Ind.   344;    Cincinnati, 

Freeman  v.  Machias,  &c.  Co.  38  Me.  &c.  R.  Co.  v.  Cole,  29  Ohio  St.  126, 

343;   Bank  of  Augusta  v.  Earle,  13  23  Am.  R.  729. 

Pet.  (U.  S.)  519;  Aspinwall  v.  Ohio,  "Morawetz  Priv.  Corp.    (2d  ed.) 

&c.  R.  Co.  20  Ind.  492,  83  Am.  Dec.  §  12;  Stimson  Am.  St.  Law,  §  8520; 

329.     But  compare   Missouri   Lead,  Pierce  Railw.  3;  Cook  Stockholders, 

&c.  Co.  v.  Reinhard,  114  Mo.  218,  21  §§6,  33  and  34;  1  Thompson  Corp. 

S.  W.  488,  35  Am.  St.  746.  §  540.     As  to  formation  by  consol- 

82  State  v.  Dawson,  16  Ind.  40.  See,  idation,  see  Yazoo  R.  v.  Adams.  180 

also,  Cincinnati,  &c.  R.  Co.  v.  Clif-  U.  S.  1,  21  Sup.  Ct.  240,  and  chapter 

ford,  113  Ind.  460,  463,  464,  15  N.  E.  15  on  Consolidation. 

524;  State  v.  Bull,  16  Conn.  179,  191;  "This  is  true  of  Arkansas,  Colo- 


INCORPORATION  UNDER  GENERAL  LAWS. 


[§  13 


of  association,  conforming  to  certain  statutory  requirements,  by  per- 
sons who  have  subscribed  stock  in  the  projected  company.  The  per- 
sons subscribing  to  the  articles  of  incorporation  need  not  be  residents 
of  the  state  issuing  the  charter,  unless  the  statute  requires  it.56  When 
the  requisite  stock  is  subscribed,  and  the  articles  signed  and  filed  as 
provided  (generally  with  the  secretary  of  state)  the  subscribers  and 
stockholders  usually  become  a  corporation,  clothed  with  the  powers  and 
charged  with  the  duties  and  liabilities  of  corporations.67  Proof  of 
the  act  of  incorporation  and  of  user  or  corporate  action  under  it  is 
generally  sufficient  evidence  of  the  existence  of  the  corporation,58 


rado,  California,  Illinois,  Indiana, 
Kansas,  Louisiana,  Mississippi,  Mis- 
souri, Nebraska,  New  Jersey,  Texas, 
New  York,  Michigan,  Minnesota,  Ne- 
vada, Maryland,  Maine,  Oregon, 
Ohio,  Wisconsin  and  the  territories. 
Stimson  Am.  St.  Law,  §  441;  1 
Thompson  Corp.  §§  539,  540;  1 
Beach  Priv.  Corp.  §  8.  The  Kansas 
act  in  relation  to  the  Missouri,  Kan- 
sas and  Texas  Railway  Company 
and  the  Union  Pacific  Railway  Com- 
pany, purporting  to  convey  and  ex- 
tend all  the  rights  possessed  to  any 
part  of  their  line  to  their  entire 
road,  and  to  give  a  right  of  way 
over  all  lands  as  full  as  that  en- 
joyed over  other  lands  under  other 
acts,  is  in  violation  of  Kans.  Const. 
Art.  12,  §  1,  providing  that  the  legis- 
lature shall  pass  no  special  act  con- 
ferring corporate  powers.  Roberts 
v.  Missouri,  &c.  R.  Co.  43  Kans.  102, 
22  Pac. '1006,  43  Am.  &  Eng.  R.  Cas. 
532. 

M  Central  R.  Co.  v.  Pennsylvania 
R.  Co.  31  N.  J.  Eq.  475;  National 
Docks  R.  Co.  v.  Central  R.  Co.  32 
N.  J.  Eq.  755;  Commonwealth  v. 
Detwiller,  31  Pa.  St.  614,  18  Atl. 
990,  7  L.  R.  A.  357;  note  to  State  T. 
Manufacturers,  &c.  Ass'n,  24  L.  R. 
A.  252;  Commonwealth  v.  Heming- 
way, 131  Pa.  St.  614,  18  Atl.  990,  7 
L.  R.  A.  360. 

"Clarkson  v.  Hudson  River  R. 
ELL.  RAILROADS — 3 


Co.  12  N.  Y.  304;  Cincinnati,  &c.  R. 
Co.  v.  Danville,  &c.  R.  Co.  75  111. 
113;  Hunt  v.  Kansas  and  Missouri 
Bridge  Co.  11  Kan.  412;  Hoagland 
v.  Cincinnati,  &c.  R.  Co.  18  Ind.  452; 
James  v.  Greensboro,  &c.  Co.  47  Ind. 
379.  The  requirements  of  the  stat- 
ute must  be  substantially  complied 
with.  People  v.  Chambers,  42  Cal. 
201;  McCallion  v.  Hibernia,  &c.  So- 
ciety, 70  Cal.  163,  12  Pac.  114;  Reed 
v.  Richmond,  &c.  R.  Co.  50  Ind.  342 ; 
Abbott  v.  Omaha,  &c.  Co.  4  Neb. 
416;  Eaton  v.  Aspinwall,  19  N.  Y. 
119;  People  v.  Cheeseman,  7  Colo. 
376,  16  Am.  &  Eng.  R.  Cas.  400; 
Childs  v.  Kurd,  32  W.  Va.  66,  9  S.  E. 
362.  But  slight  omissions  in  the 
certificate  will  not  vitiate  it.  People 
v.  Stockton,  &c.  R.  Co.  45  Cal.  306, 
13  Am.  R.  178;  Commonwealth  v. 
Central  Pass.  R.  Co.  52  Pa.  St.  506; 
Rogers  v.  Danby  Universalist  Soci- 
ety, 19  Vt.  187;  Eakright  v.  Logans- 
port,  &c.  R.  Co.  13  Ind.  404;  Buffalo, 
&c.  R.  Co.  v.  Gary,  26  N.  Y.  75.  The 
fact  that  nearly  all  the  officers  of  a 
railroad  company  are  also  officers  of 
other  railroad  companies  does  not 
affect  the  corporate  existence  of  the 
former  company,  and,  under  the 
Kansas  law,  its  existence  dates  from 
the  filing  of  its  charter.  Southern, 
&c.  R.  Co.  v.  Towner,  41  Kans.  72, 
21  Pac.  221. 
MBraintree,  &c.  Co.  v.  Braintree, 


§    18]         PROMOTION  AND  FORMATION  OF  THE  CORPORATION. 


and  a  proper  certificate  of  incorporation,  or  copy  of  the  original  ar- 
ticles of  incorporation,  is,  in  most  states,  prima  facie  evidence  there- 
of ;69  but  a  certificate  which  fails  to  comply,  in  substance,  with  the 
statutory  requirements  is  not  proof  of  a  valid  corporate  existence.60 
The  articles  of  incorporation  must  usually  specify  the  objects  of  the 
corporation  in  at  least  substantial  compliance  with  the  statute,61  the 
place  in  which  its  operations  are  to  be  carried  on  or  in  which  its  prin- 
cipal office  is  located,62  the  amount  of  the  capital  stock,63  and  the 
names  and  residences  of  the  incorporators,64  and  the  like.65  In  the 
case  of  a  railroad  company  it  is  also  usually  provided  that  the  line 
of  the  road  shall  be  more  or  less  definitely  described,  but  where  the 
statute  merely  requires  that  the  termini  should  be  stated  and  the 
counties  named  into  or  through  which  it  is  intended  to  pass,  it  is 
sufficient  so  to  describe  the  line  by  designating  such  place  and  naming 
each  county  into  or  through  which  it  is  expected  to  run.66  Most  of 


146  Mass.  482 ;  Bank  v.  International 
Bank,  21  N.  Y.  542;  Columbia,  &c. 
Co.  v.  Meier,  39  Mo.  53;  Wood  v. 
Wiley,  &c.  Co.  56  Conn.  87,  13  Atl. 
137;  3  Elliott  Ev.  §§  1934-1941. 

68 1  Thompson  Corp.  §  220.  See  3 
Elliott  Ev.  §  1941. 

""McCallion  v.  Hibernia,  &c.  Soci- 
ety, 70  Cal.  163,  12  Pac.  114;  People 
v.  Self  ridge,  52  Cal.  331;  Fifth  Bap- 
tist Church  v.  Baltimore,  &c.  R.  Co. 
4  Mackey  (D.  C.)  43. 

81  West  v.  Bullskin,  &c.  Co.  32  Ind. 
138;  O'Reiley  v.  Kankakee,  &c.  Co. 
32  Ind.  169;  Attorney-General  v. 
Lorman,  59  Mich.  157,  26  N.  W.  311, 
60  Am.  R.  287;  State  v.  Central 
Ohio,  &c.  Ass'n,  29  Ohio  St.  399. 

42  Harris  v.  McGregor,  29  Cal.  124; 
People  v.  Beach,  19  Hun    (N.  Y.) 
259;   Clegg  v.  Hamilton,  &c.  Co.  61 
Iowa  121. 

43  State  v.  Shelbyville,  &c.  Co.  41 
Ind.  151;  Heinig  v.  Adams,  &c.  Co. 
81  Ky.  300. 

"Busenback  v.  Attica,  &c.  Co.  43 
Ind.  265;  Vawter  v.  Franklin  Col- 
lege, 53  Ind.  88.  But  the  residence 
need  not  be  stated  unless  the  statute 
requires  it.  State  v.  Foulkes,  94 


Ind.  493.  It  is  sufficient  if  the  ini- 
tials of  the  Christian  name  be  used. 
State  v.  Beck,  81  Ind.  500. 

65  State  v.  Central  Ohio,  &c.  Ass'n, 
29  Ohio  St.  399;  New  Orleans,  &c. 
R.  Co.  v.  Frank,  39  La.  Ann.  707,  2 
So.  310,  30  Am.  &  Eng.  R.  Gas.  275; 
Piper  v.  Rhodes,  30  Ind.  309.  See, 
also,  Martin  v.  Deetz,  102  Cal.  55,  36 
Pac.  368,  41  Am.  St.  151;  People  v. 
Montecito,  &c.  Co.,  97  Cal.  276,  32 
Pac.  236,  33  Am.  St.  172,  and  note 
on  pages  178,  179. 

M  Board  v.  Center  Tp.,  105  Ind. 
422,  441,  2  N.  E.  368,  7  N.  E.  189. 
Where  the  line  is  described  with 
reasonable  certainty  and  the  ter- 
mini are  shown  to  be  in  the  state  in 
which  the  company  is  incorporated, 
it  has  been  held  that  the  fact  that 
tne  line  as  described  runs  partly 
through  another  state  does  not  in- 
validate the  incorporation.  Pied- 
mont, &c.  R.  Co.  v.  Speelman,  67 
Md.  260,  10  Atl.  77,  293,  30  Am.  & 
Eng.  R.  Gas.  316.  An  approximate 
estimate  of  the  length  of  the  road 
is  sufficient  where  the  length  is  re- 
quired to  be  stated.  Buffalo,  &c.  R. 
Co.  v.  Hatch,  20  N.  Y.  157.  And  'Ji- 


35 


INCORPORATION   UNDER  GENERAL  LAWS. 


[§  18 


the  statutes  require  that  the  articles  of  incorporation  shall  be  signed 
and  acknowledged  by  a  certain  number  of  incorporators,67  and  that 
the  certificate  or  copy  shall  be  filed  with  the  secretary  of  state,  or  other 
officer,  or  published  in  some  specified  manner.  In  some  jurisdictions 
the  failure  to  comply  with  such  a  requirement  has  been  held  not  to 
vitiate  the  organization  or  prevent  the  corporation  from  coming  into 
existence,68  but  much  depends  upon  the  language  of  the  particular 
statute,  and  if  the  requirement  is  a  condition  precedent  it  must  be 
complied  with.69  It  is,  indeed,  the  general  rule  that  all  conditions 
precedent  must  be  substantially  performed.70  Thus,  where  the  statute 
provides  that  a  certain  amount  of  stock  shall  be  subscribed  before  ar- 
ticles of  incorporation  can  be  filed,  or  that  a  certain  percentage  of  the 
capital  stock  shall  be  paid  in  before  the  articles  are  filed,  the  statute 
must  be  complied  with  before  a  corporation  can  be  legally  organized.71 


deflniteness  in  the  description  of  the 
route  may  be  rendered  immaterial 
by  legislative  recognition,  and  the 
construction  and  operation  of  the 
road.  Cayuga  Lake  R.  Co.  v.  Kyle, 
5  Thomp.  &  C.  (N.  Y.)  659,  64  N.  Y. 
185.  See  post,  §  36. 

47  People  v.  Montecito,  &c.  Co.  97 
Cal.  276,  32  Pac.  236,  33  Am.  St.  172; 
State  v.  Critchett,  37  Minn.  13,  32  N. 
W.  787;  Indianapolis,  &c.  Mining 
Co.  v.  Herkimer,  46  Ind.  142;  Corey 
v.  Morrill,  61  Vt.  598.  In  such  a 
case  one  who  merely  signs  the  arti- 
cles of  association  without  acknowl- 
edging them  does  not  become  a 
stockholder  and  is  not  bound  by  the 
subscription.  Coppage  v.  Hutton, 
124  Ind.  401,  24  N.  E.  112,  7  L.  R.  A. 
591. 

88  Holmes  v.  Gilliland,  41  Barb.  (N. 
Y.)  568;  Granby  Mining  Co.  v.  Rich- 
ards, 95  Mo.  106,  8  S.  W.  246;  Sha- 
kopee,  &c.  Co.,  In  re,  37  Minn.  91, 
33  N.  W.  219.  See,  also,  Vanneman 
v.  Young,  52  N.  J.  L.  403,  3  Lewis 
Am.  R.  &  Corp.  660,  and  note. 

"•Bigelow  v.  Gregory,  73  111.  197; 
Childs  v.  Kurd,  32  W.  Va.  66,  9  S. 
E.  362;  Martin  v.  Deetz,  102  Cal.  55, 
36  Pac.  368,  41  Am.  St.  151;  Indian- 


apolis, &c.  Mining  Co.  v.  Herkimer, 
46  Ind.  142;  State  v.  Critchett,  37 
Minn.  13,  32  N.  W.  787;  Field  &  Co. 
v.  Cooks,  16  La.  Ann.  153;  Clegg  v. 
Hamilton,  61  Iowa  121;  Capp  v. 
Hastings,  &c.  Co.  40  Neb.  470,  58  N. 
W.  956,  24  L.  R.  A.  259,  42  Am.  St. 
677;  Hurt  v.  Salisbury,  55  Mo.  310; 
Elgin,  &c.  Co.  v.  Loveland,  132  Fed. 
41;  Bergeron  v.  Hobbs,  96  Wis.  641, 
71  N.  W.  1056,  65  Am.  St.  85.  Where, 
however,  the  articles  are  properly 
delivered  to  the  designated  officer 
for  record,  the  fact  that  he  records 
them  in  the  wrong  book  will  not  in- 
validate the  incorporation.  Walton 
v.  Riley,  85  Ky.  413,  3  S.  W.  605. 
See,  also,  State  v.  Foulkes,  94  Ind. 
493. 

70  Mokelumne  Hill,  &c.  Co.  v.  Wood- 
bury,  14  Cal.  424,  73  Am.  Dec.  658; 
Attorney-General    v.    Hanchett,    42 
Mich.  436,  4  N.  W.  182;    Danbury, 
&c.  R.  Co.  v.  Wilson,  22  Conn.  435; 
Dutchess,  &c.  R.  Co.  v.  Mabbett,  58 
N.  Y.  397;   Garnett  v.  Richardson, 
35  Ark.  144. 

71  State  v.  St.  Paul,  &c.  Co.  92  Ind. 
42;  State  v.  Dillon,  36  Ind.  388;  Hoi- 
man  v.  State,  105  Ind.  569,  5  N.  E. 
702;    People  v.   Chambers,   42   Cal. 


§19] 


PROMOTION  AND  FORMATION  OF  THE  CORPORATION. 


36 


In  the  absence,  however,  of  any  provision  upon  the  subject  in  the 
statute  or  contract  of  subscription,  it  has  been  held  not  to  be  necessary 
that  the  entire  capital  stock  should  have  been  subscribed  for  before 
the  incorporation.72  And  where  the  general  law  for  the  incorporation 
of  railroads  requires  the  payment  of  a  certain  part  of  the  subscrip- 
tion in  cash  before  the  filing  of  the  articles  of  incorporation  it  should 
be  reasonably  construed,  and  it  has  been  held  sufficient  if  the  payment 
is  made  by  check  which  would  have  been  cashed.73 

§  19.  Perfecting  the  organization. — Under  some  of  the  statutes  the 
names  of  those  who  are  to  serve  as  directors  for  the  first  year  must  be 
stated  in  the  articles  of  incorporation,  and  where  such  or  similar  pro- 
visions are  found  it  would  seem  that  there  must  be  a  preliminary  meet- 
ing and  organization,  or  at  least  a  selection  in  some  manner  of  those 
who  are  to  serve  as  directors.  But,  ordinarily,  the  articles  of  in- 
corporation are  first  executed  and  filed  and  a  meeting  of  the  stock- 
holders or  members  is  then  held  for  the  purpose  of  adopting  by-laws, 
electing  directors,  and  perfecting  the  corporate  organization;74  al- 
though, as  already  stated,  the  corporation  comes  into  existence,  under 
many  of  the  statutes,  as  soon  as  the  articles  of  incorporation  are  prop- 
erly filed.  The  directors  then  usually  hold  a  directors'  meeting  and 
elect  the  officers.  This,  ordinarily,  completes  the  corporate  organiza- 


201.  But  where  this  is  not  required 
to  precede  the  filing  of  the  articles 
there  may  be  a  corporate  exist- 
ence sufficient,  at  least,  to  withstand 
a  collateral  attack.  Eastern,  &c.  Co. 
v.  Vaughan,  14  N.  Y,  546;  Palmer  v. 
Lawrence,  3  Sandf.  (N.  Y.)  161. 
See,  also,  Boston,  &c.  Co.  v.  Moring, 
15  Gray  (Mass.)  211;  McClinch  v. 
Sturgis,  72  Me.  288;  Cheraw,  &c. 
R.  Co.  v.  White,  14  S.  C.  51;  People 
v.  Stockton,  &c.  R.  Co.  45  Cal.  306, 
13  Am.  R.  178;  Buffalo,  fee.  R.  Co. 
v.  Hatch,  20  N.  Y.  157;  Ogdens- 
burgh,  &c.  R.  Co.  v.  Frost,  21  Barb. 
(N.  Y.)  541;  Spartanburg,  &c.  R. 
Co.  v.  Ezell,  14  S.  C.  281. 

72  Schenectady,  &c.  Plank  Road 
Co.  v.  Thatcher,  11  N.  Y.  102;  John- 
son v.  Kessler,  76  Iowa  411,  41  N. 
"W.  57;  Massey  v.  Citizens',  &c. 
Assn.  22  Kans.  624;  Minor  v.  Me- 
chanics' Bank,  1  Pet.  (U.  S.)  46; 


Boiling  v.  Le  Grand,  87  Ala.  482,  6 
So.  332;  Waterford,  &c.  R.  Co.  v. 
Dalbiac,  20  L.  J.  Exch.  227;  Mac- 
dougall  v.  Jersey,  &c.  Co.  2  H.  &  M. 
528.  But  see  Shurtz  v.  Schoolcraft, 
&c.  R.  Co.  9  Mich.  269;  Cabot,  &c. 
Bridge  v.  Chapin,  6  Gush.  (Mass.)  50; 
Salem  Mill  Dam  Co.  v.  Ropes,  6  Pick. 
(Mass.)  23;  Worcester,  fee.  R.  Co.  v. 
Hinds,  8  Cush.  (Mass.)  110;  Livesey 
v.  Omaha,  &c.  Co.  5  Neb.  50,  and 
compare  City  Hotel  v.  Dickinson,  6 
Gray  (Mass.)  586;  Boston,  &c.  R. 
Co.  v.  Wellington,  113  Mass.  79.  See 
post,  §  111. 

73  People  v.  Chambers.  42  Cal.  201. 
See,  also,  People  v.  Stockton,  &c.  R. 
Co.  45  Cal.  306,  13  Am.  R.  178. 

74  See    Walker    v.    Devereaux,    4 
Paige  Ch.   (N.  Y.)   229;   Lehman  v. 
Warner,   61  Ala.  455;    McClinch  v. 
Sturgis,  72  Me.  288. 


37    DEFECTIVE   ORGANIZATION WAIVER COLLATERAL   ATTACK.     [§    20 


tion,  although  there  may  be  other  statutory  requirements  that  should 
be  complied  with  before  the  corporation  is  ready  to  do  business.75 

§  20.  Defective  organization — Waiver — Collateral  attack. — If  the 
organization  be  defective,  this  fact  cannot,  as  a  rule,  be  taken  advan- 
tage of  in  any  collateral  action,76  for  mere  irregularities  may  be  waived 
by  the  state,77  which  alone  can  object  to  the  unauthorized  assumption 


75  In  the  recent  case  of  Wechsel- 
berg  v.  Flour  City  Nat.  Bank,  64 
Fed.  90,  12  C.  C.  A.  56,  26  L.  R.  A. 
470,  it  was  held  that,  under  the  Wis- 
consin statute,  where  the  requisite 
number  of  persons  duly  signed,  ac- 
knowledged and  filed  articles  of  in- 
corporation, but  did  not  subscribe 
for  or  issue  any  stock  or  do  any- 
thing else  to  perfect  the  organiza- 
tion, the  corporation  had  only  a 
qualified  existence  without  the  full 
privileges  of  a  complete  incorpora- 
tion and  organization,  and  that  one 
of  said  persons  was  bound  with  the 
others  for  debts  incurred  by  them 
in  the  name  of  the  corporation,  al- 
though he  did  not  actively  partici- 
pate in  their  acts.  See,  also,  Anvil 
Mining  Co.  v.  Sherman,  74  Wis.  226, 
42  N.  W.  226,  4  L.  R.  A.  232;  State 
v.  Fidelity,  &c.  Co.  49  Ohio  St.  440, 
31  N.  E.  658,  16  L.  R.  A.  611,  6  Lewis 
Am.  R.  &  Corp.  599.  As  a  general 
rule,  however,  conditions  to  be  per- 
formed after  incorporation,  in  order 
to  carry  on  business,  are  not  condi- 
tions precedent  in  such  a  sense  as 
to  affect  the  corporate  existence. 
Spartanburg,  &c.  R.  Co.  v.  Ezell,  14 
S.  Car.  281;  Harrod  v.  Hamer,  32 
Wis.  162;  Hughesdale,  &c.  Co.  v. 
Vanner,  12  R.  I.  491;  Whitney  v. 
Wyman,  101  TJ.  S.  392;  Hammond  v. 
Straus,  53  Md.  1.  And  see  Ruther- 
ford v.  Hill,  22  Ore.  218,  17  L.  R.  A. 
549,  29  Am.  St.  596  n;  Cincinnati, 
&c.  R.  Co.  v.  Clifford,  113  Ind.  460, 
15  N.  E.  524;  People  v.  Rose,  210  111. 
582,  71  N.  E.  580. 


76  Aurora,  &c.  R.  Co.  v.  Lawrence- 
burg,  56  Ind.  80;  Commissioners  v. 
Hall,  70  Ind.  469;  Illinois,  &c.  R. 
Co.  v.  Cook,  29  111.  237;  Brown  v. 
Calumet  R.  Co.  125  111.  600,  18  N.  E. 
283;  Eaton  v.  Aspinwall,  19  N.  Y. 
119;  Lahman  v.  Warner,  61  Ala. 
455;  Baltimore,  &c.  R.  Co.  v.  Fifth 
Baptist  Church,  137  U.  S.  568,  11 
Supr.  Ct.  185;  Taggart  v.  Western 
Md.  R.  Co.  24  Md.  563,  89  Am.  Dec. 
760  n;  Swartout  v.  Michigan  A.  L. 
Co.  24  Mich.  389,  394;  Hanover 
Junction,  &c.  R.  Co.  v.  Haldeman,  82 
Pa.  St.  36,  46;  Frost  v.  Frostburg 
Coal  Co.  24  How.  (U.  S.)  278,  283; 
Gill  v.  Kentucky,  &c.  Co.  7  Bush 
(Ky.)  635;  Monongahela  Bridge  Co. 
v.  Pittsburg,  &c.  Co.  196  Pa.  St.  25, 
46  Atl.  99,  79  Am.  St.  685;  Taylor  v. 
Portsmouth,  &c.  St.  R.  91  Me.  193,  64 
Am.  St.  216;  Postal  Tel.  &c.  Co.  v. 
Oregon  Short  Line,  &c.  Co.  23  Utah 
474,  90  Am.  St.  705.  See,  also, 
Georgia  Southern,  &c.  R.  Co.  v.  Mer- 
cantile Trust,  &c.  Co.  94  Ga.  306,  21 
S.  E.  701,  32  L.  R.  A.  208  n,  47  Am. 
St.  153;  Lush  v.  Riggs  (Neb.), 
102  N.  W.  88;  note  to  People  v.  Mon- 
tecito  Water  Co.  97  Cal.  276,  32  Pac. 
236,  33  Am.  St.  172,  180  et  seq.;  note 
<to  Vanneman  v.  Young,  3  Lewis  Am. 
R.  &  Corp.  660,  662  et  seq. 

"If  the  state  fail  for  eight  years 
to  avail  itself  by  quo  warranto,  of  a 
defect  in  articles  of  association  con- 
sisting in  an  uncertain  statement 
of  a  terminus  of  a  road,  it  cannot 
do  it  afterward.  State  v.  Bailey,  19 
Ind.  452.  Under  the  statutes  of 


20] 


PROMOTION  AND  FORMATION  OF  THE  CORPORATION. 


38 


of  corporate  powers.78  Legislative  recognition  of  a  corporation  as  a 
subsisting  one  is  such  a  waiver,79  for  the  legislature  has  the  same 
right  to  ratify  and  confirm  an  irregularly  organized  corporation  that 
it  has  to  create  a  new  one,80  but  mere  legislative  recognition  only 
operates  to  cure  defects  in  the  organization,  and  not  to  create  a  new 
corporation  where  there  is  not  even  a  de  facto  organization  upon  which 
it  can  act.81 


Tennessee  which  provide  that  a 
railroad  company's  charter  shall 
first  be  registered  in  the  county 
where  the  company's  principal  of- 
fice is;  that  it  shall  then  be  trans- 
mitted to  the  secretary  of  state,  who 
shall  affix  his  certificate  of  registra- 
tion and  the  great  seal  of  state,  and 
that  these  shall  be  registered  where 
the  charter  was  originally  regis- 
tered; and  that  this  shall  complete 
the  company's  corporate  character, 
it  has  been  held  that,  where  a  com- 
pany was  organized  to  run  a  rail- 
road through  several  counties,  the 
county  where  its  charter  is  regis- 
tered should  be  deemed  to  have  been 
determined  on  as  the  location  of  the 
principal  office,  and  holding  a  di- 
rectors' and  stockholders'  meeting 
in  another  county  will  not  change 
the  rule.  Anderson  v.  Middle  and 
East  Tennessee  Cent.  R.  Co.  91 
Tenn.  44,  17  S.  W.  803,  52  Am.  & 
Eng.  R.  Cas.  149. 

78  Hay  v.  People,  59  111.  94;  Reis- 
ner  v.  Strong,  24  Kans.  410,  10  Am. 
&  Eng.  R.  Cas.  335.  See,  also, 
Shields  v.  Clifton  Hill  Land  Co.  94 
Tenn.  123,  28  S.  W.  668,  26  L.  R.  A. 
509,  45  Am.  St.  700. 

"  McAuley  v.  Columbus,  &c.  R.  Co. 
83  111.  348;  McCartney  v.  Chicago, 
&c.  R.  Co.  112  111.  611,  29  Am.  &  Eng. 
R.  Cas.  326;  Atlantic,  &c.  R.  Co.  v. 
St.  Louis,  66  Mo.  228 ;  Cowell  v.  Col- 
orado Springs  Co.  100  U.  S.  55,  3 
Colo.  82;  Mead  v.  New  York,  &c.  R. 
Co.  45  Conn.  199;  Black  River,  &c. 
R.  Co.  v.  Barnard,  31  Barb.  (N.  Y.) 


258;  Koch  v.  North  Ave.  R.  Co.  75 
Md.  222,  23  Atl.  463,  15  L.  R.  A. 
377  n. 

80  Mitchell  v.  Deeds,  49  111.  416,  95 
Am.  Dec.  621.     See,  also,  Fisher  v. 
Evansville,  &c.   R.   Co.   7   Ind.   407, 
413;    Comanche    County    v.    Lewis, 
133  U.  S.  198,  10  Sup.  Ct.  286,  288. 
See,  generally,  Hogue  v.  Capital,  &c. 
Bank,  47  Neb.  929,  66  N.  W.  1036; 
People  v.  Barker,  39  N.  Y.  S.  88; 
Mylrea    v.     Superior,    &c.    R.     Co. 
(Wis.)    67  N.  W.  1138;   note  in  33 
Am.  St.  179,  180;   Smith  v.  Havens, 
&c.  Soc.  90  N.  Y.  S.  168;  Illinois,  &c. 
Co.  v.  Cook,  29  111.  237. 

81  Attorney-General     v.      Railroad 
Cos.  35  Wis.  425,  602;  State  v.  Ford 
'Co.  12  Kans.  441,  approved  in  Com- 
anche County  v.   Lewis,   133  U.   S. 
198,  10  Sup.  Ct.  286,  288.    See,  also, 
Oroville,  &c.  R.   Co.  v.   Supervisor, 
37  Cal.   354.     On  this  theory   it  is 
held  that  a  statute  curing  defects 
in  the   organization   of  a   de   facto 
corporation  does  not  violate  a  con- 
stitutional provision  prohibiting  the 
creation  of  a  corporation  by  special 
legislation.       Central     Agricultural 
Assn.  v.  Alabama,  &c.  Co.   70  Ala. 
120.     Where   articles   of   incorpora- 
tion filed  are  void,  it  has  been  held 
that  they  cannot  be  made  good  by 
amendment.     State  v.  Critchett,  37 
Minn.  13,  23  N.  W.  767.     See  gen- 
erally, Pearsall  v.   Great  Northern, 
&c.   R.   Co.    73    Fed.   933;    State   v. 
Webb,  110  Ala.  214,  20  So.  462;  Wil- 
lis v.  Chapman,  68  Vt.  459,  35  Atl. 
459. 


CHAPTER  III. 


LEGAL   STATUS. 


Sec. 

21.  As  individual,  person,  citizen. 

22.  Corporation    confined    to   juris- 

diction creating  it — Business 
elsewhere — Comity. 

23.  Citizenship — Removal  of  causes. 

24.  Residence  and  domicile — Juris- 

diction. 

25.  Federal  corporations. 

26.  Railroad  in  more  than  one  state 

— Citizenshsip. 

27.  Control    of    railroads    in    more 

than  one  state. 


Sec. 

28.  Result  of  consolidation  or  con- 

current action  of  several 
states  creating  new  corpora- 
tions. 

29.  Railroad  only  a  citizen  or  do- 

mestic corporation  of  the 
states  that  charter  it — Effect 
of  mere  license. 

30.  Foreign    corporations  —  Condi- 

tion of  admission  to  state. 

31.  Railroads  as  property. 

32.  Railroads  as  monopolies. 

33.  Railroads  as  public  highways. 


§  21.  As  individual,  person,  citizen. — A  railroad  company  may  be 
regarded  as  an  individual,  in  the  sense  that  it  may,  unless  restrained 
by  law,  make  contracts,1  sue  and  be  sued,2  buy  and  sell  property,3 
in  furtherance  of  its  business,  and  in  general  carry  on  business  much 
the  same  as  if  it  were  a  natural  person.  It  is,  for  most  purposes  at 
least,  regarded  and  treated  as  a  distinct  entity.4  It  is  a  "person" 
within  the  meaning  of  the  fourteenth  amendment  to  the  United  States 
constitution  forbidding  a  state  to  deny  to  any  person  the  equal  pro- 
tection of  the  laws  ;5  and,  generally,  is  to  be  treated  as  a  person  within 

1  See  post  chapter  on  Contracts.         ever,  it  cannot,  without  legislative 

2  See  post  chapter  on  Actions  by 
and  against  Railroad  Companies. 

3  Richardson  v.  Mass.  &c.  Associa- 
tion,   131    Mass.    174;    Crawford    v. 
Longstreet,  43  N.  J.  L.  325;  Graham 
v.  Railroad  Co.  102  U.  S.  148,  161. 
See,   also,   Georgia   Pac.   R.   Co.   v. 
Wilks,   86  Ala.  478,  6   So.   34;    Mc- 
Clure  v.  Missouri  River,  &c.  R.  Co. 
9  Kans.  373   (not  merely  for  specu- 
lation).   As  elsewhere  shown,  how- 


authority,  sell  all  property  neces- 
sary for  it  to  keep  in  order  to  per- 
form its  duties  to  the  public. 

*Ulmer  v.  Lime  Rock  R.  Co.  98 
Me.  579,  57  Atl.  1001,  66  L.  R.  A.  387; 
Pullman  Palace  Car  Co.  v.  Missouri 
R.  Co.  115  U.  S.  587,  6  Sup.  Ct.  194; 
Monongahela  Bridge  Co.  v.  Pitts- 
burg,  &c.  Co.  196  Pa.  St.  25,  48  Atl. 
99,  79  Am.  St.  685. 

5  Santa  Clara  Co.  v.  Southern,  &c. 


39 


21] 


LEGAL   STATUS. 


40 


the  meaning  of  statutes  conferring  rights  and  remedies  on  "persons,"* 
unless  it  is  evident  that  the  intention  of  the  legislature  was  that  it 
should  not  be  so  considered.7  It  is  not,  however,  a  citizen  entitled  to 
the  privileges  and  immunities  of  citizens  of  the  several  states  within 
the  meaning  of  the  constitution  of  the  United  States.8  But  it  is,  for 
jurisdictional  and  other  purposes,  regarded  as  a  citizen  of  the  state 
chartering  it.9 


R.  Co.  118  U.  S.  394,  6  Sup.  Ct.  1132, 
24  Am.  &  Eng.  R.  Gas.  523;  San 
Mateo  Co.  v.  Southern,  &c.  R.  Co. 
7  Sawy.  (U.  S.)  517;  Minneapolis, 
&c.  R.  Co.  v.  Beckwith,  129  U.  S. 
26,  9  Sup.  Ct.  207;  Pembina,  &c.  Co. 
v.  Pennsylvania,  125  U.  S.  181,  8 
Sup.  Ct.  830;  Missouri,  &c.  R.  Co.  v. 
Mackey,  127  U.  S.  205,  8  Sup.  Ct. 
1161;  Gulf,  &c.  R.  Co.  v.  Ellis,  165 
U.  S.  150,  17  Sup.  Ct.  255.  See,  also, 
Kane  v.  Erie  R.  Co.  133  Fed.  681, 
68  L.  R.  A.  788;  Luman  v.  Hitchins 
Bros.  Co.  90  Md.  14,  44  All.  1051,  46 
L.  R.  A.  393;  Cleveland,  &c.  R.  Co. 
v.  Backus,  133  Ind.  513,  32  N.  E.  421, 
18  L.  R.  A.  729;  Knoxville,  &c.  R. 
Co.  v.  Harris,  99  Tenn.  684,  43  S.  W. 
115,  53  L.  R.  A.  921;  note  in  14  L.  R. 
A.  585. 

6  Louisville  Safety,  &c.  Co.  v.  Lou- 
isville, &c.  R.  Co.  92  Ky.  233,  17  S. 
W.  567,  14  L.  R.  A.  579,  and  note; 
Boyd  v.  Craydon  R.  Co.  4  Bing. 
N.  C.  669;  Mott  v.  Hicks,  1  Cow. 
(N.  Y.)  513,  13  Am.  Dec.  550; 
Indiana  v.  Woram,  6  Hill  (N.  Y.) 
33,  40  Am.  Dec.  378;  State  v.  Nash- 
ville University,  4  Humph.  (Tenn.) 
157;  Field  v.  New  York,  &c.  R.  Co. 
29  Barb.  (N.  Y.)  176;  Wright  v. 
New  York,  &c.  R.  Co.  28  Barb.  (N. 
Y.)  80;  Mineral  Point  R.  Co.  v. 
Keep,  22  111.  9,  74  Am.  Dec.  354; 
Lehigh  Bridge  Co.  v.  Lehigh  Coal 
Co.  4  Rawle  (Pa.)  9,  26  Am.  Dec. 
26.  So,  under  statutes  imposing 
taxes,  People  v.  Utica  Ins.  Co.  15 
John  (N.  Y.)  358;— relating  to 


usury,  Thornton  v.  Bank  of  Wash- 
ington, 3  Pet.  (U.  S.)  36;  Grand  G. 
B.  v.  Archer,  16  Miss.  151;  Com- 
mercial Bank  v.  Nolan,  7  How. 
(Miss.)  508; — relating  to  limita- 
tions, Olcott  v.  Tioga  R.  Co.  20  N. 
Y.  210,  75  Am.  Dec.  393; — relating 
to  penal  offenses,  United  States  v. 
Amedy,  11  Wheat  (U.  S.)  392.  See, 
generally,  as  to  what  is  and  what  is 
not  a  denial  of  equal  protection  of 
the  laws  within  the  meaning  of  the 
constitution,  note  to  Louisville  Safe- 
ty Vault  Co.  v.  Louisville,  &c.  R.  Co. 
92  Ky.  233,  17  S.  W.  567,  14  L.  R.  A. 
579. 

7  Commonwealth  v.  Phenix  Bank, 
11  Mete.  (Mass.)  129. 

"Paul  v.  Virginia,  8  Wall.  (U.  S.) 
168;  Chicago,  &c.  R.  Co.  v.  Whitton, 
13  Wall.  (U.  S.)  270;  Woodward  v. 
Commonwealth  (Ky.),  35  Am.  & 
Eng.  R.  Gas.  498;  Norfolk,  &c.  R. 
Co.  v.  Pennsylvania,  136  U.  S.  114, 
10  Sup.  Ct.  958;  Pembina,  &c.  Co.  v. 
Pennsylvania,  125  U.  S.  181,  8  Sup. 
Ct.  737;  State  v.  Delaware,  &c.  Co. 
7  Houst.  (Del.)  269,  31  Atl.  714; 
Hawley  v.  Kurd,  72  Vt.  122,  47  Atl. 
401,  52  L.  R.  A.  195,  82  Am.  St.  922. 
See,  also,  Attorney-Gen,  v.  Electric, 
&c.  Co.  188  Mass.  239,  74  N.  E.  467; 
Union  Cent.  L.  Ins.  Co.  v.  Channing, 
86  Tex.  654,  26  S.  W.  982,  24  L.  R.  A. 
505;  Daggs  v.  Orient,  &c.  Co.  136 
Mo.  391,  38  S.  W.  85.  35  L.  R.  A.  226, 
affirmed  in  172  U.  S.  557;  note  in  14 
L.  R.  A.  580. 

•See  post,  §  23. 


41 


DOMESTIC    CORPORATION — COMITY. 


[ 


§  22.  Corporation  confined  to  jurisdiction  creating  it — Business 
elsewhere — Comity. — In  common  with  other  corporations,  a  railroad 
company  exists  only  by  force  of  law,  and  cannot  migrate  and  remove 
beyond  the  jurisdiction  of  that  law,10  nor  can  it  exercise  any  rights  or 
privileges  in  a  foreign  jurisdiction  unless  it  is  admitted  to  do  so  by 
express  or  implied  permission  of  the  foreign  state,11  or  except,  per- 
haps, as  an  instrument  of  interstate  commerce.  A  corporation,  where 
not  restrained  by  the  law  of  its  creation,  may,  however,  do  business 
and  perform  corporate  acts  in  any  state  which  will  permit  it  to  do  so.12 
By  the  comity  of  nations,  such  permission,  within  proper  limits,  is 
always  implied  unless  there  is  an  affirmative  refusal.13 

§  23.  Citizenship — Removal  of  causes. — It  is  generally  held  that  a 
corporation  may  be  adopted  by  the  legislation  of  a  state,  so  as  to  be- 
come a  citizen  thereof,  for  the  purposes  of  jurisdiction,  where  that 
is  plainly  the  legislative  intent.14  It  has  been  held  in  Virginia  that 


19  Miller  v.  Ewer,  27  Me.  509,  46 
Am.  Dec.  619;  Paul  v.  Virginia,  8 
Wall.  (U.  S.)  168;  County  of  Al- 
legheny v.  Cleveland,  &c.  R.  Co.  51 
Pa.  St.  228,  88  Am.  Dec.  579;  Aspin- 
wall  v.  Ohio,  &c.  R.  Co.,  20  Ind. 
492,  83  Am.  Dec.  329;  Eel  River  R. 
Co.  v.  State,  143  Ind.  231,  238,  42 
N.  E.  617;  note  to  Young  v.  South 
Tredegar,  &c.  Co.  4  Am.  St.  752,  760; 
Connor  v.  Vicksburg,  &c.  R.  Co.,  36 
Fed.  263,  1  L.  R.  A.  331,  and  note. 

"Bank  of  Augusta  v.  Earle,  13 
Pet.  (U.  S.)  519;  Baltimore,  &c.  R. 
Co.  v.  Glenn,  28  Md.  287,  96  Am. 
Dec.  533;  Atchison,  &c.  R.  Co.  v. 
Fletcher,  35  Kans.  236;  Demarest  v. 
Flack,  128  N.  Y.  205,  28  N.  E.  645,  13 
L.  R.  A.  845;  Paul  v.  Virginia,  8 
Wall.  (U.  S.)  168;  Duke  v.  Taylor, 
37  Fla.  64,  19  So.  172.  See,  also, 
California  v.  Central,  &c.  R.  Co. 
127  U.  S.  1,  8  Sup.  Ct.  1073. 

"Atchison,  &c.  R.  Co.  v.  Fletcher, 
35  Kans.  236,  10  Pac.  596;  Dodge  v. 
Council  Bluffs,  57  Iowa  560,  10  N. 
W.  886;  Reichwald  y.  Commercial 
Hotel  Co.  106  111.  439;  Miller  v. 


Ewer,  27  Me.  509,  46  Am.  Dec.  619; 
Bank  v.  Earle,  13  Pet.  (U.  S.)  519; 
Christian  Union  v.  Yount,  101  U.  S. 
352;  Newburg,  &c.  Co.  v.  Weare,  27 
Ohio  St.  343;  Williams  v.  Creswell, 
51  Miss.  817;  Baltimore,  &c.  R.  Co. 
v.  Glenn,  28  Md.  287,  92  Am.  Dec. 
688;  Blair  v.  Perpetual  Ins.  Co.,  10 
Mo.  559,  47  Am.  Dec.  129;  Ohio  Life 
Ins.  &c.  Co.  v.  Merchants'  Ins.  &c. 
Co.  11  Humph.  (Tenn.)  1,  53  Am. 
Dec.  742;  Thompson  v.  Waters,  25 
Mich.  214,  12  Am.  R.  243;  Merrick 
v.  Van  Santvoord,  34  N.  Y.  208. 

"Cowell  v.  Colorado  Springs  Co. 
100  U.  S.  55,  3  Colo.  82;  Christian 
Union  v.  Yount,  101  U.  S.  352,  356; 
Reichwald  v.  Commercial  Hotel  Co. 
106  111.  439;  Baltimore,  &c.  R.  Co.  v. 
Glenn,  28  Md.  287,  92  Am.  Dec.  688. 
See  note  to  Cone,  &c.  Co.  v.  Poole,  41 
S.  C.  70,  19  S.  E.  203,  24  L.  R.  A. 
289. 

"Williams  v.  Missouri,  &c.  R.  Co. 
3  Dill  (U.  S.)  267;  Ohio,  &c.  R.  Co. 
v.  Wheeler,  1  Black  (U.  S.)  286; 
Railroad  Co.  v.  Harris,  12  Wall. 
(U.  S.)  65;  Railway  Co.  v.  Whitton, 


§•23] 


LEGAL   STATUS. 


42 


a  corporation,  by  leasing  and  operating  a  road  in  a  foreign  state  be- 
comes a  citizen  of  that  state  for  purposes  of  jurisdiction ;  and  that  a 
suit  against  it  for  a  cause  of  action  arising  in  that  state  could  not  be 
removed  from  the  state  courts  to  the  federal  courts.15  But  the  weight 
of  authority  is  that  a  railroad  company  is  a  citizen  of  the  state  by 
which  it  is  created,  for  the  purposes  of  jurisdiction  of  the  United 
States  courts,  and  may  take  advantage  of  the  constitutional  privilege 
of  conducting  its  suits  against  the  citizens  of  other  states  in  those 
courts.16  And  a  foreign  corporation  cannot  be  deprived  of  the  right 
of  removal  to  the  federal  courts  by  state  legislation.17  Any  officer 
authorized  to  act  for  it  in  that  behalf  may  make  the  necessary  affidavit 
and  procure  the  transfer  to  the  federal  courts  of  any  suit  begun  against 
it  in  the  courts  of  a  state  wherein  it  is  not  domiciled.18  Where  a  rail- 


13  Wall.  (U.  S.)  270;  Railroad  Co. 
v.  Vance,  96  U.  S.  450.  A  railroad 
corporation  of  another  state  operat- 
ing a  railroad  in  the  state  under  a 
lease  may  be  so  adopted.  Western, 
&c.  R.  Co.  v.  Roberson,  61  Fed.  592, 
9  C.  C.  A.  646. 

"Baltimore,  &c.  R.  Co.  v.  Wight- 
man,  29  Gratt.  (Va.)  431,  26  Am.  R. 
384;  Baltimore,  &c.  R.  Co.  v.  Noell, 
32  Gratt.  (Va.)  394.  Contra:  See 
Wilkinson  v.  Delaware,  &c.  R.  Co., 
22  Fed.  353,  20  Am.  &  Eng.  R.  Cas. 
597,  and  cases  cited.  See,  also, 
Crane  v.  Chicago,  &c.  Co.  20  Fed. 
402. 

18  Louisville,  &c.  R.  Co.  v.  Letson, 
2  How.  (U.  S.)  497;  Marshall  v.  Bal- 
timore R.  Co.  16  How.  (U.  S.)  314; 
Railroad  Co.  v.  Harris,  12  Wall.  (U. 
S.)  65;  Quigley  v.  Cent.  Pac.  Co.  11 
Nev.  350,  21  Am.  R.  757;  Ohio,  &c. 
R.  Co.  v.  Wheeler,  1  Black  (U.  S.) 
286;  Railroad  Co.  v.  Koontz,  104  U. 
S.  5;  Williams  v.  Missouri,  &c.  R. 
Co.  3  Dill.  (U.  S.)  267;  Wilkinson 
v.  Delaware,  &c.  R.  Co.,  22  Fed.  353; 
Callahan  v.  Louisville,  &c.  R.  Co. 
11  Fed.  536;  Southern,  &c.  R.  Co.  v. 
Denton,  146  U.  S.  202,  13  Sup.  Ct. 
44;  Baltimore,  &c.  R.  Co.  v.  Mc- 
Laughlin,  73  Fed.  519,  19  C.  C.  A. 


551;  Barroso  S.  S.  Co.  v.  Kane, 
170  U.  S.  100,  18  Sup.  Ct.  526; 
St.  Louis,  &c.  R.  Co.  v.  James, 
161  U.  S.  545,  16  Sup.  Ct.  621. 

"  State  legislation  seeking  to  de- 
prive foreign  corporations  of  the 
right  to  resort  to  the  federal  courts 
must  be  held  inoperative  where 
such  right  is  conferred  by  the  con- 
stitution and  laws  of  the  United 
States.  Rece  v.  Newport  News,  &c. 
Co.  32  W.  Va.  164,  9  S.  E.  212,  3  L. 
R.  A.  572,  5  Ry.  &  Corp.  L.  J.  515; 
Chicago,  &c.  R.  Co.  v.  Whitton,  13 
Wall.  (U.  S.)  270;  Martin  v.  Rail- 
road Co.,  151  U.  S.  673,  14  Sup.  Ct. 
533.  A  statute  attempting  to  pro- 
hibit the  right  of  removal  would  be 
unconstitutional.  Home  Ins.  Co.  v. 
Morse,  20  Wall.  (U.  S.)  445;  Met- 
ropolitan, &c.  Co.  v.  Harper,  3 
Hughes  (U.  S.)  260;  Common- 
wealth v.  East  Tenn.  Coal  Co.  97 
Ky.  238,  30  S.  W.  608;  Southern 
Pac.  Co.  v.  Denton,  146  U.  S.  202,  13 
Sup.  Ct.  44;  Barren  v.  Burnside,  121 
U.  S.  186,  7  Sup.  Ct.  931. 

"Quigley  v.  Central,  &c.  R.  Co. 
11  Nev.  350,  21  Am.  R.  757;  Mahone 
v.  Manchester,  &c.  R.  Co.,  Ill  Mass. 
72,  15  Am.  R.  9;  Barron  v.  Burn- 
side,  121  U.  S.  186,  7  Sup.  Ct.  93L 


43 


RESIDENCE  AND  DOMICILE — JURISDICTION. 


[§  24 


road  corporation  is  chartered  by  two  or  more  states,  it  is  for  most 
purposes  a  citizen  of  each.19 

§  24.  Residence  and  domicile— Jurisdiction. — A  railroad  corpora- 
tion is  a  legal  entity,  or  person,  capable  of  having  a  home,  or  domicile, 
which  is  always  within  the  state,  or  sovereignty  by  which  it  is  cre- 
ated.20 And  it  has  recently  been  settled  by  the  supreme  court  of  the 
United  States  that,  under  the  act  of  congress  of  March  3,  1887,  as  cor- 
rected by  the  act  of  August  13,  1888,  a  corporation  incorporated  in 
one  state  only  is  not  a  citizen  nor  a  resident  or  inhabitant  of  another 
state,  although  it  has  a  place  of  business  in  the  latter,  and  cannot  be 
sued  in  a  United  States  circuit  court  of  the  latter  state,  which  is  in  a 
different  district  from  that  in  which  the  company  is  incorporated,  by 
a  citizen  of  a  third  state.21  Like  a  natural  person,  however,  it  may, 
for  some  purposes,  have  a  legal  residence  in  a  state  of  which  it  is  not 
a  citizen  ;22  and  under  the  statutes  of  most  states  is  held  to  be  a  resi- 
dent of  each  state  and  municipality  through  which  the  road  runs,  so 
as  to  be  entitled  to  the  protection  of  the  local  laws,23  and  for  pur- 


19  Railroad  Co.  v.  Letson,  2  How. 
(U.  S.)  497;  Uphoff  v.  Chicago,  &c. 
R.  Co.  5  Fed.  545;  post,  §  26. 

"Augusta  v.  Earle,  13  Pet.  (U. 
S.)  519;  Railroad  Co.  v.  Koontz,  104 
U.  S.  5,  12.  See,  also,  Central,  &c. 
R.  Co.  v.  Carr,  76  Ala.  388,  52  Am. 
R.  339;  Fowler  v.  Des  Moines,  &c.  R. 
Co.,  91  Iowa  533,  60  N.  W.  116;  Con- 
necticut, &c.  R.  Co.  v.  Cooper,  30  Vt. 
476,  73  Am.  Dec.  319;  Eel  River  R. 
Co.  v.  State,  155  Ind.  433,  57  N.  E. 
701. 

21  Shaw  v.  Quincy  Mining  Co.  145 
U.  S.  444,  12  Sup.  Ct.  935,  6  Lewis' 
Am.  R.  &  C.  R.  357.  This  decision 
sets  at  rest  a  vexed  question  upon 
which  there  was  much  difference  of 
opinion  among  the  circuit  judges, 
and  the  contrary  view  taken  by 
Mr.  Wood  in  Wood  Railways,  §  14a, 
is  not  the  law.  See,  also,  United 
States  v.  Northern,  &c.  R.  Co.,  134 
Fed.  715;  Keasbey,  &c.  Co..  In  re,  160 
U.  S.  221,  16  Sup.  Ct.  273;  Ells- 
worth Trust  Co.  v.  Parramore,  108 


Fed.  906,  48  C.  C.  A.  132.  See,  also, 
leading  articles  in  35  Cent.  Law 
Jour.  285,  and  41  Cent.  Law  Jour. 
215. 

22  Thorn  v.  New  York  R.  Co.  26 
N.  J.  L.  121;  New  York,  &c.  R.  Co. 
v.  Shepard,  5  McLean  (U.  S.)  455; 
Androscoggin,  &c.  R.  Co.  v.  Stevens, 
17  Me.  434;  Louisville,  &c.  R.  Co.  v. 
Letson,  2  How.  (U.  S.)  497.  In  Pa- 
cific R.  Co.  v.  Perkins,  36  Neb.  456, 
54  N.  W.  845,  57  Am.  &  Eng.  R.  Cas. 
673,  it  was  held  that  the  word  "non- 
resident," in  §  100,  c.  16  Comp.  St., 
relating  to  condemnation  proceed- 
ings for  right  of  way  for  a  railroad, 
means  a  non-resident  of  the  state, 
and  not  of  the  locality  of  the  land 
affected,  or  of  the  county  where  it  is 
situated. 

^Glaize  v.  South  Carolina  R.  Co. 
1  Strobh  L.  (S.  C.)  70;  Richardson 
v.  Burlington,  &c.  R.  Co.  8  Iowa 
260;  People  v.  Fredericks,  48  Barb. 
(N.  Y.)  173. 


§24] 


LEGAL   STATUS. 


44 


poses  of  taxation,24  and  of  suing  and  being  sued,25  and  for  the  service 
of  summons.26  And  "a  law  which  requires  a  foreign  corporation  to 
appoint  an  agent  upon  whom  process  may  be  served,  as  a  condition 
precedent  to  its  right  to  transact  business  within  the  limits  of  a  state, 
is  valid  and  binding."27  For  most  other  purposes  railroads  are  treated 
as  persons  having  their  residence  only  in  the  place  where  their  prin- 
cipal office  is  located.28  Suits  relating  to  any  matters  concerning  the 
organization,  and  conduct  of  the  corporation  as  such,  must  generally 
be  brought  in  the  state  by  which  it  is  chartered,  although  its  principal 
office  may  be  in  another  state.28  And  so,  as  a  rule,  must  all  corporate 
acts  done  by  the  body  of  the  corporation  be  performed  in  the  domestic 
jurisdiction,  for  a  corporation  can  only  act  in  other  states  by  its  agents 
in  matters  which  it  may  delegate  to  them.30 


24  People  v.  Fredericks,  48   Barb. 
(N.  Y.)  173. 

25  Baldwin   v.   Mississippi,   &c.   R. 
Co.  5  Iowa  518.    See,  also,  State  v. 
Iowa  Cent.  R.  Co.  91  Iowa  275,  59 
N.  W.  35;   Davis  v.  Central,  &c.  R. 
Co.  17  Ga.  323. 

26  R.  S.  Ind.  1881,  §  4039;  Belden 
v.  New  York,  &c.  R.  Co.  15  How.  Pr. 
(N.    Y.)    17.     See,    also,    Tobin    v. 
Chester,  &c.  R.  Co.  47  S.  Car.  387, 
25  S.  E.  283,  58  Am.  St.  890;    New 
Albany,   &c.   R.   Co.   v.   Haskell,  11 
Ind.  301;   Schoch  v.  Winona,  &c.  R. 
Co.    55    Minn.    479,   57   N.   W.   208; 
Slavens  v.  Southern  Pac.  R.  Co.  51 
Mo.  308. 

27  Youmans  v.    Minnesota,   &c.   R. 
Co.  67  Fed.  282,  284;  Wilson  v.  Se- 
ligman,  144  U.  S.  41,  45,  12  Sup.  Ct. 
541;    Schollenburger,   Ex   parte,   96 
U.  S.  369,  374;   Reyer  v.  Odd  Fel- 
lows,   &c.    Association,    157    Mass. 
367,  373,  32  N.  E.  469,  34  Am.  St. 
288.     See,    also,    Katz    v.    Herrick 
(Idaho),  86  Pac.  873. 

28  Androscoggin,     &c.     R.     Co.     v. 
Stevens,  28  Me.  434;  Thorn  v.  New 
York,  &c.  R.  Co.  26  N.  J.  L.  121.   In 
Eel  River  R.  Co.  v.  State,  155  Ind. 
433,  57  N.  E.  701,  where  a  railroad 
company  had  surrendered  its  prop- 


erty and  franchises  under  a  perpet- 
ual lease  to  another  company,  and 
did  no  business  and  had  no  office  or 
agency  in  the  state,  and  quo  war- 
ranto  proceedings  were  instituted 
against  it  by  the  state,  the  court 
held  that  its  legal  residence  would 
be  in  the  county  where  its  princi- 
pal office  was  located  when  it  ceased 
to  do  business.  See,  also,  Platt  v. 
New  York,  &c.  R.  Co.  26  Conn.  544; 
Connecticut,  &c.  Ins.  Co.  v.  Sprat- 
ley,  172  U.  S.  602,  19  Sup.  Ct.  308. 

^Erickson  v.  Nesmith,  4  Allen 
(Mass.)  233;  Williston  v.  Mich.  &c. 
R.  Co.  13  Allen  (Mass.)  400;  Chase 
v.  Vanderbilt,  5  J.  &  S.  (N.  Y.)  334, 
62  N.  Y.  307;  Carey  v.  Cincinnati, 
&c.  R.  Co.  5  Iowa  357;  Howell  v. 
Chicago,  &c.  R.  Co.  51  Barb.  (N.  Y.) 
378. 

30  See  Aspinwall  v.  Ohio,  &c.  R. 
Co.  20  Ind.  492,  83  Am.  Dec.  329, 
where  the  company  undertook  to 
make  a  call  for  unpaid  subscriptions 
at  a  meeting  held  outside  the  state. 
Ante,  §  17.  But  a  stockholders' 
meeting  may  be  held  in  a  foreign 
jurisdiction,  if  all  the  shareholders 
consent  to  such  meeting,  or  ratify 
its  action.  Stutz  v.  Handley,  7  R. 
&  Corp.  L.  J.  407,  41  Fed.  531;  Mis- 


45 


FEDERAL    CORPORATIONS. 


[§    25 


§  25.  Federal  corporations. — Corporations  formed  under  author- 
ity of  the  federal  government  have  their  domicile  within  its  terri- 
torial jurisdiction,  and  may  reside  any  place  within  the  United  States 
where  they  have  a  general  office  established  by  authority  of  law.31 
Congress  has  power  to  charter  railroad  companies  in  the  territories 
within  its  jurisdiction.32  And  it  seems  that  a  state  is  powerless  to 
prevent  a  corporation  from  doing  acts  in  the  discharge  of  its  employ- 
ment by  the  federal  government,33  or  to  exclude  one  engaged  in  inter- 
state commerce  under  authority  of  the  acts  of  congress.34 

§  26.  Railroad  in  more  than  one  state — Citizenship. — The  legisla- 
ture of  one  state  may  authorize  a  railroad  corporation  of  another  to 
extend  its  line  into,35  or  hold  property  in,36  the  territory  of  the 
former.  Such  authority  granted  to  a  foreign  corporation  does  not 
make  of  it  a  domestic  corporation.37  But  where  a  railroad  corporation 


souri  Lead,  &c.  Co.  v.  Reinhard,  114 
Mo.  218,  21  S.  W.  488,  35  Am.  St. 
746. 

31  Bank  of  United  States  v.  Mc- 
Kenzie,  2  Brock.  (U.  S.)  393.  See, 
also,  Supreme  Lodge,  &c.  v.  England, 
94  Fed.  369,  36  C.  C.  A.  298;  Com- 
monwealth v.  Texas,  &c.  R.  Co.  98 
Pa.  St.  90. 

82  Ante,  §  15,  note. 

83  Stockton    v.    Baltimore,   &c.    R. 
Co.  32  Fed.  9,  14;  Pembina  Mining 
Co.  v.  Pennsylvania,  125  U.  S.  181, 
186,  8  Sup.  Ct.  737;  Horn  Silver  Min. 
€o.  v.  New  York,  143  U.  S.  305,  12 
Sup.  Ct.  403;  California  v.  Pacific  R. 
Co.  127  U.  S.  1,  8  Sup.  Ct.  1073. 

84  Pensacola  Tel.  Co.  v.  Western  U. 
Tel.  Co.  96  U.  S.  1,  12.    See,  also, 
People  v.  Wemple,  131  N.  Y.  64,  29 
N.  E.  1002,  24  Am.  St.  542. 

85  Goodlett  v.  Louisville,  &c.  R.  Co. 
122  U.  S.  391,  7  Sup.  Ct.  1254;  Balti- 
more, &c.  R.  Co.  v.  Harris,  12  Wall. 
(U.  S.)  65;  Pomeroy  v.  New  York, 
&c.  R.  Co.  4  Blatch.  (U.  S.)  120. 

88  Baltimore,  &c.  R.  Co.  v.  Wight- 
man,  29  Gratt.  (Va.)  431,  26  Am.  R. 
584;  Indianapolis,  &c.  R.  Co.  r. 


Vance,  96  U.  S.  450;  Goshorn  v.  Ohio 
County,  1  W.  Va.  308;  Baltimore, 
&c.  R.  Co.  v.  Noell,  32  Gratt.  (Va.) 
394;  Baltimore,  &c.  R.  Co.  v.  Galla- 
hue,  12  Gratt.  (Va.)  655,  65  Am. 
Dec.  254.  The  authority  granted 
does  not  confer  jurisdiction  as  to 
such  property  on  the  incorporating 
state.  Eaton,  &c.  Co.  v.  Hunt,  20 
Ind.  457. 

37  Denniston  v.  New  York,  &c.  R. 
Co.  1  Hilton  (N.  Y.)  62;  State  v. 
Delaware,  &c.  R.  Co.  30  N.  J.  L.  473, 
31  N.  J.  L.  531,  86  Am.  Dec.  226; 
Erie  R.  Co.  v.  Stringer,  32  Ohio  St. 
468;  Baltimore,  &c.  R.  Co.  v.  Gary, 
28  Ohio  St.  208.  See,  also,  Hollings- 
worth  v.  Southern  R.  Co.  86  Fed. 
353.  Nor  does  it  change  the  rela- 
tionship to  the  incorporating  state. 
Commonwealth  v.  Pittsburg,  &c.  R. 
Co.  58  Pa.  St.  26.  But  it  may  be, 
in  a  sense,  a  domestic  corporation 
if  the  statute  so  provides  in  fixing 
the  terms  upon  which  it  is  author- 
ized to  enter  and  carry  on  business 
in  the  state.  Young  v.  South  Trede- 
gar,  &c.  Co.  85  Tenn.  189,  2  S.  W. 
202,  4  Am.  St.  752.  The  same  statute 


§26] 


LEGAL   STATUS. 


is  formed  by  the  concurrent  legislation  of  two  or  more  states,88  or  by 
the  consolidation  of  corporations  of  two  or  more  states  by  authority 
of  their  laws,39  it  is,  for  most  purposes  at  least,  a  corporation,  whether 
the  same  or  distinct,  of  each,  having  a  domicile40  therein  where  its 
corporate  business  may  be  transacted.41  Although  from  one  point  of 
view  it  may  be  regarded  as  a  single  corporation  or  unit,  yet  from  an- 
other it  is  not  the  same,  but  a  distinct  corporation  in  each  state,  so 
far  as  its  property  and  business  within  that  state  are  concerned,42  and 
is  controlled  therein  as  to  such  matters  by  the  laws  of  the  state  sub- 
stantially as  any  other  domestic  corporation  is  controlled.43 


construed  in  the  case  just  cited  has, 
however,  been  held  by  the  federal 
court  not  to  make  the  foreign  cor- 
poration authorized  to  do  business 
in  Tennessee  a  domestic  corporation 
of  that  state.  Markwood  v.  South- 
ern R.  Co.  65  Fed.  817.  It  was, 
therefore,  permitted  to  remove  the 
cause  to  the  federal  court.  See,  also, 
Rece  v.  Newport  News  &c.  Co.,  32 
W.  Va.  164,  9  S.  E.  212,  3  L.  R.  A. 
572. 

38  Ohio,  &c.  R.  Co.  v.  Wheeler,  1 
Black  (U.  S.)  286;  Newport,  &c.  Co. 
v.  Woolley,  78  Ky.  523;  Nashua,  &c. 
R.  Co.  v.  Boston,  &c.  R.  Co.  136  U.  S. 
356,  10  Sup.  Ct.  1004.  The  formation 
of  a  new  company  by  interstate  con- 
solidation by  joint  or  concurrent 
acts  of  the  legislatures  of  different 
states  is,  from  one  point  of  view, 
something  of  an  anomaly,  and  has 
been  regarded  by  some  courts  as  an 
impossibility.  See  Quincy  Bridge 
Co.  v.  Adams  County,  88  111.  615; 
Racine,  &c.  R.  Co.  v.  Farmers',  &c. 
Co.  49  111.  331,  95  Am.  Dec.  595.  But 
these  cases  are  explained  and  criti- 
cised by  the  same  court  in  the  later 
case  of  Ohio,  &c.  R.  Co.  v.  People, 
123  111.  467,  14  N.  E.  874. 

89  Conn  v.  Louisville,  &c.  R.  Co. 
39  Fed.  227;  St.  Paul,  &c.  R.  Co., 
In  re,  36  Minn.  85;  Guinault  v. 


Louisville,  &c.  R.  Co.  41  La.  Ann. 
571,  6  So.  850;  State  v.  Chicago,  &c. 
R.  Co.  25  Neb.  165,  41  N.  W.  128; 
Beach  Priv.  Corp.,  §  336. 

40  Guinault  v.  Louisville,  &c.  R. 
Co.  41  La.  Ann.  571,  6  S.  W.  850; 
Covington,  &c.  Bridge  Co.  v.  Mayer, 
31  Ohio  St.  317. 

"Graham  v.  Boston,  &c.  R.  Co. 
118  U.  S.  161,  6  Sup.  Ct.  1009;  Balti- 
more, &c.  R.  Co.  v.  Harris,  12  Wall. 
(U.  S.)  65;  Covington,  &c.  Bridge 
Co.  v.  Mayer,  31  Ohio  St.  317. 

"Peik  v..  Chicago,  &c.  R.  Co.  94 
U.  S.  164;  Central  Trust  Co.  v.  St. 
Louis,  &c.  R.  Co.  41  Fed.  551;  Bald- 
win v.  Chicago,  &c.  R.  Co.  86  Fed. 
167;  Winn  v.  Wabash  R.  Co.  118 
Fed.  55;  Sprague  v.  Hartford,  &c. 
R.  Co.  5  R.  I.  233;  Atwood  v.  Shen- 
andoah,  &c.  R.  Co.  85  Va.  966,  9  S. 
E.  748,  38  Am.  &  Eng.  R.  Cas.  534; 
Pittsburgh,  &c.  R.  Co.  v.  Rothschild 
(Pa.),  26  Am.  &  Eng.  R.  Cas.  50. 

"Delaware  Railroad  Tax  Cases, 
18  Wall.  (U.  S.)  206;  Clark  v. 
Barnard,  108  U.  S.  436,  2  Sup.  Ct 
878;  Gage  v.  Lake  Shore,  &c.  R.  Co. 
70  N.  Y.  220;  Ohio,  &c.  R.  Co.  V. 
Weber,  96  111.  443;  Chicago,  &c.  R. 
Co:  v.  Auditor-General,  53  Mich.  79, 
18  N.  W.  586.  But  see  post,  §  28,  as 
to  whether  a  single  new  corporation 
is  formed  or  more  than  one. 


CONTROL  OF  RAILROADS  IX  MORE  THAN   ONE  STATE.       [§27 


§  27.  Control  of  railroads  in  more  than  one  state. — The  laws  of  a 
state  can  have  no  effect  beyond  the  limits  of  its  territorial  jurisdic- 
tion,44 and  such  a  corporation  is  not  necessarily  affected,  in  regard  to 
its  rights,  duties,  and  liabilities,  in  one  sovereignty,  by  the  terms  of 
the  charter  granted  to  it  by  another,45  but  it  has  been  held  that  its 
charter  may  be  amended  in  either  state  so  as  to  control  its  action  in 
that  state  although  the  amendment  be  opposed  to  the  constitution  or 
laws  of  another  state  by  which  it  is  also  chartered.46  Where  it  has  but 
one  set  of  shareholders  owning  shares  of  a  capital  stock  which  repre- 
sents the  entire  property,  and  its  entire  business  and  property  are 
under  a  single  management  and  operated  as  a  unit,  contracts  made 
by  the  controlling  power  are  held  to  be  made  by  each  of  the  corpora- 
tions,47 and  a  decree  rendered  against  the  railroad  in  one  state  will 
bind  it  in  the  other.48  It  may  be  restrained  by  the  courts  of  one  state 
from  using  its  corporate  funds  for  other  than  corporate  purposes  in 
another  through  which  it  runs.49  But  it  has  been  held  that  a  state 


44  Newport,  &c.  R.  Co.  v.  Woolley, 
78  Ky.  523;  Land  Grant  R.  Co.  v. 
Comrs.  of  Coffey  Co.  6  Kans.  245; 
Bank  of  Augusta  v.  Earle,  13  Pet. 
(U.  S.)  519,  586;  County  of  Alle- 
gheny v.  Cleveland,  &c.  R.  Co.  51 
Pa.  St.  228,  88  Am.  Dec.  584;  Louis- 
ville, &c.  R.  Co.  v.  Letson,  2  How. 
(U.  S.)  497;  Warren  v.  First  Nat. 
Bank,  149  111.  9,  25  L.  R.  A.  746. 

"Ohio,  &c.  R.  Co.  v.  Wheeler,  1 
Black  (U.  S.)  286;  'Muller  v.  Dows, 
94  U.  S.  444.  One  state  cannot  im- 
pose any  restrictions  or  limitations 
upon  the  exercise  of  corporate  pow- 
ers in  another  state  by  a  corporation 
which  extends  into  both  jurisdic- 
tions. Atwood  v.  Shenandoah  Val- 
ley R.  Co.  85  Va.  966,  9  S.  E.  748,  38 
Am.  &  Eng.  R.  Cas.  534.  But  it  Is 
held  that  a  corporation  which  has 
been  adjudged  insolvent  and  placed 
in  the  hands  of  a  receiver  in  the 
state  of  its  incorporation  cannot 
prosecute  a  writ  of  error  in  an- 
other state,  over  the  objection  of  the 
receiver.  American  Water-works  Co. 
v.  Farmers,  &c.  Co.  20  Colo.  203,  37 


Pac.  269,  25  L.  R.  A.  338,  46  Am.  St. 
285.  The  court  admitted  the  general 
rule  that  laws  have  no  extra-terri- 
torial force  as  mere  laws,  but  said 
that  "things  done  in  one  state  in 
pursuance  of  laws  thereof  are  valid 
and  binding  in  other  states." 

"Covington  v.  Covington,  &c. 
Bridge  Co.  10  Bush  (Ky.)  69. 

47  Bissel  v.  Michigan,  &c.  R.  Co.  22 
N.   Y.    258;    Racine,   &c.   R.    Co.   v. 
Farmers',  &c.  Co.  49  111.  331,  95  Am. 
Dec.  595. 

48  Paine  v.  Lake  Erie,  &c.  R.  Co. 
31  Ind.  283,  347. 

48  Baltimore,  &c.  R.  Co.  v.  Glenn, 
28  Md.  287,  320,  92  Am.  Dec.  698; 
State  v.  Northern  R.  Co.  18  Md.  193, 
215;  Fisk  v.  Chicago,  &c.  R.  Co.  53 
Barb.  (N.  Y.)  513,  4  Abb.  Pr.  N.  S. 
(N.  Y.)  378;  March  v.  Eastern  R.  Co. 
40  N.  H.  548,  577,  77  Am.  Dec.  732; 
Wilmer  v.  Atlanta,  &c.  R.  Co.  2  Woods 
(U.  S.)  409.  And  it  may  be  en- 
joined as  an  entirety  in  the  courts 
of  either  state  from  making  unjust 
discrimination  as  a  common  carrier, 
although  some  of  the  acts  were  per- 


§    28]  LEGAL   STATUS.  48 

cannot  tax  bonds  of  such  a  railroad  corporation,  secured  by  a  mortgage 
on  its  entire  line,  for  the  reason  that  this  would  be  a  tax  upon  prop- 
erty lying  without  the  state.50  The  courts  of  one  state,  having  juris- 
diction of  the  mortgagor  and  trustees  under  a  mortgage  covering  such 
a  road  may  order  the  sale  of  the  entire  road,  subject  to  liens  existing 
in  the  other  state.51  But  where  a  corporation  which  is  subject  to  a 
mortgage  in  one  state,  consolidates  with  a  corporation  of  another 
state,  the  courts  of  such  other  state  acquire  no  jurisdiction  to  enforce 
a  foreclosure  of  the  mortgage.52  The  courts  of  either  state  may  ap- 
point a  receiver  for  so  much  of  the  line  as  lies  within  its  jurisdiction,53 
and  it  has  been  held  that  the  corporation  in  one  state  may  be  wound 
up  and  dissolved  without  affecting  its  charter  rights  in  other  states.54 
The  circuit  court  of  the  United  States,  for  a  district  in  one  state,  may 
exercise  jurisdiction  to  appoint  a  receiver  for  an  entire  line  extending 
into  several  states.55  It  may  be  somewhat  difficult  to  reconcile  all  of 
these  decisions  with  one  another,  for  in  several  of  them  the  court  evi- 
dently looked  upon  the  corporation  as  one  and  the  same  in  each  state, 
while  in  most  of  them  the  court  treated  it  as  practically  a  separate 
corporation  in  each  state.  In  some  of  the  cases  the  result  would  have 
been  the  same  from  either  point  of  view. 

§  28.  Result  of  consolidation  or  concurrent  action  of  several  states 
creating  new  corporations. — It  is  said  that  the  fiction  that  makes  two 
or  three  corporations  out  of  what  is  in  fact  one,  is  established  for  the 
purpose  of  giving  each  state  its  legitimate  control  over  the  charters 
which  it  grants ;  but  the  acts  and  neglects  of  the  corporation  are  those 
of  'it  as  a  whole.56  There  is  conflict  among  the  authorities  as  to 

formed  in  the  other  state.    Scofield  "Eaton,  &c.  R.  Co.  v.  Hunt,  20 

v.  Lake  Shore,  &c.  R.  Co.  43  Ohio  Ind.  457. 

St.  5  71,  3  N.  E.  907,  54  Am.  R.  84fr,  M  Ellis  v.  Boston,  &c.  R.  Co.  107 

23  Am.  &  Eng.  R.  Gas.  612;  McDuffee  Mass.  1;  United  States  Rollingstock 

v.   Portland,   &c.   R.   Co.   52   N.   H.  Co.  In  re,  55  How.  Pr.  (N.  Y.)  286, 

430,  447, 13  Am.  R.  72.  57  How.  Pr.  (N.  Y.)  16;  Richardson 

50  Northern,  &c.  R.  Co.  v.  Jackson,  v.  Vermont,  &c.  R.  Co.  44  Vt.  613. 

7    Wall.    (U.    S.)    262v     See,    also,  "Hart  v.   Boston,  &c.  R.  Co.  40 

Wood  v.  Goodwin,  49  Me.  260.  Conn.  524. 

"Muller  v.   Dows,  94  U.   S.  444;  "Wilmer  v.  Atlanta,  &c.  R.  Co.  2 

McElrath   v.   Pittsburg,   &c.   R.   Co.  Woods  (U.  S.)  409;  Brassey  v.  New 

55  Pa.  St.  189;  Mead  v.  New  York,  York,  &c.  R.  Co.  19  Fed.  663;  Mer- 

&c.  R.  Co.   45  Conn.  199;    Hand  v.  cantile   Trust  Co.   v.   Missouri,   &c. 

Savannah,  &c.  R.  Co.  12  S.  C.  314,  R.  Co.  36  Fed.  221,  1  U.  R.  A.  397. 

366.  58Horne  v.  Boston,  &c.  R.  Co.  18 

Fed.  50. 


49  CONSOLIDATION.  [§   28 

whether  the  result  of  a  consolidation  or  incorporation  under  the  laws 
of  two  or  more  states  is  one  corporation  or  several  corporations  with 
a  common  name,  stock,  stockholders  and  property.  But,  as  already 
stated,  they  are  substantially  in  accord  upon  the  proposition  that  for 
certain  purposes,  practically  at  least,  two  or  more  corporations  are 
thus  created.  In  other  words,  the  portion  of  a  railroad  in  either  state 
is  subject,  in  the  main,  to  the  laws  of  that  state  just  as  if  it  were  a 
separate  corporation  of  such  state.  Upon  the  general  subject,  how- 
ever, it  is  said  on  the  one  hand,  that  the  legislatures  of  two  different 
states  cannot  co-operate  and  unite  in  creating  a  single  corporation  so 
as  to  make  it  one  and  the  same  legal  being  in  both,57  and  that,  if  a 
corporation  be  regarded  as  a  legal  institution  or  group  of  laws  mani- 
fested in  legal  relations,  as  such  laws  can  have  no  extraterritorial 
force,  they  must  constitute  a  single,  complete  and  separate  corpora- 
tion in  each  state.58  On  the  other  hand,  it  is  said  that  there  is  no 
reason  why  several  states  cannot  unite  in  creating  one  and  the  same 
corporation  having  a  common  name,  stock,  stockholders  and  prop- 
erty,59 which  will  be,  in  reality,  a  single  corporation,  although  it  may 
be  clothed  with  the  powers  of  two  corporations.60  Thus,  it  has  been 
held  that  such  a  corporation  may  legally  hold  shareholders'  meetings 
in  either  state  which  will  be  valid  as  to  all  the  property  and  stockhold- 
ers in  both.61  Another  court  has  said  that  "a  corporation  may  have  a 
twofold  organization,  and  be,  so  far  as  its  relation  to  our  state  is  con- 
cerned, both  foreign  and  domestic.  It  may  have  a  corporate  entity  in 
each  state,  yet  its  general  character  be  of  a  bifold  organization."62 

"Ohio   &    Mississippi    R.    Co.    v.  ""Covington  Bridge  Co.  v.  Mayer, 

Wheeler,  1  Black  (U.  S.)   286;   Ra-  31  Ohio  St.  317.   See,  also,  State  v. 

cine,  &c.  R.  Co.  v.  Farmers',  &c.  Co.  Keokuk,  &c.  R.  Co.  99  Mo.  30,  12 

49  111.  331,  95  Am.  Dec.  595;   Alle-  S.  W.  290,  6  L.  R.  A.  222;   Lee  v. 

gheny  County  v.  Cleveland,  &c.  R.  Sturges,  46  Ohio  St.  153,  19  N.  E. 

Co.,   51   Pa.    St.    228,    88    Am.   Dec.  560,  2  L.  R.  A.  556;  Rio  Grande,  &c. 

579;    Newport,    &c.    Bridge    Co.    v.  R.  Co.  v.  Telluride,  &c.  Co.  16  Utah 

Woolley,  78  Ky.  523;    Missouri  &c.  125,  51  Pac.  146. 

R.  Co.  v.  Meeh,  69  Fed.  753,  30  L.  61  Covington  Bridge  Co.  v.  Mayer, 

R.  A.  250;  Clark  Corp.  §§  77,  80.  31  Ohio  St.  317;  Graham  v.  Boston, 

68  Taylor  Priv.  Corp.  §  404  et  seq.  &c.  R.  Co.,  14*  Fed.  753,  on  appeal, 

MSee  Railroad  Co.  v.  Harris,  12  118  U.  S.  161.    See,  also,  Ohio,  &c. 

Wall.  (U.  S.)  65;  Graham  v.  Boston,  R.  Co.  v.  People,  123  111.  467,  14  N. 

&c.  R.  Co.  118  U.  S.  161,  6  Sup.  Ct.  E.  874;    Guinault  v.  Louisville,  &c. 

1009;  Bishop  v.  Brainard,  28  Conn.  R.  Co.  41  La.  Ann.  571,  6  So.  850. 

289.    Mr.  Pierce  strongly  advocates  *  McGregor  v.  Erie  R.  Co.  35  N.  J. 

this  doctrine.    Pierce  Rail.   17,   19.  L.  115,  118. 

See,  also,  1  Thomp.  Corp.  §  47. 
ELL.  RAILROADS — 4 


§   28]  LEGAL   STATUS.  50 

It  is  also  said  that  when  "two  corporations  created  in  different  states 
consolidate,  though  for  most  purposes  they  are  not  therefore  to  be 
separately  regarded,  yet  in  each  state  the  consolidated  company  is 
deemed  to  stand  in  the  place  of  the  corporation  to  which  it  there  suc- 
ceeded, and  of  its  members,  and  consequently  to  be  a  citizen  of  that 
state  for  many  purposes,  while  in  the  other  state  it  would  stand  in  the 
place  of  the  other  corporation  in  respect  to  citizenship  there."63  Per- 
haps the  question  is  to  some  extent  to  be  determined  by  the  legislative 
intention,  for,  if  it  be  conceded  that  two  states  can  co-operate  so  as  to 
create  one  and  the  same  corporation,  as  it  certainly  must  be,  in  a 
sense,  at  least,  it  must  also  be  conceded  that  each  may  authorize  the 
same  persons  to  incorporate  a  distinct  company  in  that  state,  for  the 
same  general  business,  to  hold  property  and  operate  in  that  state  in 
connection  with  the  company  in  the  other  state.64  The  question  most 
often  arises  with  respect  to  the  jurisdiction  of  the  federal  courts,  but 
it  seems  that  such  jurisdiction  does  not  necessarily  depend  altogether 
upon  the  answer  to  the  question,  for,  whether  there  be  one  or  two 
corporations,  it  is  generally  held,  as  we  have  already  shown,  that  there 
is  a  domestic  corporation  or  citizen  of  each  state  by  which  a  charter 
is  granted.65  But  this  ruling  seems  to  be  more  consistent  with  the 
theory  that  there  are  two  corporations.  And  this  is  the  view  that 
appears  to  have  been  taken  by  the  supreme  court  of  the  United  States 
in  a  recent  decision,  which,  however,  it  may  be  somewhat  difficult  to 
reconcile  with  other  decisions  and  dicta  of  that  court,  and  which  re- 
sulted in  the  corporation  created  in  the  first  state  being  held  to  be  a 
foreign  rather  than  a  domestic  corporation  of  the  second  state.  In  the 
case  to  which  we  refer  it  appeared  that  the  Nashua  and  Lowell  Rail- 
road Corporation  was  first  created  by  the  legislature  of  New  Hampshire 
in  1835.  In  1836  the  legislature  of  Massachusetts  constituted  the 

63  Chicago,  &c.  R.  Co.  v.  Auditor-  bama,  107  U.  S.  581,  2  Sup.  Ct.  432; 
General,  per  Cooley,  C.  J.,  53  Mich.  Railway  Co.  v.  Whitton,  13  Wall.  (U. 
79,  92,  18  N.  W.  586.  S.)    270;    State   v.   Chicago,   &c.   R. 

64  Clark  v.  Barnard,  108  U.  S.  436,  Co.    25    Neb.   156,   2   L.    R.   A.   564, 
2   Sup.   Ct.    878.    Ante,    §    26.    And  and  note.    See,  also,  Trester  v.  Mis- 
may   authorize  a   consolidation,   so-  souri,   &c.   R.   Co.   33   Neb.    171,   49 
called,  at  least,  by  keeping  one  of  N.   W.  1110.    But  compare  Walters 
the  corporations  alive  and   permit-  v.  Chicago,  &c.  R.  Co.  104  Fed.  377. 
ting  it  to  absorb  or  merge  the  other.  See,   generally,   St.   Joseph,   &c.   R. 
See  post,  chapter  on  Consolidation.  Co.  v.  Steele,  167  U.  S.  659,  17  Sup. 

Thinizy  v.  Augusta,  &c.  R.  Co.  Ct.  925;  Bradley  v.  Ohio,  &c.  R.  Co. 
56  Fed.  273;  Muller  v.  Dows,  94  U.  78  Fed.  387;  Baldwin  v.  Chicago, 
S.  444;  Memphis,  &c.  R.  Co.  v.  Ala-  &c.  R.  Co.  86  Fed.  167. 


51 


CONSOLIDATION. 


[§  28 


same  persons  a  corporation  of  that  state,  under  the  same  name,  and 
authorized  them  to  build  their  road  from  Nashua,  New  Hampshire, 
to  Lowell,  Massachusetts.  In  1838  both  states  passed  laws  constitut- 
ing the  stockholders  of  each  corporation  stockholders  in  the  other, 
and  uniting  them  into  one  corporation  under  the  old  name,  and  pro- 
viding that  all  the  "tolls,  franchises,  rights,  powers,  privileges  and 
property  of  the  two  should  be  held  and  enjoyed  by  all  the  stockholders 
in  proportion  to  the  number  of  their  shares  in  either  or  both  of  said 
corporations."  In  1857,  the  Nashua  and  Lowell  Kailroad  Corporation 
entered  into  a  traffic  agreement  with  the  Boston  and  Lowell  Kail- 
road  Corporation,  which  was  incorporated  under  the  laws  of  Massachu- 
setts. A  controversy  afterwards  arose  over  this,  and  the  former,  alleg- 
ing that  it  was  a  New  Hampshire  corporation,  brought  suit  against  the 
latter  in  the  United  States  circuit  court  of  Massachusetts.  It  was  held 
that  the  plaintiff  "must  be  considered  simply  in  its  character  as  a 
corporation  created  by  the  laws  of  New  Hampshire,  and,  as  such,  a 
citizen  of  that  state,  and  so  entitled  to  go  into  the  circuit  court  of  the 
United  States  and  bring  its  bill  against  a  citizen  of  any  other  state, 
and  that  its  union  or  consolidation  with  another  corporation  of  the 
same  name,  organized  under  the  laws  of  Massachusetts,  did  not  ex- 
tinguish or  modify  its  character  as  a  citizen  of  New  Hampshire."66 


68  Nashua  &  Lowell  R.  Corp.  v. 
Boston,  &c.  R.  Corp.  136  U.  S.  356, 
10  Sup.  Ct.  1004.  Citing  Farnum  v. 
Blackstone  Canal  Corp.  1  Sum.  (U. 
S.)  46;  Muller  v.  Dows,  94  U.  S.  444; 
St.  Louis,  &c.  R.  Co.  v.  Indianapo- 
lis, &c.  R.  Co.  9  Biss.  (U.  S.)  144, 
on  appeal  sub  nom.,  Pennsylvania 
R.  Co.  v.  St.  Louis,  &c.  R.  Co.  118 
U.  S.  290,  6  Sup.  Ct.  24;  Racine,  &c. 
R.  Co.  v.  Farmers',  &c.  Co.  49  111. 
331,  95  Am.  Dec.  595;  Quincy,  &c. 
Bridge  Co.  v.  Adams  Co.  88  111. 
615.  See,  also,  Western  &c.  R.  Co. 
v.  Roberson,  61  Fed.  592;  Rece  v. 
Newport  News,  &c.  Co.  32  W.  Va. 
164,  9  S.  E.  212,  3  L.  R.  A.  572; 
Louisville  T.  Co.  v.  Louisville, 
&c.  R.  Co.  75  Fed.  433;  Louis- 
ville, &c.  R.  Co.  v.  Louisville 
Trust  Co.  174  U.  S.  552,  19  Sup. 
Ct.  R.  817;  St  Louis,  &c.  R.  Co.  v. 


James,  161  U.  S.  545,  16  Sup.  Ct. 
621.  In  Walters  v.  Chicago,  &c.  R. 
Co.  104  Fed.  377,  378,  it  is  said: 
"The  rule  deducible  from  the  deci- 
sions of  the  supreme  court  *  *  * 
is  that  a  corporation,  as  such,  has 
no  citizenship;  that  the  citizenship 
of  the  incorporators  determines  the 
jurisdiction  of  the  federal  court; 
that  the  citizenship  of  the  incorpo- 
rators is  conclusively  presumed  to 
be  that  of  the  state  in  which  the 
corporation  was  first  created;  that 
while  a  corporation  organized  by 
the  laws  of  one  state  may  become  a 
domestic  corporation  in  another 
state,  the  laws  of  the  two  states 
permitting,  yet  the  citizenship  of 
the  incorporators  remains  that  of 
the  state  in  which  such  corporation 
was  first  created.  Where,  however, 
a  new  corporation  is  created  by  the 


§   29]  .LEGAL   STATUS.  52 

The  court,  as  an  additional  reason  for  this  opinion,  called  attention 
to  the  injustice  that  would  result  if  the  defendant,  as  a  citizen  of 
Massachusetts,  could  sue  the  plaintiff,  as  a  citizen  of  New  Hampshire, 
in  the  federal  court  of  New  Hampshire,  and  yet  prevent  the  plaintiff 
from  suing  it  in  Massachusetts  on  the  ground  that  they  were  both 
citizens  of  the  latter  state.  Another  interesting  case  upon  the  same 
general  subject  was  recently  decided  by  the  supreme  court  of  Mas- 
sachusetts. An  action  was  brought  in  Massachusetts  by  the  adminis- 
trator of  a  man  who  had  lived  there  but  had  been  killed  by  the  de- 
fendant in  Connecticut.  The  defendant  was  incorporated  in  both 
states,  and  there  was  a  statute  in  Massachusetts  providing  that  a  cause 
of  action  for  the  death  of  a  person  shall  survive  in  his  personal  repre- 
sentative, but  there  was  no  such  law  in  Connecticut.  The  court  held 
that  the  fact  that  a  railroad  is  operated  as  a  continuous  line  under  a 
charter  from  each  of  two  different  states  does  not  make  its  liabilities 
different  or  greater  in  one  of  them  on  account  of  an  accident  occurring 
in  the  other,  nor  because  the  person  injured  was  a  resident  of  the  for- 
mer, and  that,  as  the  statute  of  Connecticut  gave  no  right  of  action, 
the  plaintiff  could  not  recover  in  Massachusetts.67 

§  29.  Railroad  only  a  citizen  or  domestic  corporation  of  states  that 
charter  it — Effect  of  mere  license. — Many  railroad  corporations  oper- 
ate lines  in  other  states  than  those  by  which  the  corporations  are 
created,  under  license  only,  in  which  case  they  remain  domestic  cor- 
porations and  citizens  only  of  the  states  by  which  their  charters  are 
granted,  and  foreign  corporations  in  the  states  granting  the  license.68 

joint  action  or  operations  of  the  44;  Wilson  v.  Winchester,  &c.  R. 

laws  of  two  or  more  states,  the  citi-  Co.  99  Fed.  642;  Howard  v.  Gold, 

zenship  of  such  corporation  will  be  &c.  102  Fed.  657;  Southern  Pac.  R. 

treated  as  that  of  each  state."  Co.  v.  Harrison,  73  Tex.  103,  11  S. 

67  Davis  v.  New  York,  &c.  R.  143  W.  168.  In  Baltimore,  &c.  R.  Co.  v. 

Mass.  301,  9  N.  E.  815,  58  Am.  R.  Allen  (W.  Va.),  52  S.  E.  465,  it  is 

138.  held  that:  Railroad  corporations, 

88  Goodlett  v.  Louisville,  &c.  R.  Co.  chartered  by  other  states,  but  own- 

122  U.  S.  391,  7  Sup.  Ct.  1245;  Rail-  ing  and  operating  railroads  in  West 

road  Co.  v.  Harris,  12  Wall.  (U.  S.)  Virginia,  have  the  status  of  resi- 

65,  83;  Pennsylvania  Co.  v.  St.  dents  of  this  state,  although  they 

Louis,  &c.  R.  Co.  118  U.  S.  290,  7  are  not  citizens  of  it,  within  the 

Sup.  Ct.  24;  Martin  v.  Baltimore,  meaning  of  clause  1  of  section  2  of 

&c.  R.  Co.  151  U.  S.  673,  14  Sup.  Ct.  article  3  and  clause  1  of  section  2 

533.  See,  also,  Southern  Pac.  R.  Co.  of  article  4  of  the  constitution  of 

v.  Denton,  146  U.  S.  202,  13  Sup.  Ct.  the  United  States,  nor  domiciled  in 


53 


CITIZEN   OF   STATE  GRANTING   CHARTER. 


[§   29 


An  act  of  the  legislature  recognizing  a  foreign  corporation,  or  granting 
it  privileges,  will  not  be  construed  to  be  a  charter  of  incorporation, 
unless  there  be  a  manifest  intention  to  create  a  new  corporation  within 
the  state.69  And  the  fact  that  the  title  of  an  act  denominates  it  "an 
act  to  incorporate,"  is  not  sufficient  to  show  such  intention,  where 
the  body  of  the  act  is  more  properly  construed  as  a  license.70  A  rail- 
road company  operating  a  line  in  a  foreign  jurisdiction  under  a  lease,71 
or  under  authority  given  to  it  to  condemn  land  for  a  right  of  way, 
and  to  build  and  operate  a  railroad,72  does  not  thereby  become  a  do- 
mestic corporation,  even  where  the  act  giving  it  authority  contains  a 
proviso  that  it  shall  be  deemed  a  domestic  corporation  as  to  all  causes 
of  action  arising  within  the  state.73  Where  a  corporation  is  doing 
business  under  a  license,  the  license  may  generally  be  revoked  at  the 


West  Virginia  state  in  the  technical 
sense  of  that  term;  and  that  such 
corporations  may  be  proceeded 
against  as  garnishees,  without  refer- 
ence to  the  jurisdiction  in  which 
debts  due  from  them  were  con- 
tracted or  are  payable.  See,  also, 
on  the  garnishment  question  the 
numerous  and  conflicting  authori- 
ties there  reviewed,  also  the  recent 
cases  of  Louisville,  &c.  R.  Co.  v. 
Deer,  200  U.  S.  176,  26  Sup.  Ct.  207; 
Harris  v.  Balk,  198  U.  S.  215,  25 
Sup.  Ct.  625. 

69  Memphis,  &c.  R.  Co.  v.  Commis- 
sioners, 112   U.   S.   609,   5   Sup.   Ct. 
299;    New    Orleans,    &c.    R.    Co.    v. 
Delamore,  114  U.  S.  508,  5  Sup.  Ct. 
1009;    Martin  v.   Baltimore,   &c.   R. 
Co.  151  U.  S.  673,  14  Sup.  Ct.  533. 
See,  also,  Markwood  v.  Southern  R. 
Co.,  65  Fed.  817.  But  compare  Louis- 
ville Trust  Co.  v.  Louisville,  &c.  R. 
Co.    75   Fed.    433;    Angier   v.    East 
Tennessee,  &c.  R.  Co.  74  Ga.  634,  20 
Am.  &  Eng.  R.  Cas.  618;  Indianapo- 
lis, &c.  R.  Co.  v.  Vance,  96  U.  S.  450. 

70  Goodlett  v.  Louisville,  &c.  R.  Co. 
122  U.  S.  391,  7  Sup.  Ct.  1245. 

"Baltimore,  &c.  R.  Co.  v.  Koontz, 
104  U.  S.  5;  Baltimore,  &c.  R.  Co.  v. 
Gary,  28  Ohio  St.  208;  Callahan  v. 


Louisville,  &c.  R.  Co.  11  Fed.  536. 
See,  also,  Illinois  Cent.  R.  Co.  v. 
Sanford,  75  Miss.  862,  23  So.  355. 
So,  where  it  purchases  the  local 
road.  Morgan  v.  East  Tennessee.  &c. 
R.  Co.  48  Fed.  705;  Conn  v.  Chicago, 
&c.  R.  Co.  48  Fed.  177.  Unless  it  is 
merged  or  consolidated  with  it.  An- 
gier v.  East  Tennessee,  &c.  R.  Co.  74 
Ga.  634,  20  Am.  &  Eng.  R.  Cas.  618; 
Schaefer  v.  East  Tennessee,  &c.  R. 
Co.  76  Ga.  99. 

72  Hand  v.  Savannah,  &c.  R.  Co.  12 
S.  C.  314.  "A  corporation  of  Illi- 
nois, authorized  by  its  laws  to  build 
a  railroad  across  the  state  from  the 
Mississippi  river  to  its  eastern 
boundary,  may,  by  the  permission 
of  the  state  of  Indiana,  extend  its 
road,  a  few  miles  within  the  limits 
of  the  latter,  or,  indeed,  through  the 
entire  state,  and  may  use  and  oper- 
ate the  line  as  one  road,  by  the  per- 
mission of  the  state,  without  there- 
by becoming  a  corporation  or  a  citi- 
zen of  the  state  of  Indiana."  Penn- 
sylvania Co.  v.  St.  Louis,  &c.  Co. 
118  U.  S.  290,  7  Sup.  Ct.  24. 

n  Chicago,  &c.  R.  Co.  v.  Becker,  32 
Fed.  849.  But  see  Western  &c.  R. 
Co.  v.  Roberson,  61  Fed.  592. 


MO] 


LEGAL   STATUS. 


54 


pleasure  of  the  state  granting  it;74  but  this  rule  would  probably  be 
subject,  as  to  railroads,  to  the  principal  that  a  state  cannot  exclude  a 
corporation  engaged  in  interstate  commerce.75 

§  30.     Foreign  corporation — Conditions  of  admission  to  state. — The 

provision  of  the  fourteenth  amendment  of  the  federal  constitution, 
declaring  that  no  state  shall  "deny  to  any  person  within  its  jurisdic- 
tion the  equal  protection  of  the  laws,"  does  not  prohibit  a  state  from 
imposing  conditions  upon  foreign  corporations  before  admitting  them 
and  allowing  them  to  do  business  within  the  state.78  But  the  condi- 
tions must  not  be  such  as  tax  interstate  commerce,77  or  invade  the 
province  of  congress.  Many  of  the  states  have  laws  prescribing  the 
conditions  upon  which  such  corporations  will  be  permitted  to  do  busi- 
ness.78 Several  of  them  prohibit  any  foreign  railroad  corporation 
from  acquiring  a  right  of  way  and  doing  business  without  procuring  a 
charter  and  becoming  a  domestic  corporation.79  Bringing  an  action 


74  Woods  R.  Law,  §  15  and  cases 
cited;  Doyle  v.  Continental  Ins.  Co. 
94  U.  S.  535;  Hartford  Ins.  Co.  v. 
Raymond,  70  Mich.  485,  38  N.  W. 
474. 

"Pensacola  Tel.  Co.  v.  Western 
Union  Tel.  Co.  96  U.  S.  1;  Norfolk, 
&c.  R.  Co.  v.  Pennsylvania,  136  U.  S. 
114,  10  Sup.  Ct.  958.  See,  also,  41 
Cent.  L.  J.  152. 

76  Norfolk,  &c.  R.  Co.  v.  Pennsyl- 
vania, 136  U.  S.  114,  10  Sup.  Ct. 
958;  Milnor  v.  New  York,  &c.  R. 
Co.  53  N.  Y.  363;  People  v.  Fire 
Ass'n,  92  N.  Y.  311,  44  Am.  R.  380. 
See,  also,  Dugger  v.  Mechanics',  &c. 
Co.  95  Tenn.  245,  32  S.  W.  5.  A 
statute  imposing  as  a  condition  upon 
foreign  corporations  doing  business 
in  Pennsylvania  that  they  shall  as- 
sess and  collect  the  tax  upon  that 
portion  of  their  loans  in  the  hands 
of  individual  residents  within  the 
state  was  held  valid,  as  such  stat- 
ute does  not  impose  a  tax,  but  sim- 
ply defines  a  duty,  and  fixes  a  pen- 
alty for  a  disregard  thereof.  Com- 
monwealth v.  New  York,  &c.  R.  Co. 
129  Pa.  463,  18  Atl.  412,  25  W.  N. 


C.  15 ;  New  York,  &c.  R.  Co.  v.  Com- 
monwealth, 18  Atl.  412,  7  R.  &  Corp. 
L.  J.  14.  But  this  was  reversed,  in 
New  York,  &c.  R.  Co.  v.  Pennsyl- 
vania, 153  U.  S.  628,  14  Sup.  Ct.  952, 
for  the  reason  that  the  statute  im- 
paired the  obligation  of  the  contract 
between  the  company  and  the  state. 
See  note  to  State  v.  Ackerman 
(Ohio),  24  L.  R.  A.  298,  and  note  to 
Cone,  &c.  Co.  v.  Poole  (S.  Car.),  24 
L.  R.  A.  289;  "State  Legislation 
Against  Foreign  Corporations,"  41 
Cent.  L.  Jour.  152. 

77  Crutcher  v.  Commonwealth,  141 
U.  S.  47,  11  Sup.  Ct.  851;   Norfolk, 
&c.  R.  Co.  v.  Pennsylvania,  136  U. 
S.  114,  10  Sup.  Ct.  958;    McCall  v. 
People,  136  U.   S.  104,  10  Sup.  Ct 
881.    See,   also,   Blake  v.   McClung, 
172  U.  S.  239,  19  Sup.  Ct.  165;  Stock- 
ton v.  Baltimore,  &c'.  R.  Co.,  32  Fed. 
9;    Pensacola    Tel.    Co.    v.   Western 
U.  Tel.   Co.   96   U.   S.   1;    People  v. 
Wemple,  131  N.  Y.  64,  29  N.  E.  1002, 
24  Am.  St.  542. 

78  See   Stimson  Am.   Stat.    (1892), 
§§  8400-8415. 

79  See,  for  instance,  Pub.  Acts,  Va., 


55 


RAILROADS  AS  PROPERTY. 


[§  31 


in  the  state  or  federal  courts  of  a  foreign  state  does  not  constitute 
"doing  business"  in  such  state,  and  such  an  action  may  be  maintained, 
although  the  laws  of  that  state  relating  to  foreign  corporations  within 
its  limits  have  not  been  complied  with.80  "Where  a  foreign  corporation 
doing  business  in  the  state  fails  to  designate  a  resident  agent,  upon 
whom  service  of  process  may  be  made  as  required  by  law,  it  has  been 
held  that  a  court  possessing  equity  powers  has  jurisdiction  to  ap- 
point a  receiver  for  the  business  of  such  corporation,  without  personal 
service,  upon  a  showing  of  an  immediate  necessity  for  such  action.81 

§  31.  'Bailroads  as  property. — All  property  essential  to  the  opera- 
tion of  a  railroad,  including  the  right  of  way,  roadbed,  ties,  rails, 
side-tracks,  switches,  depots,  station-houses,  water-tanks,  and  other  fix- 
tures, together  with  the  rolling  stock  and  other  necessary  movable 
appliances,  has  been  held  by  the  federal  courts  to  be  real  estate.82  The 


1889-90,  c.  67,  p.  51.  So,  in  Ne- 
braska, it  is  held  that  a  foreign  rail- 
road corporation,  being  prohibited 
by  the  constitution  from  acquiring  a 
right  of  way  in  Nebraska,  cannot 
do  so  indirectly  through  a  Nebraska 
corporation.  Koenig  v.  Chicago,  &c. 
R.  Co.  27  Neb.  699,  43  N.  W.  423. 
In  Pennsylvania,  where  the  stat- 
utes allow  the  stock  of  domestic 
corporations  to  be  held  by  other  cor- 
porations, it  is  held  that  a  foreign 
corporation  does  not,  by  owning  all 
the  stock  of  a  domestic  corporation, 
"acquire  or  hold"  the  real  estate  of 
the  domestic  corporation  so  as  to 
violate  the  act  of  April  26,  1855, 
against  acquiring  or  holding  real  es- 
tate "directly  in  the  corporate  name, 
or  by,  or  through  any  trustee  or 
other  device  whatsoever,  unless  spe- 
cially authorized,"  under  penalty  of 
escheat.  Commonwealth  v.  New 
York,  &c.  R.  Co.  132  Pa.  St.  591, 
19  Atl.  291,  7  L.  R.  A.  634,  25  W.  N. 
C.  404,  47  Leg.  Int.  222.  A  con- 
stitutional provision  that  no  for- 
eign corporation  shall  "have  power 
to  condemn  or  appropriate  prop- 
erty" does  not  prevent  a  foreign 


railroad  corporation  from  acquiring 
a  right  of  way  by  agreement  with 
the  landowner.  St.  Louis,  &c.  R.  Co. 
v.  Foltz,  52  Fed.  627. 

80  Texas  Land,  &c.  Co.  v.  Worsham, 
76  Tex.  556,  13  S.  W.  384;  Christian 
v.  American,  &c.  Co.  89  Ala.  198,  7 
So.  427;  American  Loan,  &c.  Co.  v. 
East,  &c.  R.  Co.  37  Fed.  242;  Powder 
River,  &c.  Co.  v.  Custer  County,  9 
Mont.  145,  22  Pac.  383;    C.   B.  Ro- 
gers &  Co.  v.  Simmons,  155  Mass. 
259,  29  N.  E.  580;  Ayres  v.  Siebel,  82 
Iowa  347,  47  N.  W.  989. 

81  Glines  v.  Supreme  S.  O.  of  I.  H. 
20  N.  Y.  S.  275. 

82  Minnesota  Co.  v.  St.  Paul  Co.  2 
Wall.    (U.    S.)    609;    Farmers'    &c. 
Co.    v.    St.    Jo.   &c.    R.    Co.    3    Dill. 
(U.    S.)    412;    Pennock    v   Coe,    23 
How.    (U.   S.)    117.    This  ruling  is 
made  the  more  readily  when  neces- 
sary to  the  protection  of  the  rights 
of  lien  holders,  in  whose  hands  the 
permanent    structure    without    the 
movable  appliances  would  have  lit- 
tle value.   An  analogy  is  drawn  be- 
tween rolling  stock  and  other  mov- 
able railroad  appliances,  and  Vene- 
tian blinds,  lightning  rods,  cattle, 


31] 


LEGAL    STATUS. 


56 


same  ruling  is  made  by  the  courts  of  many  states,83  in  some  of  which, 
however,  the  character  of  rolling  stock  as  property  is  fixed  by  statute.84 
In  those  states  in  which  the  subject  is  uncontrolled  by  statute,  the 
preponderance  of  authority  is  to  the  effect  that  only  the  land  owned 
by  the  railroad  company,  together  with  the  ties,  rails  and  other  struc- 
tures permanently  affixed  thereto,  is  realty;  and  that  engines,  cars, 
and  other  movable  appliances  are  to  be  regarded  for  most  purposes  as 
personalty.85  The  question  of  what  is  permanently  affixed  to  a  rail- 
road right  of  way  is  one  partly  of  law  and  partly  of  fact,  mainly  de- 
pendent on  the  purpose  of  the  builders,  whether,  for  example,  it  be 


and  slaves,  and  implements  used  in 
working  a  plantation,  a  steel-yard 
in  a  machine  house,  fish  in  a  pond, 
doves  in  a  cote,  all  of  which  have 
been  held  to  be  realty.  Farrar  v. 
Stackpole,  6  Greenl.  (Me.)  155; 
Lushington  v.  Sewell,  1  Sim.  435, 
480;  Washburn  Real  Prop.  (3d  ed.), 
p.  10.  But  see  as  to  taxation,  the 
more  recent  decisions  of  the  su- 
preme court  of  the  United  States  in 
Green  v.  Van  Buskirk,  7  Wall.  (U. 
S.)  139,  150;  Gloucester  Ferry  Co. 
v.  Pennsylvania,  114  U.  S.  196,  5 
Sup.  Ct.  826,  13  Am.  &  Eng.  Corp. 
Cas.  365;  also  Baltimore,  &c.  R.  Co. 
v.  Allen,  22  Fed.  376,  17  Am.  &  Eng. 
R.  Cas.  461;  Union  Loan  &  T.  Co. 
v.  Southern,  &c.  Co.  51  Fed.  840. 
Much,  however,  depends  upon  the 
statute.  See,  generally,  Webster 
Lumber  Co.  v.  Keystone,  &c.  Co.  51 
W.  Va.  545,  42  S.  E.  632,  66  L.  R.  A. 
33  and  note. 

83  Farmers'  &c.  Co.  v.  Hendrick- 
son,  25  Barb.  (N.  Y.)  484,  493; 
Palmer  v.  Forbes,  23  111.  237; 
Youngman  v.  Elmira,  &c.  R.  Co.  65 
Pa.  St.  278;  Louisville,  &c.  R.  Co.  v. 
State,  25  Ind.  177,  87  Am.  Dec.  358; 
Tiedeman  Real  Prop.  (3d  ed.),  §  2; 
and  authorities  cited  in  19  Am.  & 
Eng.  Ency.  of  Law,  882,  883,  where 
it  is  said  that  the  better  and  more 
recent  authorities,  which  are  there 
cited,  hold  that  it  is  personalty. 


84  Phillips  v.  Winslow,  18  B.  Mon. 
(Ky.)  431,  68  Am.  Dec.  729;  Miller 
v.  Rutland,  &c.  R.  Co.  36  Vt.  452, 
490. 

"sRorer  Rail.,  §§  10,  11;  Green 
Brice  Ultra  Vires,  238  and  note; 
Hoyle  v.  Plattsburg,  &c.  R.  Co.  54 
N.  Y.  314,  13  Am.  R.  595;  Randall 
v.  Elwell,  52  N-.  Y.  521,  11  Am.  R. 
747;  Williamson,  Trustee  v.  New 
Jersey  R.  Co.  29  N.  J.  Eq.  311,  15 
Am.  R.  572,  and  authorities  there 
cited;  Chicago,  &c.  R.  Co.  v.  Ft. 
Howard,  21  Wis.  44,  91  Am.  Dec. 
358;  Boston,  &c.  R.  Co.  v.  Gilmore, 
37  N.  H.  410,  72  Am.  Dec.  336;  Coe 
v.  Columbus,  &c.  R.  Co.  10  Ohio  St. 
372,  75  Am.  Dec.  518;  Boston,  &c. 
Co.  v.  Gilmore,  37  N.  H.  410,  72  Am. 
Dec.  336;  Neilson  v.  Iowa  Eastern 
R.  Co.  51  la.  184,  1  N.  W.  434,  33 
Am.  R.  124;  and  authorities  cited 
in  25  Am.  &  Eng.  Ency.  of  Law  654. 
Interest  of  a  railway  company  in  a 
street  is  held  real  estate  in  Newark, 
&c.  Co.  v.  North  Arlington,  65  N.  J. 
L.  150,  46  Atl.  568.  See,  also,  Pal- 
mer v.  Forbes,  23  111.  301;  Western, 
&c.  R.  Co.  v.  Deal,  90  N.  Car.  110; 
Thompson  v.  Schenectady  R.  Co.  124 
Fed.  274.  But  compare  People  v. 
Tax  Com'rs,  104  N.  Y.  240,  10  N.  E. 
437;  Front  St.,  &c.  R.  Co.  v.  John- 
son, 2  Wash.  112,  25  Pac.  1084,  11 
L.  R.  A.  693,  and  ante,  §  5. 


57 


EAILROADS  AS   MONOPOLIES. 


[§ 


to  construct  a  main  line  or  side  branches  for  temporary  use.86  A  rail- 
road corporation's  property,  so  far  as  the  ownership  and  the  profit 
are  concerned,  is  to  all  intents  and  purposes  private,  though  applied 
to  a  use  in  which  the  public  has  an  interest.87 

§  32.  Railroads  as  monopolies. — A  railroad  is  not  necessarily  nor 
usually  a  monopoly  in  a  legal  sense,  nor  is  the  company  entitled  to 
prevent  the  location  of  a  rival  railroad  upon  or  across  the  territory 
through  which  its  road  runs,  when  such  rival  road  is  duly  authorized 
by  the  state  ;88  for  the  grant  of  a  franchise  to  one  corporation  will  not 
be  construed  as  a  pledge  that  the  state  will  not  grant  similar  fran- 
chises to  another,  although  by  so  doing  it  may  impair  or  even  destroy 
the  value  of  the  first  franchise.89  The  legislature  may,  however,  unless- 
prohibited  by  the  constitution,  grant  an  exclusive  franchise  to  build 
and  maintain  a  railroad  within  certain  limits,90  such  franchise  being 


86  Van  Keuren  v.  Central  R.  Co.  38 
N.  J.  L.  165,  13  Am.  R.  43. 

87  Lake  Shore,  &c.  R.  Co.  v.  Chi- 
cago, &c.  R.  Co.  97  111.  506;    Pitts- 
burg,  &c.  R.   Co.  v.  Benwood   Iron 
Works,  31  W.  Va.  710,  8  fe.  E.  453, 
36  Am.  &  Eng.  R.  Cas.  531. 

83  Baltimore,  &c.  R.  Co.  v.  State, 
45  Md.  596;  Newcastle,  &c.  R.  Co.  v. 
Peru,  &c.  R.  Co.  3  Ind.  464;  Metro- 
politan R.  Co.  v.  Highland  St.  R. 
Co.  118  Mass.  290;  1  Rorer  Railw.  9; 
Pierce  Railw.  452,  453.  But  see  Rari- 
tan,  &c.  R.  Co.  v.  Delaware,  &c. 
Canal  Co.  18  N.  J.  Eq.  546. 

88  Charles  River  Bridge  v.  Warren 
Bridge,  6  Pick.  (Mass.)  376,  7  Pick. 
(Mass.)   344,  11  Peters   (U.  S.)  420. 
See,  also,  as  to  turnpikes,  Indian  C. 
R.   Co.   v.   Robinson,   13   Cal.   519; 
Bartram  v.  Central  T.  Co.  25  Cal. 
283;    Collins  v.   Sherman,  31  Miss. 
679;  Turnpike  Co.  v.  State,  3  Wall. 
(U.    S.)    210;    Washington,    &c.    R. 
v.  Baltimore,  &c.  R.  Co.  10  Gill  & 
J.  (Md.)  392;  White  R.  T.  Co.  v.  Ver- 
mont C.  R.  Co.  21  Vt.  590;   Lafay- 
ette P.  R.  Co.  v.  New  Albany  &  S. 
R.  Co.,  13  Ind.  90,  74  Am.  Dec.  246. 
As  to  bridges,  see  Hamilton  Ave., 


In  re,  14  Barb.  (N.  Y.)  405;  Fall 
v.  Sutter  C.,  21  Cal.  237;  Oswego 
Falls  B.  Co.  v.  Fish,  1  Barb.  Ch.  (N. 
Y.)  547;  Hartford  B.  Co.  v.  Union 
Ferry  Co.  29  Conn.  210;  Thompson 
v.  New  York,  &c.  R.  Co.  3  Sandf. 
Ch.  625.  As  to  ferries,  see  Collins 
v.  Sherman,  31  Miss.  679;  Fitch  v. 
New  Haven,  &c.  R.  Co.  30  Conn.  38; 
Wright  v.  Nagle,  101  U.  S.  791; 
Richmond,  &c.  R.  Co.  v.  Rogers,  1 
Duvall  (Ky.)  135;  McLeod  v.  Bur- 
roughs, 9  Ga.  213;  Harrison  v. 
Young,  9  Ga.  359;  Shorter  v.  Smith, 
9  Ga.  517.  As  to  canals,  see  Tucka- 
hoe  C.  Co.  v.  Tuckahoe,  &c.  R.  Co. 
11  Leigh  (Va.)  42,  36  Am.  Dec.  374; 
Illinois  &  M.  C.  Co.  v.  Chicago,  &c. 
R.  Co.  14  111.  314. 

90  Boston,  &c.  R.  Co.  v.  Salem,  &c. 
R.  Co.  2  Gray  (Mass.)  1;  Pennsyl- 
vania R.  Co.  v.  National,  &c.  R.  Co. 
23  N.  J.  Eq.  441;  State  v.  Noyes,  47 
Me.  189,  208;  Pennsylvania  R.  Co.  v. 
Baltimore,  &c.  R.  Co.  60  Md.  263; 
Camblos  v.  Phiila.,  &c.  R.  Co.  4 
Brewster  (Pa.)  563,  595;  19  Am.  & 
Eng.  Ency  of  Law  784;  Pierce 
Railw.,  citing  Micou  v.  Tallassee  C. 
Co.  47  Ala.  652;  Binghamton  B.  Co., 


§33] 


LEGAL   STATUS. 


58 


always  subject  to  the  right  of  eminent  domain.91   But  a  monopoly  is 
not  to  be  implied.92 

§33.  Railroads  as  public  highways. — Kailroads,  by  whomsoever 
constructed  or  owned  or  operated,  are  quasi  public  works  and  are 
often  likened  by  the  courts  and  writers  to  public  highways.93  The 


In  re,  3  Wall.  (U.  S.)  51;  Chenango 
B.  Co.  v.  Binghamton  B.  Co.  27  N. 
Y.  87;  Chenango  B.  Co.  v.  Lewis,  63 
Barb.  (N.  Y.)  Ill;  Bridge  Proprie- 
tors v.  Hoboken  Co.  1  Wall.  (U.  S.) 
116,  13  N.  J.  Eq.  81,  503;  Martin  v. 
O'Brien,  34  Miss.  21;  California 
State  Tel.  Co.  v.  Alta  T.  Co.  22  Cal. 
398;  Richmond,  &c.  R.  Co.  v.  Louisa 
R.  Co.  13  How.  (U.  S.)  71;  Pontchar- 
train  R.  Co.  v.  Orleans  Nav.  Co.  15 
La.  404;  Delaware  &  R.  C.  Co.  v. 
Camden  &  A.  R.  Co.  16  N.  J.  Eq.  321, 
18  N.  J.  Eq.  546;  Michigan  C.  R.  Co. 
v.  Michigan  S.  R.  Co.  4  Mich.  361; 
Pennsylvania  R.  Co.  v.  National  R. 
Co.  23  N.  J.  Eq.  441.  In  Fidelity,  &c. 
Co.  v.  Mobile  St.  R.  Co.  53  Fed.  687, 
it  is  held  that  one  public  corporation 
cannot  take  the  franchise  of  another 
even  under  legislative  authority,  if 
such  taking  will  materially  affect  its 
use.  Where  there  is  no  reserved 
right  of  amendment,  it  has  been  held 
that  the  grant  of  an  exclusive  fran- 
chise to  operate  a  railroad  within 
certain  limits  amounts  to  a  contract 
on  the  part  of  the  state,  which  it 
cannot  violate  by  the  conferring 
upon  another  company  power  to 
build  and  operate  a  parallel  road. 
Boston,  &c.  R.  Co.  v.  Salem,  &c.  R. 
Co.  68  Mass.  1;  Pennsylvania  R.  Co. 
v.  Baltimore,  &c.  R.  Co.  60  Md  263. 
See,  also,  Raritan,  &c.  R.  v.  Canal 
Co.  18  N.  J.  Eq.  546;  Pontchartrain 
R.  Co.  v.  New  Orleans,  &c.  R.  Co. 
11  La.  Ann.  253.  But  compare  Bos- 
ton, &c.  R.  Co.  v.  Boston,  &c.  R.  Co. 
5  Gush.  (Mass.)  375;  Richmond,  &c. 


R.  Co.  v.  Louisa,  &c.  R.  Co.  13  How. 
(U.  S.)  71;  Louisville,  &c.  R.  Co.  v. 
Louisville  City  R.  Co.  2  Duv.  (Ky.) 
175. 

"Enfleld  T.  B.  Co.  v.  Hartford  & 
N.  H.  Co.  17  Conn.  40,  454,  42  Am. 
Dec.  716;  Piscataqua  B.  v.  New 
Hampshire  Bridge,  7  N.  H.  35;  New 
Orleans,  &c.  R.  Co.  v.  Southern  & 
A.  T.  Co.  53  Ala.  211;  New  Jersey 
S.  R.  Co.  v.  Long  Branch  Com.,  39 
N.  J.  L.  28;  Metropolitan  C.  R.  Co. 
v.  Chicago,  &c.  R.  Co.  87  111.  317. 

82  Charles  River  Bridge  v.  Warren 
Bridge,  11  Peters  (U.  S.)  420;  State 
v.  Hamilton,  47  Ohio  St.  52,  23  N.  E. 
935,  29  Am.  &  Eng.  Corp.  Cas.  208, 
23  W.  L.  Bull.  190;  Syracuse  Water 
Co.  v.  Syracuse,  116  N.  Y.  167,  22 
N.  E.  381,  5  L.  R.  A.  546,  26  N.  Y. 
S.  364,  29  Am.  &  Eng.  Corp.  Cas. 
307;  Hudson  River  Tel.  Co.  v.  Wa- 
tervliet  Turnp.  &  R.  Co.  56  Hun  67, 
29  N.  Y.  St.  694,  9  N.  Y.  S.  177;  In- 
dianapolis Cable  St.  R.  Co.  v.  Citi- 
zens' St.  R.  Co.  127  Ind.  369,  24  N. 
E.  1054,  26  N.  E.  893;  Lafayette 
Plank  Road  Co.  v.  New  Albany,  &c. 
R.  Co.  13  Ind.  90,  34  Am.  Dec.  246; 
Citizens'  St.  R.  Co.  v.  Jones,  34  Fed. 
579.  Post,  §  39. 

"White  River  T.  Co.  v.  Vermont 
C.  R.  Co.  21  Vt.  590.  "We  regard  it 
as  a  misnomer  to  attach  even  the 
name  'quasi  public  corporation'  to 
a  railroad  company.  *  *  *  It3 
road  may  be  called  a  quasi  public 
highway."  Gordon,  J.,  in  Peirce  v. 
Commonwealth,  104  Pa.  St.  150,  13 
Am.  &  Eng.  R.  Cas.  74,  79.  Lake 


59 


RAILROADS   AS  PUBLIC   HIGHWAYS. 


[ 


constitution94  and  laws93  of  some  states  declare  them  to  be  public 
highways;  those  of  others  declare  the  companies  to  be  common  car- 
riers, whose  roads  are  available  to  all  persons  for  the  transportation 
of  themselves  and  their  property.96  This  latter  definition  expresses 
most  nearly  the  relation  of  a  completed  railroad  to  the  public.  Except 
in  discharging  its  duties  as  a  carrier,  the  company  is  entitled  to  the 
exclusive  use  and  possession  of  its  property.97  There  may  also  be  said 


Superior,  &c.  R.  Co.  v.  United  States, 
93  U.  S.  442,  458,  dissenting  opinion. 
"That  railroads,  though  constructed 
by  private  corporations  and  owned 
by  them,  are  public  highways,  has 
been  the  doctrine  of  nearly  all  the 
courts  ever  since  such  conveniences 
for  passage  and  transportation  have 
had  any  existence."  Olcott  v.  Super- 
visors, 16  Wall.  (U.  S.)  678,  694. 
See,  also,  Cherokee  Nation  v.  South- 
ern Kans.  R.  Co.  135  U.  S.  641,  10 
Sup.  Ct.  965,  971.  But  the  old  the- 
ory that  a  railroad  is  a  public  high- 
way in  the  same  sense  as  a  turn- 
pike, over  which  any  person  may 
run  his  vehicles  upon  payment  of 
suitable  tolls,  has  been  abandoned. 
Cook  Stock  and  Stockholders  (3d 
ed.),  §  900,  citing  Beekman  v.  Sara- 
toga, &c.  R.  Co.  3  Paige  (N.  Y.)  45, 
74,  22  Am.  Dec.  679;  Gambles  v. 
Philadelphia,  &c.  R.  Co.  4  Brewster 
(Pa.)  563,  597.  See,  also,  Clark  v. 
Chicago,  &c.  R.  Co.  127  Mo.  197,  29 
S.  W.  1013;  Estes  Park  Toll  Road 
Co.  v.  Edwards,  3  Colo.  App.  74,  32 
Pac.  549;  Cox  v.  Louisville,  &c.  R. 
Co.  48  Ind.  178;  Murch  v.  Concord 
R.  Corp.,  29  N.  H.  9,  61  Am.  Dec. 
631;  Chicago,  &c.  R.  Co.  v.  Chicago, 
140  111.  309,  29  N.  E.  1109.  They  are 
not  highways  in  such  a  sense  as  to 
render  an  obstruction  thereon  a  pub- 
lic nuisance.  Stoneback  v.  Thomas 
Iron  Co.  (Pa.),  4  Atl.  721.  See,  also, 
Comer  v.  State,  62  Ala.  320. 

"Const.  Pa.,  art.  17,  §  1;  111.,  art. 
11,  §  12;  Neb.,  1875,  art.  2,  §  4;  W. 


Va.,  art.  11,  §  9;  Mo.,  art.  12,  §  13; 
Ark.,  art.  17,  §  1;  Tex.,  art.  10,  §§  1, 
2;  Gal.,  art.  12,  §  17;  Colo.,  art.  15, 
§  4;  Ala.,  art  13,  §  21;  La.,  1879,  art. 
244;  Miss.,  1890,  art.  6,  §  184;  Char- 
ter Pennsylvania  R.  Co.,  1846,  see 
Trunick  v.  Smith,  63  Pa.  St.  18. 

95  Stimson  Am.  Stat.  Law,  §§  8801, 
8830. 

98  The  Pennsylvania  railroad  is  de- 
clared by  its  charter  (Pamphlet 
Laws,  1846,  323)  to  be  a  public 
highway,  over  which  the  company 
must  haul  the  cars  of  all  persons 
who  require  such  service  subject  to 
restrictions.  Trunick  v.  Smith,  63 
Pa.  St.  18.  In  Lake  Superior,  &c.  R. 
Co.  v.  United  States,  93  U.  S.  442, 
the  doctrine  of  railroads  as  high- 
ways is  carried  very  far,  and  it  is 
held  that  the  act  of  congress  grant- 
ing lands  in  aid  of  a  railroad  and 
providing  that  it  should  be  a  public 
highway  for  the  free  use  of  the  gov- 
ernment in  transporting  troops  and 
property  gave  the  government  its 
use  as  a  highway  only  and  not  free 
transportation  in  the  cars  of  the 
company. 

97  Central  R.  of  Georgia  v.  Brinson, 
10  Ga.  207,  19  Am.  &  Eng.  R.  Cas. 
42;  Baltimore,  &c.  R.  Co.  v. 
Schwindling,  101  Pa.  St.  258,  47  Am. 
R.  706,  8  Am.  &  Eng.  R.  Cas.  544: 
Toledo,  &c.  R.  Co.  v.  Pence,  68  111. 
524;  Hoyt  v.  Chicago,  &c.  R.  Co.  93 
111.  601;  Chicago,  &c.  R.  Co.  v.  Chi- 
cago City  Railway  Co.  10  Nat.  Corp. 
Rep.  651.  See,  also,  Pittsburg,  &c.  R. 


33] 


LEGAL   STATUS. 


60 


to  be  a  resemblance  to  public  highways  in  that  the  power  of  eminent 
domain  can  be  invoked  to  aid  in  the  construction  and  extension  of 
railroads,98  whenever,  in  the  judgment  of  the  legislature,  they  will  be 
of  value  as  thoroughfares  over  which  the  services  of  common  carriers 
can  be  rendered.09  Again,  they  are  so  far  public  improvements  that  the 
state  may  levy  and  collect  a  tax  to  aid  in  their  construction.100 


Co.  v.  Bingham,  29  Ohio  St.  364,  370, 
371,  23  Am.  R.  751;  Western  Un. 
Tel.  Co.  v.  Pennsylvania  R.  Co.  195 
U.  S.  540,  25  Sup.  Ct.  133;  Donovan 
v.  Pennsylvania  R.  Co.  199  U.  S. 
279,  26  Sup.  Ct.  91,  94;  Hyde  v.  Mis- 
souri Pac.  R.  Co.  110  Mo.  272,  19 
S.  W.  483. 

98  Niagara  Falls,  &c.  R.  Co.  In  re, 
108  N.  Y.  375,  15  N.  E.  429;  Wor- 
cester v.  Western  R.  Co.  4  Met. 
(Mass.)  564,  1  Am.  R.  Cas.  350,  352; 
Hodgerson  v.  St.  Louis,  &c.  R.  Co. 
160  111.  430,  43  N.  E.  614;  Gibson 
v.  Mason,  5  Nev.  283;  Stewart  v. 
Erie  &c.  Trans.  Co.  17  Minn.  372; 
Olcott  v.  The  Supervisors,  16  Wall. 
(U.  S.)  678;  Cooley's  Const.  Lim. 
(7th  ed.)  753.  Thus,  in  Cherokee 
Nation  v.  Southern  Kans.  R.  Co.  135 
U.  S.  641,  657,  10  Sup.  Ct.  965, 


971,  it  is  said:  "It  is  because  it 
is  a  public  highway  and  subject 
to  such  (governmental)  control  that 
the  corporation  by  which  it  is  con- 
structed, and  by  which  it  is  to  be 
maintained,  may  be  permitted,  un- 
der legislative  sanction,  to  appro- 
priate private  property  for  the  pur- 
poses of  a  right  of  way,  upon  mak- 
ing just  compensation  to  the  owner 
in  the  mode  prescribed  by  law." 

"Weir  v.  St.  Paul,  &c.  R.  Co.  1& 
Minn.  155;  Newburyport  T.  Co.  v. 
Eastern  R.  Co.  23  Pick.  (Mass.) 
326,  1  Am.  R.  Cas.  294;  Contra  Costa 
R.  Co.  v.  Moss,  23  Cal.  323. 

100  Olcott  v.  Supervisors,  16  Wall. 
(U.  S.)  678,  ante,  §  1;  post,  chapter 
35  on  Municipal  Aid;  Ravenswood 
R.  Co.  v.  Ravenswood,  41  W.  Va. 
732,  24  S.  E.  597,  56  Am.  St.  906. 


CHAPTER  IV. 


CHARTERS. 


Sec. 

34.  Special    charters   and    general 

laws. 

35.  Acceptance  of  charter. 

36.  Terms  upon  which  charter  is 

granted  must  be  complied 
with — Provisions  in  general 
laws. 

37.  Particular  corporation  must  be 

authorized. 

38.  Construction   of   charter — Gen- 

eral rules. 

39.  Grants  of  monopolies  and  pow- 

ers in  derogation  of  public 
rights — Perpetuity. 

40.  Practical  construction. 

41.  Charter  to  build  and  operate  a 

railroad — What  powers  are 
included. 

42.  Other  powers  of  railroad  com- 

panies— Implied  powers  in- 
cluded in  certain  grants. 

43.  Amendment — Power    must    be 

reserved. 

44.  Police  regulations. 

45.  Material    amendments    require 

unanimous  consent  of  stock- 
holders— What  are  material. 

46.  Statutory    provisions    authoriz- 

ing amendments. 

47.  Forfeiture — Statutory        provi- 

sions dispensing  with  judi- 
cial determination. 


Sec. 

48.  Implied   condition   that  corpo- 

rate franchise  is  subject  to 
forfeiture — Judicial  determi- 
nation— Causes  for  forfei- 
ture. 

49.  Grounds     of    forfeiture — Illus- 

trative cases. 

50.  When   duty  to   declare   forfei- 

ture is  mandatory  and  when 
discretionary. 

51.  What  is  not  cause  for  forfei- 

ture. 

52.  Waiver  of  forfeiture — Collater- 

al proceedings. 

53.  Proceedings     to     forfeit — Quo 

warranto — Parties. 

54.  Proceedings  must  generally  be 

in  court  of  law — Statutory 
provisions. 

55.  Collateral     proceedings — Plead- 

ings and  judgment  in  forfei- 
ture proceedings. 

56.  Repeal     of     charter — Reserved 

power. 

57.  Repeal  where  conditional  power 

is  reserved. 

58.  Rule  where  power  to  repeal  is 

not  reserved. 

59.  Effect  of  repeal. 

60.  Repeal  of  by  general  laws. 

6l~.  Charter  is  subject  to  general 
laws  reserving  power  to  re- 
peal. 

62.    Expiration  of  charter. 


§  34.    Special  charters  and  general  laws. — The  power  to  grant  rail- 
road charters  in  common  with  charters  of  other  corporations  is  a  legis- 

61 


§   34]  CHABTEES.  62 

lative  function,  usually  exercised  in  this  country  by  the  legislatures  of 
the  various  states,1  although  congress  may,  in  the  exercise  of  its  power 
to  regulate  interstate  commerce,  construct,  or  authorize  individuals  or 
corporations  to  construct,  railroads  across  the  states  and  territories  of 
the  United  States.2  These  charters  are  either  special,  in  which  case 
corporate  powers  are  conferred  upon  certain  designated  persons  by 
an  act  of  the  legislature,  in  which  the  powers,  duties  and  liabilities  of 
the  specified  corporation  are  enumerated  at  length ;  or  they  are  derived 
from  a  general  authorization  to  any  man  or  men  to  be  and  act  as  a 
body  corporate  upon  complying  with  certain  terms.3  In  order  to  pre- 
vent the  granting  of  special  and  exclusive  privileges,  and  to  render  all 
corporations  amenable  to  the  will  of  the  legislature  at  all  times,  char- 
ters are  usually  conferred  only  by  general  laws,4  special  charters  being 
prohibited  by  the  constitutions  of  most  of  the  states.5 

§  35.  Acceptance  of  charter. — In  either  case  the  charter  is  gener- 
ally of  no  effect  until  the  terms  upon  which  it  is  granted  are  complied 
with,  and  it  is  accepted  by  the  incorporates.6  The  construction  and 
operation  by  a  railroad  company  of  a  part  of  its  road  is  sufficient  evi- 
dence of  an  acceptance  of  its  charter,  where  no  particular  mode  of 

xAngell    &    Ames    Corporations,  also,  Smith  v.  Indianapolis,  &c.  R, 

§  71.  Co.    158    Ind.    425,    63    N.    E.    849; 

2  California  v.  Central  Pac.  R.  Co.  Bohmer  v.  Hoffen,  161  N.  Y.  390,  55 
2  Interstate  Com.  153,  127  U.  S.  1,  N.  E.  1047;  State  v.  Webb,  110  Ala. 
8  Sup.  Ct.  1073;  Thomson  v.  Pacific  214,   20    So.   462;    United   States  v. 
R.  Co.  9  Wall.  (U.  S.)  579.  Stanford,  161  U.  S.  412,  16  Sup.  Ct. 

3  The  general  law  and  the  articles  576.   In  support  of  the  text,  see  Rob- 
of  incorporation  or  association  exe-  erts  v.  Missouri,  &c.  R.  Co.  43  Kan. 
cuted  and  filed  in  compliance  there-  102,  22  Pac.  1006,  43  Am.  &  Eng.  R. 
with,  in  such  a  case,  constitute  the  Gas.  532;   San  Francisco  v.   Spring 
charter.  Valley,  48  Cal.  493;  Wallace  v.  Loo- 

*Morawetz   Priv.   Corp.    (2d  ed.),  mis,  97  U.  S.  146;  St.  Paul  Fire  Ins. 

§  12;  Pierce  Railw.  3.  Co.  v.  Allis,  24  Minn.  75.  In  England 

B  Stimson    Am.    St.    Law,    §    441.  general  power  to  organize  railroads 

Even    when    the    constitution    pro-  is  given  by  the  Railways  Construc- 

hibits  the  creation  of  corporations  tion  Facilities  Act,  27  and  28  Viet, 

by   special  laws,    it   has   been   held  Ch.  121. 

that  a  special   charter  granted   be-        'Angell    and    Ames    Corporations 

fore  the  adoption  of  the  constitu-  (llth  ed.),  §  81;   Bates  v.  Wilson, 

tion  may  be  amended  by  special  act.  14  Colo.  140,  24  Pac.  99,  8  R.  &  Corp. 

State  v.  Cape  Girardeau  R.  Co.  48  L.  J.  144;   ante,  Chapter  II;   Purdy 

Mo.  468;  Roosa  v.  St.  Joseph,  &c.  R.  Beach  Priv.  Corp.  §  67. 
Co.  114  Mo.  508,  21  S.  W.  1124.   See, 


63 


NECESSITY  OF   COMPLYING   WITH   TEEMS   OF   CHARTER.      [§36 


acceptance  is  designated,7  and  it  is  held  that  a  railroad  charter  may  be 
considered  as  presumptively  accepted  at  its  date  without  record  evi- 
dence of  the  fact,  when  it  appears  that  the  grantees  afterwards  asked 
for  and  obtained  amendments  and  have  fully  constructed  the  road,8 
although  it  has  been  said  that  the  certificate  of  incorporation  consti- 
tutes the  only  evidence  of  the  acceptance  of  the  terms  and  conditions 
contained  in  the  statute.9  This,  however,  is  not  the  rule  with  regard 
to  special  charters,  and  it  may  be  doubted  if  it  is  of  universal  applica- 
tion even  in  other  cases.10 

§  36.  Terms  upon  which  charter  is  granted  must  be  complied  with 
— Provisions  in  general  laws. — It  is  generally  essential  to  the  exist- 
ence of  a  de  jure  corporation  that  the  terms  upon  which  a  grant  of 
corporate  rights  is  made  should  be  substantially  complied  with,  though 
slight  irregularities  will  not  necessarily  defeat  the  incorporation,11 
particularly  where  the  statute  provides  for  their  amendment.12  The 
general  laws  for  the  incorporation  of  railway  companies  in  the  various 
states  of  this  country  are  substantially  the  same  in  most  respects.13 
They  usually  require  that  the  articles  shall  state  the  name  of  the  corn- 


et. Joseph  &  I.  R.  Co.  v.  Sham- 
baugh,  106  Mo.  557,  17  S.  W.  581; 
Roosa  v.  St.  Joseph,  &c.  R.  Co.  114 
Mo.  508,  21  S.  W.  1124. 

8  Farnsworth  v.  Lime  Rock  R.  Co. 
83  Me.  440,  22  Atl.  373.    See,  also, 
Benbow  v.   Cook,   115   N.  Car.   324, 
20  S.  E.  453,  44  Am.  St.  454. 

9  Bates  v.  Wilson,  14  Colo.  140,  24 
Pac.  99,  8  R.  &  Corp.  L.  J.  144. 

"See  ante,  §§  17,  18,  where  the 
subject  is  more  fully  treated.  And 
see,  also,  3  Elliott  Ev.,  §§  1934-1938. 

11  People  v.  Montecito,  &c.  Co.  97 
Cal.  276,  32  Pac.  236,  33  Am.  St. 
172,  and  note;  Eakright  v.  Logans- 
port,  &c.  R.  Co.,  13  Ind.  404;  Busen- 
back  v.  Attica,  &c.  R.  Co.  43  Ind. 
265;  State  v.  Wood,  84  Mo.  378; 
People  v.  Cheeseman,  7  Colo.  376, 
3  Pac.  716;  Buffalo,  &c.  R.  Co.  v. 
Gary,  26  N.  Y.  75;  Cayuga  Lake  R. 
Co.  v.  Kyle,  64  N.  Y.  185,  5  Thomp. 
&  C.  659;  Busey  v.  Hooper,  35  Md. 
15,  6  Am.  R.  350;  Pierce  Rail.  4.  A 


statement  in  the  articles  of  associa- 
tion of  a  railroad  company  that  it 
shall  be  operated  as  a  transfer  road, 
and  no  discrimination  shall  be  made 
against  any  road,  and  that  uniform 
rates  for  the  same  services  shall  be 
charged  to  either  persons  or  rail- 
road companies,  does  not  show  that 
the  carriage  of  passengers  was  ex- 
cluded from  the  purposes  of  its  or- 
ganization, especially  where  the  ar- 
ticles s*ate  that  the  organization  is 
for  the  purpose  of  constructing, 
operating  and  maintaining  a  rail- 
road of  standard  gauge.  Bay  City 
Belt  Line  R.  Co.  v.  Hitchcock,  90 
,Mich.  533,  51  N.  W.  808. 

12  See  N.  Y.  Laws  1870,  Ch.   135, 
§  1;  Beach  Railw.,  §  37. 

13  The  general  acts  of  the  various 
states  are  built  upon  the  railroad 
act  of  New  York,  enacted  in  1850, 
Laws  1850,  Ch.  140,  Cook  Corpora- 
tions, §  27. 


§  36] 


CHARTERS. 


pany,14  the  amount  of  the  capital  stock,  and  the  number  of  shares  into 
which  it  is  divided,  the  termini  of  the  road,  the  names  of  the  counties 
through  which  it  will  pass,  its  length  as  near  as  may  be,  and  the  num- 
ber of  directors  chosen  to  manage  the  affairs  of  the  corporation,  to- 
gether with  their  names.15  To  these  are  added  various  requirements 
by  different  states,  as  that  the  capital  stock  shall  be  not  less  than  a 
certain  sum  per  mile,  or  that  the  places  of  residence  of  the  directors 
shall  be  given,  or  that  the  number  of  years  the  corporation  is  to  con- 
tinue shall  be  stated.16  The  articles  must  usually  be  signed  by  a  cer- 
tain number17  of  subscribers  to  the  capital  stock,  each  of  whom  must 
state  his  place  of  residence  and  the  number  of  shares  taken  by  him.18 
The  filing  of  such  articles,  properly  verified  or  acknowledged,  in  some 
public  repository,  as  the  office  of  the  secretary  of  state  or  of  some 
local  recording  officer,  with  the  addition,  perhaps,  of  the  certificate  of 
some  public  officer,  that  the  statutes  have  been  complied  with,  usually 
creates  the  corporation.19  After  such  articles  have  been  filed  they  are 


14  Rhodes  v.  Piper,  40  Ind.  369.   A 
corporation  is  entitled  to  the  exclu- 
sive   use    of   the   name   it   chooses. 
Holmes  v.  Holmes,  &c.  Man.  Co.  37 
Conn.  278,  9  Am.  R.  324;   Goodyear 
Rubber    Co.    v.    Goodyear    Rubber 
Mfg.  Co.  8  Am.  &  Eng.  Corp.  Gas. 
317;    note   to   Cincinnati   Cooperage 
Co.   v.   Bate,    10    Lewis'   Am.   R.   & 
Corp.  653,  672. 

15  See  ante,  §  18.    R.  S.  1881,  Ind. 
§  3885;  1  N.  Y.  Laws  1850,  Ch.  140, 
§  1;    1  Beach  Railw.,  §  36;    Pierce 
Railw.   3.     The  fact  that  the  arti- 
cles are  required  to  name  the  ter- 
mini of  the   road  affords  no  argu- 
ment that  such  road  shall  be  longi- 
tudinal.  A  circular  railroad  may  be 
Incorporated  and  may  exercise  the 
power  of  eminent  domain.    State  v. 
Martin,  51  Kans.  462,  33  Pac.  9.   The 
names  of  the  directors  are  essential. 
Dutchess,  &c.  R.  Co.  v.  Mabbett,  58 
N.  Y.  397.    The  contrary  is  held  in 
Eakright  v.  Logansport,  &c.  R.  Co. 
13  Ind.  404.    But  the  force  of  that 
case  as  an  authority  is  destroyed  by 
the  cases  of  Bushenback  v.  Attica, 


&c.  R.  Co.  43  Ind.  265,  and  Reed 
v.  Richmond  Street  R.  Co.  50  Ind. 
342,  19  Am.  R.  718. 

10  Stimson  Am.  St.  §  8523. 

17  The  number  required  is  twenty- 
five  in  New  York,  while  five  are 
sufficient  in  many  states.  Three 
only  are  required  in  Florida  and 
one  may  incorporate  in  Iowa.  Stim- 
son Am.  Stat.  Law,  §  8520.  Sub- 
scriptions of  stock  upon  conditions 
that  can  only  be  fulfilled  after  in- 
corporation are  not  to  be  counted  as 
a  part  of  the  necessary  preliminary 
subscription.  Fairview  R.  Co.  v. 
Spillman,  23  Ore.  587,  32  Pac.  688. 

13  Beach  Railw.,  §  36;  Pierce 
Railw.  3.  See  ante,  §  18. 

"Ante,  §  18,  Pierce  Railw.  3; 
Stimson's  Am.  Stat.  Law,  §§  8522, 
8526.  See,  also,  Chicago,  &c.  R.  Co. 
v.  Lake,  130  111.  42,  22  N.  E.  616; 
North  Point,  &c.  Co.  v.  Utah,  &c.  Co. 
16  Utah  246,  52  Pac.  168,  40  L.  R.  A. 
851,  67  Am.  St.  607.  In  Illinois  it 
is  said  that  a  corporation  cannot  do 
business  until  the  certificate  of  com- 
plete organization  and  a  copy  of  all 


65  PARTICULAR   CORPORATION   MUST   BE   AUTHORIZED.  [§    37 

usually  evidence  of  the  existence  of  a  corporation  de  jure.20  It  is 
held  in  Colorado  that  the  omission  of  any  of  the  requisites  of  a  cer- 
tificate of  incorporation  required  by  the  general  act  for  the  formation 
of  corporations,21  is  a  fatal  defect,  and  no  de  jure  right  is  conferred 
by  such  certificate  to  exercise  corporate  franchises;  and,  therefore,  a 
certificate  of  incorporation  containing  no  provision  for  directors, 
trustees,  or  any  governing  body,  as  required  by  the  statute,  but  vesting 
the  control  and  management  of  the  corporation  in  a  president,  vice- 
president,  and  attorney,  is  insufficient  to  confer  a  right  to  exercise 
such  franchises.22  And  in  Tennessee  it  has  been  held  that  where  the 
statute  states  what  must  be  done  to  complete  the  corporate  organiza- 
tion and  prescribes  the  form  of  the  charter  the  statute  must  be  fol- 
lowed no  matter  how  inconvenient  or  unnecessary  some  of  the  require- 
ments may  seem.23  A  statute  which  requires  the  certificate  of  organi- 
zation of  a  railroad  company  to  state  the  termini  of  the  road,  and  the 
county  or  counties  through  which  the  road  shall  pass,  applies  only  to 
the  main  line  of  the  company,  and,  hence,  it  is  unnecessary  for  the  cer- 
tificate to  specify  the  termini  of  branch  lines  or  the  counties  through 
which  they  will  pass.24  And  it  has  been  held  that  the  description  of  a 
terminus  as  "at  or  near"  a  certain  place  is  not  so  indefinite  and  de- 
fective as  to  vitiate  the  articles  of  incorporation.25  Where  an  estimate 
of  the  length  of  the  road  is  required,  it  may  be  approximately  given.28 

§  37.     Particular  corporation  must  be  authorized. — The  charter  con- 
fers corporate  rights  and  privileges  only  upon  those  named  as  incor- 

papers  filed   with  the   secretary  of  Adams,  &c.  Co.  81  Ky.  300;  Purdy's 

state  have  been  duly  recorded,  and  Beach  Priv.  Corp.,  §§  73,  74,  75. 

that  fraudulently  and  surreptitious-  24  Trester  v.   Missouri,  &c.  R.  Co. 

ly  recording  papers  of  a  new  cor-  33  Neb.  171,  49  N.  W.  1110.  See  ante, 

poration,  contrary  to  the  agreement  §  18. 

of  the  incorporators,  is  of  no  effect.  25  Central  R.  Co.  v.  Pennsylvania 

Ricker  v.  Larkin,  27  111.  App.  625.  R.  Co.  31  N.  J.  Eq.  475;  Warner  v. 

20  Bates   v.   Wilson,   14   Colo.    140,  Callender,  20  Ohio  St.  190.    But  see 
24  Pac.  99,  8  R.  &  Corp.  L.  J.  144.  De  Long  v.   Schimmel,  58  Ind.  64; 

21  Colo.  Gen.  Stat.  1883,  §  238.  Indianapolis,  &c.  R.  Co.  v.  Newson, 

22  Bates   v.   Wilson,   14   Colo.   140,  54,  Ind.  121.  As  to  the  right  to  con- 
24  Pac.  99,  8  R.  &  Corp.  L.  J.  144.  struct  a  circular  road,  notwithstand- 
See,  also,  Reed  v.  Richmond  St.  R.  ing  the  statute  requires  the  termini 
Co.  50  Ind.  342,  19  Am.  R.  718.  to  be  stated,  see  State  v.  Martin,  51 

"Collier    v.    Union    R.    Co.,    113  Kans.    462,    33    Pac.    9;    Collier   v. 

Tenn.  96,  83  S.  W.  155.    See  gener-  Union  R.  Co.  113  Tenn.  96,  83  S.  W. 

ally  as  to  what  is  a  fatal  defect,  155. 

New  York  Cable  Co.  v.  Mayor,  104  M  Buffalo,  &c.  R.  Co.  v.  Hatch,  20 

N.  Y.  1,   10  N.  E.  332;    Heinige  v.  N.  Y.  157. 
ELL.  RAILROADS — 5 


38] 


CHARTERS. 


66 


porators  or  upon  those  to  whom  their  rights  are  transferred  by  author- 
ity of  law.  Parties  cannot  take  a  corporate  charter  with  which  they 
have  no  concern  and  which  belongs  to  others,  and  effect  a  valid  cor- 
porate organization  by  a  pretense  of  user  thereunder.27  The  mere  pur- 
chase of  all  the  corporate  property  will  not  give  any  right  to  the  use 
of  the  corporate  franchise.28  Nor  can  a  corporation,  it  seems,  be 
formed  for  the  purchase  and  operation  of  a  railroad  under  a  charter 
merely  authorizing  a  corporation  for  the  purpose  of  constructing  and 
operating  such  a  road.29 

§  38.    Construction  of  charter — General  rules. — The  charter  of  a 

railway  company  in  common  with  those  of  other  private  corpora- 

*  tions,30  is  to  be  strictly  but  reasonably  construed  in  favor  of  the  public 

.  and  against  the  company,31  wherever  their  interests  conflict.  This  rule 


"Welch  v.  Old  Dominion  Min.  & 
R.  Co.  31  N".  Y.  St.  916,  10  N.  Y.  S. 
174,  8  R.  &  Corp.  L.  J.  254.  See,  also, 
Rogers  v.  Nashville,  &c.  R.  Co.  91 
Fed.  299,  33  C.  C.  A.  517;  Memphis, 
&c.  R.  Co.  v.  Railroad  Com'rs,  112 
U.  S.  609,  5  Sup.  Ct.  299.  The  pre- 
tended purchase  of  the  right  of  way 
of  a  railroad  company  at  a  sale  on 
execution  will  give  the  purchaser 
no  rights  under  the  franchises  of 
the  execution-defendant.  East  Ala- 
bama R.  Co.  v.  Doe,  114  U.  S.  340, 
5  Sup.  Ct.  869.  The  roadbed  and 
superstructure  of  a  railroad  built 
under  charter  from  the  state  is 
charged  not  only  in  the  hands  of 
the  original  corporation,  but  of  pur- 
chasers, with  the  burden  of  the 
charter  obligations.  Such  burden 
can  only  be  removed  by  consent  of 
the  state.  State  v.  Dodge  City  R. 
Co.  53  Kans.  377,  36  Pac.  747,  42 
Am.  St.  295. 

-"Bruffett  v.  Great  Western  R. 
Co.  25  111.  310;  Coe  v.  Columbus,  &c. 
R.  Co.  10  Ohio  St.  372,  75  Am.  Dec. 
518,  and  note;  Atkinson  v.  Marietta, 
&c.  R.  Co.  15  Ohio  St.  21,  35. 

29  Gulf,  &c.  Co.  v.  Morris,  67  Tex. 
692,  4  S.  W.  156,  35  Am.  &  Eng.  R. 


Gas.  94;  State  v.  Beck,  81  Ind.  500. 
See,  also,  State  v.  International  In- 
vest. Co.  88  Wis.  512,  60  N.  W.  796, 
43  Am.  St.  920. 

30  Taylor  Priv.  Corp.  §  122;  Water- 
man Corp.   (2d  ed.)    §  493;   Perrine 
v.  Chesapeake,  &c.  Canal  Co.  9  How. 
(U.  S.)  172. 

31  The  charter  of  a  corporation  is 
to  be  strictly  construed;  nothing  is 
to  be  taken  as  conceded  but  what  is 
given  in  unmistakable  terms  or  by 
an  implication  equally  clear.    Rock- 
land   Water   Co.    v.   Camden   &   R. 
Water  Co.  80  Me.  544,  15  Atl.  785, 
1  L.  R.  A.  388;  Oregon  R.  &c.  Co.  v. 
Oregonian  R.  Co.  130  U.  S.  1,  9  Sup. 
Ct.  409,  32  L.  Ed.  837,  5  R.  &  Corp. 
L.  J.  364;   East  Line,  &c.  R.  Co.  v. 
Rushing,  69  Tex.  306,  6  S.  W.  834; 
Richmond,  &c.  R.  Co.  v.  Louisa,  &c. 
R.  Co.  13  How.   (U.  S.)  71;  Coosaw 
Mining  Co.  v.  State,  144  U.  S.  550, 
12    Sup.    Ct.   689;    Bradley  v.   New 
York,    &c.    R.    Co.    21    Conn.    294; 
Florida,  &c.  R.  Co.  v.  Pensacola,  &c. 
R.   Co.   10   Fla.   145;    Davis   v.    Old 
Colony  R.  Co.  131  Mass.  258,  41  Am. 
St.  221;  Macon  v.  Macon,  &c.  R.  Co. 
7  Ga.   221;   Pennsylvania  R.  Co.  v. 
Canal  Com'rs,  21  Pa.  St.  9;  Monon- 


CONSTRUCTION   OF   CHARTER — GENERAL  RULES. 


[§'  38 


is,  however,  subject  to  the  qualification  that  inasmuch  as  railway  cor- 
porations are  created  to  further  great  public  interests,  their  charters 
will  receive  a  liberal  interpretation  in  furtherance  of  those  interests, 
when  they  are  apparent  to  the  courts,  instead  of  the  strict  construc- 
tion usually  given  to  the  charters  of  private  corporations  organized 
exclusively  for  pecuniary  profit.32  The  powers  of  a  corporation  under 
its  charter  are  such,  and  such  only,  as  are  expressly  conferred  by  the 
statutes  granting  it,  together  with  such  additional  powers  as  are  fairly 
implied33  as  being  necessary  to  the  enjoyment  of  the  powers  enum- 


gahela,  &c.  Co.  v.  Kirk,  46  Pa.  St. 
112,  84  Am.  Dec.  527;  People  v. 
Broadway  R.  Co.  126  N.  Y.  29,  26 
N.  E.  961;  Parker  v.  Great  Western 
R.  Co.  7  M.  &  G.  253,  49  E.  C.  L.  253. 
"A  doubtful  charter  does  not  exist, 
because  whatever  is  doubtful  is  de- 
cisively certain  against  the  corpora- 
tion." Black,  J.,  in  Commonwealth 
v.  Erie,  &c.  R.  Co.  27  Pa.  St.  339,  67 
Am.  Dec.  471  n;  Jackson  County 
Horse  Car  Co.  v.  Interstate,  &c.  Co. 
24  Fed.  306,  308;  Pennsylvania  R. 
Co.  v.  Philadelphia,  &c.  R.  Co.  10 
Pa.  Co.  Ct.  625,  49  Leg.  Intel.  5. 

32  Mayor  v.  Baltimore,  &c.  R.  Co. 
6  Gill  (Md.)  288,  48  Am.  Dec.  531; 
Jacksonville,  &c.  Co.  v.  Hooper,  160 
U.  S.  514,  523,  16  Sup.  Ct.  379; 
Fall  River  Iron  Works  Co.  v.  Old 
Colony,  &c.  R.  Co.  5  Allen  (Mass.) 
221,  226;  West  Branch,  &c.  Co. 
v.  Lumber,  &c.  Co.  121  Pa.  St.  143, 
6  Am.  St.  766.  See  North  Lon- 
don R.  Co.  v.  Metropolitan  Board,  1 
Johns.  Eng.  Ch.  405,  5  Jur.  N.  S. 
1121;  State  v.  Stoll,  17  Wall.  (U. 
S.)  425;  Bradley  v.  New  York,  &c. 
R.  Co.  21  Conn.  294;  Mayor  v.  Bal- 
timore, &c.  R.  Co.  21  Md.  50,  93.  In 
this  last  case  it  was  held  that  power 
given  to  a  railroad  company  to  sub- 
scribe in  aid  of  the  construction  of 
lateral  roads  authorizes  it  to  loan 
money  or  bonds  to  such  road,  and 
take  a  mortgage  to  secure  such 
loan.  A  grant  of  power  for  the  per- 


formance  of  a  public  act  is  not  to 
be  so  construed  as  to  make  the  act 
impossible,  and  such  a  construction 
is  not  justified  by  the  rule  that  pri- 
vate charters  are  to  be  strictly  in- 
terpreted; provisos  in  a  grant  will 
not  be  allowed  to  defeat  the  grant 
itself.  West  Branch  Boom  Co.  v. 
Pennsylvania  Joint  Lumber  and 
Land  Co.  121  Pa.  St.  143,  15  Atl. 
509,  6  Am.  St.  766,  22  W.  N.  C.  303. 
The  interpretation  of  a  railroad 
charter,  like  the  interpretation  of 
any  other  grant,  is  the  ascertain- 
ment of  intention.  The  means  rea- 
sonably necessary  for  the  enjoy- 
ment of  a  granted  property  or 
rights,  to  the  exercise  of  the  grant- 
ed power,  and  for  the  carrying  out 
of  the  purpose  of  the  grant,  are 
given  by  implication.  Burke  v.  Con- 
cord R.  Co.  61  N.  H.  160.  But  see 
Oregon  R.  &  Nav.  Co.  v.  Oregonian 
R.  Co.  130  U.  S.  1,  9  Sup.  Ct.  409,  5 
R.  &  Corp.  L.  J.  364;  Baltimore,  &c. 
R.  Co.  v.  Dist.  of  Columbia,  3  McAr- 
thur  (D.  C.)  122;  East  Line,  &c.  R. 
Co.  v.  Rushing,  69  Tex.  306,  6  S.  W. 
8,34,  and  authorities  cited  in  last  pre- 
ceding note. 

83  Thomas  v.  Railroad  Co.  101  U. 
S.  71,  82;  Commonwealth  v.  Erie, 
&c.  R.  Co.  27  Pa.  St.  339,  67  Am. 
Dec.  471  n;  Pittsburg,  &c.  R.  Co.  v. 
Allegheny  County,  63  Pa.  St.  126, 
135;  Delaware,  &c.  Canal  Co.  v. 
Camden,  &c.  R.  Co.  16  N.  J.  Eq.  321, 


§  38] 


CHARTERS. 


68 


crated.34  The  enumeration  of  certain  powers  implies  the  exclusion  of 
all  others  not  necessary  to  their  enjoyment.35  The  phrase  "necessary 
powers,"  however,  generally  means  such  as  are  convenient,  useful  and 
appropriate  to  the  specific  power  granted.30  Ambiguity  in  the  terms 
used  may  vitiate  the  charter37  as  all  doubtful  expressions  will  generally 
be  construed  against  the  corporation.38  A  charter,  however,  like  a  con- 
tract between  individuals,30  is  to  be  construed  fairly  and  reasonably,40 
according  to  the  natural  import  of  the  language  used,  with  reference  to 
the  purposes  and  objects  of  the  corporation,41  and  with  a  view  to 
carrying  out  the  intention  of  the  legislature  in  granting  it.42  Where 
similar  franchises  are  granted  to  two  corporations,  the  charters  must, 


372;  Morris,  &c.  R.  Co.  v.  Sussex  R. 
Co.  20  N.  J.  Eq.  542,  562;  Mobile, 
&c.  R.  Co.  v.  Franks,  41  Miss.  494, 
511;  Central  R.  Co.  v.  Collins,  40 
Ga.  582;  Pacific  R.  Co.  v.  Seely,  45 
Mo.  212,  220,  100  Am.  Dec.  369; 
State  v.  Atchison,  &c.  R.  Co.  24  Neb. 
143,  38  N.  W.  43,  8  Am.  St.  164  n; 
Lower  v.  Chicago,  &c.  R.  Co.  59  Iowa 
563,  13  N.  W.  718,  10  Am.  &  Eng.  R. 
Gas.  17;  Mobile  v.  Railroad  Co.  84 
Ala.  115,  5  Am.  St.  342  n. 

31  Enfield  Toll  Bridge  Co.  v.  Hart- 
ford R.  Co.  17  Conn.  454,  44  Am. 
Dec.  556  n;  Davis  v.  Old  Colony  R. 
Co.  131  Mass.  258,  41  Am.  R.  221; 
Housatonic  R.  Co.  v.  Lee,  &c.  R.  Co. 
118  Mass.  391;  Shawmut  Bank  v. 
Pittsburgh,  &c.  R.  Co.  31  Vt.  491; 
Morris,  &c.  R.  Co.  v.  Newark,  10  N. 
J.  Eq.  352;  Thomas  v.  Railroad  Co. 
101  U.  S.  71;  Ross,  &c.  Co.  v.  South- 
ern Co.  72  Fed.  957. 

'"Thomas  v.  Railroad  Co.  101  U. 
S.  71,  82;  Tennessee,  &c.  R.  Co.  v. 
Adams,  3  Head.  (Tenn.)  596;  Case 
v.  Kelly,  133  U.  S.  21,  10  Sup.  Ct. 
216;  Lewis,  &c.  Co.  v.  Thomas 
(Ky.),  3  S.  W.  907;  Pittsburg,  &c. 
R.  Co.  v.  Jones,  111  Pa.  St.  204,  2 
Atl.  410,  56  Am.  R.  260. 

88  McCulloch  v.  Maryland,  4 
Wheat.  (U.  S.)  316,  413,  Marshall, 


C.  J.;  Hood  v.  New  York,  &c.  R.  Co. 
22  Conn.  1,  16;  Buffett  v.  Troy,  &c. 
R.  Co.  40  N.  Y.  168,  176;  Buffit  v. 
Troy,  &c.  R.  Co.  36  Barb.  (N.  Y.) 
420;  Green  Bay,  &c.  R.  Co.  v.  Union 
Steamboat  Co.  107  U.  S.  98,  2  Sup. 
Ct.  221.  But  not  such  as  are  unusual 
and  too  remote  and  indirect.  North- 
side  R.  Co.  v.  Worthington,  88  Tex. 
562,  53  Am.  St.  778;  People  v.  Chi- 
cago, &c.  Co.  130  111.  268,  17  Am.  St. 
319;  Burrill  L.  Diet.,  title  "Neces- 
sary." 

"Waterman  Corp.,  §  493. 

88  Scales  v.  Pickering,  4  Bing.  448; 
Richmond,  &c.  R.  Co.  v.  Louisa,  &c. 
R.  Co.  13  How.  (U.  S.)  71;  Common- 
wealth v.  Central  Pass.  R.  Co.  52 
Pa.  St.  506;  Rice  v.  Railroad  Co.  1 
Black  (U.  S.)  358;  Pennsylvania  R. 
Co.  v.  Canal  Comrs.,  21  Pa.  St.  22; 
Singleton  v.  Southwestern  R.  Co.  70 
Ga.  464,  48  Am.  R.  574  n. 

39  Waterman  Corp.  §  138. 

40  Green  Bay,  &c.  R.  Co.  v.  Union 
Steamboat  Co.  107  U.  S.  98,  2  Sup. 
Ct.  221;  Brown  v.  Winnisimmet  Co. 
11  Allen  (Mass.)  326,  336;  Common- 
wealth v.  Erie,  &c.  R.  Co.  27  Pa.  St. 
339,  67  Am.  Dec.  471  n. 

41  Waterman  Corp.,  §  484. 

42  Waterman  Corp.  §  138,  and  cases 
cited. 


69 


MONOPOLIES — PERPETUITIES. 


[§  39 


if  possible,  receive  such  a  construction  that  effect  may  be  given  to  both, 
and  neither  be  held  to  be  in  derogation  of  the  other.43 

§  39.  Grants  of  monopolies  and  powers  in  derogation  of  public 
rights — Perpetuity. — The  rule  of  strict  construction  against  corpora- 
tions is  peculiarly  applicable  to  grants  of  exclusive  privileges,  monop- 
olies, and  powers  in  derogation  of  public  rights,  or  the  like.  In  such 
cases  it  is  generally  held  that  nothing  passes  by  implication,  and  it  is 
said  that  "this  rule  applies  with  peculiar  force  to  articles  of  associa- 
tion, which  are  framed  under  general  laws,  and  which  are  a  substitute 
for  a  legislative  charter,  and  assume  and  define  the  powers  of  the  cor- 
poration by  the  mere  act  of  the  associates,  without  any  supervision  of 
the  legislature  or  of  any  public  authority."44  Thus,  exclusive  privileges 
and  monopolies  are  not  to  be  presumed,  and  if  not  unequivocally 
granted  must  be  deemed  to  be  withheld.45  So,  grants  in  derogation 
of  public  rights,46  or  of  the  rights  and  franchises  of  other  corpora- 
tions,47 are  to  be  strictly  construed.  And,  "as  between  a  construction 


43  Pennsylvania  R.  Co.'s  Appeal,  93 
Pa.  St.  150,  3  Am.  &  Eng.  R.  Cas. 
507;  Hudson  Riv.  Tel.  Co.  v.  Water- 
vliet   Turnp.    Co.   56    Hun    (N.   Y.) 
67,  9  N.  Y.  S.  177. 

44  Central  Transp.  Co.  v.  Pullman's 
Car  Co.  139  U.  S.  24,  49,  11  Sup.  Ct. 
478,  per  Gray,  J.;  Oregon  R.  Co.  v. 
Oregonian  R.  Co.  130  U.  S.  1,  27,  9 
Sup.  Ct.  409. 

45  Charles  River  Bridge  v.  "Warren 
Bridge,  11  Pet.  (U.  S.)  420;  Lehigh, 
&c.  Co.  v.  Easton,  121  U.  S.  388,  7 
Sup.  Ct.  916;  Richmond,  &c.  R.  Co. 
v.  Louisa  R.  Co.  13  How.    (U.   S.) 
71;   People  v.  Broadway  R.  Co.  126 
N.  Y.  29,  26  N.  E.  961;  Indianapolis 
Cable  R.  Co.  v.  Citizens'  R.  Co.  127 
Ind.  369,  24  N.  E.  1054,  26  N.  E.  893, 
8  L.  R.  A.  539  n;    East  St.  Louis, 
&c.  R.  Co.  v.  East  St.  Louis  Union 
R.    Co.    108    111.    265;    Jackson    &c. 
R.  Co.  v.  Interstate  R.  Transit  Co. 
24  Fed.  306;  Omaha  Horse  R.  Co.  v. 
Cable  Tramway  Co.  30  Fed.  324;  De 
Lancey  v.  Insurance  Co.   52  N.   H. 
581;  Gaines  v.  Coates,  51  Miss.  335; 


Georgia  R.  Co.  v.  Smith,  70  Ga.  694. 
See,  also,  Detroit  Citizens'  St.  R. 
Co.  v.  Detroit  R.  Co.  171  U.  S.  48,  18 
Sup.  Ct.  732;  Augusta,  &c.  R.  Co.  v. 
Augusta,  &c.  R.  Co.  96  Ga.  562,  23 
S.  E.  501;  Chicago,  &c.  R.  Co.  v. 
Louisville,  &c.  R.  Co.  (Ky.)  58  S. 
W.  799. 

46  Fertilizing  Co.  v.  Hyde  Park,  97 
U.  S.  659;   Turnpike  Co.  v.  Illinois, 
96  U.  S.  63.    Thus,  property  already 
devoted  to  a  public  use  cannot  be 
taken  and  used  by  a  corporation  un- 
less  the    right    is   clearly    granted. 
People  v.   Thompson,   98   N.   Y.    6; 
People  v.  Newton,  112  N.  Y.  396,  19 
N.  E.  831,  3  L.  R.  A.  174  n;   Stam- 
ford  v.   Stamford  R.   Co.  56   Conn. 
,381,    15   Atl.   749,   1    L.   R.    A.    375; 
Elliott  Roads  and   Streets,   167-169. 

47  Pennsylvania  R.  Co.'s  Appeal,  93 
Pa.  St.  150;  Packer  v.  Sunbury,  &c. 
R.  Co.  19  Pa.  St.  211;  Bridgeport  v. 
New  York  R.   Co.  36   Conn.   255,  4 
Am.  R.  63;  Worcester,  &c.  R.  Co.  v. 
Railroad  Comrs.  118  Mass.  561. 


40] 


CHARTERS. 


70 


which  will  place  a  limitation  on  the  grant  and  one  which  will  give  rise 
to  a  perpetuity,  it  is  clear  that  it  is  the  duty  of  the  court,  in  favor  of 
the  public,  to  impose  the  limitation."48 

§  40.  Practical  construction. — It  is  a  familiar  rule  that,  in  case 
of  doubt,  the  practical  exposition  or  construction  of  a  contract  by  the 
parties  is  entitled  to  great,  if  not  controlling  influence,  and  will  usu- 
ally be  followed  by  the  courts.49  This  rule  has  been  applied  to  stat- 
utes which  have  received  a  contemporaneous  construction,50  and  even 
to  constitutional  provisions.51  It  follows,  therefore,  that  the  practical 
construction  of  a  grant  to  a  railroad  company  established  by  years  of 
uniform  usage,  acquiesced  in  by  the  public  and  all  parties  interested, 
will  be  of  great  weight  in  determining  the  construction  of  the  grant 
and  will  usually  be  followed  by  the  courts  if  the  meaning  or  extent 
of  the  grant  would  otherwise  be  doubtful.52  But  this  rule  should  not, 
perhaps,  be  carried  to  the  extent  to  which  it  is  carried  by  some  of  the 
courts  in  the  construction  of  ordinary  contracts,  that  is,  it  should  not 
be  so  applied  as  to  enable  corporations  to  acquire  rights,  as  against  the 
public,  which  are  clearly  not  given  to  them,  either  expressly  or  im- 
pliedly,  by  their  charters  or  grants  from  the  public.  In  other  words, 
the  mere  assumption  of  a  right  on  their  part  and  inaction  on  the  part 
of  the  public  will  not  necessarily  be  conclusive  that  such  a  right  exists, 
especially  as  against  the  plain  letter  of  the  law.53 


43  Detroit  v.  Detroit  City  R.  Co.  56 
Fed.  867,  886.  See,  also,  Coosaw 
Min.  Co.  v.  South  Carolina,  144  U.  S. 
550,  12  Sup.  Ct.  689. 

49  Central  Trust  Co.  v.  Wabash,  &c. 
R.  Co.  34  Fed.  254;  District  of  Co- 
lumbia v.  Gallagher,  124  C.  S.  505,  8 
Sup.  Ct.  585;  Chicago  v.  Sheldon,  9 
Wall.  (U.  S.)  50;  Vinton  v.  Bald- 
win, 95  Ind.  433;  Reissner  v.  Oxley, 
80  Ind.  580,  and  authorities  there 
cited;  Frazier  v.  Myers,  132  Ind.  71, 
31  N.  E.  536;  Union  Pac.  R.  Co.  v. 
Anderson,  11  Colo.  293,  18  Pac.  24; 
Bishop  Cont.  §  598;  Clark  Cont. 
§  594. 

80  United  States  v.  Philbrick,  120 
U.  S.  52,  7  Sup.  Ct.  413;  Hovey  v. 
State,  119  Ind.  386,  395,  21  N.  E. 
890;  People  v.  Board,  100  111.  495; 


Rogers  v.  Goodwin,  2  Mass.  475; 
Pike  v.  Megoun,  44  Mo.  491;  State 
v.  Parkinson,  5  Nev.  15.  In  Bruce 
v.  Schuyler,  4  Gilm.  (111.)  221,  it  is 
said:  "It  has  always  been  regarded 
by  the  courts  as  equivalent  to  a  pos- 
itive law."  Approved  in  Board  of 
Comrs.  v.  Bunting,  111  Ind.  143,  12 
N.  E.  151. 

51Bingham  v.  Miller,  17  Ohio  445, 
49  Am.  Dec.  471;  Johnson  v.  Joliet, 
23  111.  202;  State  v.  May  hew,  2  Gill 
(Md.)  487. 

"Mobile  v.  Louisville,  &c.  R.  Co. 
84  Ala.  115,  4  So.  106,  5  Am.  St.  342. 

63  Powers  that  can  only  be  ob- 
tained by  charter  or  grant  cannot 
be  acquired  by  assuming,  without 
authority,  to  exercise  them;  nor  is 
the  public,  although  it  may  be  rep- 


71 


RAILROAD    CHARTER — POWERS   IXCLUDED. 


[§41 


§41.  Charter  to  build  and  operate  a  railroad — What  powers  are 
included. — The  grant  of  authority  to  build  and  operate  a  railroad  car- 
ries with  it,  when  necessary  to  the  enjoyment  of  the  franchise,  the 
implied  authority  to  condemn  lands  for  a  right  of  way;54  to  appro- 
priate land  of  the  state  over  which  the  chartered  route  runs,  although 
no  provision  is  made  for  compensation  for  it  when  taken;55  to  erect 
bridges  over  navigable  streams;56  to  repair  bridges  where  it  is  au- 
thorized to  build;57  to  construct  its  road  across  a  highway58  or  rail- 
road59 between  its  authorized  termini ;  but  not,  ordinarily,  along  and 
upon  a  highway60  or  property  already  devoted  to  railroad  use;61  to 


resented  by  its  officers,  in  a  situa- 
tion to  protect  its  rights  or  take 
action  to  the  same  extent  as  are  in- 
dividuals. 

54  Tennessee,  &c.  R.  Co.  v.  Adams, 
3  Head  (Tenn.)  596. 

05  Indiana  Cent.  R.  Co.  v.  State,  3 
Ind.  421.  But  this  doctrine  is  of 
doubtful  soundness. 

58  Fall   River   Iron   Works    Co.   v. 
Old    Colony,    &c.    R.    Co.    5    Allen 
(Mass.)    221;    Tennessee   R.   Co.   v. 
Adams,  3  Head  (Tenn.)  596;  Ham- 
ilton v.  Vicksburg,  &c.  R.  Co.  34  La. 
Ann.  970,  44  Am.  R.  451;   Miller  v. 
Prairie  du  Chien,  &c.  R.  Co.  34  Wis. 
533.    In   Schofield  v.   Pennsylvania, 
&c.   R.   Co.   12   Pa.   Co.    Ct.    122,   it 
was    held    that    the    railroad    had 
power  to  build   a  branch   road   ex- 
tending a  thousand   feet  along  the 
bed  of  a  navigable  stream.    But  see 
Stevens  v.  Erie  R.  Co.  21  N.  J.  Eq. 
259. 

"Central  Trust  Co.  v.  Wabash, 
&c.  R.  Co.  32  Fed.  566. 

53  State  v.  Montclair  R.  Co.  35  N. 
J.  L.  328;  Lewis  v.  Germantown,  &c. 
R.  Co.  16  Phila.  (Pa.)  608;  White 
River  Turnp.  Co.  v.  Vermont  Cent. 
R.  Co.  21  Vt.  590. 

59  St.  Louis,  &c.  R.  Co.  v.  Spring 
field,   &c.    R.    Co.    96    111.    274;    Ft. 
Wayne   v.   Lake   Shore,   &c.   R.   Co. 
132  Ind.  558,  32  N.  E.  215,  18  L.  R. 


A.  367  n,  32  Am.  St.  277,  citing  El- 
liott Roads  and  Streets,  169. 

60  Springfield  v.  Connecticut  River 
R.    Co.    4    Cush.     (Mass.)     63;     St. 
Louis,  &c.  R.  Co.  v.  Haller,  82  111. 
208;   Kenton  County  Court  v.  Bank 
Lick  Turnp.  Co.  10  Bush  (Ky.)  529. 

61  Housatonic,  &c.   R.   Co.   v.   Lee, 
&c.   R.   Co.   118   Mass.   391;    Contra 
Costa,  &c.  R.  Co.  v.  Moss,   23   Cal. 
323;  Alexandria,  &c.  R.  Co.  v.  Alex- 
andria,   &c.    Co.    75    Va.    780;     40 
Am.    R.    743    n;    Seymour    v.    Jef- 
fersonville,    &c.    R.    Co.     126    Ind. 
466,  26  N.  E.  188;   Lewis  Eminent 
Domain,     §  267.       Express,     or     at 
least   clearly   implied,   authority   is 
generally  necessary   in  such  cases. 
Central    City,    &c.    R.    Co.    v.    Fort 
Clark,  &c.  R.  Co.  81  111.  523;   East- 
ern  R.   Co.   v.   Boston,   &c.   R.   Co., 
Ill  Mass.  125,  15  Am.  R.  13;  Balti- 
more, &c.  R.  Co.  v.  North,  103  Ind. 
486,  3  N.  E.  144;  Elliott  Roads  and 
Streets,  167,  168.    See,  also,  Denver, 
&c.  R.  Co.  v.  Denver,  &c.  Co.  17  Fed. 
867,  5  McCrary   (U.  S.)    443;   Rail- 
way Co.  v.  Ailing,  99  U.  S.  463,  as  to 
respective    rights    of    two    railroad 
companies    in    a   narrow    canon    or 
defile.   Other  authorities,  and  a  full 
treatment   of   this   subject   will   be 
found   in   the  chapter  on  Eminent 
Domain. 


§41] 


CHARTERS. 


take  gravel  and  material  for  use  in  construction  of  the  roadbed,  and 
water  for  the  use  of  the  engines  ;62  to  run  trains  of  cars  over  the  road 
by  the  use  of  steam  as  a  motive  power,  even  though  it  be  so  near  to 
a  public  highway  as  to  frighten  horses  driven  thereon;63  and  to  take 
tolls  for  the  carriage  of  goods  and  passengers.64  The  grant  of  a  right 
to  construct  a  railroad  between  two  towns  has  been  held  to  carry 
implied  authority  to  run  a  branch  line  along  a  street  of  one  of  the 
towns  to  reach  a  depot  and  turn-table  which  lay  off  from  the  direct 
line.65  Power  to  build  a  road  "to"  or  "from"  a  certain  town,  or  to 
construct  works  "at"  such  a  town,  includes  power  to  build  to  such 
point  within  the  corporate  limits  suitable  for  the  transaction  of  its 
business  and  the  accommodation  of  the  public  as  may  be  fixed  upon 
by  the  company  and  the  municipal  authorities.06  "A  railroad  company 


62  See  Morgan  v.  Louisiana,  93  U. 
S.  217;  also,  Strohecker  v.  Alabama, 
&c.  R.  Co.  42  Ga.  509;  Pennsylvania 
R.  Co.  v.  Miller,  112  Pa.   St.  34,  3 
Atl.  780;   Aldrich  v.  Drury,  8  R.  I. 
554;  Early  wine  v.  Topeka,  &c.  R.  Co. 
43  Kans.  746,  23  Pac.  940;  Henry  v. 
Dubuque,   &c.   R.   Co.    2   Iowa   288; 
Taylor  v.  New  York,  &c.  R.  Co.  38 
N.  J.  L.  28.   But  see  Preston  v.  Du- 
buque, &c.  R.  Co.  11  Iowa  15. 

63  Bordentown,  &c.  T.  Co.  v.  Cam- 
den,  &c.  R.  Co.  17  N.  J.  L.  314,  319. 

64  See  Morgan  v.  Louisiana,  93  U. 
S.  217.    "Courts  have  construed  the 
charter  of  a  canal  or  railroad  com- 
pany,   in    relation    to   the   right   to 
take  freight  or  toll,  in  favor  of  the 
public   and   against   the   company." 
1    Waterman    Corp.    §    138,    citing 
Stourbridge  Canal  Co.  v.  Wheeley,  2 
B.  &  Ad.  793;   Barrett  v.  Stockton, 
&c.  R.  Co.  2  Man.  &  Gr.  134,  7  Man. 
&  Gr.  870;   Gildart  v.  Gladstone,  11 
East  675;  Leeds,  &c.  Canal  v.  Hust- 
ler, 1  B.  &  C.  424;   Camden,  &c.  U. 
Co.  v.  Briggs,  22  N.  J.  L.  623.  Where 
the  charter  of  a  canal  imposed  a 
toll  on  goods  carried  on  vessels  pass- 
ing through  the  canal,  and  on  such 
vessels  as  had  not  sufficient  goods 
aboard  to  yield  a  toll  of  four  dol- 


lars, it  was  held  that  the  company 
had  no  right  to  charge  toll  for  pas- 
sengers, and  a  vessel  laden  exclu- 
sively with  passengers  was  entitled 
to  navigate  the  canal  upon  payment 
of  the  toll  imposed  upon  an  empty 
vessel.  Perrine  v.  Chesapeake,  &c. 
Canal  Co.  9  How.  (U.  S.)  172. 

65  Flanagan  v.  Great  Western  R. 
Co.  L.  R.  7,  Eq.  Cas.  116.  See,  also, 
Clarke  v.  Cuckfield  Union,  21  L.  J. 
Q.  B.  349;  New  Orleans,  &c.  R.  Co.  v. 
Second  Municipality  &c.  1  La.  Ann. 
128;  Knight  v.  Carrollton  R.  Co.  9 
La.  Ann.  284.  But  see  Northeastern 
R.  Co.  v.  Payne,  8  Rich.  L>  (S.  C.) 
177,  to  the  effect  that  authority  to 
build  "from"  a  city  does  not  give  a 
right  to  build  within  the  city  limits. 

60  Moses  v.  Pittsburgh,  &c.  R.  Co. 
21  111.  515,  522;  Mohawk  Bridge  Co. 
v.  Utica,  &c.  R.  Co.  6  Paige  Ch.  (N. 
Y.)  554;  Commonwealth  v.  Erie,  &c. 
R.  Co.  27  Pa.  St.  339,  344,  67  Am. 
Dec.  471  n.  These  terms  are  gen- 
erally regarded  as  inclusive  and  au- 
thorize a  location  within  the  city  or 
place  named.  Chicago,  &c.  R.  Co. 
v.  Chicago,  &c.  R.  Co.  112  111.  589, 
25  Am.  &  Eng.  R.  Cas.  158;  Rio 
Grande,  &c.  R.  Co.  v.  Brownsville, 
45  Tex.  88;  Mason  v.  Brooklyn,  &c. 


73 


RAILROAD    CHARTER — POWERS   INCLUDED. 


[§    41 


whose  charter  gives  it  the  right  to  build  its  road  from  a  certain  city 
is  not  barred  from  making  the  union  depot  in  such  city  its  terminus 
by  the  fact  that  it  began  to  construct  its  road  from  a  point  in  the 
outskirts  of  the  city,  and  for  some  time  ran  trains  from  such  point, 
when  it  appears  the  company  never  made  any  permanent  improve- 
ments at  such  point,  and  that  from  the  first  it  made  efforts  to  extend 
its  line  to  the  union  depot."67  But  no  authority  is  given  to  build  the 
road  into  such  a  town  in  a  direction  different  from  that  of  the  gen- 
eral direction  of  the  road.68  A  company  chartered  to  build  a  rail- 
road for  the  purpose  of  transporting  lumber  for  shipment  by  water, 
with  authority  to  construct  the  road  "to  the  place  of  shipping  lum- 
ber" on  a  river,  may  lawfully  appropriate  lands  for  a  right  of  way 
across  the  flats  or  overflowed  lands  within  the  ordinary  banks  of  the 
river  and  extend  its  tracks  across  such  lands  to  a  convenient  navigable 
part  of  the  river  from  which  lumber  may  be  shipped.69  A  railroad 
corporation  has  implied  authority  to  build  and  maintain  restaurants 
for  its  passengers70  or  emplo}Tes;71  to  erect  or  secure  the  erection  of  a 
telegraph  line  along  its  route  ;72  and  to  erect  and  maintain  depots,  car 
houses,  water  tanks,  repair  shops,  and  the  like.73  It  also  has  power 


R.  Co.  35  Barb.  (N.  Y.)  373.  See, 
also,  "Waycross,  &c.  R.  Co.  v.  Offer- 
man,  &c.  R.  Co.  109  Ga.  827,  35  S.  E. 
275;  Colorado,  &c.  R.  Co.  v.  Union 
Pac.  R.  Co.  41  Fed.  293.  Contra, 
Northeastern  R.  Co.  v.  Payne,  8 
Rich.  L.  (S.  C.)  177.  The  term  "be- 
tween" has  also  been  construed  as 
inclusive.  Morris,  &c.  R.  Co.  v.  Cen- 
tral, &c.  R.  Co.  31  N.  J.  L.  205. 

67  Colorado  E.  R.  Co.  v.  Union  Pac. 
R.  Co.  41  Fed.  293.  See,  also,  Col- 
lier v.  Union  R.  Co.  113  Tenn.  96, 
83  S.  W.  155. 

63  Savannah,  &c.  R.  Co.  v.  Shiels, 
33  Ga.  601. 

""Peavey  v.  Calais  R.  Co.  30  Me. 
498,  1  Am.  R.  Cas.  147. 

70  Flanagan  v.   Great  Western  R. 
Co.  L.  R.  7  Eq.  Cas.  116. 

71  Jacksonville,     &c.     R.     Co.     v. 
Hooper,  160  U.  S.  514,  16  Sup.  Ct 
379;  Abraham  v.  Oregon,  &c.  R.  Co. 
37  Oreg.  495,  60  Pac.  899,  64  L.  R.  A. 
391,  82  Am.  St.  779.  So,  in  some  in- 


stances, it  may  buy  or  hire  steam- 
boats or  run  stages  in  connection 
with  its  line.  Green  Bay,  &c.  R.  Co. 
v.  Union  Steamboat  Co.  107  U.  S.  98, 
2  Sup.  Ct.  221;  Shawmut  Bank  v. 
Plattsburg,  &c.  R.  Co.  31  Vt.  491; 
Buffett  v.  Troy,  &c.  R.  Co.  40  N.  Y. 
168,  172.  See,  also,  Norfolk,  &c.  R. 
Co.  v.  Shippers'  Compress  Co.  83 
Va.  272,  2  S.  E.  139. 

•"Prattler  v.  Western  U.  Tel.  Co. 
89  Ind.  501;  Pittsburg,  &c.  R.  Co.  v. 
Shaw  (Pa.),  36  Am.  &  Eng.  R.  Cas. 
453;  Marietta,  &c.  R.  Co.  v.  Western 
U.  Tel.  Co.  38  Ohio  St.  24,  10  Am.  & 
Eng.  R.  Cas.  387;  Western  U.  Tel. 
go.  v.  Rich,  19  Kans.  517,  27  Am.  R. 
159.  Or  scales  at  its  stations  for 
weighing  freight.  London,  &c.  R. 
Co.  v.  Price,  L.  R.  11  Q.  B.  Div.  485, 
13  Am.  &  Eng.  R.  Cas.  128. 

"Waterman  Corp.  §  138,  citing 
State  v.  Mansfield,  23  N.  J.  L.  510, 
57  Am.  Dec.  409  n ;  Wright  v.  Carter, 
27  N.  J.  L.  76;  State  v.  Newark,  1 


CHARTERS. 


to  make  reasonable  rules  and  regulations  for  the  safety  and  convenience 
of  its  passengers74  and  the  management  of  its  road  and  business.75 

§  42.  Other  powers  of  railroad  companies — Implied  powers  in- 
cluded in  certain  grants. — A  railroad  company  may  offer  a  reward 
for  the  detection  of  persons  obstructing  its  track.76  Under  an  au- 
thority to  erect  a  bridge,  the  corporation  may  condemn  land  for  abut- 
ments77 and  may  build  necessary  approaches.78  So,  under  a  general 
authority  to  condemn  land  for  a  right  of  way,  a  corporation  may  take 
land  for  depots,  water-tanks,  roundhouses,  shops,  and  coal  and  wood 
yards,  and  such  other  works  as  are  necessary  to  the  operation  of  the 
road,79  and  it  may  build  side  tracks  to  the  establishments  of  large 
shippers  as  a  power  incidental  to  its  expressly  granted  powers,80  and, 
under  express  power  to  build  a  branch  road,  it  may  buy  one  already 
built.81  It  is  said  that  the  burden  is  upon  those  asserting  the  fact 
to  show  that  the  charter  of  a  corporation  authorizes  it  to  take  or  con- 
vey lands,82  and  those  claiming  such  authority  by  implication  must 


Dutch.  (N.  J.)  315.  But  it  has  been 
held  that  a  railroad  has  no  implied 
power  to  erect  houses  for  its  em- 
ployes nor  to  establish  factories 
for  making  its  own  rails  and  roll- 
ing-stock, nor  to  do  any  other  acts 
not  necessary  to  the  successful  oper- 
ation of  the  road.  State  v.  Mans- 
field, supra. 

"Chicago,  &c.  R.  Co.  v.  Williams, 
55  111.  185,  8  Am.  R.  641;  Gray  v. 
Cincinnati,  &c.  R.  Co.  11  Fed.  683, 
6  Am.  &  Eng.  R.  Gas.  588. 

75  Chicago,  &c.  R.  Co.  v.  People,  56 
111.  365,  8  Am.  R.  690;  Reagan  v.  St. 
Louis,  &c.  R.  Co.  93  Mo.  348,  6  S.  W. 
371,  3  Am.  St.  542;  Cleveland,  &c.  R. 
Co.  v.  Bartram,  11  Ohio  St.  457.  See 
By-laws,  Rules  and  Regulations, 
Chapter  X. 

"Central  R.  &c.  Co.  v.  Cheatham, 
85  Ala.  292,  4  So.  828,  7  Am.  St.  48, 
37  Am.  &  Eng.  R.  Cas.  282. 

"Linton  v.  Sharpsburg,  &c.  Co.  1 
Grant's  Cas.  (Pa.)  414. 

78  Slatten  v.  Des  Moines,  &c.  R.  Co. 
29  Iowa  148,  4  Am.  R.  205. 

79  State  v.  Comrs.  of  Mansfield,  23 


N.  J.  L.  510,  57  Am.  Dec.  409  n;  Ver- 
mont Cent.  R.  Co.  v.  Burlington,  28 
Vt.  193;  Nashville,  &c.  R.  Co.  v. 
Cowardin,  11  Humph.  (Tenn.)  348. 

80  Wilson  v.  Furness  R.  Co.  L.  R. 
9  Eq.  Cas.  28;  Chicago,  &c.  R.  Co. 
v.  Porter,  43  Minn.  527,  46  N.  W. 
75,  43  Am.  &  Eng.  R.  Cas.  170; 
Getz's  Appeal,  65  Pa.  St.  1,  3  Am. 
&  Eng.  R.  Cas.  186.  But  see  Pitts- 
burg,  &c.  R.  Co.  v.  Benwood  Iron 
Works,  31  W.  Va.  710,  8  S.  E.  453, 
2  L.  R.  A.  680  n,  36  Am.  &  Eng.  R. 
Cas.  531,  where  it  is  held  that  a 
railroad  company  cannot  exercise 
the  power  of  eminent  domain  to  se- 
cure a  right  of  way  for  a  side  track 
to  a  steel  mill,  even  where  there  is 
evidence  that  all  who  wish  to  avail 
themselves  of  the  proposed  switch 
for  shipping  purposes  may  do  so. 

"Branch  v.  Jessup,  106  U.  S.  468, 
484  et  seq.,  1  Sup.  Ct.  175;  Central 
Trust  Co.  v.  Washington  County  R. 
Co.  124  Fed.  813. 

82  Lumbard  v.  Aldrich,  8  N.  H.  31, 
28  Am.  Dec.  381. 


75 


RAILROAD    CHARTER — IMPLIED   POWERS. 


[§    42 


show  that  it  is  necessary  to  the  enjoyment  of  the  franchises  expressly 
granted.83  The  power  to  make  contracts  includes  power  to  dispose 
of  securities  received  in  the  prosecution  of  the  objects  for  which  the 
company  is  chartered.84  A  railroad  corporation  has  implied  authority 
to  contract  generally  in  the  course  of  its  legitimate  business,  where 
not  prohibited  or  restricted  by  some  express  provision  of  law.85  Thus, 
it  may  make  proper  traffic  arrangements  with  other  companies86  and 
permit  them  to  use  its  terminals.87  It  may  borrow  money,  and  give 
negotiable  notes,88  or  issue  or  guarantee  bonds,  to  carry  into  effect  the 
object  of  the  organization.89  Authority  to  build  a  branch  or  lateral 
road  implies  power  to  condemn  lands  for  a  right  of  way  for  such 
road,90  and  to  construct  a  branch  line  running  in  the  same  general 


83  Rensselaer,  &c.  R.  Co.  v.  Davis, 
43  N.  Y.  137;  New  York  Cent.  R. 
Co.,  In  re,  66  N.  Y.  407. 

M  Rorer  Railw.,  §  35. 

85  Racine,  &c.  R.  Co.  v.  Farmers', 
&c.  R.  Co.  49  111.  331,  95  Am.  Dec. 
595;  Philadelphia,  &c.  R.  Co.  v.  Hick- 
man,  28  Pa.  St.  318;  Mobile,  &c.  R. 
Co.   v.   Talman   &  Ralston,   15   Ala. 
472;  Chicago,  &c.  R.  Co.  v.  Howard, 
7  Wall.  (U.  S.)  392;  Pixley  v.  West- 
ern Pac.  R.  Co.  33  Cal.  183,  91  Am. 
Dec.    623;    Arrington   v.    Savannah, 
&c.   R.   Co.   95   Ala.   434,   11   So.   7; 
Chattanooga,  &c.  R.  Co.  v.  Davis,  89 
Ga.  708,  15  S.  E.  626. 

86  Sussex,  &c.  R.  Co.  v.  Morris,  &c. 
R.  Co.  19  N.  J.  Eq.  13;  Wheeler  v. 
San  Francisco,  &c.   R.   Co.   31   Cal. 
46,    89    Am.    Dec.    147;    Perkins   v. 
Portland,  &c.  R.  Co.  47  Me.  573,  74 
Am.   Dec.   507;    Manchester,   &c.  R. 
Co.  v.  Concord,  &c.  R.  Co.  66  N.  H. 
100,    20   Atl.    383,    49    Am.    St.    582; 
Stewart  v.   Erie,   &c.   Co.   17   Mich. 
372;  Georgia,  &c.  Co.  v.  Maddox,  116 
Ga.  64,  42  S.  E.  315,  321,  citing  text. 

87  Miller  v.  Green  Bay,  &c.  R.  Co. 
69    Minn.    169,    60   N.    W.   1006,    26 
L.  R.  A.  443.    See,  also,  Union  Pac. 
R.  Co.  v.   Chicago,   &c.  R.   Co.   163 
TJ.    S.    564,    16    Sup.    Ct.   1173,   and 


Georgia,  &c.  Co.  v.  Maddox,  116  Ga. 
64,  42  S.  E.  315,  321,  citing  text. 

83  Chicago,  &c.  R.  Co.  v.  Howard,  7 
Wall.  (U.  S.)  392;  White  Water  C. 
Co.  v.  Vallette,  21  How.  (U.  S.)  414; 
Wood  v.  Whelen,  93  111.  153;  Branch 
v.  Atlantic,  &c.  R.  Co.  3  Woods  (U. 
S.)  481. 

89  Cases  cited  in  preceding  note. 
Contra,  in  England,  Bateman  v.  Mid- 
Wales  R.  Co.  L.  R.  1  C.  P.  499.  It 
cannot,  of  course,  guarantee  bonds 
merely  to  help  others  or  the  like. 
Elevator  Co.  v.  Memphis,  &c.  R.  Co. 
85  Tenn.  703,  5  S.  W.  52,  4  Am.  St. 
798;  Smead  v.  Indianapolis,  &c.  R. 
Co.  11  Ind.  104.  But  it  can  guar- 
antee bonds  which  it  lawfully  owns 
in  order  to  make  them  salable  and 
enhance  their  value  to  it. 

'"Newhall  v.  Galena,  &c.  R.  Co. 
14  111.  273.  The  right  to  "construct 
such  branches  as  the  directors  may 
deem  necessary,"  conferred  upon  a 
railroad  corporation  by  its  charter 
gives  it  a  continuing  power  of 
branch  building  which  is  not  taken 
away  by  a  subsequent  act  requiring 
the  company  within  a  certain  time 
to  complete  its  road  "with  one  or 
more  tracks,  sidings,  depots  and  ap- 
purtenances." Pittsburg,  &c.  R.  Co 


43] 


CHARTERS. 


direction  as  the  main  line,  even  though  it  be  built  to  connect  with  the 
main  line  of  another  road,01  and  even,  it  has  been  held,  to  build  a  short 
elevated  road  from  the  original  terminus  of  its  route  along  a  public 
landing.92  A  limitation  as  to  the  time  within  which  the  "works  hereby 
required"  shall  be  finished,  will  usually  be  held  to  apply  only  to  the 
building  and  equipping  of  the  main  line,  and  the  building  of  lateral 
roads  will  be  understood  to  be  optional  with  the  company.93 

§  43.  Amendment — Power  must  be  reserved. — The  charter  of  a 
corporation  constitutes  a  contract  between  the  corporation  and  the 
state,  and  is  not  subject  to  amendment  or  repeal,94  unless  the  right 
to  alter  or  revoke  is  reserved.95  And  it  has  been  held  that  an  express 


v.  Pittsburg,  &c.  R.  Co.  159  Pa.  St. 
331,  28  Atl.  155. 

81  Blanton  v.  Richmond,  &c.  R.  Co. 
86  Va.  618,  10  S.  E.  925,  43  Am.  & 
Eng.  R.  Cas.  617.  Where  the  charter 
of  a  railroad  corporation  empowers 
it  to  build  only  one  specified  branch 
road,  another  road,  incorporated  un- 
der  the   laws  of   a   different   state, 
though  constructed  and  operated  by 
the  first  road,  is  not  a  "branch"  of 
such  road  within  the  meaning  of  a 
deed  reserving  a  right  of  way  over 
such  premises  in  favor  of  such  road 
or  any  of  its  branches.    Biles  v.  Ta- 
coma,  &c.  R.  Co.  5  Wash.  St.  509,  32 
Pac.    211.    Where   a    railroad    com- 
pany's charter  expressly  authorizes 
it  to  build  branch  roads,  contracts 
entered  into  by  it  with  a  construc- 
tion  company  for  the  construction 
of  a  projected  branch  road  are  valid 
and  may  be  enforced.   Arrington  v. 
Savannah,  &c.   R.   Co.  95  Ala.  434, 
11  So.  7. 

82  McAboy's  Appeal,  107  Pa.  St.  548. 

83  Blanton  v.  Richmond,  &c.  R.  Co. 
86  Va.  618,  10   S.  E.  925.    But  see 
Newhall  v.    Galena,   &c.   R.   Co.   14 
111.  273,  where  it  is  held  that  a  limi- 
tation or  extension  of  time  in  which 
to  construct  should,  by  intendment, 
be  applied  to  the  lateral  or  branch 


lines  equally  with  the  main  line  of 
the  road.  In  Commonwealth  v.  New 
York,  &c.  R.  Co.  10  Pa.  Co.  Ct.  129, 
a  railroad  and  mining  company 
was  authorized  by  its  charter  to 
build  a  railroad  or  railroads  from 
any  lands  held  by  them  to  a  certain 
railroad,  or  to  connect  any  two  or 
more  railroads  which  might  be  con- 
structed by  them  in  either  or  both 
of  two  counties  named.  The  court 
held  that  the  building  of  one  road 
did  not  exhaust  the  powers  of  the 
company,  and  that  having  built  one 
railroad  and  finding  it  unprofitable, 
the  building  of  another  did  not 
operate  to  forfeit  the  company's 
charter. 

84  Dartmouth  College  v.  Woodward, 
4  Wheat.  (U.  S.)  518;  Piqua  Branch 
Bk.  v.  Knopp,  16  How.  (U.  S.)  369; 
State  v. .  Noyes,   47   Me.   189 ;    Com- 
monwealth v.  Erie,  &c.  Co.  107  Pa. 
St.  112;  Pennsylvania  R.  Co.  v.  Bal- 
timore, &c.  R.  Co.  60  Md.  263;  Hous- 
ton, &c.  R.  Co.  v.  Texas,  &c.  R.  Co. 
70  Tex.  649;  Ashuelot  R.  Co.  v.  El- 
liott, 58  N.  H.  451;  Thornton  v.  Mar- 
ginal Freight  R.  Co.  123  Mass.  32. 
See,   also,   Pennsylvania   R.    Co.   v. 
Miller,  132  U.  S.  75,  10  Sup.  Ct.  34. 

85  The  several  states  now  provide 
by  general  laws  or  by  constitutional 


77 


AMENDMENT POWER   MUST   BE   RESERVED. 


[§    43 


reservation  by  the  legislature  of  power  to  repeal  a  charter  can  give 
no  authority  to  take  away  or  destroy  property  lawfully  acquired  or 
created  under  authority  conferred  by  the  charter;06  nor  to  disturb, 


provisions  that  all  charters  granted 
shall  be  subject  to  alteration,  amend- 
ment and  repeal,  at  the  discretion 
of  the  legislature.  Stimson  Am. 
Stat.  Law,  §§  442,  8003.  See  St. 
Louis,  &c.  R.  Co.  v.  Ryan,  56  Ark. 
245,  19  S,  W.  839;  Mowrey  v.  In- 
dianapolis, &c.  R.  Co.  4  Biss.  (U. 
S.)  78;  New  Orleans,  &c.  Co.  v.  Har- 
ris, 27  Miss.  517;  Commonwealth  v. 
Fayette,  &c.  R.  Co.  55  Pa.  St.  452; 
Delaware  R.  Co.  v.  Tharp,  5  Harr. 
(Del.)  454;  Greenwood  v.  Union 
Freight  R.  Co.  105  U.  S.  13;  New 
York  El.  R.  Co.  In  re,  70  N.  Y.  327; 
1  Beach  Priv.  Corp.  §§  36,  57.  Ex- 
emption from  legislative  interfer- 
ence, given  by  charter,  "must  ap- 
pear by  such  clear  and  unmistak- 
able language  that  it  cannot  be  rea- 
sonably construed  consistently  with 
the  reservation  of  the  power  by  the 
state."  Georgia  R.  &c.  Co.  v.  Smith, 
128  U.  S.  174,  9  Sup.  Ct.  47,  32  L. 
Ed.  377,  16  Wash.  L.  749.  "The  con- 
dition is  implied  in  every  grant  of 
corporate  existence,  that  the  corpo- 
ration shall  be  subject  to  such  rea- 
sonable regulations,  in  respect  to  the 
general  conduct  of  its  affairs,  as  the 
legislature  may  from  time  to  time 
prescribe,  which  do  not  materially 
interfere  with  or  obstruct  the  sub- 
stantial enjoyment  of  the  privileges 
the  state  has  granted,  and  serve 
only  to  secure  the  ends  for  which 
the  corporation  was  created."  Hill 
v.  Merchants'  Mut.  Ins.  Co.  134  U. 
S.  515,  10  Sup.  Ct.  589,  33  L.  Ed.  994, 
7  Railw.  &  Corp.  L.  J.  442;  Reed  v. 
Gettysburg,  &c.  Asso.  129  Pa.  St. 
329,  18  Atl.  130,  24  W.  N.  C.  292; 
Montclair  Tp.  v.  New  York,  &c.  R. 
Co.  45  N.  J.  Eq.  436,  18  Atl.  242,  40 


Am.  &  Eng.  R.  Cas.  342,  6  R.  & 
Corp.  L.  J.  385.  Exemption  from 
future  general  legislation,  either  by 
a  constitutional  provision  or  by  an 
act  of  the  legislature,  does  not  exist 
unless  it  is  given  expressly,  or  un- 
less it  follows  by  an  implication 
equally  clear  with  express  words. 
In  the  absence  of  any  prior  contract 
exempting  it  from  liability  to  future 
general  legislation,  a  railroad  cor- 
poration takes  its  charter  subject  to 
the  general  law  of  the  state  and  to 
such  changes  as  may  be  made  in 
such  general  law,  and  subject  to  fu- 
ture constitutional  provisions  and 
future  general  legislation.  Chicago, 
&c.  R.  Co.  v.  Minnesota,  134  U.  S. 
418,  10  Sup.  Ct.  462,  702,  33  L.  Ed. 
970,  41  Alb.  L.  J.  325,  2  Advo.  182,  42 
Am.  &  Eng.  R.  Cas.  285.  See,  also, 
Citizens'  St.  R.  Co.  v.  Memphis,  53 
Fed.  715;  Pearsall  v.  Great  Northern 
R.  Co.  161  U.  S.  646,  16  Sup.  Ct.  705. 
This  rule  applies  to  future  general 
legislation  as  to  compensation  for 
property  taken  in  the  exercise  of 
eminent  domain.  Pennsylvania  R. 
Co.  v.  Miller,  132  U.  S.  75,  10  Sup. 
Ct.  34,  33  L.  Ed.  267;  Pennsylvania, 
&c.  R.  Co.  v.  Duncan,  111  Pa.  St. 
353,  5  Atl.  742,  25  W.  N.  C.  1,  46 
Phila.  Leg.  Int.  487. 

88  People  v.  O'Brien,  111  N.  Y.  1, 
18  N.  E.  692,  19  N.  Y.  St.  173,  2 
L.  R.  A.  255,  7  Am.  St.  684.  But 
this  decision  is,  in  some  respects,  of 
doubtful  soundness.  See  Greenwood 
v.  Union  Freight  R.  Co.  105  U.  S. 
13;  Close  v.  Glenwood  Cemetery, 
107  U.  S.  466,  2  Sup.  Ct.  267.  And 
compare  Orr  v.  Bracken  County,  81 
Ky.  593 ;  San  Mateo  v.  Southern,  &c. 
R.  Co.  8  Sawy.  (U.  S.)  238,  279; 


§   43]  CHARTERS.  78 

affect  or  impair  vested  rights  either  of  the  corporation  or  of  its  share- 
holders.97 It  has  no  power  to  make  any  material  or  essential  alteration 
in  the  contract  between  the  members  themselves  and  the  corporation ; 
and  therefore  a  new  charter  obtained  by  the  directors  of  a  railroad 
company,  without  the  consent  of  the  stockholders,  changing  the  capital 
stock  and  route,  is  not  binding  upon  the  stockholders.98  But  the 
right  of  the  state  to  amend  the  charter  of  a  railroad  company  is  not 
abridged  or  affected  by  executory  contracts  between  the  company  and 
a  construction  company,  and  between  the  latter  and  subcontractors, 
touching  the  construction  and  equipment  of  the  road ;  for  all  parties 
contracting  with  a  corporation  must  take  notice  of  the  conditions  on 
which  it  holds  its  franchises,  and  of  its  subjection  to  the  legislative 
will.99  Where  a  special  charter  containing  no  provision  for  its  amend- 
ment is  granted  to  a  railroad  company  while  an  act  is  in  force  declaring 
that  the  charter  of  every  corporation  created  under  a  general  law, 
and  every  charter  granted  by  act  of  the  general  assembly,  unless  such 
act  declares  the  contrary,  is  subject  to  amendment,  it  has  been  held 
that  the  general  assembly  may  impose  upon  such  railroad,  in  common 
with  others,  the  burden  of  paying  the  salary  and  expenses  of  a  state 
officer  to  whom  is  given  the  supervision  of  the  railroads  of  the  state.100 
It  may  also  impose  upon  the  railway  company  the  duty  of  construct- 
ing and  maintaining  bridges  on  the  line  of  highways  across  rights  of 

Black  v.  Delaware,  &c.  Co.  24  N.  J.  no  acceptance  of  the  provisions  of 

Eq.   456;    New   Orleans,  &c.   Co.   v.  the  original  act  and  no  rights  are 

Harris,  27  Miss.  517.  acquired    thereunder,    the    amenda- 

97  Hill  v.  Glasgow  R.  Co.  41  Fed.  tory  act  is  valid."    Cincinnati,   &c. 

610;    Bryan  v.   Board,  90   Ky.   322,  R.  Co.  v.  Clifford,  113  Ind.  460,  15 

13   S.  W.   276,  7  R.   &  Corp.   L.   J.  N.  E.  524;  Nashville  Co.  v.  State,  96 

389;   Kenosha,  &c.  R.  Co.  v.  Marsh,  Tenn.  249,  34  S.  W.  4. 

17  Wis.  13;  Knoxville  v.  Knoxville,  98  Snook  v.   Georgia   Imp.  Co.,   83 

&c.  R.   Co.   22  Fed.   758;    Troy,  &c.  Ga.  61,  9  S.  E.  1104,  38  Am.  &  Eng. 

R.   Co.   v.   Kerr,   17   Barb.    (N.   Y.)  R.  Cas.  492.    See,  also,  Zabriskie  v. 

581;    Detroit  v.  Detroit,  &c.  Co.  43  Hackensack,  &c.  R.  Co.  18  N.  J.  Eq. 

Mich.    140,    5    N.    W.    275.     "After  178,  90  Am.  Dec.  617;   Mills  v.  Cen- 

vested    rights   have   been    acquired,  tral  R.  Co.  41  N.  J.  Eq.  1,  2  Atl.  453; 

the  charter  of  a  corporation  cannot  New  Orleans,  &c.  R.  Co.  v.  Harris, 

be  so  amended  as  to  impair  them,  27  Miss.  517. 

unless  the  power  to  amend  or  repeal  "  Macon,  &c.  R.  Co.  v.  Gibson,  85 

is  expressly  reserved;  but  where  the  Ga.  1,  11  S.  E.  442,  21  Am.  St.  135, 

original    and   amendatory   acts   are  43  Am.  &  Eng.  R.  Cas.  318. 

passed  at  the  same  session  of  the  10°  Charlotte,  &c.  R.  Co.  v.  Gibbes, 

legislature,  with  only  a  brief  inter-  27  S.  Car.  385,  4  S.  E.  49,  31  Am.  & 

val  between,  during  which  there  is  Eng.  R.  Cas.  464. 


79  POLICE  EEGULATIONS.  [§44 

way  which  it  has  merely  graded  without  laying  the  rails.101  Such 
amendments  may  be  made  by  the  enactment  of  a  general  railroad  act 
which  applies  to  the  specially  chartered  corporation.102  A  charter 
granting  to  a  railway  company  the  privilege  of  choosing  its  own  route 
between  two  places  may  be  amended  by  requiring  it  to  pass  through 
an  intermediate  point,  even  after  its  route  has  been  located  and  con- 
tracts have  been  let  for  its  construction.103  And  it  is  held  that  a 
change  of  a  charter  within  a  month  after  it  was  granted,  so  as  to  make 
the  corporation  liable  to  pay  a  certain  percentage  of  its  gross  receipts 
from  the  operation  of  a  street  railroad,  instead  of  fifty  dollars  per 
car,  is  within  the  general  authority  to  alter  a  charter,  under  the  New 
York  statute.104 

§  44.  Police  regulations. — Even  where  no  power  to  amend  the 
charter  is  reserved,  the  railroad  company  is  still  governed  by  the  prin- 
ciple that  every  owner  of  property,  however  absolute  and  unqualified 
his  title,  holds  it  subject  to  the  implied  condition  that  the  use  shall 
not  be  injurious  to  the  public,  and  is  amenable  to  regulations  pre- 
scribed under  the  police  power  of  the  state.105  Thus,  it  has  been  held 
that  railroad  companies  may  be  compelled  by  statutes  passed  after  their 
incorporation  to  fence  their  tracks,106  to  provide  accommodations  for 
their  passengers,  and  the  like.107  So,  they  may  have  imposed  upon 

101  Montclair  v.  New  York,  &c.  R.  restricted  by  legislative  charters,  32 
Co.  45  N.  J.  Eq.  436,  18  Atl.  242,  40  Cent.  L.  J.  181.    See,  also,  People  v. 
Am.  &  Eng.  R.  Cas.  342.  Boston,   &c.   R..  Co.    70   N.   Y.   569; 

102  Montclair  v.  New  York,  &c.  R.  Nelson   v.   Vermont,   &c.  R.   Co.    26 
Co.   45  N.   J.  Eq.   436,  18   Atl.   242,  Vt.  717,  62  Am.  Dec.  614,  and  cases 
6  R.  &  Corp.  L.  J.  385,  40  Am.  &  cited  in  following  notes. 

Eng.  R.  Cas.  342;  Pearsall  v.  Great  106  Wilder  v.  Maine  Central  R.  Co. 

Northern  R.  Co.  161  U.  S.   646,  16  65  Me.  332,  20  Am.  R.  698;   Illinois 

Sup.  Ct.  705.                       ..  Cent.  R.  Co.  v.  Willenborg,  117  111. 

103  See  Macon,  &c.  R.  Co.  v.  Gibson  203,   7  N.   E.  698,   57   Am.   R.   862; 
(Stamps),  85  Ga.  1,  11  S.  E.  442,  43  Thorpe  v.  Rutland,  &c.  R.  Co.  27  Vt. 
Am.  &  Eng.  R.  Cas.  318.  140,  148,  62  Am.  Dec.  625;  New  Al- 

1MNew     York     v.      Twenty-third  bany,  &c.  R.  Co.  v.  Tilton,  12  Ind. 

Street  R.  Co.  113  N.  Y.  311,  21  N.  E.  3,  74  Am.  Dec.  195. 

60,  22  N.  Y.  St.  958,  5  R.  &  Corp.  (  10T  State  v.  New  Haven,  &c.  R.  Go. 

L.  J.  583.   See,  also,  Chicago,  &c.  R.  43  Conn.  351;   State  v.  Indiana,  &c. 

Co.  v.  Minnesota,  134  U.  S.  418,  10  R.  Co.  133  Ind.  69,  32  N.  E.  817,  18 

Sup.  Ct.  462;  and  see  and  compare  L.  R.  A.  502.    To  provide  for  safety 

generally    1    Purdy's    Beach    Priv.  of    employes,    State    v.    Nelson,    52 

Corp.  §  92,  and  cases  there  cited.  Ohio  St.  88,  39  N.  E.  22,  26  L.  R.  A. 

106  Power  of  state  over  railroads  as  317;  State  v.  Hoskins,  58  Minn.  35,. 


§  45] 


CHARTERS. 


80 


them  a  liability  for  setting  fire  to  property  along  their  right  of  way.108 
Other  illustrations  and  a  fuller  treatment  of  this  subject  will  be  found 
elsewhere.100 

§45.  Material  amendments  require  unanimous  consent  of  stock- 
holders— What  are  material. — It  is  a  general  rule  that  fundamental 
and  material  amendments  cannot  be  made  by  the  directors  or  majority 
.stockholders  so  as  to  bind  the  minority  stockholders  without  their 
consent.  Such  amendments  require  the  unanimous  consent  of  the 
stockholders,  and  cannot  be  made  by  the  majority  stockholders  under 
general  laws  authorizing  the  filing  of  amended  articles  of  association 
unless  the  minority  stockholders  consent.110  But  immaterial  amend- 
ments, or  those  for  the  benefit  of  the  corporation  and  in  furtherance  of 
its  original  purposes,  may  usually  be  made  or  accepted  by  a  majority 
of  the  stockholders.111  It  is  difficult  to  formulate  any  general  rule 


25  L.  R.  A.  759,  and  note.  To  fence 
tracks,  stop  trains  at  crossings, 
slacken  speed,  post  tariffs,  charge 
no  more  than  a  certain  fixed  rate, 
etc.  Stone  v.  Farmers',  &c.  Co.  116 
U.  S.  307,  6  Sup.  Ct.  334;  Smith  v. 
Alabama,  124  U.  S.  465,  8  Sup.  Ct. 
564.  For  other  illustrations  of  the 
right  to  exercise  the  police  power 
see  New  York,  &c.  R.  Co.  v.  Bristol, 
151  U.  S.  556,  14  Sup.  Ct.  437;  Wa- 
bash  R.  Co.  v.  Defiance,  167  U.  S. 
88,  17  Sup.  Ct.  748;  New  York,  &c. 
R.  Co.  v.  Bridgeport  Traction  Co.  65 
Conn.  410,  32  Atl.  953,  29  L.  R.  A. 
367. 

108  Rodemacker  v.   Milwaukee,   &c. 
R.  Co.  41  Iowa  297,  20  Am.  R.  592; 
Lyman  v.  Boston,  &c.  R.  Co.  4  Gush. 
(Mass.)  288;  Grissell  v.  Housatonic, 
&c.  R.  Co.  54  Conn.  447,  9  Atl.  137, 
1  Am.  St.  138,  32  Am.  &  Eng.  R.  Gas. 
349. 

109  See  chapter  on  State  Control. 

110  New  Orleans,  &c.  R.  Co.  v.  Har- 
ris, 27  Miss.  517;   Hartford,  &c.  R. 
Co.  v.  Croswell,  5  Hill  (N.  Y.)  383; 
Marietta,   &c.   R.   Co.   v.   Elliott,   10 
Ohio  St.  57;  Sparrow  v.  Evansville, 
&c.  R.  Co.  7  Ind.  369;  Union  Locks, 


&c.  Canals  v.  Towne,  1  N.  H.  44,  8 
Am.  Dec.  32;  Mowrey  v.  Indianapo- 
lis, &c.  R.  Co.  4  Biss.  (U.  S.)  78; 
Printing  House  v.  Trustees,  104  U. 
S.  711.  The  authorities  are  col- 
lected in  the  elaborate  note  to  Com- 
monwealth v.  Cullen  (Pa.X,  53  Am. 
Dec.  450,  462.  See,  also,  1  Beach 
Priv.  Corp.  §  44;  1  Thompson  Corp. 
§  72;  2  Morawetz  Priv.  Corp.  §  645. 
111  Fry  v.  Lexington,  &c.  R.  Co.  2 
Mete.  (Ky.)  314,  322;  Winter  v. 
Muscogee  R.  11  Ga.  438;  Gifford  v. 
New  Jersey  R.  Co.  10  N.  J.  Eq.  171; 
Board  v.  Mississippi,  &c.  R.  Co.  21 
111.  338;  Chicago  Life  Ins.  Co.  v. 
Needles,  113  U.  S.  574,  5  Sup.  Ct. 
681;  Agricultural,  &c.  R.  Co.  v.  Win- 
chester, 13  Allen  (Mass.)  29;  Rut- 
land, &c.  R.  Co.  v.  Thrall,  35  Vt 
536;  Cross  v.  Peach  Bottom  R.  Co. 
90  Pa.  St.  392;  Poughkeepsie,  &c. 
Co.  v.  Griffin,  24  N.  Y.  150;  Troy,  &c. 
R.  Co.  v.  Kerr,  17  Barb.  (N.  Y.) 
581;  Buffalo,  &c.  R.  Co.  v.  Dudley, 
14  N.  Y.  336;  1  Beach  Priv.  Corp. 
§§  41,  42;  1  Thompson  Corp.  §§  68, 
72.  Contra,  Central  R.  Co.  v.  Col- 
lins, 40  Ga.  582,  617;  Zabriskie  v. 
Hackensack,  &c.  R.  Co.  18  N.  J.  Eq. 


81 


MATERIAL   AMENDMENTS. 


[§    45 


for  determining  what  are  material  amendments  and  what  are  imma- 
terial. But  it  may  be  said,  with  a  reasonable  degree  of  accuracy,  that 
an  amendment  that  changes  the  rights  of  the  stockholders  inter  se, 
alters  the  original  object  of  the  corporation,  or  adds  to  or  restricts  its 
franchises,  rights  and  powers  in  such  a  manner  as  to  increase  the 
liabilities  of  the  stockholders  or  deprive  them  of  vested  rights,  is  ma- 
terial and  requires  the  consent  of  all  the  stockholders,112  while  an 
amendment  which  merely  clothes  the  corporation  with  such  additional 
immunities  and  privileges  as  are  strictly  in  furtherance  of  the  original 
design,  without  substantially  adding  to  or  restricting  the  same  and 
without  materially  affecting  the  rights  of  the  stockholders  inter  se, 
may  be  regarded  as  immaterial  and  accepted  by  a  majority  of  the 
stockholders.113  It  is  held  in  some  cases  that  extensive  changes  may 
be  made  or  accepted  by  the  majority  in  the  organization  and  objects  of 
the  corporation,  provided  they  do  not  destroy  its  distinctive  features 
or  substitute  an  entirely  different  purpose;114  but  some  of  these  cases, 


178,  90  Am.  Dec.  617;   1  Morawetz 
Priv.  Corp.  §  403. 

112  Changing  course  and  termini  of 
railroad,  Marietta,  &c.  R.  Co.  v.  El- 
liott, 10  Ohio  St.  57;  Middlesex 
Turnp.  Co.  v.  Locke,  8  Mass.  268; 
Witter  v.  Mississippi,  &c.  R.  Co.  20 
Ark.  463;  Hester  v.  Memphis,  &c. 
R.  Co.  32  Miss.  378;  Stevens  v.  Rut- 
land, &c.  R.  Co.  29  Vt.  545;  Man- 
heim,  &c.  Co.  v.  Arndt,  31  Pa.  St. 
317.  Consolidation,  Botts  v.  Simp- 
sonville,  &c.  Co.  88  Ky.  54,  10  S.  W. 
134,  2  L.  R.  A.  594;  McCray  v.  Junc- 
tion R.  Co.  9  Ind.  358;  Pearce  v. 
Madison,  &c.  R.  Co.  21  How.  (U.  S.) 
441.  Division  into  two  corporations, 
Board  v.  Mississippi,  &c.  R.  Co.  21 
111.  338;  Indiana,  &c.  Turnp.  Co.  v. 
Phillips,  2  Pen.  &  W.  (Pa.)  184. 
Changing  purpose.  Hartford,  &c.  R. 
Co.  v.  Croswell,  5  Hill  (N.  Y.)  383; 
Ashton  v.  Burbank,  2  Dill.  (U.  S.) 
435.  See,  also,  Mahan  v.  Wood,  44 
Cal.  462;  Thomas  v.  Railroad  Co. 
101  U.  S.  71 ;  Black  v.  Delaware,  &c. 
Co.  24  N.  J.  Eq.  455;  Oldtown,  &c. 
R.  Co.  v.  Veazie,  39  Me.  571. 
ELL.  RAILROADS — 6 


113  Extending  time  for  completion 
of  road,  Agricultural  Branch  R.  Co. 
v.  Winchester,  13  Allen  (Mass.)  29; 
San  Antonio  v.  Jones,  28  Tex.  19; 
Taggart  v.  Western  R.  Co.  24  Md. 
563,  89  Am.  Dec.  760  n.  Changing 
name  of  corporation.  Buffalo,  &c. 
R.  Co.  v.  Dudley,  14  N.  Y.  336; 
Bucksport,  &c.  R.  Co.  v.  Buck,  68 
Me.  81;  Milwaukee,  &c.  R.  Co.  v. 
Field,  12  Wis.  340.  Slight  changes 
in  the  route  or  branch  in  some  di- 
rection where  the  general  interests 
of  the  corporation  and  the  rights  of 
the  stockholders  are  not  affected 
thereby,  Peoria,  &c.  R.  Co.  v.  Pres- 
ton, 35  Iowa  115;  Irwin  v.  Turn- 
pike Co.  2  Pen.  &  W.  (Pa.)  466,  23 
Am.  Dec.  53;  Fry  v.  Lexington,  &c. 
R.  Co.  2  Mete.  (Ky.)  314,  323.  See, 
also,  Midland,  &c.  R.  Co.  v.  Gordon, 
16  Mees.  &  W.  804;  Willson  v.  Wills 
Valley  R.  Co.  33  Ga.  466;  Hazelett 
v.  Butler  University,  84  Ind.  230; 
leading  article  in  16  Am.  Law  Rev. 
101,  by  W.  H.  Whitaker;  and  note  in 
53  Am.  Dec.  465. 

'"Changes  in  the  governing  body 


46] 


CHARTERS. 


as  is  clearly  demonstrated  by  Judge  Thompson115  and  Mr.  Morawetz,116 
are  unsound  in  principle  and  contrary  to  the  weight  of  authority.  It 
is  also  said  that  the  question  of  the  materiality  of  an  amendment  must 
depend  upon  the  peculiar  facts  and  circumstances  of  the  particular 
case  ;117  but,  while  this  is  doubtless  true  to  some  extent,  and  in  a  lim- 
ited sense,  there  must  be  some  general  rule  by  which  the  courts  shall 
be  guided,  for  the  question  is  one  of  law  for  the  court  to  determine.118 

§  46.  Statutory  provisions  authorizing  amendments. — Provision  is 
made  in  the  various  states  for  the  amendment  of  the  charters  granted 
under  the  various  general  railroad  acts,  by  the  voluntary  act  of  the 
corporation,  when  it  is  desirable  to  increase  the  amount  of  its  capital 
stock,  or  the  number  of  its  directors,  or  to  change  its  route,  or  ter- 
mini.119 But  not  every  change  in  the  fundamental  law  of  a  corpora- 
tion is  an  amendment.  Where  the  alteration  by  the  legislature  is  very 


and  organization,  Commonwealth  v. 
Cullen,  13  Pa.  St.  133,  53  Am.  Dec. 
450;  Mower  v.  Staples,  32  Minn. 
284,  20  N.  W.  225.  Changes  in  the 
purpose,  and  the  like,  Pacific  R. 
Co.  v.  Hughes,  22  Mo.  291,  64  Am. 
Dec.  265  n;  Delaware  R.  Co.  v. 
Tharp,  1  Houst.  (Del.)  149,  174; 
Martin  v.  Pensacola,  &c.  R.  Co.  8 
Fla.  370,  73  Am.  Dec.  713;  Pacific 
R.  Co.  v.  Renshaw,  18  Mo.  210. 
Changes  in  route  and  termini  of 
railroad,  Banet  v.  Alton,  &c.  R.  Co. 
13  111.  504;  Peoria,  &c.  R.  Co.  v.  Elt7 
ing,  17  111.  429;  Ross  v.  Chicago,  &c. 
R.  Co.  77  111.  127.  Consolidation, 
Sprague  v.  Illinois,  &c.  R.  Co.  19 
111.  174.  Purchase  of  other  roads, 
Venner  v.  Atchison,  &c.  R.  Co.  28 
Fed.  581.  See,  also,  Greenville  &c. 
R.  Co.  v.  Coleman,  5  Rich.  L.  (S. 
Car.)  118;  Worcester  v.  Norwich,  &c. 
R.  Co.  109  Mass.  103;  Hanna  v.  Cin- 
cinnati, &c.  R.  Co.  20  Ind.  30;  Will- 
son  v.  Wills  Valley  R.  Co.  33  Ga. 
466;  Rice  v.  Rock  Island,  &c.  R.  Co. 
21  111.  93;  Troy,  &c.  R.  Co.  v.  Kerr, 
17  Barb.  (N.  Y.)  581. 

115 1  Thompson  Corp.  §§  72,  73. 


118 1  Morawetz  Priv.  Corp.  §  402. 

117  Witter  v.  Mississippi,  &c.  R.  Co. 
20  Ark.  463. 

118  Memphis  Branch  R.  Co.  v.  Sulli- 
van, 57  Ga.   240;   Witter  v.  Missis- 
sippi, &c.  R.  Co.  20  Ark.  463.    But 
see  Southern,  &c.  Co.  v.  Stevens,  87 
Pa.  St.  190.    Many  cases  as  to  what 
are  or  are  not  material  amendments 
are  cited  in  1  Purdy's  Beach  Priv. 
Corp.  §  92,  and  considerable  conflict 
among  the  decisions  is  there  shown, 
some     of     them     holding     certain 
amendments    material,    and    others 
holding   the    same    amendments   to 
be    immaterial.     Most   of   the    deci- 
sions,   however,    are    comparatively 
old  and  are  already  cited  in  the  pre- 
ceding notes  to  this  section. 

119  Stimson  Am.  Stat.  Law,  §  8529. 
Where  a  charter  is  amended,  under 
the  Tennessee  act,  so  as  to  change 
the  starting  point  of  a  railroad,  the 
change  will  not  be  effected   unless 
such  amendment  is  registered  where 
the  charter  was  originally  required 
to  he  registered.    Anderson  v.  Mid- 
dle, &c.  R.  Co.  91  Tenn.  44,  17  S.  W. 
803,  52  Am.  &  Eng.  R.  Cas.  149. 


83 


FORFEITURE  WITHOUT  JUDICIAL  DETERMINATION. 


[§   47 


material,  the  act  may  be  construed  as  the  grant  of  a  new  charter,  if 
such  an  intention  appears  on  the  part  of  the  legislature,  and  by  ac- 
cepting it  the  company  will  be  held  to  have  surrendered  its  rights 
and  contracts  under  the  original  charter.120  The  legislature  has,  in 
every  state,  a  certain  control  over  all  corporations  in  the  way  of  modify- 
ing the  charters  under  which  they  operate,  but  where  an  attempted 
enlargement  of  corporate  powers  becomes  indistinguishable  from  a 
granting  of  new  substantive  rights,  a  statute  attempting  to  give  such 
powers  is  within  the  purview  of  a  constitutional  amendment,  prohibit- 
ing any  private  or  local  statute  granting  any  exclusive  privileges  or 
franchises  to  a  corporation.121 

§  47.  Forfeiture — Statutory  provisions  dispensing  with  judicial 
determination. — Provision  is  made  in  many  charters  for  their  forfei- 
ture upon  failure  of  the  corporation  to  comply  with  certain  conditions 
imposed,  as  that  it  shall  begin  the  construction  of  its  road  within  a 
certain  time,  and  complete  the  road  and  put  it  in  operation  before  the 
expiration  of  a  time  limited.122  Such  provisions  appear  in  all  the 


120  Snook  v.  Improvement  Co.  83 
Ga.  61,  9  S.  E.  1104,  38  Am.  &  Eng. 
R.  Gas.  492.  This  was  a  case  in 
which,  after  the  incorporation  of 
the  A.  &  H.  Co.,  under  the  general 
railroad  law,  the  legislature  passed 
an  act  entitled  "An  act  to  incorpo- 
rate the  A.  &  H.  R.  Co.,  to  confer 
certain  powers  and  privileges  on 
said  company,  and  for  other  pur- 
poses." The  corporators  named  in 
the  act  were  not  altogether  the  same 
as  those  to  whom  the  original  char- 
ter was  granted,  and  the  act  stated 
that  "they  are  hereby  created  a  body 
politic  and  corporate,"  and  gave 
them  all  powers  necessary  to  any 
railroad  company.  Afterwards  an 
amendment  to  this  act  was  passed, 
entitled  "An  act  to  amend  the  char- 
ter of  the  A.  &  H.  R.  Co.,  to  change 
the  name  thereof,  *  *  *  to  au- 
thorize the  extension  thereof,  *  *  * 
and  for  other  purposes."  The  last 
amendment  gave  the  company  a  new 
name  and,  in  the  construction  of  the 


extension,  all  the  powers  granted  by 
the  act  as  first  amended.  The  court 
held  that  these  acts  constituted  a 
separate  and  distinct  charter,  creat- 
ing a  new  corporation,  and  were  not 
merely  amendments  to  the  original 
charter.  Youngblood  v.  Improve- 
ment Co.  83  Ga.  797,  10  S.  E.  124. 

^Astor  v.  New  York  Arcade  R. 
Co.  113  N.  Y.  93,  22  N.  Y.  St.  1,  20 
N.  E.  594,  2  L.  R.  A.  789  n;  Brace- 
ville  Coal  Co.  v.  People,  147  111.  66, 
35  N.  E.  62,  22  L.  R.  A.  340,  37  Am. 
St.  206. 

122  People  v.  New  York  Central  Un- 
derground R.  Co.  137  N.  Y.  606,  33 
N.  E.  744.  But  such  a  provision 
does  not  apply  to  every  sidetrack 
and  switch  which  the  company  may 
find  necessary  or  convenient  to  con- 
struct after  the  road  is  put  in  oper- 
ation. It  is  sufficient  if  the  main 
line  is  constructed  and  the  road  put 
in  operation  within  the  time  lim- 
ited. Arcata  v.  Arcata,  &c.  R.  Co. 
92  Gal.  639,  28  Pac.  676. 


47] 


CHARTERS. 


general  acts  for  the  incorporation  of  railroads.123  Under  some  of  the 
statutes  the  forfeiture  will  take  effect  upon  failure  to  comply  with  the 
conditions  imposed/24  without  judicial  determination,125  and  the 
franchises  may  be  regranted  by  the  legislature  to  another  corpora- 
tion.126 But  this,  as  we  shall  hereafter  show,  is  not  the  general  rule, 
in  the  absence  of  such  a  statute,  for,  unless  otherwise  provided,  a 
mere  cause  of  forfeiture  is  not  ipso  facto  a  forfeiture,  but  is  simply 
ground  for  a  judicial  determination  and  declaration  of  forfeiture.127 


"•Sttmson      Am.      Stat.      (1892), 
§  8528. 

124  A  railroad  company  buying,  at 
foreclosure  sale,  the  franchise  and 
property  of  another  company  whose 
road-bed  is  not  completed,  reorgan- 
izing under  Laws  N.  Y.,  1874,  c.  430, 
which  provide  that  such  reorganiza- 
tion   shall    become    and    be    vested 
with  all  the  rights,  privileges  and 
franchises  belonging  to  the  corpora- 
tion  owning  the   property   so   sold, 
"and  shall  be  subject  to  all  the  pro- 
visions,   duties    and    liabilities    im- 
posed by  the  general  railroad  act 
and  its  amendments,  except  so  far 
as  *   *   *   inconsistent  herewith,  and 
with  the  last  named   rights,  privi- 
leges and  franchises;"  but  failing  to 
complete    the    railroad    within    the 
time  limited  by  the  general  railroad 
act  and   amendments   under   which 
the   company   owning  the   property 
received    its  charter,   may    lose    its 
charter  at  suit  of  the  attorney-gen- 
eral, under  code  Civil  Proc.  N.  Y., 
§  1798  et  seq.    Attorney-General,  In 
re,  50  Hun  (N.  Y.)   511,  2  N.  Y.  S. 
684. 

125  Oakland  R.  Co.  v.  Oakland,  &c. 
R.  Co.  45  Cal.  365,  13  Am.  R.  181; 
Brooklyn  Steam  Tr.  Co.  v.  Brooklyn, 
78  N.  Y.  524;   State  v.  St.  Paul,  &c. 
R.  35  Minn.  222,  224,  28  N.  W.  245; 
Bywaters   v.    Paris,   &c.   R.    Co.    73 
Tex.  624,  11  S.  W.  856.    And  this  is 
so,  even  though  the  construction  of 
the  projected  road  is  actually  begun 


within  the  time,  by  a  lessee.  Brook- 
lyn, &c.  R.  Co.,  In  re,  72  N.  Y.  245, 
75  N.  Y.  335,  19  Hun  (N.  Y.)  314, 
55  How.  Pr.  (N.  Y.)  14;  Sulphur 
Springs,  &c.  R.  Co.  v.  St.  Louis,  &c. 
R.  Co.  2  Tex.  Civ.  App.  650,  23  S.  W. 
1012.  Contra,  Citizens',  &c.  R.  Co. 
v.  Belleville,  47  111.  App.  388.  See 
generally  Atchison  St.  R.  Co.  v. 
Nave,  38  Kans.  744,  17  Pac.  587,  5 
Am.  St.  800,  and  note  thereto. 

126  Oakland  R.  Co.  v.  Oakland,  &c. 
R.  Co.  45  Cal.  365,  13  Am.  R.  181; 
LaGrange,  &c.  R.  Co.  v.  Rainey,  7 
Coldw.    (Tenn.)     420;    Kennedy    v. 
Strong,    14    Johns.     (N.    Y.)     128; 
Brooklyn,  &c.  R.  Co.,   In  re,  72   N. 
Y.  245,  75  N.  Y.  335,  19  Hun  (N.  Y.) 
314,  55  How.  Pr.  (N.  Y.)  14;  Sturges 
v.  Vanderbilt,  73  N.  Y.  384;   Brook- 
lyn, &c.   Co.  v.  Brooklyn,  78  N.  Y. 
524;    State  v.  Clinton,  &c.  R.  Co.  4 
Rob.    (La.)    445;    United    States   r. 
Grundy,  3  Cranch  (U.  S.)   337,  351. 

127  Thus,   in   Brooklyn,   &c.    Co.   v. 
Brooklyn,   78   N.   Y.   524,   529,   it  is 
said:    "The  general  principle  is  not 
disputed  that  a  corporation,  by  omit- 
ting to  perform  a  duty  imposed  by 
its  charter,  or  to  comply  with   its 
provisions,  does  not  ipso  facto  lose 
its  corporate  character  or  cease  to 
be    a    corporation,    but    simply    ex- 
poses  itself   to   the   hazard   of   be- 
ing deprived  of  its  corporate  char- 
acter and   franchises  by   the  judg- 
ment of  the  court  in  an  action  in- 
stituted   for   that    purpose    by    the 


85 


FORFEITURE JUDICIAL   DETERMINATION. 


[§    48 


A  condition  to  ensure  the  speedy  construction  of  the  road  is  for  the 
benefit  of  the  public,  and  the  general  rule  is  that  a  forfeiture  for  non- 
compliance  with  such  condition  can  be  enforced  only  by  the  public 
authorities.  A  stockholder  cannot  take  advantage  of  it,128  nor  can 
any  advantage  be  taken  of  it  in  any  collateral  action.129  Thus,  it  is 
held  that  such  non-compliance  cannot  be  made  available  to  defeat 
condemnation  proceedings  instituted  by  the  company,130  nor  can  a 
landowner  take  advantage  of  it  in  support  of  a  suit  to  eject  the  com- 
pany from  land  over  which  the  road  has  been  built.131 

§  48.  Implied  condition  that  corporate  franchise  is  subject  to  for- 
feiture—Judicial determination — Causes  for  forfeiture. — Where  no 
condition  is  expressed  in  the  charter,  there  is,  nevertheless,  an  im- 
plied condition  annexed  to  every  grant  of  corporate  powers,  that  they 
shall  be  subject  to  forfeiture  for  willful  misuser  or  non-user  in  regard 
to  matters  which  go  to  the  essence  of  the  contract  between  the  cor- 
poration and  the  state.132  Such  a  forfeiture  can,  ordinarily,  be  de- 


attorney-general  in  behalf  of  the 
people;  but  it  cannot  be  denied  that 
the  legislature  has  the  power  to  pro- 
vide that  a  corporation  may  lose  its 
corporate  existence  without  the  in- 
tervention of  the  courts  by  any 
omission  of  duty  or  violation  of  its 
charter,  or  default  as  to  limitations 
imposed,  and  whether  the  legisla- 
ture has  intended  so  to  provide  in 
any  case  depends  upon  the  con- 
struction of  the  language  used." 
Many  authorities  are  collected,  cited 
and  reviewed  in  the  note  to  State  T. 
Atchison,  &c.  R.  Co.  (24  Neb.  143), 
8  Am.  St.  164,  193  et  seq;  and  see 
post,  §§  48,  52. 

128  Antonio   v.   Jones,    23   Tex.   19. 
See,  also,  People  v.  Ulster,  &c.  R. 
Co.  128  N.  Y.  240,  28  N.  E.  635,  60 
Am.  &  Eng.  R.  Cas.  558,  and  note; 
People  v.  North  River,  &c.  Co.  121 
N.  Y.  582,  24  N.  E.  834,  9  L.  R.  A. 
33  n,  18  Am.  St.  843,  32  Am.  &  Eng. 
Corp.  Cas.  149;  Hinchman  v.  Phila- 
delphia, &c.  Co.  160  Pa.  St.  150,  28 
Atl.  652. 

129  Hodges  v.  Baltimore,  &c.  R.  Co. 


58  Md.  603;  Brooklyn  El.  R.  Co.,  In 
re,  125  N.  Y.  434,  26  N.  E.  479,  57 
Hun  (N.  Y.)  590,  11  N.  Y.  S.  161. 
See,  also,  Central,  &c.  R.  Co.  v. 
People,  5  Colo.  39. 

130  Brooklyn  El.  R.  Co.,  In  re,  125 
N.  Y.  434  24  N.  E.  834,  57  Hun  590, 
11  N.  Y.  S.  161. 

131  Cincinnati,   &c.   R.   Co.   v.   Clif- 
ford,   113    Ind.   460,    15   N.   E.    524; 
Bravard   v.    Cincinnati,   &c.   R.    Co. 
115  Ind.  1,  17  N.  E.  183. 

132  Beach  Priv.  Corp.  §  45;  Angell 
and  Ames  Corp.   (llth  ed.),  §  774; 
Waterman    Corp.    §    427;     State    v. 
Minnesota    Cent.  'R.    Co.    36    Minn. 
246,  30  N.  W.   816,  29  Am.  &  Eng. 
R.  Cas.  440  and  note;  People  v.  Milk 
Exchange,  133  N.  Y.  565,  30  N.  E. 
850;  Edgar  Collegiate  Inst  v.  Hardy, 
142  111.  363,  32  N.  E.  494;  People  v. 
Broadway  R.  Co.  126  N.  Y.  29,   26 

'N.  E.  961,  48  Am.  &  Eng.  R.  Cas. 
692,  and  authorities  there  cited; 
State  v.  Atchison,  &c.  R.  Co.  24  Neb. 
143,  8  Am.  St.  164  and  note  on  page 
180. 


CHARTERS. 


80 


clared  only  by  decree  of  some  competent  judicial  tribunal  in  proceed- 
ings instituted  by  the  sovereign  or  its  representative  for  that  pur- 
pose.133 To  cause  a  forfeiture  under  the  implied  condition  that  the 
franchise  shall  be  used  for  the  purposes  for  which  it  was  granted,  there 
must  be  either  an  assumption  of  privileges  not  conferred  by  the 
charter,134  a  willful  abuse  of  corporate  powers,  or  an  improper  neglect 
to  perform  duties  imposed.135  Each  duty  assigned,  by  the  act  of  in- 
corporation has  been  held  to  be  a  condition  annexed  to  the  grant  of 
the  franchise  conferred.136  One  such  act  or  neglect  may  be  sufficient 
to  justify  a  forfeiture  if  tending  to  mischievous  consequences  ;137  but 
the  ordinary  rule  is  that  acts,  to  have  that  effect,  must  be  willful  and 
repeated.138  Slight  deviations  from  the  provisions  of  a  charter,  es- 


133  Board,  &c.  v.  Hall,  70  Ind.  469, 
472;    Hasselman    v.    United    States 
Mortgage  Co.  97  Ind.  365,  368;  State 
v.   Mississippi,   &c.   R.   Co.   20   Ark. 
495;   Darnell  v.  State,  48  Ark.  321, 
3  S.  W.  365;  Dyer  v.  Walker,  40  Pa. 
St.  157;  Vermont,  &c.  R.  Co.  v.  Ver- 
mont Cent.  R.  Co.  34  Vt.  1,  57;  Chi- 
cago Life   Ins.  Co.  v.   Needles,  ll'S 
U.  S.  574,  5  Sup.  Ct.  681.     Neither  a 
stockholder,    a     corporate     creditor 
nor    one    having   a   private    contro- 
versy with  the  company  can  insti- 
tute the  suit.    North  v.   State,   107 
Ind.  356,  8  N.  E.  159;  Folger  v.  Co- 
lumbian, &c.  Ins.  Co.  99  Mass.  267, 
96  Am.  Dec.  747  n;  Gaylord  v.  Fort 
Wayne,  &c.  R.  Co.  6  Biss.    (U.   S.) 
286;   Moore  v.  Brooklyn,  &c.  R.  Co. 
108  N.  Y.  98,  15  N.  E.  191;   Pickett 
v.  Abney,  84  Tex. '645,  19  S.  W.  859; 
West  Jersey,  &c.  Co.  v.  Camden,  &c. 
R.  Co.  52  N.  J.  Eq.  452,  29  Atl.  333. 
See  also  Commonwealth  v.  German- 
town  R.  Co.  20  Pa.  St.  518;  Western 
Penna.  R.  Co.'s  Appeal,  104  Pa.  St. 
399;  note  in  8  Am.  St.  198,  199. 

134  People    v.    Utica    Ins.    Co.    15 
Johns.   (N.  Y.)  358,  8  Am.  Dec.  243. 

135  People  v.  Kingston,  &c.  R.  Co. 
23  Wend.   (N.  Y.)   193,  35  Am.  Dec. 
551;    Attorney-General   v.   Erie,   &c. 
R.  Co.  55  Mich.  15,  22,  20  N.  W.  696; 


Central,  &c.  R.  Co.  v.  People,  5  Colo. 
39,  46;  Angell  and  Ames  Corp.  (llth 
ed.)  §  776;  note  to  State  v.  Atchi- 
son,  &c.  R.  Co.  24  Neb.  143,  38  N. 
W.  43,  8  Am.  St.  164,  183.  Under 
Rev.  St.  Ohio,  §  6789,  a  suit  to  oust 
a  corporation  from  its  franchise  for 
misuser  must  be  brought  within  five 
years  from  the  date  of  commission 
of  the  offense.  State  v.  Pittsburgh, 
&c.  R.  Co.  50  Ohio  St.  239,  33  N.  E. 
1051.  An  allegation  that  the  com- 
pany intends  at  some  time  in  the 
future  to  neglect  the  performance 
of  its  duties  to  the  public,  and  does 
not  in  good  faith  intend  to  carry 
out  the  objects  of  the  incorporation, 
is  insufficient.  State  v.  Martin,  51 
Kans.  462,  33  Pac.  9,  60  Am.  &  Eng. 
R.  Gas.  567;  Commonwealth  v.  Pitts- 
burgh, &c.  R.  Co.  58  Pa.  St.  26. 

130  People  v.  Kingston  Turnpike  R. 
Co.  23  Wend.  (N.  Y.)  193,  35  Am. 
St.  551. 

137  Attorney-General  v.  Petersburg 
R.  Co.  6  Ired.    (N.  C.)   456;   People 
v.  Bristol,  &c.  Co.  23  Wend.  (N.  Y.) 
222,  245;   Commercial  Bank  of  Nat- 
chez v.   State,  6   S.  &  M.    (Tenn.) 
599,  623. 

138  Harris  v.  Mississippi  Valley  R. 
Co.  51  Miss.  602;    State  v.  Pipher, 
28  Kan.  127,  131;  State  v.  Royalton, 


GROUNDS   OF    FORFEITURE ILLUSTRATIVE   CASES. 


[ 


pecially  when  'arising  from  accident  or  mistake,139  or  from  the  un- 
authorized acts  of  the  company's  servants/40  will  not  necessarily  cause 
a  forfeiture,  unless  the  franchises  are  made  to  depend  upon  a  strict 
and  literal  performance,141  for  a  substantial  performance  of  conditions 
imposed  is  all  that  is  ordinarily  required.142  An  abuse  of  one  depart- 
ment of  a  franchise  may,  however,  cause  a  forfeiture  of  the  entire 
franchise.143 

§  49.  Grounds  of  forfeiture — Illustrative  cases. — Failure  to  run 
regular  trains  sufficient  for  the  accommodation  of  the  public,144  even 
where  the  company  possesses  and  continues  to  exercise  other  and  sec- 
ondary franchises,145  and  failure  to  keep  its  principal  place  of  business 
within  the  state  as  required  by  statute,146  have  been  held  each  to  be  a 


&c.  Co.  11  Vt.  431;  State  v.  Council 
Bluffs,  &c.  Co.  11  Neb.  354,  356,  9 
N.  W.  563.  The  mere  failure  to  run 
trains  for  five  days,  not  shown  to 
have  been  willful  or  negligent,  has 
been  held  insufficient  cause  for  de- 
claring a  forfeiture.  People  v.  At- 
lantic, &c.  R.  Co.  125  N.  Y.  513,  26 
N.  E.  622,  48  Am.  &  Eng.  R.  Gas. 
688. 

^Angell  and  Ames  Corp.    (llth 
ed.)  §  776. 

140  State  v.   Commercial  Bank,  14 
Miss.  218,  237. 

141  Eastern  Archipelago  Co.  v.  Re- 
gina,  2  Ellis  &  B.  856,  22  Eng.  L.  & 
Eq.  338,  cited  in  Angell  and  Ames 
Corp.  (llth  ed.),  §  776. 

142  People  v.  Thompson,  21  Wend. 
(N.  Y.)    235;   Thompson  v.  People, 
23    Wend.    (N.    Y.)    537;    Common- 
wealth v.  Allegheny,  &c.  Co.  20  Pa. 
St.  185;  Chicago  City  R.  Co.  v.  Peo- 
ple, 73  111.  541;  State  v.  Wood,  84 
Mo.  378. 

143  People  v.  Bristol,  &c.  T.  Co.  23 
Wend.  (N.  Y.)  222;  People  v.  Kan- 
kakee,  &c.  Co.  103  111.  491. 

144  Silliman  v.  Fredericksburg,  &c. 
R.  Co.  27  Gratt.  (Va.)  119;  State  v. 
Minnesota  Central  R.  Co.  36  Minn. 
246,  30  N.  W.  816,  29  Am.  &  Eng. 


R.  Cas.  440;  People  v.  Albany,  &c. 
R.  Co.  24  N.  Y.  261,  82  Am.  Dec.  295. 
See  State  v.  Railway  Co.  40  Ohio  St. 
504. 

145  State  v.  Minnesota  Central  R. 
Co.  36  Minn.  246,  30  N.  W.  816.  But 
see  Wadesboro,  &c.  Co.  v.  Burns, 
114  N.  Car.  353,  19  S.  E.  238. 

140  State  v.  Park,  &c.  Co.  58  Minn. 
330,  59  N.  W.  1048,  49  Am.  St.  516, 
10  Lewis  Am.  R.  &  Corp.  R.  585; 
Simmons  v.  Norfolk,  &c.  Co.  113 
N.  Car.  147,  18  S.  E.  117,  22  L. 
R.  A.  677,  37  Am.  St.  614;  State 
v.  Milwaukee,  &c.  R.  Co.  45  Wis. 
579.  And  it  is  suggested  that  such 
failure  is  a  breach  of  the  duty  of 
a  corporation  at  common  law,  and 
would  authorize  a  forfeiture  in  the 
absence  of  any  statute  on  the  sub- 
ject. State  v.  Milwaukee,  &c.  R.  Co. 
supra;  People  v.  Kingston,  &c.  Co. 
23  Wend.  (N.  Y.)  193,  35  Am.  Dec. 
551.  In  this  case  it  was  shown  that 
such  action  on  the  part  of  the  cor- 
poration prevented  the  enforcement 
'  of  an  attachment  against  the  shares 
of  stockholders  in  an  action  brought 
in  the  courts  of  Wisconsin  as  pro- 
vided by  state  laws.  But  it  is  held 
that  a  failure  on  the  part  of  the 
principal  officers  to  reside  in  the 


49] 


CHARTERS. 


sufficient  ground  for  enforcing  a  forfeiture.  The  state  .need  only  prove 
that  the  act  complained  of  is  such  as  in  the  riature  of  things  is  calcu- 
lated to  cause  injury.  No  actual  injury  need  be  shown.147  Where  a 
railroad  corporation  became  insolvent  thirteen  years  before,  surren- 
dered its  property,  suspended  business,  and  permitted  another  cor- 
poration to  carry  on  the  business  for  which  it  was  organized,  its  char- 
ter was  properly  declared  forfeited.148  So,  where  a  corporation  per- 
mitted its  road  to  be  sold  on  execution  and  broken  up  into  two  or  more 
parts.149  A  mere  colorable  exercise  of  the  corporate  powers,  as  by  the 
election  of  directors  and  the  holding  of  occasional  meetings,  where  the 
ordinary  business  of  the  corporation  is  relinquished,  will  bring  the 
case  within  the  meaning  of  a  statute  imposing  a  forfeiture  for  sus- 
pension of  business.150  So,  where  a  railroad  company  takes  up  part  of 
its  track151  or  abandons  and  ceases  to  operate  a  part  of  its  road,152 
or  neglects  to  keep  its  road  in  such  repair  that  it  can  be  used,153  c5r 
neglects  to  build  part  of  its  road  and  uses  the  rest  only  in  getting  out 
coal  from  mines  owned  by  those  who  control  it,154  or  leases  its  road  to 


state  and  to  keep  the  principal  of- 
fices therein  is  not  per  se  a  forfei- 
ture, and  the  franchises  will  only 
be  forfeited  for  this  cause  upon 
quo  warranto  where  it  is  shown 
that  such  action  works  an  injury  to 
the  legal  rights  of  the  public  or  of 
individuals.  See  State  v.  Southern 
Pacific  R.  Co.  24  Tex.  80;  North  and 
South,  &c.  Co.  v.  People,  147  111.  234, 
35  N.  E.  608,  24  L.  R.  A.  462  n,  9 
Lewis  Am.  R.  &  Corp.  1. 

117  Commercial  Bank  v.  State,  6  S. 
&  M.  (Miss.)  599. 

148  People  v.  Northern  R.  Co.  53 
Barb.  (N.  Y.)  98.  See,  also,  Hart  v. 
Boston,  &c.  R.  Co.  40  Conn.  524, 
where  it  is  held  that  the  fact  that 
it  is  an  enforced  suspension  brought 
on  by  legal  proceedings  is  no  de- 
fense. But  insolvency  does  not  ipso 
facto  work  a  forfeiture.  Moran  v. 
Lydecker,  27  Hun  (N.  Y.)  582; 
Bradt  v.  Benedict,  17  N.  Y.  93;  State 
v.  Bailey,  16  Ind.  46,  79  Am.  Dec. 
405. 


149  State  v.  Rives,  5  Ired.   (N.  C.) 
297,  309. 

150  Jackson,  &c.   Ins.  Co.,  In  re,  4 
Sanf.  Ch.  (N.  Y.)  559. 

151  State    v.    West,   &c.    R.    Co.    34 
Wis.  197. 

""People  v.  Albany,  &c.  R.  Co.  24 
N.  Y.  261,  82  Am.  Dec.  295.  But  see 
post,  §  51.  As  to  what  is  sufficient 
evidence  of  abandonment  see  3  El- 
liott Ev.  §§  1577,  1578,  1579. 

153  State  v.  Madison,  &c.  R.  Co.  72 
Wis.  612,  40  N.  W.  487,  1  L.  R.  A. 
771,    36    Am.    &   Eng.    R.    Cas.    135; 
People  v.  Plymouth,  &c.  Co.  32  Mich. 
248;   People  v.  Hillsdale,  &c.  Co.  23 
Wend.  (N.  Y.)  254. 

154  State   v.   Railroad   Co.   40   Ohio 
St.    504.     Where    the    charter   does 
not  limit  the  time  within  which  the 
road  is  to  be  constructed,  a  railroad 
may   build   its  line  long  after   the 
date   of    its    charter,    no   forfeiture 
having    been    enforced    against    it. 
Western.   &c.   R.    Co.'s  Appeal,   104 
Pa.  St.  399. 


89 


GROUNDS  OF  FORFEITURE — ILLUSTRATIVE  CASES. 


[ 


another  corporation  for  a  long  period  without  statutory  authority/55 
or  builds  a  line  with  other  termini  than  those  named  in  its  charter 
and  connects  with  a  foreign  railroad  without  authority  of  law,156  it 
has  been  held  that  the  state  may  enforce  a  forfeiture  of  the  charter. 
And  the  sale  of  part  of  its  road  by  a  turnpike  company  to  avoid  the 
obligation  to  repair,  has  been  held  to  be  evidence  of  such  willful  non- 
user  as  authorized  a  decree  of  forfeiture.157  Entering  into  an  agree- 
ment with  other  corporations  to  destroy  competition  has  been  held  a 
cause  of  forfeiture;158  and  such  agreements  on  the  part  of  compet- 
ing lines  of  railroad  are  expressly  forbidden  in  many  of  the  states. 
Where  the  statute  requires  a  certain  amount  of  capital  stock  to  be  sub- 
scribed before  the  organization  of  a  railroad  corporation,  the  sub- 
scription must  be  made  in  good  faith  by  those  having  a  reasonable  ex- 
pectation of  being  able  to  pay  for  the  stock  subscribed,  or  the  state 
may  enforce  a  forfeiture.159  And  generally  a  failure  to  proceed  in 
good  faith  to  carry  out  the  purposes  of  the  organization,  and  complete 
the  enterprise,  will  authorize  a  suit  by  the  state  for  this  purpose.160 


155  State  v.  Atchison,  &c.  R.  Co.  24 
Neb.  143,  38  N.  W.  43,  8  Am.  St.  164. 
In  Louisiana,  &c.  R.  Co.  v.  State, 
75  Ark.  435,  88  S.  W.  559,  it  is  held 
that  the  statute  providing  for  a  for- 
fetiture  of  all  charter  rights  of  any 
railroad  company  acquired  by  lease 
not  made  in  conformity  with  the 
statute  is  applicable  to  a  foreign 
railroad  company  operating  in  the 
state  under  such  a  lease,  and  quo 
warrauto  may  be  maintained 
against  it. 

158  Commonwealth  v.  Franklin  Ca- 
nal Co.  21  Pa.  St.  117. 

15T  State  v.  Pawtuxet  Turnpike  Co. 
8  R.  I.  182. 

1=8  People  v.  North  River  Sugar 
Ref.  19  N.  Y.  St.  853,  3  N.  Y.  S.  401; 
People  v.  Milk  Exchange,  133  N.  Y. 
565,  30  N.  E.  850.  See,  also,  Chi- 
cago, &c.  R.  Co.  v.  Wabash,  &c.  R. 
Co.  61  Fed.  993,  10  Lewis'  Am.  R. 
&  Corp.  173,  and  note;  Cleveland, 
&c.  R.  Co.  v.  Closser,  126  Ind.  348, 
26  N.  E.  159,  9  L.  R.  A.  754  n,  22 
Am.  St.  593,  3  Lewis'  Am:  R.  & 


Corp.  686.  But  see  United  States 
v.  Knight  &  Co.  156  U.  S.  1,  15  Sup. 
Ct.  249,  10  Lewis'  Am.  R.  &  Corp. 
737;  Oakdale,  &c.  Co.  v.  Garst, 
18  R.  I.  484,  28  Atl.  973,  23  L.  R.  A. 
639,  49  Am.  St.  784,  10  Lewis'  Am. 
R.  &  Corp.  184. 

159  rpjje  gtate  js  not  concluded  by 
the  fact  that  the  articles  of  associa- 
tion  were   filed   after   the  requisite 
subscription    was    made,    if    it    be 
shown  that  the  subscribers  were  in- 
solvent.    Holman  v.    State,   ex  rel. 
105  Ind.  569,  5  N.  E.  702. 

160  Cook    Stock   and    Stockholders, 
§  638;   People  v.  New  York,  &c.  R. 
Co.  137  N.  Y.  606,  33  N.  E.  744;  Peo- 
ple v.  Ulster,  &c.  R.  Co.  128  N.  Y. 
240,  28  N.  E.  635;   State  v.  Noncon- 
nah,  &c.  Co.   (Tenn.),  17  S.  W.  128. 
But  it  has  been  held  that  a  failure 

'to  organize  within  the  time  limited 
will  not  prevent  a  valid  organiza- 
tion thereafter  if  no  forfeiture  has 
been  adjudged  at  the  suit  of  the 
state.  Seaboard,  &c.  R.  Co.  v.  Olive 
(N.  Car.),  55  S.  E.  263. 


50] 


CHARTERS. 


90 


In  Louisiana  the  issue  of  fictitious  or  "watered"  stock  is,  by  statute, 
made  a  cause  for  the  forfeiture  of  the  charter  of  a  corporation;161 
and  in  Nebraska,  where  such  issues  are  prohibited  by  the  constitu- 
tion,162 a  railroad  corporation  may  be  held  to  have  forfeited  its 
charter  for  this  cause;163  but  this  is  not,  ordinarily,  a  cause  of  for- 
feiture.164 

§  50.  When  duty  to  declare  forfeiture  is  mandatory  and  when  dis- 
cretionary.— Where,  in  a  proceeding  by  quo  warranto  on  behalf  of 
the  state,  a  cause  of  forfeiture  prescribed  by  statute  is  clearly  shown 
to  exist,  it  is  mandatory  upon  the  court  to  declare  the  forfeiture,185 
and  it  has  no  discretion  to  refuse  judgment  upon  the  ground  that  it 
would  be  against  public  interest.166  But  in  all  cases  where  the  in- 
formation is  based  only  upon  the  implied  condition  that  the  corpora- 
tion shall  serve  the  purposes  of  its  creation  it  is  within  the  sound  dis- 
cretion of  the  court  whether  or  not  it  will  pronounce  judgment  of 
ouster  against  a  corporation  which  has  misused  or  abused  its  fran- 
chises, and  it  will  generally  refuse  to  do  so  if,  in  its  judgment,  the 
interests  of  the  public  do  not  require  a  forfeiture.167 

§  51.  What  is  not  cause  for  forfeiture. — A  mere  intention  to  vio- 
late its  duty,168  or  to  fail  to  build  its  road169  will  not  authorize  a 
forfeiture,  even  though  it  might  authorize  an  injunction.170  And  it 
is  said  that  there  must  be  a  violation  of  the  spirit  as  well  as  the  letter 


161Stimson  Am.  Stat.  Law  (1886), 
§  452. 

162  Const.  Neb.,  art.  11,  §  5. 

163  State  v.  Atchison,  &c.  R.  Co.-  24 
Neb.    143,    38   N.   E.    43,   8   Am.   St. 
164. 

1M  State  v.  Minnesota,  &c.  R.  Co. 
40  Minn.  213,  41  N.  W.  1020,  3  L.  R. 
A.  510;  Commonwealth  v.  Central 
Pass.  R.  Co.  52  Pa.  St.  506.  Post, 
§  51. 

165  State  v.  Minnesota  Cent.  R.  Co. 
36  Minn.  246,  30  N.  W.  816,  29  Am. 
&  Eng.  R.  Cas.  440;  State  v.  Oberlin, 
&c.  Ass'n,  35  Ohio  St.  258;  People  v. 
Fishkill,  &c.  Co.  27  Barb.  (N.  Y.) 
445;  People  v.  Northern  R.  53  Barb. 
(N.  Y.)  98;  State  v.  Real  Estate 
Bank,  5  Ark.  595,  41  Am.  Dec.  109. 


166  State  v.  Pennsylvania,  &c.  Co. 
23  Ohio  St.  121. 

187  State  v.  People's  Mut.  Benefit 
Ass'n,  42  Ohio  St.  579;  State  v. 
Crawfordsville,  &c.  Co.  102  Ind.  283, 
289,  1  N.  E.  395.  See,  also,  People 
v.  North  Chicago  R.  Co.  88  111.  537. 

168  Commonwealth  v.  Pittsburg,  &c. 
R.  Co.  58  Pa.  St.  26,  45;  State  v. 
Martin,  51  Kan.  462,  33  Pac.  9,  60 
Am.  &  Eng.  R.  Cas.  567;  Attorney 
General  v.  Superior,  &c.  Co.  93  Wis. 
604,  67  N.  W.  1138,  44  L.  R.  A.  565  n. 

189  State  v.  Kingan,  51  Ind.  142; 
State  v.  Beck,  81  Ind.  500. 

170  See  note  to  Ottaquechee  Woolen 
Co.  v.  Newton,  57  Vt.  451,  by  H.  C. 
Black,  21  Cent.  L.  J.  432,  435. 


91  WHAT   IS    NOT    CAUSE    FOR   FORFEITURE.  [§    51 

of  the  law  before  such  a  decree  is  justifiable.171  The  intent  is  some- 
times considered  in  deciding  whether  the  charter  has  been  violated. 
Where  the  charter  was  made  liable  to  forfeiture  for  non-user  for  two 
years,  the  court  decided  that  a  forfeiture  was  not  incurred  by  the 
failure  of  a  railroad  corporation  to  begin  building  its  line  until  three 
years  from  the  date  of  its  charter,  where  that  time  had  been  devoted 
to  efforts  to  raise  the  necessary  funds.172  And  the  holding  of  a  meeting 
of  the  corporators  of  a  company  to  which  all  the  stock  had  been 
subscribed,  at  which  the  charter  was  accepted,  officers  elected,  and 
contracts  for  building  the  road  were  authorized,  was  held  to  put  the 
charter  in  operation  within  the  meaning  of  the  provision  of  the  Illinois 
constitution173  abrogating  all  charters  not  in  operation.174  Acceptance 
of  a  charter,  paying  an  enrollment  tax  and  bonus  to  the  state,  the 
election  of  officers,  appointment  of  committees,  and  the  expenditure 
of  large  sums  of  money  in  the  purchase  of  mineral  rights,  and  in 
surveying,  grading,  and  constructing  a  railroad,  were  held  sufficient 
in  a  recent  case  to  exempt  a  railroad  and  mining  company  from  the 
operation  of  the  section  of  the  Pennsylvania  constitution,175  which 
provides  that  the  charters  of  all  such  corporations  as  have  not  com- 
menced business  in  good  faith,  prior  to  a  certain  date,  shall  be  for- 
feited,176 and  the  court  also  said  that :  "A  mere  temporary  suspension 
of  the  business  of  a  railroad  company  for  a  year,  the  business  being 
afterwards  resumed  and  continued  without  interruption,  is  not  such 
non-user  of  its  franchise  as  will  operate  as  a  forfeiture  of  its  char- 
ter."177 The  omission  of  a  railroad  company  for  five  days  to  run  its 
trains  has  been  held  not  to  be  an  "abuse  of  its  powers,"  within  the 
meaning  of  a  statute,178  which  authorizes  an  action  for  dissolution  for 
abuse  of  corporate  powers.179  The  mere  failure  to  observe  some  of  the 

171  Thompson  v.  People,  23  Wend.  26  N.  E.  622,  affirming  57  Hun   (N. 
<N.  Y.)  537,  585.  Y.)  378,  10  N.  Y.  S.  907.     See,  also, 

172  Young  v.  Webster  City,  &c.  R.  State  v.  Consolidation  Coal  Co.  46 
Co.  75  Iowa  140,  39  N.  W.  234.    Un-  Md.  1,  14. 

der  the  New  York  code,  which  al-        173  Illinois  Const.  1870,  Art.  XL 

lows   an   action   in   equity   for  the        174  McCartney   v.   Chicago,   &c.   R. 

forfeiture  of  the  charter  of  a  cor-  Co.  112  111.  611. 

poration,  "where  it  has  suspended  -     175  Const.  Pa.  Art.  XVI,  §  1. 

its  ordinary  and  lawful  business  for        176  Commonwealth*  v.    New    York, 

at  least  one  year,"  it  is  no  ground  &c.  R.  Co.  10  Pa.  Co.  Ct.  129. 

for  maintaining  such  action  that  a        m  Commonwealth    v.    New    York, 

railroad   company  has  omitted   for  &c.  R.  Co.  10  Pa.  Co.  Ct.  129. 

five  days  to  run  its  trains.     People        178  Code  Civil  Proc.  N.  Y.  §  1798. 

v.  Atlantic  Ave.  R.  Co.  125  N.  Y.  513,        "'People  v.  Atlantic  Ave.  R..  Co. 


51] 


CHARTERS. 


preliminary  requirements,  as  a  failure  to  file  a  map  of  the  proposed 
route  with  the  secretary  of  state  within  a  certain  time,180  or  the 
payment  of  one-half  of  the  capital  stock  in  property  whose  value 
exceeds  one-half  of  the  par  value  of  the  stock  where  the  statute  re- 
quires such  half  to  be  paid  in  lawful  money  of  the  United  States,181 
will  not  work  a  forfeiture ;  nor  will  any  specific  act  of  non  f easance, 
unintentionally  but  negligently  committed,  where  it  does  not  have  a 
mischievous  tendency.182  Building  the  road  across  lands  over  which 
the  company  has  not  obtained  the  right  of  way  is  not  a  sufficient 
misuser  to  cause  a  forfeiture.183  Neither  an  unauthorized  attempt  to 
change  the  corporate  name,184  nor  the  use  of  an  abbreviation  instead 
of  proper  name,185  is  sufficient  ground  for  quo  warranto  proceedings. 
Failure  to  run  regular  passenger  trains,  where,  by  reason  of  the  con- 
struction and  operation  of  a  horse  railroad,  the  income  from  such 
trains  would  not  pay  for  the  expense  of  operating  them  is  not  a  cause 
of  forfeiture,  it  appearing  that  the  company  is  regularly  engaged 
in  the  transportation  of  freight  traffic  over  its  road,  and  has  carried 
all  passengers  who  have  sought  passage;186  nor  is  the  obtaining  of  a 
charter  from  another  state  for  a  similar  purpose187  and  bringing  a 
suit  in  the  federal  court  to  test  the  constitutionality  of  a  statute  of 
its  own  state  incorporating  another  company  a  cause  of  forfeiture;188 


125  N.  Y.  513,  26  N.  E.  622,  affirm- 
ing 57  Hun  (N.  Y.)  378,  10  N.  Y.  S. 
907. 

180  Harris    v.    Mississippi    Valley, 
&c.  R.  Co.  51  Miss.  602.    See  Eastern 
Archipelago  Co.  v.  Regina,  22  Eng. 
L.  &  Eq.  228,  cited  in  Angell  &  Ames 
Corp.  (llth  ed.),  §  776,  to  the  effect 
that  slight  deviations  from  the  pro- 
visions of  the  charter  are  not  neces- 
sarily either  an  abuse  or  a  misuse 
of  it.    But  see  People  v.  Montecito 
Water  Co.  97  Cal.  276,  32  Pac.  236, 
33  Am.  St.  172  n. 

181  State  v.  Wood,  84  Mo.  378.   The 
soundness  of  this  decision,  however, 
is  questionable. 

182  Angell  &  Ames  Corp.  (llth  ed.), 
§  776,  note  1.     See,  also,  People  v. 
Jackson  P.  R.  Co.  9  Mich.  285;  State 
v.  Royalton,  &c.  T.  Co.  11  Vt.  431; 
People  v.  Hillsdale  T.  Co.  23  Wend. 
(N.  Y.)   2 


183  See  State  v.  Kill  Buck,  &c.  Co. 
38  Ind.  71;  People  v.  Hillsdale,  &c. 
Co.  2  Johns.  (N.  Y.)  190. 

1S4O'Donnell  v.  Johns  &  Co.  76 
Tex.  362,  13  S.  W.  376.  As  to  effect 
of  unauthorized  change  of  name, 
see  Cincinnati  Cooperage  Co.  v. 
Bate,  96  Ky.  356,  26  S.  W.  538,  49 
Am.  St.  300,  10  Lewis'  Am.  R.  & 
Corp.  653,  and  note. 

185  People  v.  Bogart,  45  Cal.  73. 

186  Commonwealth  v.  Fitchburg  R. 
Co.  12  Gray  (Mass.)  180. 

187  Commonwealth  v.  Pittsburg,  &c. 
R.  Co.  58  Pa.  St.  26. 

183  Commonwealth  v.  Pittsburg,  &c. 
R.  Co.  58  Pa.  St.  26.  The  court,  per 
Sharswood,  J.,  intimates  that  the 
case  might  be  different  if  the  suit 
were  brought  in  the  courts  of  a 
foreign  sovereignty,  but  holds  that 
the  federal  courts  form  a  part  of  the 
courts  of  each  state,  administering 


93 


WAIVER   OF   FORFEITURE COLLATERAL   PROCEEDINGS.        [§    52 


nor  forming  an  unauthorized  agreement  of  consolidation  with  another 
corporation;189  nor  issuing  stock  below  par  where  no  interests  are 
injuriously  affected  thereby.190  And  it  has  been  held  that  quo  warranto 
will  not  lie  to  prevent  the  use  of  a  portion  of  a  railroad  which  has  been 
completed,,  merely  because  the  project  for  building  other  portions  au- 
thorized by  the  charter  has  been  abandoned;191  nor  merely  to  vindicate 
private  rights  or  redress  private  grievances.192 

§  52.  Waiver  of  forfeiture — Collateral  proceedings. — No  advan- 
tage can  be  taken  in  any  collateral  proceeding,  of  a  forfeiture  which 
has  not  been  judicially  established;193  and  the  state  may  waive  any 
breach  involving  a  forfeiture  of  charter  rights,19*  by  implication  as 


the  law  as   construed   by   its  own 
tribunals. 

lsa  State  v.  Crawfordsville,  &c.  Co. 
102  Ind.  283,  1  N.  E.  395;  Crawfords- 
ville, &c.  Co.  v.  State,  102  Ind.  435, 
1  N.  E.  864.  It  is  held  otherwise, 
however,  where  the  consolidation  is 
expressly  prohibited.  State  v.  Atch- 
ison,  &c.  R.  Co.  24  Neb.  143,  8  Am. 
St.  164. 

190  Howe   v.    Deuel,   43    Barb.    (N. 
Y.)    504;    Hastings  v.  Amherst,  &c. 
R.  Co. '9  Gush.    (Mass.)    596;    State 
v.  Minnesota,  &c.  Co.  40  Minn.  213, 
41  N.  W.  1020,  3  L.  R.  A.  510  n. 

191  Attorney-General     v.     Birming- 
ham Junction  R.   Co.   8  Eng.   L.  & 
Eq.  243.    But  see,  ante,  §  49.    A  sale 
of  all  the  corporate  property  does 
not   necessarily   work    a    forfeiture 
of    the    corporate    franchises,    and 
where  it  is  necessary  for  the  pro- 
tection of  the  interests  of  stockhold- 
ers or  third  persons,  a  corporation 
which  has  disposed  of  all  its  prop- 
erty will  be  held  to  be  still  in  ex- 
istence.     Langhorne    v.    Richmond 
City   R.    Co.    (Va.)    19    S.   E.    122; 
Price  v.  Holcomb,  80   Iowa  123,  56 
N.  W.  407. 

192  State   v.    Atchison,    &c.    R.    Co. 
176  Mo.  687,  75  S.  W.  776,  63  L.  R. 
A.  761  n.    This  case  also  holds  that 


quo  warranto  will  not  lie  to  prevent 
the  company  from  making  an  un- 
lawful rate  or  charge  where  another 
ample  and  adequate  remedy  is  pro- 
vided, and  the  subject  is  further 
considered,  with  citation  of  author- 
ities, in  the  note  thereto. 

193  Cincinnati,  &c.  R.  v.  Clifford, 
113  Ind.  460,  15  N.  E.  524;  New 
York,  &c.  R.  Co.  v.  New  York,  &c. 
R.  Co.  52  Conn.  274;  Danbury,  &c. 
R.  Co.  v.  Wilson,  22  Conn.  435,  449; 
Cleveland,  &c.  R.  Co.  v.  Erie,  27  Pa. 
St.  380;  Hodges  v.  Baltimore,  &c. 
R.  Co.  58  Md.  603.  See,  also,  Green- 
ville v.  Greenville,  &c.  Co.  125  Ala. 
625,  27  So.  764;  Southern  Pac.  R. 
Co.  v.  Orton,  32  Fed.  457;  Asheville 
Division  v.  Aston,  92  N.  Car.  578; 
New  Jersey  So.  R.  Co.  v.  Long 
Branch  Com'rs,  39  N.  J.  L.  28; 
Greenbrier  Lumber  Co.  v.  Ward,  30 
W.  Va.  43,  3  S.  E.  227. 

194Hinchman  v.  Philadelphia,  &c. 
R.  Co.  160  Pa.  St.  150,  28  Atl.  652; 
State  v.  Bergen,  &c.  R.  Co.  53  N.  J. 
L.  108,  20  Atl.  762;  Farnsworth  v. 
llime,  &c.  R.  Co.  83  Me.  440,  22  Atl. 
373;  People  v.  Ulster,  &c.  R.  Co.  128 
N.  Y.  240,  28  N.  E.  635;  State  v. 
Portland,  &c.  Co.  153  Ind.  483,  53 
N.  E.  1089,  53  L.  R.  A.  413,  74  Am. 
St.  314;  State  v.  Bergen  Neck  Railw. 


CHARTERS. 


well195  as  by  express  legislative  enactment.198  A  waiver  will  not, 
however,  revive  a  corporation  after  it  has  ceased  to  exist,  where  the 
constitution  prohibits  the  granting  of  special  charters,197  though, 
possibly,  a  general  act  for  the  remission  of  all  forfeitures  incurred 
under  the  terms  of  the  incorporating  act  would  be  valid.198  It  has 
been  held  that  the  passage  of  an  act  providing  for  the  issue  of  bonds 
to  be  paid  long  after  a  forfeiture  would,  by  the  terins  of  the  charter,, 
have  accrued,  is  a  waiver  of  such  forfeiture,  and  a  repeal  by  implica- 
tion of  the  clause  in  the  charter  providing  for  it.199  So  a  legislative 
recognition  of  a  de  facto  corporation  after  an  accrued  forfeiture  has 
become  known  may  constitute  a  waiver,200  as  well  as  a  long-continued 
neglect  on  the  part  of  the  judicial  department  to  enforce  the  for- 
feiture.201 But  where  there  has  been  no  attempt  legally  to  organize 


53  N.  J.  L.  108,  20  Atl.  762;  Beach 
Priv.  Corp.  §  59;  Purdy's  Beach 
Priv.  Corp.  §  1299;  Cook  Stock  and 
Stockholders,  §  636. 

195  New  York,  &c.  R.  Co.,  Petition 
of,  70  N.  Y.  327;  Foster  v.  Pitch,  36 
Conn.  236. 

196  Such  a  statute '  may  revive  and 
keep    in   force   the   original   act   of 
incorporation,  and  continue  the  ex- 
istence of  the  corporation  as  it  was 
before    the    forfeiture.      Phillips    v. 
Albany,  28  Wis.  340. 

197Oroville,  &c.  R.  Co.  v.  Super- 
visors of  Plumas  Co.  37  Cal.  354; 
Brooklyn,  &c.  R.  Co.,  In  re,  72  N, 
Y.  245,  75  N.  Y.  335,  19  Hun  (N. 
Y.)  314,  55  How.  Pr.  (N.  Y.)  14. 

193  See  Maryland  v.  Baltimore,  &c. 
R.  Co.  3  How.  (U.  S.)  534;  Wilson 
v.  Ohio,  &c.  R.  Co.  64  111.  542,  16  Am. 
R.  565;  Chicago,  &c.  R.  Co.  v.  Ad- 
ler,  56  111.  344. 

"'Foster  v.  Pitch,  36  Conn.  236. 
See,  also,  State  v.  Webb,  110  Ala. 
214,  20  So.  462. 

200  New  York,  &c.  R.  Co.,  Petition 
of,  70  N.  Y.  327;  Briggs  v.  Cape  Cod 
Ship  Canal  Co.  137  Mass.  71;  Balti- 
more, &c.  R.  Co.  v.  Marshall  Co.  3 
W.  Va.  319;  Central  &  Georgetown 


R.  Co.  v.  People,  5  Colo.  39;  Chesa- 
peake, &c.  Canal  Co.  v.  Baltimore, 
&c.  R.  Co.  4  Gill  &  J.  (Md.)  1;  En- 
field  Bridge  Co.  v.  Connecticut  River 
Co.  7  Conn.  28;  People  v.  Ottawa 
Hydraulic  Co.  115  111.  281,  3  N.  E, 
413;  La  Grange,  &c.  R.  Co.  v.  Rai- 
ney,  7  Coldw.  (Tenn.)  420,  empow- 
ering another  company  to  buy  the 
franchises  of  a  railroad  company 
is  a  waiver  of  accrued  forfeiture  for 
non-user  of  such  franchises,  and  the 
new  company  takes  by  its  purchase 
a  right  to  complete  and  operate  the 
purchased  road  under  its  original 
franchise.  Hinchman  v.  Philadel- 
phia, &c.  R.  Co.  160  Pa.  St.  150,  28 
Atl.  652.  See,  also,  Attorney-Gen- 
eral v.  Superior,  &c.  Co.  93  Wis.  604, 
67  N.  W.  1138;  State  v.  Godwins- 
ville,  &c.  Co.  44  N.  J.  L.  496,  501; 
Central  Crosstown  R.  Co.  v.  Twenty- 
third  St.  R.  Co.  54  How.  Pr.  (N.  Y.) 
168;  Comanche  Co.  v.  Lewis,  133  U. 
S.  198,  10  Sup.  Ct.  286. 

201  State  v.  Crawfordsville,  &c. 
Turnpike  Co.  102  Ind.  283,  1  N.  E. 
395;  People  v.  Oakland  County 
Bank,  1  Dougl.  (Mich.)  282;  People 
v.  Williamsburg,  &c.  Co.  47  N.  Y. 
586. 


95 


PEOCEEDIXGS    TO    FOEFEIT. 


[ 


a  corporation,  no  lapse  of  time  confers  any  rights,202  and  where, 
according  to  the  terms  of  the  charter,  the  franchise  has  been  absolutely 
forfeited  by  failure  to  perform  certain  conditions,  mere  subsequent 
recognition  by  the  legislature  will  not  waive  the  forfeiture.203  Provid- 
ing penalties  for  the  acts  which,  by  the  terms  of  the  charter  would 
constitute  a  forfeiture,  has  been  held  to  be  a  waiver,204  but  it  is  said 
that  where  there  is  a  statute205  which  makes  it  the  duty  of  the  attor- 
ney-general, unless  otherwise  expressly  directed  by  law,  to  seek  the 
forfeiture  of  the  charter  of  the  corporation  which  has,  by  any  act  or 
omission,  misuser  or  non-user,  forfeited  the  same,  the  right  of  the 
state  to  demand  a  forfeiture  of  the  charter  of  a  railroad  company  which 
has  sold  its  road  and  franchises  to  a  foreign  company  in  violation  of 
the  constitution,  failed  to  keep  up  its  organization,  and  allowed  its 
road  to  become  unsafe,  is  not  waived  by  the  provisions  of  a  subsequent 
statute,206  providing  for  quo  warranto  against  a  corporation  carrying 
on  business  in  violation  of  a  constitutional  provision207  forbidding  sale 
to  or  consolidation  with  a  competing  or  foreign  company,  to  enforce 
the  penalties  therefor,  together  with  an  injunction  against  future 
violation,  and  the  appointment  of  a  receiver.208 

§  53.  Proceedings  to  forfeit — Quo  warranto — Parties. — At  com- 
mon law  it  was  held  that  a  forfeiture  of  charter  franchises  should  be 
enforced  by  scire  facias,209  while  quo  warranto  was  the  proper  means 


202  People  v.  Stanford,  77  Cal.  360, 
18  Pac.  85,  19  Pac.  693,  2  L.  R.  A. 
92.     See,   also,   State   v.   Bailey,   19 
Ind.  452;  People  v.  Pullman  Palace 
Car  Co.  175  111.  125,  51  N.  E.  664,  64 
L.  R.  A.  366.    Where  the  incorpora- 
tion is  merely  irregular,  a  legisla- 
tive recognition   is  equivalent  to  a 
charter.     McAuley  v.  Columbus,  &c. 
R.  Co.  83  111.  348;   Atlantic,  &c.  R. 
Co.  v.  St.  Louis,  66  Mo.  228;   Mead 
v.  New  York,  &c.  R.  Co.   45  Conn. 
199;    Cowell  v.  Colorado,  &c.   Co.  3 
Colo.  82;  Kanawha,  £c.  Co.  v.  Kana- 
wha,  &c.  Co.  7  Blatch.   (U.  S.)   391. 

203  State  v.  Fourth,  &c.  Turnp.  Co. 
15  N.  H.  162,  14  Am.  Dec.  690. 

**  State  v.  Morris,  73  Tex.  435,  11 
S.  W.  392;  Washington,  &c.  R.  Co. 
v.  State,  19  Md.  239;  State  v.  Real 


Estate  Bank,  5  Ark.  595,  41  Am. 
Dec.  109;  Commonwealth  v.  Breed, 
4  Pick.  (Mass.)  460;  Baker  v. 
Backus,  32  111.  79.  But  see  Com- 
mercial Bank  of  Natchez  v.  State, 
6  S.  &  M.  (Miss.)  599;  State  Bank 
v.  State,  1  Blackf.  (Ind.)  267,  12 
Am.  Dec.  234  n. 

205  Rev.  Stat.  Tex.  Art.  2805. 

200  Sayles  Civil  Stat.  Art.  4247a,  §  2. 

207  Cons.  Tex.  Art.  X,  §§  5,  6. 

208  East  Line,  &c.  R.  Co.  v.  State, 
75  Tex.  434,  12  S.  W.  690. 

209  Rex  v.  Pasmore,  3  Term  R.  199, 
244;  Ames  v.  Kansas,  111  U.  S.  449, 
4  Sup.  Ct.  437;   Regents  of  Univer- 
sity v.  Williams,  9  Gill  &  J.   (Md.) 
365,  31  Am.  Dec.  72,  111;    State  v. 
St.  Paul,  &c.  R.  Co.   35   Minn.  222, 
28  N.  W.  245. 


53] 


CHARTERS. 


96 


of  inquiring  into  an  unauthorized  assumption,  of  corporate  powers.210 
But  the  latter  writ,  or,  in  modern  practice,  an  information  in  the 
nature  of  a  quo  warranto,  may  be  used  for  the  trial  of  abuse  of  powers 
as  well  as  for  inquiring  into  the  usurpation  of  franchises.211  When 
quo  warranto  is  employed  for  the  purpose  of  ousting  individuals  who 
have  unlawfully  usurped  the  franchise  to  be  a  corporation,  it  is  gen- 
erally held  that  it  should  be  directed  against  the  individuals  assum- 
ing to  act  as  a  corporation,212  for  "a  corporation/'  it  is  said,  "cannot 
be  brought  into  court  to  answer  the  allegation  that  it  is  not  and  never 
was  a  corporation  ;"213  and  bringing  a  suit  against  the  company  by  its 
assumed  corporate  name  is  held  in  many  jurisdictions  to  be  an  admis- 
sion of  its  existence  as  a  corporation.214  Moreover,  it  is  said  that  the 
incorporators  should  have  their  day  in  court,  in  the  event  that  they 


210  Authorities   cited   in   last  note, 
supra. 

211  People    v.    Utica    Ins.    Co.    15 
Johns.    (N.  Y.)    358,  386,  395;    Peo- 
ple v.   Trustees   of  Geneva  College, 
5  Wend.    (N.  Y.)    211;   Chesapeake, 
&c.   Co.  v.  Baltimore,  &c.  R.  Co.  4 
Gill  &  J.  (Md.)  1,  121;  State  v.  Mil- 
waukee,   &c.    R.    Co.    45    Wis.    579; 
State  v.   Boston,  &c.   R.   Co.   25  Vt. 
433;  National  Docks  R.  Co.  v.  Cen- 
tral  R.    Co.    5    Stew.    (N.    J.)    755; 
Bruffett  v.  Great  Western  R.  Co.  25 
111.  353;   People  v.  Jackson,  &c.  R. 
Co.   9    Mich.   285;    note  to   State   v. 
Atchison,  &c.  R.  Co.  8  Am.  St.  164, 
198;  High  Extr.  Rem.  §  647. 

212  Wolfe    v.    Underwood,    97    Ala. 
375,  12  So.  234;  Mud  Creek,  &c.  Co. 
v.  State,  43  Ind.  236;   Chesshire  v. 
People,    116    111.    493,    6   N.   E.    487; 
People  v.  Rensselaer,  &c.  R.  Co.  15 
Wend.  (N.  Y.)  113,  30  Am.  Dec.  33; 
State  v.  Cincinnati,  &c.  Co.  18  Ohio 
St.   262;    Commonwealth  v.  Central 
Pass.  R.  Co.  52  Pa.  St.  506;   People 
v.  Stanford,  77  Cal.  360,  18  Pac.  85, 
19  Pac.  693. 

213  Mud  Creek,  &c.  Co.  v.  State,  43 
Ind.  236;    Chesshire  v.  People,   116 
111.  493,  6  N.  E.  487. 

214  People  v.  Stanford,  77  Cal.  360, 


18  Pac.  85,  19  Pac.  693,  2  L.  R.  A.  92; 
Commercial  Bank  of  Natchez  v. 
State,  6  S.  &  M.  (Miss.)  599,  614; 
People  v.  Rensselaer,  &c.  R.  Co.  15 
Wend.  (N.  Y.)  113,  30  Am.  Dec.  33, 
38;  State  v.  Cincinnati  Gas  Light, 
&c.  Co.  18  Ohio  St.  262.  Contra, 
People  v.  Bank  of  Hudson,  6  Cow. 
(N.  Y.)  217.  In  the  note  to  State 
v.  Atchison,  &c.  R.  Co.  8  Am.  St. 
164,  199,  it  is  said  that  "this  rule 
rests  upon  no  sound  reason,"  and 
it  does  seem  like  sacrificing  the 
spirit  to  the  letter,  for,  where  it 
clearly  appears  from  the  informa- 
tion that  its  purpose  is  to  challenge 
the  legal  existence  of  the  corpora- 
tion, or,  in  other  words,  the  right 
of  the  incorporators  to  be  a  corpora- 
tion, it  is  very  technical  to  hold 
that  the  use  of  the  corporate  name 
is  an  admission  of  the  corporate  ex- 
istence. It  is  more  in  consonance 
with  the  spirit  of  such  proceedings, 
although  it  may  not  be  entirely  log- 
ical, to  treat  the  name  as  descrip- 
tive and  the  information  as  calling 
upon  the  individuals  to  answer  by 
what  authority  they  use  that  name 
and  exercise  the  rights  of  a  cor- 
poration. 


97 


PROCEEDINGS   TO   ENFORCE   FORFEITURE. 


[ 


do  not  constitute  a  legal  person  capable  of  appearing  and  answering.215 
But  the  proceedings  should  be  against  the  corporation  itself,  where  the 
purpose  is  to  enforce  a  forfeiture  of  its  charter,  incurred  by  misuse 
or  abuse  of  its  powers,  or  to  oust  it  from  the  exercise  of  unwarranted 
rights  and  privileges  under  its  charter,216  and  it  is  said  that  the  doc- 
trine that  the  institution  of  the  proceeding  against  the  corporation 
eo  nomine  admits  its  legal  existence  rests  upon  no  sound  reason.217 

§  54.  Proceedings  must  generally  be  in  court  of  law — Statutory 
provisions. — A  proceeding  to  enforce  a  forfeiture  or  to  deprive  a  de 
facto  corporation  of  its  usurped  privileges  must  be  brought  in  a  court 
of  law,218  a  court  of  equity  having  no  jurisdiction  in  such  cases  unless 
it  is  conferred  by  statute.219  In  many  of  the  states  special  provisions 


215  State    v.     Independent    School 
District,  44  Iowa  227;  King  v.  City 
of  London,  Skin.  293,  310. 

216  State  v.  Atchison,  &c.  R.  Co.  24 
Neb.   143,   38   N.   W.  43,  8  Am.   St 
164  n,  32  Am.  &  Eng.  R.  Cas.  388; 
People  v.  Bank  of  Niagara,  6  Cowen 
(N.  Y.)    196;   People  v.  New  York, 
&c.    R.    Co.    137    N.    Y.    606,    33    N. 
E.    744,    66    Hun    (N.    Y.)    633,    21 
N.   Y.   S.   373;    State  v.  Taylor,   25 
Ohio    St.    279;    Smith   v.    State,    21 
Ark.    294.     Mr.    Spelling  states  the 
rule  as  follows:    "When  the  purpose 
is  to  suppress  an  usurpation  of  cor- 
porate franchises  by  individuals,  the 
information  should  name  and   pro- 
ceed against  the  defendants  as  indi- 
viduals,   *    *    *    but  when  the  pur- 
pose is  to  enforce  a  forfeiture  of 
corporate  franchises  usurped  by  a 
corporation    the   proceeding   should 
be  against  the  incorporated  body  in 
its  corporate  name.   The  rule  is  dif- 
ferent, however,  when  the  proceed- 
ing is  based  upon  a  forfeiture  which 
a  corporation  once  legally  formed  is 
alleged  to  have  incurred.    In  that 
case  it  is  properly  filed  against  the 
corporate  body,   not  the  individual 
members."     2  Spelling  Extr.  Relief, 
§  1843.  See,  also,  State  v.  Barron,  57 

ELL.  RAILROADS — 7 


N.  H.  498;  People  v.  Rensselaer,  &c. 
R.  Co.  15  Wend.  (N.  Y.)  113,  30  Am. 
Dec.  33,  and  note;  also  article  in  40 
Alb.  L.  J.  10. 

217  See  note  in  8  Am.  St.  199. 

218  Attorney-General  v.   Stevens,   1 
N.  J.  Eq.  369,  22  Am.  Dec.  526;  Pres- 
ident, &c.  v.  Trenton  Bridge  Co.  13 
N.  J.  Eq.  46 ;  King  v.  Clarke,  1  East. 
38,    43;    Attorney-General    v.    Utica 
Ins.  Co.  2  Johns.  Ch.   (N.  Y.)   371; 
Attorney-General  v.   Luder   Ice  Co. 
104  Mass.  239,  6  Am.  R.  227;    Peo- 
ple v.  Equity,  &c.  Co.  141  N.  Y.  232, 
36  N.  E.  194.  Whether  a  corporation 
has  been  guilty  of  acts  or  omissions 
sufficient  to  constitute  cause  for  for- 
feiture is  generally  a  judicial  and 
not  a  legislative  question.    Cooley's 
Const.  Lim.  *106;   Vermont,  &c.  R. 
Co.  v.  Vermont  Cent.  R.  Co.  34  Vt.  2 ; 
Regents  v.  Williams,  9  G.  &  J.  (Md.) 
365,  31  Am.  Dec.  72;  Mayor  v.  Pitts- 
burgh, &c.   R.  Co.   2  Abb.  U.   S.   9. 
See  post,  §§  57,  58. 

219  Belmont  v.  Erie  R.  Co.  52  Barb. 
'637;   Bayless  v.  Orne,  1  Freem.  Ch. 

(Miss.)  161;  State  v.  Merchants' 
Ins.,  &c.  Co.  8  Humph.  (Tenn.)  234; 
Western,  &c.  R.  Co.'s  Appeal,  104  Pa. 
St.  399;  Folger  v.  Columbian  Ins. 
Co.  99  Mass.  267,  96  Am.  Dec.  747. 


3  55] 


CHAETEES. 


98 


are  made  by  statute  for  the  prosecution  of  suits  of  this  nature  in  cer- 
tain specified  courts.220  The  state  may  delegate  the  right  to  bring  the 
action  in  its  name,221  but  it  may  not  authorize  any  person  to  declare 
a  forfeiture  without  first  obtaining  the  judgment  of  a  court.222 

§  55.  Collateral  proceedings — Pleadings  and  judgment  in  forfei- 
ture proceedings. — No  private  individual  can  maintain  a  suit  to  en- 
force the  forfeiture  of  a  charter,  unless  specially  authorized  by  the 
state  to  do  so,  nor  can  a  mere  ground  or  cause  for  forfeiture  be  suc- 
cessfully used  by  him  as  part  of  his  cause  of  action  in  a  collateral  pro- 


See  Heap  v.  Heap  Manufacturing 
Co.  97  Mich.  147,  56  N.  W.  349,  note 
to  State  v.  Atchison,  &c.  R.  Co.  8 
Am.  St.  164,  200;  2  Morawetz  Corp. 
§  1040. 

220  In  our  own  country  writs  or  in- 
formations in  the  nature  of  writs  of 
quo  warranto  are  filed  in  the  high- 
est courts  of  ordinary  jurisdiction 
in  several  of  the  states,  either  by 
the  attorney-general  or  the  prose- 
cutor. Angell  &  Ames  Corp.  §  733, 
citing  4  Cowen  (N.  Y.)  102;  People 
v.  Richardson,  4  Cowen  97,  102; 
Commonwealth  v.  Fowler,  10  Mass. 
290;  Respublica  v.  Griffiths,  2  Ball. 
(Pa.)  112;  State  v.  Foster,  2  Halst. 
(N.  J.)  101;  State  v.  Charleston,  1 
Const.  R.  (Treadway,  S.  C.)  36; 
State  v.  Merry,  3  Mo."  278.  See  Den- 
ike  v.  New  York,  &c.  Co.  80  N.  Y. 
599.  In  California,  this  jurisdiction 
lies  in  the  district  courts.  In  Indi^ 
ana  an  information  may  be  filed  in 
the  circuit  court  by  the  prosecuting 
attorney,  or  by  any  person  claiming 
an  interest  in  the  corporation  which 
has  abused  its  powers.  R.  S.  1894, 
§§  1145,  1146;  Board  v.  Hall,  70  Ind. 
469;  Danville,  &c.  Co.  v.  State,  ex  rel. 
16  Ind.  456.  In  New  York,  Tennessee, 
and  Colorado,  the  remedy  is  by -civil 
action  under  the  several  codes,  N. 
Y.  Code,  1884,  §  1983;  People  v. 
Cook,  8  N.  Y.  (4  Selden)  67,  59  Am. 
Dec.  451;  State  v.  Turk,  Mart.  & 


Yerg.  (Tenn.)  287;  Attorney-Gen- 
eral v.  Leaf,  9  Humph.  (Tenn.)  753; 
Code  of  Tenn.  §  3409  et  seq.;  Cen- 
tral, &c.  R.  Co.  v.  People,  5  Colo.  39; 
Atchison,  &c.  R.  Co.  v.  People,  5 
Colo.  60,  cited  in  Waterman  Corp. 
§  380.  In  Minnesota  and  Maryland, 
the  proceeding  is  by  complaint  filed 
by  the  attorney-general  in  the  dis- 
trict court  of  the  proper  county.  2 
Stimson  Am.  Stat.  177.  A  forfeiture 
of  corporate  franchises  granted  by  a 
city  can  be  enforced  only  by  a  direct 
proceeding  by  quo  warranto  under 
the  statutes.  Citizens',  &c.  R.  Co. 
v.  Belleville,  47  111.  App.  388. 

221  State    v.    Smith,    32    Ind.    213; 
State  v.  Ireland,  130  Ind.  77,  29  N.  E. 
396;   Western,  &c.  R.   Co.'s  Appeal, 
104  Pa.  St.  399.   Where  the  common 
law  rule  has  not  been  changed  by 
statute,  suit  must  be  brought  by  the 
attorney-general    on    behalf    of    the 
state.    Heap  v.  Heap  Co.  97   Mich. 
147,  56  N.  W.  349;  Bass  v.  Roanoke, 
&c.  Co.  Ill  N.  Car.  439,  16  S.  E.  402; 
State  v.   International   Co.   89   Tex. 
562,  35  S.  W.  1067. 

222  A  statute  authorizing  the  secre- 
tary of  state  to  declare  the  charter 
of  a  corporation  forfeited  if  its  taxes 
are  not  paid  is  invalid.    Forfeiture 
can  be  made  only  after  suit  brought 
by  the  state  for  that  purpose.   Green- 
brier,  &c.  Co.  v.  Ward,  36  W.  Va.  573, 
15  S.  E.  89. 


99 


COLLATEEAL  PROCEEDINGS. 


[§  55 


ceeding,223  nor  can  acts  amounting  to  a  forfeiture  be  set  up  by  plea 
or  answer  in  any  collateral  action.224  Proceedings  to  declare  a  for- 
feiture must  be  instituted  in  the  state  or  country  in  which  the  corpora- 
tion is  created.225  The  information  should,  in  most  states,  set  forth 
specifically  the  facts  upon  which  the  claim  of  forfeiture  of  corporate 
rights  is  founded.226  A  judgment  recovered  against  a  corporation 
pending  an  appeal  from  a  judgment  forfeiting  its  franchises  will, 
where  an  appeal  suspends  the  judgment  of  the  trial  court,  bind  the 
property  of  the  corporation,  although  the  judgment  appealed  from  is 
afterward  affirmed.227  But,  after  dissolution,  the  general  rule  is  that 
no  judgment  can  be  entered  against  the  corporation  even  in  a  suit 
which  was  pending  at  the  time  of  the  dissolution.228 


223  North   v.    State,   107   Ind.   356; 
State  v.  Rio  Grande  R.  Co.  41  Tex. 
217.    Injunction  will  not  lie  at  the 
suit  of  a  private  person,  to  enforce 
the  forfeiture  of  a  charter  granted 
to  a  corporation  for  public  purposes. 
Hinchman   v.    Philadelphia,    &c.    R. 
Co.    160    Pa.    St.    150,    28    Atl.    652; 
Twelfth  St.  Market  Co.  v.  Philadel- 
phia, &c.  R.  Co.  142  Pa.  St.  580,  21 
Atl.  902. 

224  Logan  v.  Vernon,  &c.  R.  Co.  90 
Ind.   552;    Union  Branch  R.  Co.  v. 
East   Tenn.,    &c.    Co.    14    Ga.    327; 
Thompson  v.  New  York,  &c.  R.  Co.  3 
Sand.  Ch.   (N.  Y.)   625;   New  York, 
&c.  R.  Co.,  Petition  of,  70  N.  Y.  327; 
Connecticut,  &c.  R.  Co.  v.  Bailey,  24 
Vt.  465,  58  Am.  Dec.  181;   Hammett 
v.  Little  Rock,  &c.  Co.  20  Ark.  204; 
La  Grange,  &c.  R.  Co.  v.  Rainey,  7 
Coldw.    (Tenn.)    420.    See   Bass   v. 
Roanoke  Nav.,  &c.  Co.  Ill  N.  Car. 
439,  16  S.  E.  402,  19  L.  R.  A.  247  n. 

223  Carey  v.  Cincinnati,  &c.  R.  Co. 
5  Iowa  357,  367;  Society  v.  New 
Haven,  8  Wheat.  (U.  S.)  464;  Im-' 
porting,  &c.  Co.  v.  Locke,  50  Ala. 
332;  Howell  v.  Chicago,  &c.  R.  Co. 
51  Barb.  (N.  Y.)  378. 

226  State  v.  Southern  Pac.  R.  Co.  24 
Tex.  80.  The  state  must  charge  and 
prove  the  abuse  or  misuser  of  its 


franchises  relied  on  as  ground  of 
forfeiture.  State  v.  Talbot,  (Mo. 
Sup.)  27  S.  W.  366.  But  need  not,  it 
has  been  held,  expressly  charge  that 
the  acts  complained  of  were  prohib- 
ited by  statute  or  that  public  injury 
resulted  therefrom.  Eel  River  R. 
Co.  v.  State,  155  Ind.  433,  57  N.  E. 
388.  See,  however,  People  v.  Colo- 
rado Eastern  R.  Co.  8  Colo.  App.  301, 
46  Pac.  219.  A  full  treatment  of  the 
pleadings  and  practice  in  such  pro- 
ceedings will  be  found  in  the  note 
to  People  v.  Rensselaer,  &c.  R.  Co. 
30  Am.  Dec.  33,  49-53. 

227  Texas  Trunk  R.  Co.  v.  Jackson, 
85  Tex.  605,  22  S.  W.  1030;  Giles  v. 
Stanton,  86  Tex.  620,  26  S.  W.  615; 
Giles  v.  East  Line,  &c.  R.  Co.  (Tex. 
Civ.  App.)  26  S.  W.  1111. 

228  First   Nat.    Bank   v.   Colby,    21 
Wall.  (US.)  609;  Thornton  v.  Mar- 
ginal, &c.  R-.  Co.  123  Mass.  32;  Terry 
v.  Merchants',  &c.  Bank,  66  Ga.  177; 
Saltmarsh  v.  Planters',  &c.  Bank,  17 
Ala.  761.  As  to  form  of  judgment  of 
forfeiture,    see    Slee    v.    Bloom,    5 
Johns.  Ch.    (N.  Y.)    366;    People  v. 
Rensselaer,  &c.  R.  Co.  15  Wend.  (N. 
Y.)   113,  30  Am.  Dec.  33,  and  note. 
In  Eel  River  R.  Co.  v.  State,  155  Ind. 
433,  57  N.  E.  388,  it  is  held  that  the 
court  may  not  only  render  a  judg- 


§  56] 


CHARTERS. 


100 


§  56.  Repeal  of  charter — Reserved  power. — Where  the  state,  either 
by  constitutional  provision,229  by  general  statute,230  or  by  special 
reservation  introduced  into  the  creative  act,  reserves  the  power  to  alter, 
amend  or  repeal  the  charter  of  a  corporation,  such  charter  is  held  not 
to  constitute  a  contract  between  the  state  and  the  incorporators  within 
the  meaning  of  the  federal  constitution;231  though  in  the  absence  of 
such  reservation,  the  charter  cannot  be  taken  away  excepting  for  acts 
of  the  corporation  amounting  to  a  forfeiture.232  Where  an  uncondi- 
tional reservation  is  made,  the  power  to  repeal  may  be  exercised  at  the 
pleasure  of  the  legislature,233  and  its  exercise  cannot  be  reviewed 
by  the  courts,  unless,  possibly,  where  some  principle  of  natural  justice 
is  violated.234 


ment  of  forfeiture,  but  may  also  ap- 
point a  receiver  when  asked  for  in 
the  information. 

229  See  ante,  §  43 ;  Chesapeake,  &c. 
R.  Co.  v.  Miller,  114  U.  S.  176,  5  Sup. 
Ct.  813.  When  the  constitution  of  a 
state  forbids  the  granting  of  irrev- 
ocable  charters,   this   provision   be- 
comes a  part  of  all  charters  granted, 
and  under  them  subject  to  repeal, 
whether  so  expressed  in  the  act  of 
the  legislature  or  not.  Delaware,  &c. 
R.  Co.  v.  Tharp,  5  Harr.  (Del).  454. 

230  The   right  to   alter   and   repeal 
may  be  reserved  in  a  general  statute 
so   as  to   apply   to   charters   subse- 
quently granted.    Thornton  v.  Mar- 
ginal, &c.  R.  Co.  123  Mass.  32;  State 
v.  Brown,  &c.  Co.  (R.  I.)  17  L.  R.  A. 
856.   And  an  act  reserving  power  to 
repeal  or  amend   remains  in   force 
until   expressly  repealed.    1  Water- 
man  Corp.    p.    535.    But   the   legis- 
lature may  enter  into  an  irrepeal- 
able    contract    with    a    corporation, 
notwithstanding  a  previous  legisla- 
ture has  reserved  the  power  to  alter 
or  repeal  the  charter.  New  Jersey  v. 
Yard,  95  U.  S.  104. 

231  Zabriskie  v.  Hackensack,  &c.  R. 
Co.  18  N.  J.  Eq.  178,  185,  90  Am.  Dec. 
617;   Commonwealth  v.  Fayette  Co. 
R.  Co.  55  Pa.  St.  452;  Cross  v.  Peach 


Bottom  R.  Co.  90  Pa.  St.  392;  Pacific 
R.  Co.  v.  Renshaw,  18  Mo.  210;  Mow- 
rey  v.  Indianapolis,  &c.  R.  Co.  4  Biss. 
(U.  S.)  78;  West  Wisconsin  R.  Co. 
v.  Trempealeau  County,  35  Wis.  257; 
Wagner  Free  Inst.  v.  Philadelphia, 
132  Pa.  St.  612,  19  Atl.  297,  19  Am. 
St.  613. 

232  Miller  v.  State,  15  Wall.  (U.  S.) 
478;   State  v.  Northern  Cent.  R.  Co. 
44  Md.  131,  164;  Campbell  v.  Missis- 
sippi Union  Bank,  6  How.    (Miss.) 
625,  653. 

233  Spring   Valley    Water-works   v. 
Schottler,  110  U.  S.  347,  4  Sup.  Ct. 
48;    Thornton   v.    Marginal,   &c.   R. 
Co.  123  Mass.  32;  New  York,  &c.  R. 
Co.,  Petition  of,  70  N.  Y.  327,  351; 
Western,  &c.  R.  Co.  v.  Rollins,  82  N. 
Car.  523;  Mobile,  &c.  R.  Co.  v.  State, 
29   Ala.   573;    Mayor  v.   Pittsburgh, 
&c.  R.  Co.  2  Abb.  (U.  S.)  9;  Bruffett 
v.  Great  Western  R.  Co.  25  111.  353; 
Taylor  Priv.  Corp.  §  503;  Angell  & 
Ames  Corp.  §   767.    See,  also,  Mus- 
grove  v.   Vicksburg,   &c.   R.   Co.   50 
Miss.  670. 

23*Lothrop  v.  Stedman,  13  Blatch. 
(U.  S.)  134,  42  Conn.  583;  Sala  v. 
New  Orleans,  2  Woods  (U.  S.)  188. 
See,  also,  Shields  v.  Ohio,  95  U.  S. 
375;  Sinking  Fund  Cases,  99  U.  S. 
700,  720. 


101  REPEAL   WHERE   CONDITIONAL   POWER  IS   RESERVED.         [§    57 


§  57.  Repeal  where  conditional  power  is  reserved. — But  where 
only  a  conditional  power  to  repeal  the  charter  upon  a  failure  of  the 
corporation  to  comply  with  certain  conditions  is  reserved,  although 
the  power  may  be  exercised  at  once  upon  such  failure/35  and  although 
the  presumption  will  be  in  favor  of  the  existence  of  the  facts  on  which 
the  validity  of  a  repealing  statute  depends,236  yet  it  has  been  held 
that  the  legislature  is  not  the  final  judge  as  to  whether  such  a  failure 
has  given  it  authority  to  repeal,  and  that  its  action  may  be  set  aside 
by  the  courts.237  It  seems  to  us,  however,  that  the  legislature,  having 
the  right  to  reserve  the  power  to  repeal  unconditionally,  may  reserve 
the  right  to  repeal  conditionally  with  power  to  determine  whether  or 
not  the  condition  exists,  for  it  is  a  general  rule  that  where  the  legis- 
lature is  authorized  to  determine  whether  a  state  of  facts  exists 
authorizing  the  exercise  of  power,  its  judgment  that  such  a  state  of 
facts  does  exist  is  conclusive.238  As  such  repeal  may  be  regarded  as 
only  a  ready  substitute  for  a  forfeiture  for  abuse  of  corporate  powers 
upon  quo  warranto  proceedings,239  it  has  been  suggested  that  the  cor- 
poration should  have  an  opportunity  to  be  heard  in  its  own  defense 
before  some  judicial  tribunal,240  and  not  subjected  to  an  ex  parte 


235  Oakland  R.  Co.  v.  Oakland,  &c. 
R.  Co.  45  Cal.  365,  13  Am.  R.  181; 
Myrick  v.  Brawley,  33  Minn.  377; 
Miners'  Bank  v.  United  States,  1 
Greene  (Iowa)  553;  Kennedy  v. 
Strong,  14  Johns.  (N.  Y.)  128;  New 
York,  &c.  R.  Co.  v.  Boston,  &c.  R. 
Co.  36  Conn.  196.  But  see  Flint,  &c. 
Co.  v.  Woodhull,  25  Mich.  99,  12  Am. 
R.  233. 

238  Erie,  &c.  R.  Co.  v.  Casey,  26  Pa. 
St.  287;  State  v.  Curran,  7  Bng. 
(Ark.)  321. 

237  Commonwealth  v.  Pittsburg,  &c. 
R.  Co.  58  Pa.  St.  26;  Erie,  &c.  R.  Co. 
v.  Casey,  26  Pa.  St.  287.  See,  also, 
Myrick  v.  Brawley,  33  Minn.  377. 
Some  cases  hold  that  by  accepting  a 
charter  containing  a  reservation  by 
the  legislature  of  power  to  repeal, 
upon  the  happening  of  a  contin- 
gency, the  corporation  is  estopped  to 
question  the  authority  of  the  legis- 
lature to  determine  whether  the  con- 
tingency has  happened,  though  the 


question  would  otherwise  be  one  for 
judicial  determination.  Crease  v. 
Babcock,  23  Pick.  (Mass.-)  334,  34 
Am.  Dec.  61;  Carey  v.  Giles,  9  Ga. 
253;  Lothrop  v.  Stedman,  42  Conn. 
583;  Miners'  Bank  v.  United  States, 

1  Greene    (Iowa)    553;    DeCamp  v. 
Eveland,  19  Barb.   (N.  Y.)   81,  cited 
in  1  Beach  P.riv.  Corp.  §  39.  This  we 
regard  as  the  better  rule. 

238  Elliott  Gen.  Prac.  §  148,  and  au- 
thorities last  above  cited.    See,  also, 
the  more  recent  Pennsylvania  case 
of  Wagner  Free   Inst.   v.   Philadel- 
phia, 132  Pa.  St.  612,  19  Am.  St.  613. 

239  Legislative  power  to  declare  a 
forfeiture  is  cumulative  to  and  not 
a  substitute  for  a  judicial  proceed- 
ing by  quo  warranto,  and  such  pro- 
ceedings may  be  brought  when  the 
legislature  has  failed  to  exercise  its 
repealing  power.   State  v.  Southern, 
&c.  R.  Co.  24  Tex.  80. 

210  Mayor  v.  Pittsburgh,  &c.  R.  Co. 

2  Abb.  (U.  S.)  9.   See  Vermont,  &c. 


§•'  58]  CHAETERS.  102 

judgment  pronounced  by  one  of  the  parties  to  the  contract,  which  it  is 
claimed  has  been-  violated.241  But,  since  a  judicial  finding  establishing 
the  misuser  or  abuse  of  corporate  powers  would  have  the  effect  to  dis- 
solve the  corporation,  such  a  proceeding  would  render  idle  the  reserva- 
tion of  the  power  of  repeal.242  This  power  is  of  value  because  it  may 
be  exercised  when  proceedings  by  quo  warranto  might  not  only  prove 
ineffectual,  but  would  involve  risks,  embarrassment  and  delay.243  A 
legislative  inquiry  to  ascertain  if  there  has  been  a  violation  of  its 
charter  or  any  other  default  by  a  corporation  chartered  under  a  gen- 
eral statute  reserving  to  the  legislature  the  right  to  repeal  charters 
of  corporations  of  its  class  upon  any  such  violation  or  default,  has 
been  held  not  to  be  a  "judicial  act,"  such  as  the  legislature  is  pro- 
hibited from  performing  by  the  constitutions  of  many  of  the  states.24* 

§  58.  Rule  where  power  to  repeal  is  not  reserved. — Where  the 
power  to  repeal  has  not  been  reserved  a  different  rule  applies.  In  such 
a  case  the  charter  can  only  be  revoked  for  cause  as  established  by  the 
decree  of  a  competent  tribunal  upon  judicial  inquiry,245  and  is  not 
subject  to  legislative  repeal  for  any  alleged  abuse  of  corporate  fran- 
chises,246 at  least  where  the  legislature  is  prohibited  by  the  state  con- 
stitution from  exercising  judicial  powers.247 

§  59.  Effect  of  repeal. — The  legislature  may  not,  under  the  guise 
of  authority  to  repeal  the  charter,  invalidate  contracts  and  vested 

R.   Co.   v.   Vermont,   &c.   R.   Co.   34  Brooklyn  Cent.  R.  Co.  v.  Brooklyn 

Vt.  2.  City  R.  Co.  32  Barb.    (N.  Y.)    358; 

241  Commonwealth  v.  New  Bedford  Commonwealth  v.  Pittsburg,  &c.  R. 

Bridge,  2  Gray  (Mass.)  339;  Taylor  Co.  58  Pa.  St.  26. 
Priv.  Corp.  §  503.  *"  Bruffett    v.    Great   Western    R. 

212  Erie,  &c.  R.  Co.  v.  Casey,  26  Co.  25  111.  353;  University  of  Mary- 
Pa.  287;  Crease  v.  Babcock,  23  Pick,  land  v.  Williams,  9  Gill  &  J.  (Md.) 
(Mass.)  334,  34  Am.  Dec.  61;  Min-  365,  31  Am.  Dec.  72.  But  see  Crease 
ers'  Bank  v.  United  States,  1  Greene  v.  Babcock,  23  Pick.  (Mass.)  334,  34 
(Iowa)  553.  Am.  Dec.  61.  It  has  been  held  that 

""Erie,   &c.    R.    Co.   v.    Casey,    26  a  charter  is  perpetual  and  irrevoca- 

Pa.  St.  287.  ble  if  there  is  no  law  limiting  it  or 

244  Crease    v.    Babcock,     23    Pick,  providing  for  repeal.    Snell  v.  Chi- 

(Mass.)    334,  34  Am.  Dec.  61.     But  cago,  133  111.  413,  24  N.  E.  532,  8  L. 

see  post,  §  58.  R.  A.  858  n.   See,  also,  Suburban,  &c. 

245 Ante,  §§  54,  56.  Co.  v.   Inhabitants,  &c.    (N.  J.),  41 

246  State    v.    Noyes,    47    Me.    189;  Atl.  865;  National,  &c.  Co.  v.  Kansas 

Sturges  v.  Vanderbilt,  73  N.  Y.  384;  City,  65  Fed.  691. 


103 


EFFECT    OF   EEPEAL. 


[§    59 


rights  of  third  parties;248  nor  will  any  action  on  its  part  affect  the 
ownership  of  personal  and  real  property  acquired  by  the  corporation 
during  its  lawful  existence,  or  of  rights  or  contract  of  choses  in  action, 
so  acquired,  which  do  not  in  their  nature  depend  upon  the  general 
powers  conferred  by  the  charter.249  The  rights  of  the  share-holders  of 
such  a  corporation  to  their  interests  in  such  property  are  not,  as  a  rule, 
annihilated  by  such  a  repeal,250  and  where  the  legislature  does  not 
provide  a  special  remedy,  the  courts  may  enforce  those  rights  by  the 
means  within  their  power.251  The  repeal  by  the  legislature  of  the  char- 
ter of  a  corporation,  however,  destroys  its  ability  to  originate  new 
transactions  dependent  on  the  power  conferred  by  the  charter,  and 
leaves  the  incorporators  with  only  such  powers  as  may  be  exercised 
by  unincorporated  private  persons  under  the  general  laws  of  the 
state.252  But  the  legislature  may  charter  a  new  corporation  with  au- 
thority to  take  so  much  of  the  property  and  franchises  of  the  corpora- 
tion whose  charter  is  revoked  as  may  be  necessary  to  the  public  use, 
upon  making  compensation  therefor,253  and  it  has  been  held  that  the 


248  Miller  v.  State,  15  Wall.  (U.  S.) 
478;  Railroad  Co.  v.  Maine,  96  U.  S. 
499;   Rice  v.  Minnesota,  &c.  R.  Co. 
1  Black  (U.  S.)  358;  Detroit  v.  De- 
troit Plank  Road  Co.  43  Mich.  140; 
Albany,  &c.  R.  Co.  v.  Brownell,  24 
N.  Y.  345;   Commonwealth  v.  Essex 
Co.  13  Gray   (Mass.)   239,  253.     But 
see  Macon,  &c.  R.  Co.  v.  Gibson,  85 
Ga.  1,  21  Am.  St.  135. 

249  Greenwood  v.  Marginal,  &c.  R. 
Co.  105  U.  S.  14,  per  Miller,  J.;  New 
Orleans,  &c.  R.  Co.  v.  Delamore,  114 
U.  S.  501,  5  Sup.  Ct.  1009.    See,  also, 
People  v.  O'Brien,  111  N.  Y.  1,  18  N. 
E.  692,  2  L.  R.  A.  255  n.,  7  Am.  St. 
684,  45  Hun   (N.  Y.)   519  and  note; 
Orr  v. -Bracken  County,  81  Ky.  593; 
San  Mateo  v.  Southern,  &c.  R.  Co.  8 
Sawy.    (U.    S.)    238,    279;    State    v. 
Noyes,  47  Me.  189;  Detroit  v.  Detroit 
Plank  Road  Co.  43  Mich.  140;  Mason 
v.  Mining  Co.  133  U.  S.  50,  10  Sup. 
Ct.  224;   Opinion  of  Justices,  66  N. 
H.  630,  33  Atl.  1076.   Some  of  these 
cases,   notably  the   New  York   and 


Maine  cases,  go  still  further  and  ap- 
ply this  rule  to  franchises. 

250  Greenwood  v.  Marginal,  &c.  R. 
Co.  105  U.  S.  14;  Thornton  v.  Margi- 
nal Freight,  &c.  Co.  123  Mass.  32; 
Opinion  of  Justices,  66   N.  H.  630, 
33  Atl.  1076.     And  see  Ingersoll  v. 
Nassau,  &c.  Co.  157  N.  Y.  453,  52  N. 
E.  545,  43  L.  R.  A.  236;   Africa  v. 
Knoxville,  70  Fed.  734;  Citizens'  St. 
R.  Co.  v.  City  R.  Co.  64  Fed.  651; 
Dow  v.  Northern  R.  Co.  67  N.  H.  1, 
36  Atl.  510;   New  York  v.  Twenty- 
third   St.  R.  Co.  113  N.  Y.   311,   21 
N.    E.    60.     An   intent   to   interfere 
with    vested    rights,    which    would 
render  the  statute  unconstitutional, 
will  not  be  inferred  unless  plainly 
declared.    West  Jersey  Traction  Co. 
v.  Camden,  &c.  Co.  52  N.  J.  Eq.  452, 
29  Atl.  333. 

251  Greenwood  v.  Marginal,  &c.  R. 
Co.  105  U.  S.  14. 

252  Greenwood  v.  Marginal,  &c.  R. 
Co.  105  U.  S.  14. 

253  Greenwood  v.  Marginal,  &c.  R. 
Co.  105  U.  S.  14. 


60] 


CHAKTERS. 


104 


repeal  of  a  corporation's  charter  vests  in  the  state  the  right  to  all  pub- 
lic works  built  by  it  for  public  use  on  lands  taken  in  the  name  of  the 
state  (subject  to  the  proprietary  right  of  the  share-holders  to  the  as- 
sets), together  with  the  right  to  manage  them  or  regrant  them  at  its 
election.254 

§  60.  Repeal  of  by  general  laws. — Where  power  to  repeal  is  re- 
served, a  special  charter  may  be  repealed  by  a  general  law,255  even,  it 
has  been  held,  where  no  reference  is  made  to  the  charter  repealed,256 
but  a  general  law  can  have  such  an  effect  only  where  it  is  so  opposed 
to  the  provisions  of  the  charter  that  both  acts  may  not  stand  to- 
gether.257 The  repeal  of  a  general  incorporating  act  does  not,  however, 
affect  the  charter  rights  of  a  corporation  previously  organized  under 
its  provisions,258  unless  such  is  the  intention  of  the  legislature.259 

§61.  Charter  is  subject  to  general  laws  reserving  power  to  re- 
peal.— A  charter,  unless  otherwise  provided,  is  subject  to  the  general 
laws  in  force  when  it  was  granted,260  and,  therefore,  a  general 
law  reserving  the  power  to  alter,  amend  or  repeal  corporate  charters 
generally  is  taken  as  forming  part  of  all  charters  afterwards 
granted.261  For  this  reason,  as  already  stated,262  the  amendment  or  re- 


2M  Erie,  &c.  R.  Co.  v.  Casey,  26  Pa. 
St.  287. 

255  State  v.  Commissioners,  &c.  37 
N.  J.  L.  228;  Mechanics,  &c.  Bank 
v.  Bridges,  30  N.  J.  L.  112.  That  the 
charter  may  be  revoked  by  a  change 
in  the  constitution  of  the  state,  as 
well  as  by  statute,  where  power  to 
repeal  has  been  reserved,  see  Lee 
&  Co.'s  Bank,  Matter  of,  21  N.  Y.  9. 

258  State  v.  Commissioners,  &c.  37 
N.  J.  L.  228.  But  see  City  of  Grand 
Rapids  v.  Grand  Rapids  Hydraulic 
Co.  66  Mich.  606,  33  N.  W.  749;  New 
Jersey  v.  Yard,  95  U.  S.  104,  same 
case  as  above. 

257  State  v.  Commissioners,  &c.  37 
N.  J.  L.  228.    See,  also,  Bangor  R. 
Co.  v.  Smith,  47  Me.  34;  Union  Imp. 
Co.  v.  Commonwealth,  69  Pa.  St.  140. 

258  Bewick  v.  Alpena  Harbor  Co.  39 
Mich.  700;   Donworth  v.  Coolbaugh, 
5  Iowa  300;   Freehold,  &c.  Ass'n  v. 
Brown,  29  N.  J.  Eq.  121;  Union  He- 


brew Ass'n  v.  Benshimol,  130  Mass. 
325;  Bibb  v.  Hall,  101  Ala.  79,  14 
So.  98,  59  Am.  &  Eng.  R.  Cas.  62. 

259  See  Wilson  v.   Tesson,   12   Ind. 
285;    2  Spelling  Priv.  Corp  §  1066; 
Bibb  v.  Hall,  101  Ala.  79,  14  So.  98, 
59  Am.  &  Eng.  R.  Cas.  62. 

260  Pratt  v.  Atlantic,  &c.  R.  Co.  42 
Me.  579. 

261  Massachusetts  Genl.  Hospital  v. 
State  Mut.  L.  A.  Co.  4  Gray  (Mass.) 
227;   Suydam  v.  Moore,  8  Barb.   (N. 
Y.)    358;    Tomlinson  v.   Branch,   15 
Wall.   (U.  S.)   460;   Citizens'  St.  R. 
Co.  v.  Memphis,  53  Fed.  715;   Citi- 
zens' Sav.  Bank  v.  Owensboro,  173 
U.  S.  636,  19  Sup.  Ct.  530,  43  L.  ed. 
840;   Griffin  v.  Kentucky  Ins.  Co.  3 
Bush    (Ky.)    592,  96  Am.  Dec.  259; 
State   v.   Person,   32   N.   J.   L.   134; 
Lee's  Bank,  In  re,  29  N.  Y.  9 ;  Com- 
missioners v.  Holyoke,  &c.  Co.  104 
Mass.  446,  6  Am.  R.  247. 

282  Ante,  §  56. 


105 


EXPIRATION    OF    CHARTEK. 


[ 


peal  of  the  charter  where  such  a  general  law  existed  at  the  time  it  was 
granted  is  not,  ordinarily,  a  violation  of  the  provision  of  the  constitu- 
tion of  the  United  States  forbidding  the  impairment  of  the  obligation 
of  contracts.  And  the  fact  that  part  of  such  a  general  statute  is  incor- 
porated into  a  charter,  does  not,  by  implication,  repeal  the  rest  of  the 
statute.263 


§  62.  Expiration  of  charter. — The  existence  of  railroad  companies 
incorporated  by  special  charters,264  as  that  of  other  business  corpora- 
tions,265 is  frequently  limited  to  a  term  of  years;  and  some  of  the 
states  having  general  laws  for  the  formation  of  such  corporations  limit 
the  time  for  which  a  corporation  may  be  formed  under  them.266  Where 
there  are  no  provisions  for  renewal  of  the  corporation267  or  where  no 
advantage  is  taken  of  such  provisions,  the  corporation  is  ipso  fac£o 
dissolved  upon  the  expiration  of  the  time  for  which  it  was  chartered.268 
It  is  not  necessary  in  such  a  case  that  a  dissolution  should  be  judi- 
cially decreed,269  but  the  plea  of  nul  tiel  corporation  may  be  inter- 
posed to  any  suits  which  it  may  bring,270  and  any  member  may,  in  a 
proper  case,  insist  upon  a  distribution  of  its  assets.271  If  the  charter 


^Angell  &  Ames  Corp.  §  767, 
citing  Pratt  v.  Atlantic,  &c.  R.  Co.  42 
Me.  579. 

264  For  instances  of  such  charters 
of  limited  duration,  see  Charter  of 
the  Union  Railroad  Co.  Local  Laws 
Ind.  1838,  p.  131;  of  Newburgh  and 
Vanderburgh  Railroad  Co.  Local 
Laws  Ind.  1850,  p.  308. 

285  Beach  Railw.  §  577. 

268  R.  S.  111.  Ch.  114,  §  1;  Rev.  L. 
(1884)  La.  §  684.  See  R.  S.  Mo. 
§  926. 

267  For  examples  of  such  provisions, 
see  R.   S.   111.  Ch.  114,  §   5;   N.  Y. 
Laws,  1890,  Ch.  563,  §  22.       % 

268  Oakland  R.  Co.  v.  Oakland,  &c. 
R.  Co.  45  Cal.  365,  13  Am.  R.  181. 
See,  also,  La  Grange,  &c.  R.  Co.  v. 
Rainey,  7  Coldw.  (Tenn.)  432;  Com- 
monwealth v.  Lykens  Water  Co.  110 
Pa.  St.  391,  2  Atl.  63;  Asheville  Di- 
vision v.  Aston,  92  N.  Car.  578;  note 
in  33  L.  R.  A.  576;  Marion,  &c.  Co. 


v.  Perry,  74  Fed.  425,  33  L.  R.  A. 
252;  Combes  v.  Keyes,  &c.  R.  Co. 
89  Wis.  297,  62  N.  W.  89,  27  L.  R.  A. 
369,  46  Am.  St.  839;  3  Purdy's 
Beach  Priv.  Corp.  §  1311. 

289  Merrill  v.  Suffolk  Bank,  31  Me. 
57,  50  Am.  Dec.  649;  Sturges  v.  Van- 
derbilt,  73  N.  Y.  384,  390;  LaGrange, 
&c.  R.  Co.  v.  Rainey,  7  Coldw. 
(Tenn.)  420;  Bank  of  Gallipolis  v. 
Trimble,  6  B.  Mon.  (Ky.)  599. 

270  Brooklyn,  &c.  R.  Co.  In  re,  72 
N.  Y.  245;  Krutz  v.  Paola  Town  Co. 
20  Kan.  397.    But  see  St.  Louis  Gas 
Light  Co.  v.  St.  Louis,  11  Mo.  App. 
55,  84  Mo.  202. 

271  Mann    v.    Butler,    2    Barb.    Ch. 
,  (N.  Y.)  362;  Sturges  v.  Vanderbilt, 

73  N.  Y.  384;  Greely  v.  Smith,  3 
Story  (U.  S.)  657;  Bank  of  Missis- 
sippi v.  Wrenn,  11  Miss.  791;  Eagle 
Chair  Co.  v.  Kelsey,  23  Kan.  632; 
Burns  v.  Metropolitan  Bid.  Ass'n,  2 
Mackey  (D.  C.)  7. 


62] 


CHARTERS. 


106 


is  to  continue  until  a  certain  day,  the  corporation  expires  at  the  close 
of  the  preceding  day.272  But  it  has  been  held  that  a  general  statute 
limiting  the  life  of  corporations  will  not  affect  a  corporation  organ- 
ized under  a  special  charter,  to  which  no  particular  reference  is  made 
in  the  general  act.273  If  the  charter  of  a  company  be  suffered  to 
expire  it  would  seem  that  the  legislature  cannot  then  renew  its  char- 
ter so  as  to  continue  its  existence  as  a  corporate  body,  except  by 
the  consent  of  all  the  corporators.274  This  is  intimated,  rather  than 
decided,  in  the  case  to  which  we  have  referred;  but  where  one  be- 
comes a  stockholder  under  a  charter  expressly  limiting  the  dura- 
tion of  the  corporation,  and  there  is  no  reserved  power  of  amendment) 
or  repeal,  it  seems  clear  to  us  that  he  cannot  be  compelled  to  remain 
or  become  a  stockholder  in  what  is  virtually  a  new  corporation  by  a 
renewal  of  the  charter  after  the  corporation  had  ceased  to  exist  by  rea- 
son of  the  expiration  of  the  original  charter. 


272  People  v.  Walker,  17  N.  Y.  502. 

273  Steadman     v.     Merchants',     &c. 
Bank,  69  Tex.  50,  6  S.  W.  675;  State 
v.  Ladies  of  the   Sacred   Heart,  99 
Mo.   533,   12   S.   W.    293.     See,   also, 
State  v.  Stormont,  24  Kans.  686. 

274  Bailey    v.    Hollister,    26    N.    Y. 
112.    See,  generally,  upon   the  sub- 
ject of  rights  after  charters  expire, 
Union  Pacific  R.  Co.  v.  Chicago,  &c. 
R.  Co.  51  Fed.  309;  Union  Pacific  R. 
Co.    v.    Chicago,    &c.    R.    Co.     163 
U.     S.     564,     16     Sup.     Ct.     1173; 
Kansas,  &c.  Co.  v.  Smith,  40  Kans. 


192,  19  Pac.  636;  Council  Grove, 
&c.  R.  Co.  v.  Lawrence  (Kans.), 
45  Pac.  125;  Detroit,  &c.  Co.  v. 
Macomb  Circuit  Judge,  109  Mich. 
371,  67  N.  W.  531;  Board  v.  De- 
posit Bank,  &c.  124  Fed.  18.  As 
to  the  effect  of  laws  passed  after 
the  enactment  of  the  charter  but 
prior  to  acceptance,  see  Planters, 
&c.  Co.  v.  Tennessee,  161  U.  S.  193, 
16  Sup.  Ct.  466;  Stone  v.  Wisconsin, 
94  U.  S.  674,  24  L.  ed.  102;  Attorney- 
General  v.  Wisconsin,  &c,  R.  Co-.  35 
Wis.  599. 


CHAPTER  V. 


FRANCHISES. 


Sec.  Sec. 

63.  Definition.  70. 

64.  Charter    and    franchise    distin- 

guished. 

65.  Grant  of  corporate  franchises. 

66.  Consideration  for  the  grant  of     71. 

a  franchise. 

67.  Nature  of  a  franchise  further     72. 

considered.  73. 

68.  Franchise   of  being  a  corpora-     74. 

tion. 

69.  Difference  between  a  franchise 

and  a  license.  75. 


Sale  of  corporate  property  es- 
sential to  exercise  of  fran- 
chises— Limitations  of  right 
to  sell. 

Effect  of  attempt  to  sell  fran- 
chise. 

Judicial  sale  of  franchises. 

Sequestration. 

Seizure  of  corporate  franchise 
under  power  of  eminent  do- 
main. 

Dissolution  effected  by  author- 
ized sale  of  franchises. 


§  63.  Definition. — In  its  broad  signification  the  term  "franchises" 
means  "special  privileges  conferred  by  government  on  individuals, 
and  which  do  not  belong  to  the  citizens  of  the  country  generally  by 
common  right/'1  but  the  meaning  of  the  term  "corporate  franchises" 
is  not  so  comprehensive.  We  suppose  that  the  term  "corporate  fran- 
chises" means  such  special  rights  and  privileges  as  are  conferred  upon 
corporations  by  the  legislative  power.2  We  do  not  include  in  our  defi- 
nition corporate  immunities  because  immunities  are  not  always  fran- 
chises,3 although  they  may  sometimes  be  properly  considered  as  such 


1  Angell  &  Ames  Corp.  §  4. 

2  In  Fietsam  v.  Hay,  122  111.  293, 
13  N.  E.  501,  3  Am.  St.  492,  it  is  said 
that   the    term,    in    its   appropriate 
sense,  is  confined  to  such  rights  and 
privileges    as    are    conferred    upon 
corporate      bodies      by      legislative 
grant,  and  that  a  franchise  is  the 
right  or  privilege  of  being  a  corpo- 
ration   and    of    doing    such    things, 
and  such  things  only,  as  are  author- 
ized by  the  charter.    In  Detroit,  &c. 


R.  Co.  v.  Common  Council,  125  Mich. 
673,  85  N.  W.  96,  86  N.  W.  809,  84 
Am.  St.  589,  it  is  said  that  fran- 
chises are  of  three  classes:  1.  The 
right  to  organize  and  exist  as  a  cor- 
poration. 2.  The  right  to  act  gen- 
erally. 3.  The  special  privileges 
which  are  not  possessed  by  indi- 
viduals under  general  laws. 

3  In  the  case  of  Keokuk,  &c.  Co.  v. 
Missouri,  152  U.  S.  301,  14  Sup.  Ct. 
592,  attention  is  directed  to  an  ap- 


107 


§  63] 


FRANCHISES. 


108 


under  the  statute  applicable  to  the  particular  instance.  The  franchises 
of  a  railroad  corporation  are  such  rights  and  privileges  as  are  essential 
to  the  proper  operation  of  a  railroad  and  necessary  to  the  conduct  of 
the  business  of  a  railroad  company.4  Merely  transient  or  personal  im- 
munities do  not,  as  we  believe,  fall  within  the  legal  meaning  of  the 
term.  The  distinction  between  transient  immunities  and  permanent 
rights  and  privileges  which  constitute  franchises  is  one  of  importance 
since  some  franchises  may  be  transferable  while  mere  immunities  are 
not. 


parent  conflict  in  the  decisions.  We 
quote  the  following  from  the  opin- 
ion in  that  case:  "In  Chesapeake, 
&c.  R.  Co.  v.  Miller,  114  U.  S.  176,  5 
Sup.  Ct.  813,  it  was  held  that  an 
immunity  from  taxation  enjoyed  by 
the  Covington  and  Ohio  Railway 
Company  did  not  pass  to"  a  pur- 
chaser of  such  road  under  fore- 
closure of  a  mortgage,  although  the 
act  provided  that  'said  purchaser 
shall  forthwith  be  a  corporation,' 
and  'shall  succeed  to  all  such  fran- 
chises, rights  and  privileges  *  *  * 
as  would  have  been  had  *  *  *  by 
the  first  company  but  for  such  sale 
and  conveyance.'  It  was  held,  fol- 
lowing in  this  particular  Morgan  v. 
Louisiana,  93  U.  S.  217,  that  the 
words  'franchises,  rights  and  privi- 
leges' did  not  necessarily  embrace  a 
grant  of  an  exemption  or  immunity. 
See,  also,  Picard  v.  East  Tenn.  &c. 
R.  Co.  130  U.  S.  637,  9  Sup.  Ct.  640. 
Upon  the  other  hand,  it  was  held 
in  Tennessee  v.  Whitworth,  117  U. 
S.  139,  6  Sup.  Ct.  649,  that  the  right 
to  have  shares  in  its  capital  stock 
exempted  from  taxation  within  the 
state  is  conferred  upon  a  railroad 
corporation  by  state  statutes  grant- 
ing to  it  'all  the  rights,  powers  and 
privileges'  conferred  upon  another 
corporation  named,  if  the  latter  cor- 
poration possesses  by  law  such 
right  of  exemption,  citing  in  sup- 
port of  this  principle  a  number  of 


prior  cases.  See,  also,  Wilmington, 
&c.  R.  Co.  v.  Ashbrook,  146  U.  S. 
279,  297,  13  Sup.  Ct.  72." 

*  In  the  case  of  Morgan  v.  Louisi- 
ana, 93  U.  S.'  217,  233,  it  was  said: 
"Much  confusion  of  thought  has- 
arisen  in  this  case,  and  in  similar 
cases,  from  attaching  a  vague  and 
undefined  meaning  to  the  term  'fran- 
chises.' It  is  often  used  as  synony- 
mous with  rights,  privileges  and  im- 
munities, though  of  a  personal  and 
temporary  character;  so  that,  if  any 
one  of  these  exists,  it  is  loosely 
termed  a  'franchise,'  and  is  sup- 
posed to  pass  upon  a  transfer  of  the 
franchises  of  the  company.  But  the- 
term  must  always  be  considered  in 
connection  with  the  corporation  or 
property  to  which  it  is  alleged  to* 
appertain.  The  franchises  of  a  rail- 
road corporation  are  rights  or  privi- 
leges which  are  essential,  to  the  op- 
erations of  the  corporation,  and 
without  which  its  road  and  works- 
would  be  of  little  value;  such  as  the 
franchise  to  run  cars,  to  take  tolls, 
to  appropriate  earth  and  gravel  for 
the  bed  of  its  road,  or  water  for  its 
engines,  and  the  like.  They  are 
positive  rights  or  privileges,  with- 
out the  possession  of  which  the  road 
of  the  company  could  not  be  suc- 
cessfully worked."  See,  also,  Roch- 
ester R.  Co.  v.  Rochester  (U.  S.),  21 
Sup.  Ct.  469. 


109  CHARTER   AKD   FRANCHISE   DISTIXGUISHED.  [§    64 

§64.  Charter  and  franchise  distinguished. — A  charter  contains 
the  grant  of  a  franchise,  but  is  not  the  franchise  itself.  The  charter 
is  the  evidence  that  a  franchise  has  been  granted  rather  than  the  fran- 
chise, for  that  is  the  thing  the  charter  grants.  The  constitutional  inhi- 
bition against  impairing  the  obligation  of  contract  is  not  operative 
upon  the  charter  but  upon  the  contract  which  the  charter  contains, 
and  protects  franchises  because  they  are  valuable  property  or  contract 
rights.5 

§  65.  Grant  of  corporate  franchises.— A  corporate  franchise  can 
only  be  granted  by  the  sovereign.  Privileges  or  rights  that  are  often 
called  franchises  may  be  granted  by  municipal  corporations  to  railroad 
companies,  but  that  which  is  a  corporate  franchise  in  the  true  sense  of 
the  term  can  only  be  granted  by  the  state.  A  license  to  place  a  railroad 
track  in  a  street  is  sometimes  called  a  franchise,  but  this  is,  it  seems 
to  us,  an  erroneous  use  of  the  term.  The  right  to  use  the  street  is  a 
privilege  or  license,  until  acted  upon,  rather  than  a  corporate  fran- 
chise, except  where  it  is  conferred  as  a  franchise  by  the  charter  or 
statute,6  or  if  a  franchise,  it  is  a  secondary  or  derivative  one,7  and,  at 
all  events,  it  must  be  granted  either  directly  by  the  legislature  or 
through  the  action  of  the  municipality  authorized  by  the  legislature.8 

§  66.  Consideration  for  the  grant  of  a  franchise. — A  franchise, 
using  the  term  "franchise"  as  meaning  a  property  right  vested  in  a 
corporation,  is  always  supported  by  a  consideration.  This  considera- 

5  Oakland  R.  Co.  v.  Oakland,  &c.  Roads  and  Streets  (2d  ed.),  §§  739, 

Co.  45  Cal.  365,  13  Am.  R.  181.  741.     In  one  sense,  however,  such 

•Chicago,  &c.  Co.  v.  People,  73  111.  grant  of  such  a  right  or  privilege, 

541;  Metropolitan,  &c.  Co.  v.  Chica-  when  not  a  mere  naked  license,  may 

go,  &c.  Co.,  87  111.  317 ;    Eichels  v.  be  called  a  secondary  franchise. 

Evansville,  &c.   Co.  78  Ind.  261,  41  7  State  v.  Hilbert,  72  Wis.  184,  39 

Am.  R.   561;    Belleville  v.  Citizens'  N.  W.  326;  Saginaw  v.  Saginaw,  &c. 

R.  Co.  152  111.  171,  38  N.  E.  584,  26  Co.  28  Fed.  529. 

L.  R.  A.  681.     The  right  of  way  is  8  Pittsburg,  &c.  R.  Co.  v.  Hood,  94 

called  an  easement  in  Mayor,  &c.  of  Fed.  618,  36  C.  C.  A.  423;   Potts  v. 

Knoxville  v.  Africa,  77  Fed.  503,  507,  Quaker  City  R.  Co.  161  Pa.  St.  396, 

23    C.    C.    A.    252.      See,    generally,  29  Atl.  108;    Farmer  v.  Myles,  106 

State  v.  Hilbert,  72  Wis.  184,  39  N.  La.  Ann.  333,  30  So.  858;  People's  R. 

W.   326;    Saginaw,  &c.  Co.  v.   Sagi-  Co.  v.  Memphis  R.  Co.  10  Wall.  (U. 

iiaw,  28  Fed.  529;  Jersey  City  v.  Jer-  S.)  38,  51;  Elliott  Roads  and  Streets 

sey  City,  &c.  R.  Co.  20  N.  J.  Eq.  360;  (2d  ed.),  §§  739,  740.    See  and  com- 

Redfield  R.    (3d  ed.)    317;   2  Dillon  pare  Govin  v.  Chicago,  132  Fed.  848. 
Munic.  Corp.   (4th  ed.)   792;  Elliott 


§  67] 


FRANCHISES. 


110 


tion  may  be  the  implied  undertaking  to  perform  corporate  duties  bene- 
ficial to  the  public,  or  it  may  be  an  express  agreement  to  do  or  not  to 
do  a  designated  act.  In  this  respect  a  franchise  differs  essentially  from 
a  bare  license,  for  a  bare  license  is  not  supported  by  any  consideration. 
It  is,  therefore,  entirely  consistent  with  principle  to  hold  that  a  bare 
or  naked  license  is  revocable  and  is  not  protected  as  a  franchise.  The 
license  does  not  become  a  contract  until  it  is  accepted  and  acts  are  per- 
formed under  it  which  vest  the  rights  of  the  parties,  while  a  franchise 
becomes  effective  upon  the  acceptance  of  the  charter  or  the  perform- 
ance of  such  acts  as  are  required  to  be  performed  as  conditions  pre- 
cedent to  the  vesting  of  the  rights  granted.9 

§  67.  Nature  of  a  franchise  further  considered. — The  right  to  ex- 
ist as  a  corporation,  that  is,  as  a  legal  entity  composed  of  individuals 
united  under  a  common  name,  with  the  capacity  both  of  self-perpetu- 
ation and  of  exercising  certain  of  the  powers  and  privileges  of  a  nat- 
ural person,  such  as  the  power  to  sue  and  be  sued,  to  hold  and  con- 
vey property,  to  make  by-laws  for  the  control  of  its  business  and  to 
enter  into  contracts  in  the  corporate  name,  is  often  spoken  of  as  the 
company's  franchise.™  On  the  other  hand,  the  word  "franchises"  is 
frequently  used  to  designate  those  special  privileges  and  powers  con- 


Philadelphia,  &c.  Co.'s  Appeal, 
102  Pa.  St.  123.  See,  generally,  Hen- 
derson v.  Central,  &c.  Co.  21  Fed. 
358;  Western,  &c.  Co.  v.  Citizens', 
&c.  Co.  128  Ind.  525,  26  N.  E.  188,  28 
N.  E.  88,  10  L.  R.  A.  770  n,  25  Am. 
St.  462;  Indianapolis,  &c.  Co.  v.  Citi- 
zens' Co.  127  Ind.  369,  24  N.  E.  1054, 
26  N.  E.  893,  8  L.  R.  A.  539  n;  Peo- 
ple v.  Mutual,  &c.  Co.  38  Mich.  154; 
Atchison  St.  R.  Co.  v.  Nave,  38  Kans. 
744,  17  Pac.  587,  5  Am.  St.  800;  Gal- 
veston  City,  &c.  Co.  v.  Galveston 
City  St.  R.  Co.  63  Tex.  529;  Great 
Central  R.  Co.  v.  Gulf,  &c.  R.  Co.  26 
Am.  &  Eng.  R.  Gas.  114;  Detroit  v. 
Detroit,  &c.  Co.  37  Mich.  558;  Gulf 
City,  &c.  Co.  v.  Galveston,  65  Tex. 
502;  People  R.  Co.  v.  Memphis  R. 
Co.  10  Wall.  38. 

10  Blackstone  Com.  37.  The  right 
to  carry  on  business  in  the  corpo- 


rate name,  to  make  contracts,  to  sue 
and  be  sued,  and  to  acquire  and  hold 
property  as  a  corporate  body,  and  to 
be  exempt  from  liability  for  the 
debts  of  its  stockholders,  and  solely 
liable  for  the  debts  and  liabilities 
contracted  by  it,  with  such  other 
rights  as  enable  the  corporation  to 
act  as  a  person  or  legal  entity,  are 
called  ordinary  franchises  and  may 
be  exercised  in  any  jurisdiction 
where  such  exercise  is  not  expressly 
prohibited.  Prerogative  franchises, 
such  as  the  exercise  of  the  right  of 
eminent  domain,  arise  from  a  spe- 
cial grant,  and  can  only  be  exer- 
cised by  either  an  individual  or  a 
corporation  by  authority  of  such  a 
grant  and  within  the  jurisdiction 
of  the  state  by  which  the  grant  is 
made.  Wood  R.  Law,  §  14;  Rorer 
Railw.  74. 


Ill 


NATURE   OF   A   FRANCHISE   FURTHER   CONSIDERED. 


[§'   6-7 


ferred  upon  a  corporation  for  the  furtherance  of  some  public  work,  such 
as  the  right  to  construct  a  railroad  upon  lands  taken  by  the  right  of 
eminent  domain,  and  "those  rights  or  privileges  which  are  essential  to- 
the  operations  of  the  corporation,  and  without  which  its'  roads  and 
works  would  be  of  little  value,  such  as  the  franchise  to  run  cars,  to  take 
tolls,  to  appropriate  earth  and  gravel  for  the  bed  of  its  road,  or  water 
for  its  engines,  and  the  like."11  In  so  far  as  the  word  is  used  to  desig- 
nate powers  which  an  individual  may  not  exercise  without  a  special 
grant  of  authority  from  the  legislature12  (for  example,  eminent  do- 
main), a  franchise  has,  ordinarily,  no  transferable  value,13  and,  though 
it  may  be  valued  for  taxation  separately  from  the  capital  stock  and 
property,14  it  cannot,  as  a  rule,  be  transferred  by  sale,15  mortgage,16 


u  Morgan  v.  Louisiana,  93  U.  S. 
217;  Lawrence  v.  Morgan  Louisiana, 
&c.  Co.  39  La.  Ann.  427,  2  So.  69,  4 
Am.  St.  265;  Vermont  v.  Boston,  &c. 
R.  Co.  25  Vt.  433.  The  right  to  take 
tolls  is  a  special  franchise.  Beek- 
man  v.  Saratoga,  &c.  R.  Co.  3  Paige 
(N.  Y.)  45. 

12  To  the  effect  that  franchises  to 
build,  own  and  manage  a  railroad 
are  not  necessarily  corporate  nor 
unassignable,  see  Ragan  v.  Aiken, 
77  Tenn.  609,  42  Am.  R.  684;  Bank 
of  Middlebury  v.  Edgerton,  30  Vt. 
182. 

"Morawetz  Priv.  Corp.  §  929. 

u  Wilmington,  &c.  R.  Co.  v.  Board, 
&c.  72  N.  Car.  10;  Corporate  taxa- 
tion, 23  Am.  &  Eng.  Ency.  of  Law. 
See,  also,  Bank  of  California  v.  San 
Francisco,  142  Cal.  276,  75  Pac.  832, 
64  L.  R.  A.  918,  100  Am.  St.  130; 
Horn,  &c.  Co.  v.  New  York,  143  U. 
S.  305,  12  Sup.  Ct.  403. 

"Beach  Priv.  Corp.  §  361,  and 
cases  cited.  No  transfer  of  the 
property  and  franchises  of  a  corpo- 
ration will  invest  the  purchasers 
with  corporate  existence.  New  Or- 
leans, &c.  R.  Co.  v.  Delamore,  114  U. 
S.  501,  5  Sup.  Ct.  1009;  Chaffe  v. 
Ludeling,  27  La.  Ann.  607;  Black 
v.  Delaware,  &c.  Co.  24  N.  J.  Eq.. 


455;  Fietsam  v.  Hay,  122  111.  293, 
13  N.  E.  501,  8  Am.  St.  492;  Atkin- 
son v.  Marietta,  &c.  R.  Co.  15  Ohio 
St.  21,  35;  Oregon  R.  Co.  v.  Ore- 
gonian  R.  Co.,  130  U.  S.  1,  9  Sup. 
Ct.  409;  Gulf,  &c.  R.  Co.  v.  Morris, 
67  Tex.  692,  4  S.  W.  156;  Middlesex 
R.  Co.  v.  Boston,  &c.  R.  Co.  115 
Mass.  347;  Coe  v.  Columbus,  &c.  Co. 
10  Ohio  St.  372,  75  Am.  Dec.  518  n; 
Memphis,  &c.  Co.  v.  Railroad  Com- 
missioners, 112  U.  S.  609,  5  Sup.  Ct. 
299;  Commonwealth  v.  Smith,  92 
Mass.  448,  87  Am.  Dec.  672;  Rollins 
v.  Clay,  33  Me.  132. 

"Richardson  v.  Sibley,  93  Mass. 
65,  87  Am.  Dec.  700;  Daniels  v.  Hart, 
118  Mass.  543;  Black  v.  Delaware, 
&c.  Co.  22  N.  J.  Eq.  130,  396;  Lau- 
man  v.  Lebanon  Val.  R.  Co.  30  Pa. 
St.  42,  72  Am.  Dec.  685;  V/oodruff 
v.  Erie  R.  Co.  25  Hun  (N.  Y.)  246; 
Frazier  v.  East  Tennessee,  &c.  R. 
Co.  88  Tenn.  138,  12  S.  W.  537.  Con- 
tra, Shepley  v.  Atlantic,  &c.  R.  Co. 
55  Me.  395;  Meyer  v.  Johnston,  53 
Ala.  237.  The  franchise  of  being 
a  corporation  is  not  included  in  a 
mortgage  of  all  the  property  and 
franchises  of  a  railroad,  unless  by 
positive  provision  of  law.  Memphis, 
&c.  R.  Co.  v.  Railroad  Commission- 
ers, 112  U.  S.  609,  5  Sup.  Ct.  299; 


68] 


FRANCHISES. 


112 


or  assignment,17  nor  be  sold  on  execution,18  unless  the  legislature  has 
provided  for  such  a  transfer  in  the  charter  or  in  some  general  statute.19 
Where  such  provision  is  made,  the  grantee  receives  the  franchise  in- 
directly from  the  legislature  by  virtue  of  the  power  given  to  the  cor- 
poration.20 

§68.  Franchise  of  being  a  corporation. — Confusion  often  results 
from  the  failure  to  discriminate  between  the  franchise  of  being  a  cor- 
poration and  the  franchise  of  acquiring  rights  and  exercising  corporate 
functions  as  a  corporation.  The  difference  between  the  franchise  of 
being  a  corporation  and  the  franchise  of  exercising  rights  as  a  corpora- 
tion is  important.  A  corporation,  or,  more  accurately,  perhaps,  the  cor- 
porators may  be  invested  with  the  franchise  of  existing  as  a  corpora- 


New  Orleans,  &c.  R.  Co.  v.  Delamore, 
114  U.  S.  501,  5  Sup.  Ct.  1009;  Beach 
R.  Law,  §  616.  See  Snell  v.  Chi- 
cago, 133  111.  413,  24  N.  E.  532, 
8  L.  R.  A.  858  n;  Threadgill  v.  Pum- 
phrey,  87  Tex.  573,  30  S.  W.  356. 
But  see  as  to  franchises  that  pass 
to  purchaser  at  foreclosure  sale 
where  there  is  authority  to  mort- 
gage, Vicksburg  v.  Vicksburg,  &c. 
Co.  202  U.  S.  453,  26  Sup.  Ct.  660, 
663. 

"Beach  Priv.  Corp.  §  361;  Pur- 
dy's  Beach  Priv.  Corp.  §  835;  An- 
gell  &  Ames  Corp.  §  191;  Hurlbut 
v.  Carter,  21  Barb.  (N.  Y.)  221; 
Frazier  v.  East  Tennessee,  &c.  R. 
Co.  88  Tenn.  138,  12  S.  W.  537,  40 
Am.  &  Eng.  R.  Cas.  358;  Richard- 
son v.  Sibley,  93  Mass.  65;  Bowen 
v.  Lease,  5  Hill  (N.  Y.)  221;  Mem- 
phis, &c.  R.  Co.  v.  Railroad  Commis- 
sioners, 112  U.  S.  609,  619,  5  Sup. 
Ct.  299. 

"Randolph  v.  Lamed,  27  N.  J. 
Eq.  557.  But  see  State  v.  Rives,  5 
Ired.  L.  (N.  Car.)  297;  Lawrence 
v.  Morgan's,  &c.  Co.  39  La.  Ann. 
427,  2  So.  69,  4  Am.  St.  265.  Prop- 
erty essential  to  the  exercise  of  a 
franchise  may  not  be  separated 
from  it  and  sold  on  execution.  East 


Alabama  R.  Co.  v.  Doe,  114  U.  S.  340, 
5  Sup.  Ct.  869 ;  Youngman  v.  Elmira, 
&c.  R.  Co.  65  Pa.  St.  278;  Baxter  v. 
Nashville,  &c.  Turnpike  Co.  10  Lea 
(Tenn.)  488;  Louisville,  &c.  R.  Co. 
v.  Boney,  117  Ind.  501,  20  N.  E.  432, 
3  L.  R.  A.  435  n;  Indianapolis,  &c. 
Co.  v.  State,  105  Ind.  37,  4  N.  E. 
316;  East  Alabama  R.  Co.  v.  Doe, 
114  U.  S.  340,  5  Sup.  Ct.  869. 

"East  Boston  Freight  R.  Co.  v. 
Eastern  R.  Co.  13  Allen  (Mass.) 
422;  State  v.  Sherman,  22  Ohio  St. 
411,  428;  Mahaska,  &c.  R.  Co.  v.  Des 
Moines  Valley  R.  Co.  28  Iowa  437; 
State  v.  Richmond,  &c.  R.  Co.  72  N. 
Car.  634.  Where  such  acts  are  done 
without  authority,  the  legislature 
may,  by  ratifying  and  confirming 
them,  render  them  valid.  Shaw  v. 
Norfolk,  &c.  R.  Co.  5  Gray  (Mass.) 
162,  179;  Richards  v.  Merrimack,  &c. 
Co.  44  N.  H.  127,  136;  Branch  v. 
Jessup,  106  U.S.  468,  1  Sup.  Ct.  495; 
Shaw  v.  Norfolk,  &c.  R.  Co.  5  Gray 
(Mass.)  162;  Hall  v.  Sullivan  R. 
Co.  21  Law  R.  138;  Pollard  v.  Mad- 
dox,  28  Ala.  321;  Waterman  Corp. 
§  159. 

20  Taylor  Priv.  Corp.  (2d  ed.) 
§  131. 


113 


FRANCHISE  OF   BEING  A  CORPORATION. 


[§    68 


tion  and  yet  not  endowed  with  the  right  to  do  acts  it  claims  power  to 
do.  Thus,  a  water  company  may  be  invested  with  the  franchise  of  be- 
ing a  corporation  and  yet  not  possess  the  franchise  of  furnishing  a  city 
with  water.21  In  another  case  the  question  was  as  to  the  right  to  ac- 
quire and  hold  property,  and  the  distinction  between  the  capacity  to 
acquire  property  and  the  franchise  to  be  a  corporation  was  clearly 
drawn.22  The  question  received  very  full  consideration  in  still  another 


"Andrews  v.  National  Foundry, 
&c.  Works,  61  Fed.  782,  10  C.  C.  A. 
60.  In  the  opinion  in  that  case  it 
was  said:  "By  its  act  of  incorpora- 
tion, the  Oconto  Water  Company 
came  into  being,  endowed  not  with 
the  right  to  establish  and  maintain 
water-works  in  Oconto,  but  with 
capacity  to  receive  and  exercise  that 
right."  This  illustrates  the  doctrine 
we  are  endeavoring  to  make  clear, 
namely,  that  the  franchise  of  being 
a  corporation  is  essentially  differ- 
ent from  a  right  to  receive  property 
or  the  capacity  to  perform  duties. 
Doubtless  the  power  and  capacity 
may  often  be  implied  from  the  char- 
ter or  statute  creating  the  corpora- 
tion, but  they  are  not  to  be  implied 
from  the  bare  franchise  of  being  a 
corporation. 

"Southern,  &c.  Co.  v.  Orton,  32 
Fed.  457,  473.  Judge  Sawyer,  in  the 
course  of  his  very  able  opinion, 
said:  "The  creative  act  necessarily 
extends  only  to  the  bringing  into 
being  of  an  artificial  person,  with 
the  capacities  stated,  among  which 
is,  'a  capacity  to  receive  and  enjoy 
in  common  grants  and  privileges 
and  immunities;'  that  is  to  say,  a 
capacity  to  receive  and  enjoy  such 
grants,  privileges  and  immunities  as 
may  be  made  either  at  the  time  of 
the  creation  or  any  other  time.  The 
creation  of  the  being,  with  the  ca- 
pacity to  receive  grants,  is  one 
thing;  the  granting  of  other  privi- 
leges and  immunities,  which  it  has 
ELL.  RAILROADS — 8 


the  capacity  to  receive  when  cre- 
ated, is  another.  When  such  a  be- 
ing is  brought  into  existence,  a  cor- 
poration has  been  created.  A  legal 
entity,  a  person,  has  been  created, 
with  a  capacity  to  do,  by  its  corpo- 
rate name,  such  things  as  the  legis- 
lative power  may  permit,  and  re- 
ceive such  grants  of  such  rights  and 
privileges,  and  of  such  property,  as 
the  legislature  itself,  or  private  per- 
sons with  the  legislative  permission, 
may  give.  But  I  do  not  understand 
that  every  right,  privilege  or  grant 
that  can  be  conferred  upon  a  corpo- 
ration must  be  given  simultaneous- 
ly with  the  creative  act  of  incorpo- 
ration. On  the  contrary,  I  suppose 
the  artificial  being  must  be  created 
with  a  capacity  to  receive  before 
anything  can  be  received.  The  right 
to  be  a  corporation  is  itself  a  sepa- 
rate, distinct  and  independent  fran- 
chise, complete  within  itself,  and  a 
corporation  having  been  created,  en- 
joying this  franchise,  may  receive  a 
grant  and  enjoy  other  distinct  and 
independent  franchises,  such  as 
may  be  granted  to  and  enjoyed  by 
natural  persons.  But  because  it  en- 
joys the  latter  franchises,  they  do 
not,  therefore,  constitute  a  part  of 
the  distinct  and  independent  essen- 
tial franchise — the  right  to  be  a  cor- 
poration. They  are  additional  fran- 
chises given  to  the  corporation,  and 
not  parts  of  the  corporation  itself, 
— not  of  the  essence  of  the  corpora- 
tion." 


§  69] 


FRANCHISES. 


114 


case,  and  the  rule  was  well  stated  by  the  court  and  its  position  en- 
forced with  great  strength.23  Indeed,  there  is  authority  for  saying  that 
the  franchise  to  become  and  exist  as  an  artificial  being  or  corporation 
vests  in  the  corporators,  while  the  franchise  to  act  in  a  certain  way  and 
exercise  the  privileges  granted  for  that  purpose  vests  in  the  corpora- 
tion.24 

§  69.  Difference  between  a  franchise  and  a  license. — A  distinction 
must  be  kept  in  mind  between  a  charter  franchise  constituting  a  con- 
tract on  the  part  of  the  state  in  consideration  of  certain  duties  which, 
by  accepting  the  charter,  the  corporation  undertakes  to  perform,  and  a 
mere  legislative  permission  or  license,  which  is  revocable  at  the  pleasure 
of  the  grantor.  A  supplement  to  a  charter,25  or  a  general  statute  or  or- 


23  In  the  case  of  Coe  v.  Columbus, 
&c.  Co.  10  Ohio  St.  372,  75  Am.  Dec. 
518,  speaking  of  the  distinction  re- 
ferred to  in  the  text,  the  court  said: 
"This  distinction  has  been  clearly 
pointed  out  in  a  recent  case,  in 
which  it  is  said:  'Among  the  fran- 
chises of  the  company  is  that  of  be- 
ing a  body  politic,  with  rights  of 
succession  of  members,  and  of  ac- 
quiring, holding  and  conveying 
property,  and  suing  and  being  sued, 
by  a  certain  name.  Such  an  arti- 
ficial being  only  the  law  can  cre- 
ate; and  when  created  it  cannot 
transfer  its  own  existence  into  an- 
other body,  nor  can  it  enable  natu- 
ral persons  to  act  in  its  name,  save 
as  its  agents  or  as  members  of  the 
corporation,  acting  in  conformity 
with  the  modes  required  or  allowed 
by  its  charter.  The  franchise  to  be 
a  corporation,  is,  therefore,  not  a 
subject  of  sale  and  transfer,  unless 
the  law,  by  some  positive  provision, 
has  made  it  so,  and  pointed  out  the 
modes  in  which  such  sale  and  trans- 
fer may  be  effected.  But  the  fran- 
chises to  build,  own  and  manage  a 
railroad,  and  to  take  tolls  thereon, 
are  not  necessarily  corporate  rights; 
they  are  capable  of  existing  in  and 
being  enjoyed  by  natural  persons; 


and  there  is  nothing  in  their  nature 
inconsistent  with  their  being  as- 
signable'. Hall  v.  Sullivan  R.  Co.  21 
Law  R.  138,  140,  1  Brun.  Col.  Gas. 
613,  Curtis,  J.  Very  similar  lan- 
guage is  used  in  a  recent  case  in 
Vermont.  Bank  of  Middlebury  v. 
Edgerton,  30  Vt.  182-190."  The  same 
general  doctrine  is  asserted  in 
Grand  Rapids,  &c.  Co.  v.  Prange,  35 
Mich.  400,  24  Am.  R.  585;  Fort 
Worth,  &c.  Co.  v.  Rosedale,  &c.  Co. 
68  Tex.  169,  176. 

"Fietsam  v.  Hay,  122  111.  293, 
13  N.  E.  501,  3  Am.  St.  492.  So, 
in  Memphis,  &c.  R.  Co.  v.  Rail- 
road Com'rs.  112  U.  S.  619,  5  Sup. 
Ct.  299,  303,  it  is  said:  "The 
franchise  of  being  a  corporation  be- 
longs to  the  corporators,  while  the 
powers  and  privileges,  vested  in  and 
to  be  exercised  by  the  corporate 
body  as  such,  are  the  franchises  of 
the  corporation."  But  see  Knoup  v. 
Piqua  Branch,  1  Ohio  St.  614; 
Young  v.  Webster  City  R.  Co.  75 
Iowa  140,  39  N.  W.  234. 

25  Philadelphia,  &c.  R.  Co.'s  Ap- 
peal, 102  Pa.  St.  123.  See  Johnson 
v.  Crow,  87  Pa.  St.  184;  Christ 
Church  v.  County  of  Philadelphia, 
24  How.  (U.  S.)  300. 


115 


SALE  OF  CORPORATE  PROPERTY. 


[§70 


dinance,26  which  confers  new  rights  or  privileges  for  an  indefinite  time 
without  the  imposition  of  any  new  burdens,  generally  amounts  to  a 
mere  license.  A  mere  naked  license  is  revocable  at  the  pleasure  of  the 
legislature,  but  where  there  is  money  expended  upon  the  faith  that  a 
permanent  right  is  granted,  it  seems  to  us  that  the  license  is  not  rev- 
ocable. This  opinion  is,  we  know,  opposed  by  eminent  judges  and  au- 
thors, but  it  seems  to  us  to  rest  on  sound  and  solid  principle.27  Of 
course,  the  doctrine  we  favor  cannot  prevail  where  there  is  no  grant  of  a 
permanent  right  and  the  parties  understand,  or  are  bound  to  know,  that 
a  mere  temporary  privilege  is  granted,  but  where  the  privilege  is  in  its 
nature  permanent  and  is  acted  upon  as  such  by  the  parties  in  good 
faith,  and  money  is  expended  in  the  just  belief  that  the  right  is  of  a 
permanent  nature,  the  party  making  the  expenditure  is  entitled  to 
protection.28 

§  70.  Sale  of  corporate  property  essential  to  exercise  of  franchises — 
Limitation  of  right  to  sell. — According  to  the  greater  weight  of  author- 
ity, a  railroad  corporation  may  not  transfer  any  of  its  property  or 
privileges  which  are  essential  to  a  fulfillment  of  the  purposes  for 


^Southwark  R.  Co.  v.  Philadel- 
phia, 47  Pa.  St.  314;  Branson  v. 
Philadelphia,  47  Pa.  St.  329. 

"That  an  ordinance  granting  a 
right  to  use  a  city  street  is  an  irre- 
vocable contract  when  accepted  and 
acted  on,  see  Asheville  St.  R.  Co.  v. 
Asheville,  109  N.  Car.  688,  14  S.  E. 
316;  Arcata  v.  Arcata,  &c.  Co.  92 
Cal.  639,  28  Pac.  676;  Belleville  v. 
Citizens'  R.  Co.  152  111.  171,  38  N.  E. 
584,  26  L.  R.  A.  681;  Williams  v. 
Citizens'  R.  Co.  130  Ind.  71,  73,  29 
N.  E.  408,  409,  15  L.  R.  A.  64,  3  Am. 
St.  201;  Elliott  Roads  and  Streets 
(2d  ed.),  §  741.  Professor  Hare,  re- 
ferring to  the  Pennsylvania  cases 
cited  in  the  following  note,  says: 
"These  decisions  are  obviously 
sound.  An  individual  who  gives  a 
license  which  cannot  be  enjoyed 
without  the  expenditure  of  money 
may  fairly  be  presumed  to  intend 
that  it  shall  be  irrevocable,  but  no 
such  inference  can  be  drawn  where 


the  state  or  city  is  dealing  with  a 
highway,  and  ought  to  retain  the 
power  of  supervision  and  control." 
1  Hare  Am.  Const.  Law,  666. 

28  Some  of  the  cases  hold  that  such 
a  license  is  revocable,  although  the 
grantee  has  made  valuable  improve- 
ments in  the  belief  that  the  privi- 
lege will  not  be  recalled.  Branson 
v.  Philadelphia,  47  Pa.  St.  329;  Mo- 
nongahela,  &c.  Co.  v.  Coons,  6 
Watts  &  S.  (Pa.)  101;  Southwark 
R.  Co.  v.  Philadelphia,  47  Pa.  St. 
314;  Beach  Priv.  Corp.  §  21;  Purdy's 
Beach  Priv.  Corp.  §  56.  But  there  is 
conflict  on  this  point.  Campbell  v. 
Indianapolis,  &c.  R.  Co.  110  Ind. 
490,  11  N.  E.  482;  People  v.  Chicago, 
£c.  Co.  18  111.  App.  125;  People  v. 
O'Brien,  111  N.  Y.  1,  7  Am.  St.  684; 
State  v.  Noyes,  47  Me.  189;  Com- 
monwealth v.  Proprietors,  &c.  2  Gray 
(Mass.)  339;  Elliott  Roads  and 
Streets,  563,  564. 


§71] 


FRANCHISES. 


11G 


which  it  was  chartered,  except  by  legislative  authority.  Property  not 
held  for  strictly  corporate  purposes,  that  is  property  not  necessary  to 
enable  the  corporation  to  exercise  its  corporate  functions  and  perform 
its  corporate  duties  may  be  sold ;  but  property  necessary  for  corporate 
use  cannot  be  sold  or  transferred  where  its  sale  would  render  the  cor- 
poration unable  to  perform  its  corporate  duties.  In  other  words,  a 
corporation  cannot  sell  or  transfer  its  property  in  cases  where  such  a 
sale  or  transfer  would  disable  it  from  performing  its  corporate  duties 
and  exercising  its  corporate  functions  except  in  cases  where  there  is 
legislative  authority  to  make  such  sales  or  transfers.29 

§71.  Effect  of  attempt  to  sell  franchise. — Though  all  of  the 
property  of  the  corporation  should  pass  into  the  hands  of  a  purchaser, 
he  would  not  by  such  purchase,  necessarily,  become  entitled  to  the 
franchises,30  in  the  absence  of  any  law  giving  authority  to  dispose  of 
the  corporate  rights  and  privileges;  for  an  authority  to  mortgage  or 
otherwise  transfer  the  property  will  not  necessarily  confer  power  to 
dispose  of  the  franchises.31  It  is,  of  course,  competent  for  the  legisla- 


29  Thomas  v.  West  Jersey  Co.  101 
U.  S.  71;  Pennsylvania  Co.  v.  St. 
Louis,  &c.  Co.  118  U.  S.  290,  6  Sup. 
Ct.  1094;  Oregon  v.  Oregonian,  &c. 
Co.  130  U.  S.  1,  9  Sup.  Ct.  409;  Cen- 
tral Transportation  Co.  v.  Pullman, 
&c.  Co.  139  U.  S.  24,  11  Sup.  Ct.  478; 
York,  &c.  R.  Co.  v.  Winans,  17  How. 
(U.  S.)  30;  Pearce  v.  Madison,  &c. 
Co.  21  How.  (U.  S.)  441;  Pullan  v. 
Cincinnati,  &c.  Co.  4  Biss.  (U.  S.) 
35;  Richardson  v.  Sibley,  93  Mass. 
65,  87  Am.  Dec.  700;  Commonwealth 
v.  Smith,  10  Allen  (Mass.)  448,  455, 
87  Am.  Dec.  672;  State  v.  Dodge 
City,  &c.  R.  Co.  53  Kans.  377,  36 
Pac.  747,  42  Am.  St.  295;  Richards 
v.  Merrimack  R.  Co.  44  N.  H.  136; 
Roper  v.  McWhorter,  77  Va.  214; 
Singleton  v.  Southwestern  R.  Co.  70 
Ga.  464,  48  Am.  R.  574  n;  Logan  v. 
North  Carolina  R.  Co.  116  N.  Car. 
940,  21  S.  E.  959;  Vermont,  &c.  Co. 
v.  Vermont,  &c.  Co.  34  Vt.  1;  Black 
v.  Delaware  &c.  Co.  22  N.  J.  Eq.  130; 
Stewart's  Appeal,  56  Pa.  St.  413; 


Pittsburgh,  &c.  Co.  v.  Allegheny 
County,  63  Pa.  St.  126;  Johnson  Co. 
v.  Miller,  174  Pa.  St.  605,  34  Atl. 
316,  52  Am.  St.  833;  Philadelphia 
v.  Philadelphia,  &c.  R.  Co.  177  Pa. 
St.  292,  35  Atl.  610,  34  L.  R.  A.  564; 
Hays  v.  Ottawa,  &c.  Co.  61  111.  422; 
Atlantic,  &c.  Co.  v.  Union  Pacific, 
&c.  Co.  1  Fed.  745;  Cumberland 
Tel.  Co.  v.  Evansville,  127  Fed.  187. 
The  general  doctrine  was  thus  stat- 
ed in  Black  v.  Delaware,  &c.  Co.  22 
N.  J.  Eq.  130:  "It  may  be  con- 
sidered as  settled  that  a  corporation 
cannot  lease  or  alienate  any  fran- 
chise, or  any  property  nececssary  to 
perform  its  obligations  and  duties 
to  the  state,  without  legislative  au- 
thority." 

30  Pierce  v.  Emery,  32  N.  H.  484; 
Bruffett  v.  Great  Western  R.  Co.  25 
111.  353,  357;   Clarke  v.  Omaha,  &c. 
R.  Co.\4  Neb.  458;  Atkinson  v.  Mari- 
etta, &c.  R.  Co.  15  Ohio  St.  21. 

31  McAllister    v.    Plant,    54    Miss. 
106;  Pullan  v.  Cincinnati,  &c.  R.  Co. 


117 


JUDICIAL  SALE  OF  FRANCHISES. 


[ 


ture  to  confer  power  to  sell  and  convey  corporate  franchises,  but  the 
power  is  not  an  incidental  one  and  cannot  exist  in  the  absence  of  a 
statute  conferring  it.  The  attempt  to  sell  a  corporate  franchise  with- 
out statutory  authority  would  be  ineffective,  and  would  pass  no  title, 
but  the  question  as  to  who  may  take  advantage  of  the  attempt  to 
sell  where  the  power  does  not  exist  is  one  upon  which  there  is  some 
diversity  of  opinion.  But,  in  most  of  the  states,  railroad  corporations 
are  given  power  by  statute  to  mortgage,  or  sell,  their  franchises  as 
well  as  their  tangible  property,  subject  to  certain  restrictions.32 

§  72.  Judicial  sale  of  franchises. — As  a  general  rule,  corporate 
franchises  cannot  be  sold  on  a  judgment  or  decree  unless  the  statute 
authorizes  a  sale.33  Where  power  is  conferred  upon  a  corporation  to 
mortgage  all  its  property  and  franchises  a  sale  upon  a  decree  foreclos- 
ing such  a  mortgage  will  convey  to  the  purchaser  all  such  franchises 
as  are  necessary  to  the  use  and  enjoyment  of  the  property  bought  by 
him  at  such  sale.34  The  franchise  to  be  a  corporation  does  not  pass 


4  Biss.  (U.  S.)  35.  See  Phila- 
delphia v.  Western  U.  Tel.  Co.  11 
Phila.  327;  Cumberland  Tel.  Co.  v. 
Evansville,  127  Fed.  187;  and  note 
in  35  Am.  St.  390.  But  compare 
Threadgill  v.  Pumphrey,  87  Tex. 
573,  30  S.  W.  356. 

32Stimson  Am.  Stat.  (1892) 
§  8642.  In  the  United  States  it 
would  be  difficult  to  find  a  railroad 
that  has  not  mortgaged  its  road  and 
franchise,  and  in  most  instances 
under  express  legislative  authority. 
Taylor  Priv.  Corp.  (2d  ed.)  §  305. 

33  Wellsborough  v.  Griffin,  57  Pa. 
St.  417;  Ammant  v.  President,  &c. 
13  Serg.  &  R.  (Pa.)  212;  Leedom  v. 
Plymouth,  &c.  Co.  5  Watts  &  S. 
(Pa.)  265;  Wood  v.  Truckee,  &c. 
Qo.  24  Cal.  474;  Gue  v.  Tidewater, 
&c.  Co.  24  How.  (U.  S.)  257;  Ply- 
mouth, &c.  Co.  v.  Colwell,  39  Pa.  St 
337,  80  Am.  Dec.  526;  Youngman  v. 
Railroad  Co.  65  Pa.  St.  278;  James 
v.  Pontiac  Road  Co.  8  Mich.  91; 
Meyer  v.  Johnston,  53  Ala.  237;  Mil- 
ler v.  Rutland,  &c.  R.  Co.  36  Vt.  452. 


See  State  v.  Rives,  5  Ired.  (N.  Car.) 
297;  Coe  v.  Cincinnati,  &c.  Co.  10 
Ohio  St.  372,  75  Am.  Dec.  518;  Coe 
v.  Peacock,  14  Ohio  St.  187;  Stewart 
v.  Jones,  40  Mo.  140;  Railroad  v. 
James,  6  Wall.  (U.  S.)  750;  Foster 
v.  Fowler,  60  Pa.  St.  27;  Richard- 
son v.  Sibley,  93  Mass.  65,  87  Am. 
Dec.  700. 

34  In  New  Orleans,  &c.  Co.  v.  Dela- 
more,  114  U.  S.  501,  5  Sup.  Ct.  1009, 
the  court  said:  "When  there  has 
been  a  judicial  sale  of  railroad  prop- 
erty under  mortgage  authorized  by 
law,  covering  its  franchise,  it  is  now 
well  settled  that  the  franchises  nec- 
essary to  the  use  and  enjoyment  of 
the  railroad  passes  to  the  pur- 
chaser." Memphis,  &c.  Co.  v.  Rail- 
road Commissioners,  112  U.  S.  609,  5 
Sup.  Ct.  299 ;  Chaff ee  v.  Ludeling,  27 
La.  Ann.  607;  Metz  v.  Buffalo,  &c. 
Co.  58  N.  Y.  61,  17  Am.  R.  201;  Peo- 
ple v.  Brooklyn,  &c.  Co.  89  N.  Y.  75 ; 
Atkinson,  &c.  Co.  v.  Marietta,  &c. 
Co.  15  Ohio  St.  21;  Detroit  v.  Mu- 
tual, &c.  Co.  43  Mich.  594,  5  N.  W. 


§'  73]  FRANCHISES.  118 

to  the  purchaser  unless  a  clear  provision  of  positive  law  makes  it 
transferable.  The  franchise  of  being  a  corporation  is  a  peculiar  one, 
and,  as  we  have  seen,  is  essentially  different  from  other  corporate 
franchises;  so  peculiar  is  it  that  ordinarily  it  is  not  assignable  and, 
indeed,  is  never  assignable  except  when  made  so  by  statute.35  The 
right  to  sell  corporate  franchises  being  statutory  the  general  rule  is 
that  the  sale  must  be  conducted  in  substantial  conformity  to  the  re- 
quirements of  the  statute,  and  where  a  mode  is  provided  for  making 
the  sale  it  is  exclusive  and  must  be  pursued.36  The  purchaser  at  a 
valid  judicial  sale  takes  all  the  property  and  franchises  of  the  corpo- 
ration in  cases  where  the  sale  of  such  property,  and  franchises  is  author- 
ized by  statute,  but  is  not  bound  for  the  debts  of  the  corporation.37 
The  franchises  which  pass  by  the  sale  are,  however,  such  only  as  by  law 
can  be  sold  and  transferred.  Purchasers  at  such  a  sale  may  organize 
a  new  corporation,  and  generally  the  new  corporation  will  succeed  to 
the  franchises  of  the  old  (provided,  of  course,  there  was  authority  to 
sell  the  franchises)  except  the  franchise  to  be  a  corporation.  That 
franchise  does  not  come  from  the  sale  but  from  the  sovereign. 

§  73.  Sequestration. — The  process  of  sequestration  is  a  writ  or 
commission  issued  to  some  officer  or  person  empowering  him  to  enter 
into  possession  of  property  and  receive  the  rents,  revenues  or  profits 
thereof,  and  to  apply  them  as  the  court  may  order  or  adjudge.38  The 
statutes  in  most  of  the  states  have  supplanted  the  old  chancery  doc- 
trine ;  in  others  its  existence  has  been  denied  upon  the  ground  that  the 

1039.    See,   also,   Julian  v.   Central  &c.  R.  Co.  58  N.  Y.  61, 17  Am.  R.  201; 

Trust  Co.  193  U.  S.  93,  24  Sup.  Ct.  People  v.  Cook,  110  N.  Y.  443,  18  N. 

399,  404,  405.  E.   113;    Snell  v.    Chicago,    133    111. 

35  Memphis,    &c.    Co.    v.    Railroad  413,  24  N.  E.  532,  8  L.  R.  A.  858. 

Commissioners,  112  U.  S.  609,  5  Sup.  88  James    v.    Pontiac,    &c.    Co.    8 

Ct.  299;  Willamette,  &c.  Co.  v.  Bank,  Mich.   91.     See,   generally,   Titcomb 

119  U.  S.  191,  7  Sup.  Ct.  187;  Hall  v.  v.   Union   Marine,   &c.   Co.    8   Mass. 

Sullivan,   &c.   Co.   1   Brun.    (C.   C.)  326;     Howe     v.     Starkweather,     17 

613;    Commonwealth    v.    Smith.    92  Mass.  240;  Stamford  Bank  v.  Ferris, 

Mass.  448,  87  Am.  Dec.  672;  Adams  17  Conn.  259. 

v.  Boston,  &c.  Co.  4  Nat.  Bank  Reg.  "Vilas  v.   Milwaukee,   &c.   Co.   17 

(314)  99;  Sweatt  v.  Boston,  &c.  Co.  Wis.  497;   Smith  v.  Chicago,  &c.  Co. 

5  Nat.  Bank  Reg.  234;   Grand  Rap-  18  Wis.  17;    Stewart,  &c.  Co.'s  Ap- 

ids,  &c.  Co.  v.  Prange,  35  Mich.  400,  peal,  72  Pa.  St.  291. 

24  Am.  R.  585;   Eldridge  v.  Smith,  » Hinde's  Ch.   Pr.   127;    Angell  & 

34  Vt.  484;  notes  in  35  Am.  St.  399,  Ames  on  Corp.  §§  670,  671. 
and  103  Am.  St.  555;  Metz  v.  Buffalo, 


119 


SEQUESTRATION. 


[ 


courts  did  not  possess  inherent  equity  powers,  in  others  the  doctrine 
has  been  modified,  and  in  some  others  prevails  without  substantial 
change.39  In  many  respects  decrees  appointing  receivers  for  railroad 
corporations  accomplish  essentially  the  same  results  as  those  accom- 
plished by  sequestration,  and  the  process  of  sequestration  is  seldom 
employed  in  jurisdictions  where  the  authority  to  appoint  receivers  is 
broad  and  comprehensive.40  As  is  the  case  where  receivers  are  ap- 
pointed the  appointment  of  a  sequestrator  does  not,  as  a  general  rule, 
end  the  corporate  existence,  but  the  sequestrator  takes  possession  of  the 
corporate  property  and  employs  the  corporate  franchises  in  conduct- 
ing business.  If  the  debts  are  discharged  in  full  the  property  and 
franchises,  as  a  rule,  revert  to  the  corporation.41  The  money  received 
by  the  sequestrator  of  a  corporation  is  to  be  distributed  among  the 
creditors  in  substantially  the  same  manner  as  in  the  case  of  the  in- 
solvency of  a  natural  person.42 


39  Earl  of  Kildare  v.  Eustace,  1 
Vern.  419;  Lowten  v.  Mayor,  2  Mer. 
393;  McKim  v.  Odom,  3  Bland  Ch. 
(Md.)  407;  Grew  v.  Breed,  53  Mass. 
363,  46  Am.  Dec.  687;  Johnson  v. 
Chippendall,  2  Sim.  55;  Prancklyn 
v.  Colhoun,  3  Swanst.  276;  Ammant 
v.  New  Alexandria,  &c.  Co.  13  Serg. 
&  R.  (Pa.)  210,  15  Am.  Dec.  593  n; 
Clarkson  v.  DePeyster,  3  Paige  (N. 
Y.)  320;  Devoe  v.  Ithaca,  &c.  Co.  5 
Paige  (N.  Y.)  521;  Judson  v.  Rossie 
Galena  R.  Co.  9  Paige  (N.  Y.)  598, 
38  Am.  Dec.  569;  Cook  v.  Detroit, 
&c.  R.  Co.  45  Mich.  453;  Jones  v. 
Boston,  &c.  Co.  21  Mass.  507,  16  Am. 
Dec.  358;  Bangs  v.  Mclntosh,  23 
Barb.  (N.  Y.)  591;  Reid  v.  North- 
western, &c.  Co.  32  Pa.  St.  257;  Ger- 
mantown,  &c.  Co.  v.  Fitler,  60  Pa. 
St.  124,  100  Am.  Dec.  546;  Mann  v. 
Pentz,  3  N.  Y.  415;  Foster  v.  Fowler, 
60  Pa.  St.  27;  Steiner's  Appeal,  27 
Pa.  St.  313 ;  Penrose  v.  Erie,  &c.  Co. 
56  Pa.  St.  46,  93  Am.  Dec.  778;  Mc- 
Kusick  v.  Seymour,  48  Minn.  172,  50 
N.  W.  1114;  Muncy  Creek,  &c.  Co.  v. 
Hill,  84  Pa.  St.  459;  Hospes  v. 
Northwestern,  &c.  Co.  48  Minn.  174, 
50  N.  W.  1117,  15  L.  R.  A.  470,  31 


Am.  St.  637;  Cypress  Shingle  Co.  v. 
Lorio,  46  La.  Ann.  441,  15  So.  95. 

40  In  addition  to  those  cases  cited 
in  preceding  note  relative  to  proc- 
ess of  sequestration  we  cite,   Ford 
v.  Plankinton  Bank,  87  Wis.  363,  58 
N.   W.    766;    Morgan   v.    Turner,    4 
Tex.  Civ.  App.  192,  23  S.  W.  284,  23 
S.  W.  284;  Bloom  v.  Burdick,  1  Hill 
(N.   Y.)    130,   37   Am.   Dec.   299   n; 
Rankine  v.   Elliott,   16   N.   Y.   377; 
Foster  v.  Townshend,  68  N.  Y.  203; 
Donnelly  v.  West,  17  Hun   (N.  Y.) 
564;  London,  &c.  Co.  v.  Morphy,  10 
Ont.  86,  12  Am.  &  Eng.  Corp.  Gas. 
53;    Neall  v.  Hill,  16  Cal.  145,  150, 
76   Am.   Dec.   508  n;    Craddocks   v. 
Ins.  Co.,  5  Phila.  249;   Rodbourn  v. 
Utica,  &c.  R.   Co.  28  Hun    (N.  Y.) 
369;   Mott  v.  Union  Bank,  38  N.  Y. 
18;   Loder  v.  New  York,  &c.  Co.  4 
Hun  (N.  Y.)  22. 

41  Mann  v.  Pentz,  3  N.  Y.  415;  Kin- 
caid  v.  Dwinelle,  59  N.  Y.  548;  Hol- 
'lingshead  v.  Woodward,  35  Hun  (N. 
Y.)   410;   Parry  v.  American  Opera 
Co.  12  Civ.  Pro.  (N.  Y.)  194;  Angell 
v.  Silsbury,  19  How.  Pr.  (N.  Y.)  48. 

42  Steiner's  Appeal,  27  Pa.  St.  313. 
The  sequestrator  may  be  empowered 


74] 


FRANCHISES. 


120 


§  74.  Seizure  of  corporate  franchise  under  power  of  eminent  do- 
main.— The  corporation  has  a  property  interest  in  its  franchises,  and 
they  may  not  be  taken  from  it  by  the  legislature  and  conferred  upon 
another  company  without  compensation  ;43  but  they  are  subject  to  the 
power  of  eminent  domain  and  may  be  taken  under  that  power  when- 
ever the  interests  of  the  public  require  it.44  Property  of  this  kind, 
however,  is  so  far  favored  in  law  that  authority  to  take  the  franchise 
of  a  corporation  will  not  be  implied  from  a  grant  of  power  to  take 
property,  conferred  in  general  terms,45  unless  the  taking  be  necessary 
to  carry  out  the  purposes  of  the  charter  containing  such  a  grant.46 
The  intention  to  grant  such  power  must  appear  by  express  words,47 
or  by  necessary  implication.48 

§75.    Dissolution  effected  by  authorized  sale  of  franchises. — The 

power  of  the  legislature  to  authorize  the  sale  of  all  corporate  franchises 
is,  as  we  have  seen,  undoubted,  and  when  a  sale  is  made  pursuant 
to  a  valid  statute  of  all  franchises  it  has  been  held  that  the  corporate 
existence  necessarily  terminates.49  We  suppose  that  the  authorized 
sale  of  part  of  the  corporate  franchises  would  not  necessarily  and  of 


to  sell  the  corporate  property,  or  he 
may  be  authorized  to  use  the  prop- 
erty and  franchises  until  enough 
money  is  earned  to  satisfy  the 
claims  of  creditors. 

43  Boston  Water  Power  Co.  v.  Bos- 
ton, &c.  R.  Co.  23  Pick.  (Mass.)  360. 

"Newcastle  R.  Co.  v.  Peru  R.  Co. 
3  Ind.  464;  Richmond  R.  Co.  v.  Lou- 
isa R.  Co.  13  How.  (U.  S.)  71;  Jer- 
sey City,  &c.  R.  Co.  v.  Jersey  City, 
&c.  R.  Co.  20  N.  J.  Eq.  61;  Northern 
R.  Co.  v.  Concord,  &c.  R.  Co.  27  N. 
H.  183;  New  York,  &c.  R.  Co.  v.  Bos- 
ton, &c.  R.  Co.  36  Conn.  196;  Beek- 
man  v.  Saratoga  R.  Co.  3  Paige  Ch. 
(N.  Y.)  45,  22  Am.  Dec.  679  n;  post, 
§  967. 

45  Buffalo,  Matter  of,  68  N.  Y.  167. 

48  Little  Miami,  &c.  R.  Co.  v.  Day- 
ton, 23  Ohio  St.  510;  Boston,  &c.  R. 
Co.  In  re,  53  N.  Y.  574;  Milwaukee, 
&c.  R.  Co.  v.  Faribault,  23  Minn. 
167;  Mobile,  &c.  R.  Co.  v.  Alabama 
Midland  R.  Co.  87  Ala.  501. 


47  Clarence  R.  Co.  v.  Great  North. 
&c.  R.  Co.  4  Q.  B.  46. 

48  Hickok  v.  Hine,  23  Ohio  St.  523, 
13  Am.  R.  255  n.    To  justify  such  a 
taking  there  must  be  a  necessity  so 
absolute  that,  without  it,  the  grant 
itself  will  be  defeated.    It  must  also 
be  a  necessity  that  arises  from  the 
very  nature  of  things  over  which 
the  corporation  has  no  control;    it 
must  not  be  created  by  the  company 
itself  for  its  own  convenience  or  for 
economy.     Sharon  R.  Co.  Appeal  of, 
122  Pa.  St.  533,  17  Atl.  234,  9  Am. 
St.  133  n;  Pennsylvania  R.  Co.'s  Ap- 
peal, 93  Pa.  St.  150.    See,  generally, 
post,  §  967. 

49  Snell  v.  Chicago,  133  111.  413,  24 
N.  E.  532,  8  L.  R.  A.  858  n,  citing 
State  v.  Sherman,  22  Ohio  St.  411; 
Memphis,  &c.  R.  "Co.  v.  Commission- 
ers, 112  U.  S.  609,  5  Sup.  Ct.  299; 
Thomas  v.  Dakin,  22  Wend.  (N.  Y.) 
9,  71;  Pierce  v.  Emery,  32  N.  H.  484; 
Turnpike  Co.  v.  Illinois,  96  U.  S.  63. 


121  DISSOLUTION.  [§'   75 

itself  work  a  dissolution  of  the  corporation,  but  each  case  must,  as 
we  believe,  be  determined  upon  the  statute  authorizing  the  sale. 
If  the  franchise  of  being  a  corporation  is  authorized  to  be  sold,  then 
a  sale  pursuant  to  the  statute  would  terminate  the  corporate  existence, 
but  an  authorized  sale  of  the  franchise  to  do  certain  acts  not  consti- 
tuting the  whole  of  the  corporate  franchises  would  not  have  that 
effect.  It  has  also  been  held  that  some  so-called  franchises,  such,  for 
instance,  as  the  right  of  a  street  railway  company  to  use  the  streets 
of  a  city,  may  be  granted  for  a  longer  period  than  the  charter  life  of 
the  company  and  may  survive  its  dissolution.50 

50  People  v.  O'Brien,  111  N.  Y.  1,  501,    5    Sup.    Ct.    1009;    Milhan    v. 

18  N.  E.  692,  2  L.  R.  A.  225,  7  Am.  Sharp,  27  N.  Y.  611;   People  v.  Na- 

St.  717;  Detroit  Citizens'  St.  R.  Co.  tional  Trust  Co.  82  N.  Y.  283.    Ordi- 

v.  Detroit,  64  Fed.  628,  12  C.  C.  A.  narily,  however,  it  is  said,  "in  the 

365,  26  L.  R.  A.  673;  Citizens'  St.  R.  absence  of  controlling  language  to 

Co.  v.  City  R.  Co.  64  Fed.  647;  De-  the  contrary,  the  life  of  the  grant 

troit  v.  Detroit  Citizens'  St.  R.  Co.  is  the  period  fixed  for  the  life  of 

184  U.  S.  395,  22  Sup.  Ct.  410.     See  the  corporation."    Govin  v.  Chicago, 

Greenwood  v.  Union  Freight  Co.  105  132   Fed.   848,   855.     But  this   case 

U.  S.  13;  Hall  v.  Sullivan  R.  Co.  1  was   reversed   in   Blair   v.   Chicago, 

Brunner's  (C.  C.)  613;  New  Orleans,  201  U.  S.  400,  26  Sup.  Ct.  427. 
&c.  R.  Co.  v.  Delamore,  114  U.  S. 


CHAPTER  VI. 


STOCK. 


Sec.  Sec. 

76.  Definition.  88. 

77.  Classes  of  stock.  89. 

78.  Shares  of  stock — Certificates. 

79.  Certificates — How  far  negotia-      90. 

ble  —  Shares    af  e    personal 
property. 

80.  New    certificates    in    place   of      91. 

lost — Fraud. 

81.  Preferred  stock. 

82.  When  preferred  stock  may  be      92. 

issued — Rights     and     reme-      93. 
dies     of     dissenting     stock- 
holders. 94. 

83.  Holder  of  preferred  stock  not 

a  creditor — His  rights  and  95. 
remedies. 

84.  Rights  of  preferred  stockhold-       96. 

ers  after  payment  of  guar-  97. 
anteed  dividend  —  Future  98. 
dividend.  99. 

85.  Rights  of  preferred  stockhold-     100. 

ers  on  dissolution. 

86.  Guaranteed,    interest  -  bearing,     101. 

income  and  debenture  stock. 

87.  Increase  and  reduction  of  cap-     lOla. 

ital  stock. 


Watered  stock. 

Watered  stock  not  absolutely 
void. 

Rights  of  creditors  and  liabil- 
ities of  holders  of  watered 
s^ock. 

Stock  paid  for  by  overvalued 
property — Sale  of  stock  on 
market. 

Sale  and  transfer  of  stock. 

Who  may  own  and  transfer 
shares. 

Purchase  and  sale  by  trustees 
and  fiduciaries. 

Right  of  corporation  to  buy 
and  sell  stock. 

Gifts  and  bequests  of  stock. 

Formalities  of  transfer. 

Registry  of  transfer. 

Lien  of  corporation  on  stock. 

When  and  to  what  the  lien  at- 
taches. 

Waiver  of  lien — Enforcement 
of  lien. 

Condemnation  of  stock. 


§'  76.  Definition. — Capital  stock  has  been  defined  as  "the  sum  fixed 
by  the  corporate  charter  as  the  amount  paid  in  or  to  be  paid  in  by 
the  stockholders  for  the  prosecution  of  the  business  of  the  corporation 
and  for  the  benefit  of  corporate  creditors."1  The  term  is  often  used  to 
denote  the  capital  or  property  of  the  corporation,2  but,  strictly  speak- 

1l  Cook  Stock  and  Stockholders,    er  v.  Upton,  91  U.  S.  60;  Farrington 
§  9.     See,  also,  St.  Louis,  &c.  R.  Co.     v.  Tennessee,  95  U.  S.  686. 
v.  Loftin,  30  Ark.  695;  State  v.  Nor-        "  So  used  in  Wood  Railw.   §   15; 
wich,  &c.  R,  Co.  30  Conn.  290;  Sang-    State  v.  Norwich,  &c.  R.  Co.  30  Conn. 

122 


123 


DEFINITION. 


ing,  the  capital  stock  is  not  identical  with  the  corporate  property  or 
capital.3  It  represents,  rather,  the  capital  or  property  of  the  corpora- 
tion to  the  extent  required  by  its  charter,4  and  may  be  said,  in  one 
sense  at  least,  to  describe  or  evidence  the  interest  of  the  stockholders 
in  the  corporation  and  to  consist  of  the  sum  of  all  the  shares.5  It 
remains  fixed  and  cannot  exceed  the  amount  authorized  by  the  char- 
ter or  statute  and  articles  of  incorporation,  while  the  capital  or 
property  may  vary  greatly  in  value  from  time  to  time  and  may- ex- 
ceed the  amount  of  capital  stock  authorized  by  the  charter.6  This 
excess  over  and  above  the  amount  of  the  required  and  authorized 
capital  stock,  arising  generally  out  of  the  transaction  of  the  corporate 
business  and  consisting  of  profits,  may  be  divided  among  the  stock- 
holders by  way  of  dividends  in  the  discretion  of  the  directors,  and 
does  not  constitute  part  of  the  capital  stock,7  although,  until  a  divi- 
sion is  made,  or,  at  least,  until  a  dividend  is  declared,  it  remains  the 
property  of  the  corporation.8  For  these  reasons  it  seems  clear  that 


290;  New  Haven  v.  City  Bank,  31 
Conn.  106;  People  v.  Commissioners, 
23  N.  Y.  192,  220,  222,  opinion  of 
Comstock,  C.  J. ;  People  v.  Coleman, 
126  N.  Y.  433,  27  N.  E.  818,  12  L.  R. 
A.  762  n. 

3  Stock    dividends    and    their    re- 
;Straint,     7    Am.    Bar    Ass'n.     257; 
State  Bank  v.  Milwaukee,   18  Wis. 
281,  295;   State  v.  Morristown  Fire 
Ass'n,  23  N.  J.  L.  195;  Tennessee  v. 
Whitworth,  117  U.  S.  129,  6  Sup.  Ct. 
645,  648;  Burrell  v.  Bushwick  R.  Co. 
•75   N.   Y.   216;    Commercial  F.   Ins. 
•Co.   v.   Board   of   Revenue,   99   Ala. 
4,   14   So.   490.     See,  also,  Bank  of 
Commerce  v.   Tennessee,  104  U.   S. 
495;    Ohio,  &c.  R.  Co.  v.  Weber,  96 
111.  443;  State  v.  Cheraw,  &c.  R.  Co. 
16  S.  Car.  528. 

4  See     Hannibal,    &c.     R.     Co.    v. 
;Shacklett,  30  Mo.  550;   Williams  v. 
Western  Union  Tel.  Co.  93  N.  Y.  162, 
188;    Tradesman,  &c.   Co.  v.  Wheel 
•Co.  95  Tenn.  634,  32  S.  W.  1097,  49 
Am.  St.  943. 

B  See  People  v.  Chicago,  &c.  Co. 
130  111.  268,  22  N.  E.  798;  Greenleaf 
v.  Board,  184  111.  226,  56  N.  E.  295,  75 


Am.  St.  168;  Tradesman,  &c.  Co.  v. 
Knoxville,  &c.  Co.  (Tenn.)  32  S.  W. 
1097;  Lowell  Transfer  of  Stock,  §  4; 
"Stock  dividends  and  their  re- 
straint," 7  Am.  Bar  Assn.  263;  Ten- 
nessee v.  Whitworth,  117  U.  S.  129, 
6  Sup.  Ct.  645;  Henderson  Bridge 
Co.  v.  Commonwealth,  99  Ky.  623,  31 
S.  W.  486.  But  see  Wilkes-Barre, 
&c.  Bank  v.  Wilkes-Barre,  148  Pa. 
St.  601,  24.Atl.  111. 

6  Barry   v.   Merchants',   &c.   Co.   1 
Sandf.  Ch.  (N.  Y.)  280;  Tradesman, 
&c.  Co.  v.  Knoxville,  &c.  Co.  95  Tenn. 
634,  32  S.  W.  1097,  49  Am.  St.  943; 
Commercial  F.  Ins.  Co.  v.  Board  of 
Revenue,    99    Ala.    4,    14    So.    490; 
Cook  v.   Marshall,  191  Pa.  St.  315, 
34  Atl.  314. 

7  Farrington  v.  Tennessee,  95  U.  S. 
679;   Hightower  v.  Thornton,  8  Ga. 
486,  52  Am.  Dec.  412;  State  Bank  v. 
-Milwaukee,  18  Wis.  281;  Williams  v. 
Western   Union   Tel.    Co.    93    N.   Y. 
162;    People  v.  Coleman,  126  N.  Y. 
433,  27  N.  E.  818.    But  see  Phelps  v. 
Farmers',  &c.  Bank,  26  Conn.  269. 

8  The    interest    of   a    stockholder 
may,  however,  exceed  in  value  the 


§    77]  STOCK. 

the  terms  "capital"  and  "capital  stock"  are  not  synonymous,  yet 
they  are  frequently  so  used,  and  the  term  "capital  stock"  has  often 
been  held  to  embrace  all  the  property  or  capital  of  the  corporation, 
particularly  when  found  in  a  statute  clearly  evincing  an  intention 
upon  the  part  of  the  legislature  to  include  all  corporate  property 
within  the  meaning  of  the  term.9 

§  77.  Classes  of  stock. — Corporate  stock — using  that  term  in  the 
sense  in  which  it  is  generally  used  in  this  connection — may  be  divided 
into  two  principal  classes,  common  and  preferred,  the  common  stock 
being  subject  to  a  priority  as  to  the  payment  of  dividends  in  favor 
of  the  preferred  stock.  Other  kinds  of  stock,  mostly  in  the  nature  of 
preferred  stock,  are  also  frequently  issued,  such  as  guaranteed,  inter- 
est-bearing, income,  or  debenture  stock.  And  "special  stock,"  having 
certain  peculiarities  distinguishing  it  from  ordinary  stock,  is  also 
authorized  in  some  cases.  The  different  kinds  of  stock  and  the  distinc- 
tions between  them  will,  however,  be  considered  in  subsequent  sec- 
tions. 

§  78.  Shares  of  stock — Certificates. — The  common  stock  is  divided 
into  shares,  each  of  which  gives  to  the  owner  a  proportional  part  of 
certain  rights  in  the  management  and  profits  of  the  corporation  dur- 
ing its  existence,  and  in  the  assets  upon  dissolution.10  The  ownership 

nominal  or  par  value  of  his  shares,  chise,  neither  of  which  is  part  of 
In  a  sense,  therefore,  his  actual  in-  its  capital  stock;  and  that  the  capi- 
terest  may  not  depend  entirely  up-  tal  stock,  or  share  stock,  of  the 
on  the  amount  of  stock  or  capital  stockholders  "covers,  embraces,  rep- 
stock  authorized.  The  real  value  of  resents,  all  three  in  their  totality." 
his  shares,  which  measures  his  in-  People  v.  Coleman,  126  N.  Y.  433, 
terest,  is  more  often  determined  by  438,  27  N.  E.  818,  12  L.  R.  A.  762  n. 
the  actual  value  of  all  the  property  See,  also,  Raleigh,  &c.  R.  Co.  v. 
of  the  corporation.  Jones  v.  Terre  Wake  County,  87  N.  Car.  414,  17 
Haute,  &c.  R.  Co.  57  N.  Y.  196,  and  Am.  Eng.  R.  Gas.  466;  Coit  v.  North 
in  the  recent  case  of  People  v.  Cole-  Carolina,  &c.  Co.  14  Fed.  12;  Hen- 
man,  it  is  said  that  the  capital  stock  derson  Bridge  Co.  v.  Common- 
of  the  company  and  the  capital  wealth,  99  Ky.  623,  31  S.  W.  486,  29 
stock  (or,  more  properly,  the  share  L.  R.  A.  73. 

stock)   of  the  shareholders  are  two  "Ohio,  &c.  R.  Co.  v.  Weber,  96  111. 

different  things;    that  the  property  443;    Security   Co.   v.   Hartford,    61 

of  the   corporation   may   consist  of  Conn.  89,  23  Atl.  699;   Philadelphia 

capital    stock,    which    is    the    fund  v.  Ridge  Ave.  R.  Co.  102  Pa.  St.  190. 

required    to    be   paid    in    and    kept  10Oakbank  Oil  Co.  v.  Crum,  L.  R. 

intact  as  the  basis  of  the  business  8   App.    Cas.    65;    Fisher   v.    Essex 

enterprise,  its  surplus,  and  its  fran-  Bank,   5    Gray    (Mass.)    373.     See, 


125 


SHARES   OF    STOCK CERTIFICATES. 


[ 


of  these  shares  is  usually  evidenced  by  certificates  which  set  forth 
the  number  owned  and  the  amount  actually  paid  thereon,  or  that  they 
are  paid  up,  if  such  is  the  case.11  The  possession  of  such  a  certificate, 
however,  does  not  necessarily  constitute  the  holder  an  owner  of  the 
shares  it  represents,12  and  a  person  whose  name  appears  in  the  list  of 
stockholders  in  the  company's  books13  will  usually  be  entitled  to  trans- 
fer his  stock,14  to  receive  dividends,15  and  to  vote  in  corporation  meet- 
ings,16 and  may  be  held  liable  as  a  stockholder,17  even  though  a  cer- 
tificate has  not  been  issued  to  him,18  or  he  has  pledged19  or  assigned  it. 
But  the  possession  of  a  certificate,  made  out  in  the  holder's  name,  or 
indorsed  with  a  power  of  attorney  to  transfer  the  stock  on  the  com- 
pany's books,20  is  prima  facie  evidence  of  the  holder's  title  to  the 


also,  Plimpton  v.  Bigelow,  93  N.  Y. 
592,  599;  Field  v.  Pierce,  102  Mass. 
253,  261;  Bent  v.  Hart,  10  Mo.  App. 
143;  Harrison  v.  Vines,  46  Tex.  15, 
21;  Bradley  v.  Bauder,  36  Ohio  St. 
28,  35,  38  Am.  R.  547;  Brightwell 
v.  Mallory,  10  Yerg.  (Tenn.)  196; 
Gibbons  v.  Mahon,  136  U.  S.  549,  10 
Sup.  Ct.  1057;  Jones  v.  Concord,  &c. 
R.  Co.  67  N.  H.  234,  30  Atl.  614,  68 
Am.  St.  650;  Monongahela,  &c.  Co. 
v.  Pittsburg,  &c.  Co.  196  Pa.  St.  25, 
46  Atl.  99,  79  Am.  St.  685. 

11  Mqrawetz  Priv.  Corp.    (2d  ed.), 
$   472;    Cook  Stock  and   Stockhold- 
ers  (3d  ed.),  §  14.     The  certificate 
is  the  evidence  of  the  ownership  of 
the  stock  and  not  the  stock  itself. 
Higgins  v.  Lawringle,  154   111.  301, 
40  N.  E.  362;  Hawley  v.  Brumagin, 
33   Cal.   394;    Winslow   v.   Fletcher, 
53  Conn.  390,  4  Atl.  250,  52  Am.  R. 
122;  Libscomb  v.  Condon,  56  W.  Va. 
416,  49  S.  E.  392,  67  L.  R.  A.  670, 
107  Am.  St.  832. 

12  Baker  v.  Woolston,  27  Kan.  185. 

13  Vail  v.  Hamilton,  85  N.  Y.  453, 
20  Hun    (N.  Y.)    355.     See  Hawley 
v.  Upton,  102  U.  S.  314;  New  Hamp- 
shire, &c.  R.  Co.  v.  Johnson,  30  N. 
H.  390,  64  Am.  Dec.  300. 

14  National    Bank    v.    Watsontown 
Bank,    105    U.    S.    217;    First   Nat. 


Bank  v.  Gifford,  47  Iowa  575;  But- 
terfield  v.  Spencer,  1  Bosw.  (N.  Y.) 
1;  Cincinnati,  &c.  R.  Co.  v.  Pearce, 
28  Ind.  502. 

15  McNeil  v.  Tenth  National  Bank, 
46  N.  Y.  325,  7  Am.  R.  341;   Ellis 
v.  Proprietors,  2  Pick.  (Mass.)   243. 

16  Beckett  v.  Houston,  32  Ind.  393; 
Evans  v.  Bailey,  66  Cal.  112,  4  Pac. 
1089;   State  v.  Ferris,  42  Conn.  560. 

"Mitchell  v.  Beckman,  64  Cal. 
117;  Agricultural  Bank  v.  Wilson, 
24  Me.  273.  See  Henkle  v.  Salem 
Manf.  Co.  39  Ohio  St.  547. 

13  Mitchell  v.  Beckman,  64  Cal. 
117,  28  Pac.  110;  Mathis  v.  Prid- 
ham,  1  Tex.  Civ.  App.  58,  20  S.  W. 
1015;  Fulgam  v.  Macon,  &c.  R.  Co. 
44  Ga.  597;  Crumlish  v.  Shenan- 
doah  Valley  R.  Co.  40  W.  Va.  627,  22 
S.  E.  90. 

19  Vail  v.  Upton,  85  N.  Y.  453,  20 
Hun  (N.  Y.)  355. 

20  As  to  the  effect  of  such  a  blank 
indorsement,  see  Fraser  v.  Charles- 
ton, 11  S.  C.  486;  Leavitt  v.  Fisher, 
4  Duer  (N.  Y.)  1.    As  to  the  other 
modes  of  transfer,  see  Cook  Stock 
and  Stockholders,  §  375.    Under  the 
law    of    Massachusetts,    shares    of 
stock  may  be  effectually  transferred 
by  delivery  of  the  certificate  with 
a  power  of  attorney  to  transfer  the 


STOCK. 


126 


shares  it  represents.21  And  the  owner  of  stock  has  a  right  to  receive 
a  certificate  as  a  voucher  for  his  title,  if  he  asks  for  it.22  But  the  books 
of  the  company  are  generally  the  final  evidence  as  to  who  are  stock- 
holders,23 and  a  certificate,  apart  from  the  ownership  of  the  shares  it 
represents,  may  be  said  to  be  worthless.24 

§  79.  Certificates — How  far  negotiable — Shares  are  personal  prop- 
erty.— It  follows,  from  what  has  been  stated,  that  such  certificates  are 
not  strictly  negotiable,25  but  the  shares  which  they  represent  may  be 
sold26  as  any  other  personal  property,27  and  the  certificates  will  pass  as 


same  on  the  books  of  the  company, 
signed  in  blank.  Andrews  v. 
Worcester,  &c.  R.  Co.  159  Mass.  64, 
33  N.  E.  1109. 

21  Walker  v.  Detroit  Transit,  &c. 
Co.  47  Mich.  338,  11  N.  W.  187.  That 
it  is  only  a  convenient  evidence  of 
the  holder's  title,  see  Johnson  v. 
Albany,  &c.  R.  Co.  40  How.  Pr.  (N. 
Y.)  193;  Cincinnati,  &c.  R.  Co.  v. 
Pearce,  28  Ind.  502;  Slipher  v.  Ear- 
hart,  83  Ind.  173. 

"Johnson  v.  Albany,  &c.  R.  Co. 
40  How.  Pr.  (N.  Y.)  193;  Buffalo, 
&c.  R.  Co.  v.  Dudley,  14  N.  Y.  336, 
347;  Chester  Glass  Co.  v.  Dewey,  16 
Mass.  94,  8  Am.  Dec.  128;  Rio 
Grande,  &c.  Co.  v.  Burns,  82  Tex. 
50,  17  S.  W.  1043;  National  Bank 
v.  Watsontown  Bank,  105  U.  S.  217; 
1  Morawetz  Priv.  Corp.  §  472. 

23  New  Hampshire,  &c.  R.  Co.  v. 
Johnson,  30  N.  H.  390,  64  Am.  Dec. 
300;  Dows  v.  Naper,  91  111.  44,  71 
Am.  Dec.  337;  Morrill  v.  Little  Falls, 
&c.  Co.  53  Minn.  371,  55  N.  W.  547, 
21  L.  R.  A.  174;  New  Albany,  &c. 
R.  Co.  v.  McCormick,  10  Ind.  499. 
See  generally  as  to  when  and  how 
far  this  rule  is  applicable,  3  Elliott 
Ev.  §  1946.  See,  also,  Chesapeake, 
&c.  R.  Co.  v.  Deepwater  R.  Co. 
57  W.  Va.  641,  50  S.  E.  890. 
While  between  the  parties  a  pro- 
vision requiring  the  transfer  of 
stock  on  the  corporation  books  is 


inoperative,  yet  as  against  the  cor- 
poration and  others  the  assignment 
is  imperfect  and  executory  until 
perfected  on  the  books  of  the  cor- 
poration. Noble  v.  Turner,  69  Md. 
519,  16  Atl.  124;  Topeka  Mfg.  Co. 
v.  Hale,  39  Kan.  23,  17  Pac.  601. 

24  Payne  v.  Elliot,  54  Cal.  339,  35 
Am.  R.  80. 

25  Mechanics'  Bank  v.  New  York, 
&c.  R.  Co.  13  N.  Y.  599,  627;  Sewall 
v.  Boston  Water-power  Co.  86  Mass. 
277,  81  Am.  Dec.  701;  Shaw  v.  Spen- 
cer, 100  Mass.  382,  97  Am.  Dec.  107; 
Hammond    v.    Hastings,    134    U.    S. 
401,  10  Sup.  Ct.  727;  Clark  v.  Amer- 
ican Coal  Co.  86  Iowa  436,  53  N.  W. 
291,  17  L.  R.  A.  557;  Knox  v.  Eden, 
&c.  Co.  148  N.  Y.  441,  42  N.  E.  988, 
31  L.  R.  A.  779,  51  Am.  St.  700 ;  East 
Birmingham,  &c.  Co.  v.  Dennis,  8& 
Ala.  565,  5  So.  679,  2  L.  R.  A.  836, 
7  Am.  St.  73. 

26  Stock  may  be  sold  on  execution 
in  nearly  all  the  states. 

27  Nearly  all  of  the  states  provide 
by  statute  that  shares  of  stock  shall 
be  personal  property.     Stimson  Am. 
Stat.  Law,  §  8116.    Such  a  provision 
is   merely   declaratory   of  the   com- 
mon  law.     Mohawk,   &c.   R.   Co.   v. 
Clute,  4  Paige  Ch.  (N.  Y.)  384,  393; 
1     Cook    Stock    and     Stockholders, 
§  331.     The  rule  is  the  same  where 
all   the    corporate   property    is   real 
estate.      Baldwin    v.    Canfleld,    26 


127     CERTIFICATES NEGOTIABILITY PERSONAL  PROPERTY.   [§  79 


incident  to  the  shares.  But  holders  of  stock  who  transfer  their  cor- 
porate certificates  to  others  by  indorsement  in  blank  or  by  delivery 
when  so  indorsed,  and  corporations  who  issue  certificates28  which 
state  on  their  face  that  the  shares  are  fully  paid  up  and  which  con- 
tain no  notice  of  the  claims  of  the  corporation29  are  held  so  far 


Minn.  43,  1  N.  W.  585.  See,  general- 
ly, to  the  effect  that  shares  are  per- 
sonal property,  Seward  v.  Rising 
Sun,  79  Ind.  351,  13  Am.  &  Eng.  R. 
Gas.  315;  Cooper  v.  Corbin,  105 
111.  224,  13  Am.  &  Eng.  R.  Cas. 
394;  Fahrig  v.  Milwaukee,  &c.  Co. 
113  111.  App.  525;  Berney  Nat.  Bank 
v.  Pinckard,  87  Ala.  577,  6  So.  364, 
30  Am.  &  Eng.  Corp.  Cas.  52;  Allen 
v.  Pegram,  16  Iowa  163;  Tregear  v. 
Etiwanda  Water  Co.  76  Cal.  537,  18 
Pac.  658,  9  Am.  St.  245;  Weaver  v. 
Barden,  49  N.  Y.  286;  Bradley  v. 
Bander,  36  Ohio  St.  35,  38  Am.  R. 
547;  Southwestern  R.  Co.  v.  Thom- 
ason,  40  Ga.  408;  Budd  v.  Multno- 
mah  St.  R.  Co.  12  Ore.  272,  7  Pac. 
99,  53  Am.  R.  355;  Jellenik  v.  Hu- 
ron, &c.  Co.  82  Fed.  778;  Watson  v. 
Molden,  10  Idaho  570,  79  Pac.  503; 
Lipscomb's  Adm'r  v.  Condon,  56  W. 
Va.  392,  49  S.  E.  92,  67  L.  R.  A.  670. 
28  Where  spurious  and  fraudulent 
certificates  of  stock  are  issued  by 
the  officers  of  a  corporation  under 
its  seal  and  their  genuineness  af- 
firmed by  such  officers  in  answer  to 
inquiries  from  an  intending  pur- 
chaser, the  corporation  is  liable  on 
such  certificates  to  a  bona  fide  pur- 
chaser for  value.  Fifth  Ave.  Bank 
v.  Forty-second  St.,  &c.  R.  Co.  137 
N.  Y.  231,  33  N.  E.  378,  19  L.  R.  A. 
331  n,  33  Am.  St.  712;  Mutual  Life 
Ins.  Co.  v.  Forty-second  St.,  &c.  R. 
Co.  74  Hun  (N.  Y.)  505,  26  N.  Y. 
S.  545;  Citizens'  Nat.  Bank  v.  Cin- 
cinnati, &c.  R.  Co.  29  Wkly.  Law 
Bui.  15.  See  Ryder  v.  Bushwick 
R.  Co.  134  N.  Y.  83,  31  N.  E.  251. 
But  where  the  certificates  were  is- 


sued in  pursuance  of  a  fraudulent 
scheme  to  which  the  assignor  was 
a  party,  the  assignee  acquires  no 
rights  superior  to  those  of  his  as- 
signor. Brown  v.  Duluth,  &c.  R. 
Co.  53  Fed.  889. 

29  Where  no  lien  upon  shares  is 
given  to  the  company  by  the  char- 
ter or  by  a  general  law  for  debts 
or  unpaid  calls  due  the  company, 
the  certificate  should  contain  a  ref- 
ference  to  its  claims  so  as  to  notify 
all  purchasers.  1  Morawetz  Priv. 
Corp.  (2d  ed.),  §  203.  Where  the 
certificate  states  that  it  represents 
paid-up  stock,  the  corporation  can 
not  deny  that  fact  after  it  has 
passed  into  the  hands  of  a  bona 
fide  purchaser.  Steacy  v.  Little 
Rock,  &c.  R.  Co.  5  Dill.  (U.  S.)  348; 
Young  v.  Erie  Iron  Co.  65  Mich. 
Ill,  31  N.  W.  814;  1  Cook  Stock 
and  Stockholders,  §  50.  And  it 
seems  that  the  purchaser  may  as- 
sume that  stock  is  paid  up,  when 
he  purchases  in  the  open  market, 
in  the  absence  of  anything  to  give 
him  notice  to  the  contrary,  and  he 
will  be  protected.  Foreman  v.  Bige- 
low,  4  Cliff.  (U.  S.)  508;  Dupont  v. 
Tilden,  42  Fed.  87;  Cleveland,  &c. 
Co.  v.  Texas,  &c.  R.  Co.  27  Fed.  250; 
Keystone  Bridge  Co.  v.  McCluney, 
8  Mo.  App.  496;  West  Nashville,  &c. 
Co.  v.  Nashville  Sav.  Bank,  86  Tenn. 
,252,  6  S.  W.  340,  6  Am.  St.  835; 
Cook  Stock  and  Stockholders,  §§  50, 
257.  Contra,  Meyers  v.  Seeley,  10 
Nat.  Bank  Reg.  411.  Certificates 
of  stock  ordinarily  contain  no  rep- 
resentations as  to  whether  any 
equities  attach  to  the  shares  which 


79] 


STOCK. 


128 


estopped30  by  the  apparent  ability  to  convey  a  good  title  to  the  shares 
which  their  acts  have  conferred  upon  the  holder  of  the  certificates,31 
that  such  certificates  are  said  to  possess  quasi  negotiability.32  Where, 


they  represent,  and  it  is  said  that  a 
certificate  of  stock  is  not  negotiable 
paper  and  whoever  takes  it  takes 
it  subject  to  its  equities  and  bur- 
dens, and  it  is  not  necessary  that 
the  certificate  contain  a  statement 
of  the  limitations  and  burdens 
which  the  law  casts  upon  all  such 
paper.  The  omission  of  such  a 
statement  is  not  a  waiver  by  the 
corporation  of  the  benefits  thereof; 
and,  though  the  purchaser  be  igno- 
rant of  such  equities  and  burdens, 
his  ignorance  does  not  enable  him 
to  hold  the  paper  discharged  there- 
from. Wherever  such  paper  is  is- 
sued, under  authority  granted  by 
general  statute,  whoever  deals  with 
that  paper  is  charged  with  notice 
of  all  limitations  and  burdens  at- 
tached to  it  by  such  statute,  whether 
the  party  lives  in  or  out  of  the 
state.  Hammond  v.  Hastings,  134 
U.  S.  401,  10  Sup.  Ct.  727;  Hollins 
v.  St.  Paul,  &c.  R.  Co.  29  N.  Y.  St. 
208,  9  N.  Y.  S.  909;  Craig  v.  Hes- 
peria,  &c.  Co.  113  Cal.  7,  45  Pac.  10, 
35  L.  R.  A.  306,  54  Am.  St.  316. 

30  See  1  Purdy's  Beach  Priv.  Corp. 
§§  272,  273,  381.  Even  though  cer- 
tificates are  altogether  spurious,  the 
company  issuing  them  can  be  com- 
pelled to  indemnify  one  who  pur- 
chases them  in  good  faith  from  the 
person  to  whom  it  issued  them. 
Kisterbock's  Appeal,  127  Pa.  601,  18 
Atl.  381,  14  Am.  St.  868.  The  cor- 
poration will  be  estopped  to  deny 
that  stock  is  fully  paid  after  cer- 
tificates which  were  paid  in  prop- 
erty that  the  corporation  was  au- 
thorized to  take  in  payment  for 
stock  have  passed  into  the  hands 
of  bona  fide  purchasers,  although 


the  property  was  overvalued.  Du- 
pont  v.  Tilden,  42  Fed.  87.  In  Far- 
rington  v.  South  Boston  R.  Co.  150 
Mass.  406,  23  N.  E.  109,  5  L.  R.  A. 
849,  15  Am.  St.  222,  7  R.  &  Corp. 
L.  J.  196,  the  court  says:  "We 
think  it  is  a  safer  and  more  reason- 
able rule  to  hold  that  a  person  tak- 
ing on  pledge  a  certificate  of  stock 
newly  issued  in  his  name  by  an 
officer  of  a  corporation  as  security 
for  the  private  debt  of  the  officer 
should  be  required  to  investigate 
the  title  to  the  stock  if  the  officer 
is  one  who  has  the  power,  either 
alone  or  with  others,  to  issue  stock 
certificates,  than  to  hold  that  such 
a  person  can  rely  upon  a  certificate 
so  issued  to  him  in  the  absence  of 
actual  notice  or  knowledge  that  it 
has  been  fraudulently  issued." 

31  McNeil  v.  Tenth  Nat.  Bank,  46 
N.  Y.  325,  7  Am.  R.  341;  Tayler  v. 
Great  Indian,  &c.  R.  Co.  4  DeG.  & 
J.   559;    Walker  v.   Detroit  Transit 
R.  Co.  47  Mich.  338,  347,  11  N.  W. 
187;    Cook  Stock  and  Stockholders, 
§  416;     Morawetz    Priv.    Corp.     (2d 
ed.),    §  190.      The    English    courts, 
however,      refuse     to      follow     the 
American  rule  as  to  the  quasi  nego- 
tiability of  certificates  even  where 
they  are  issued  by  an  American  cor- 
poration.    Colonial   Bank   v.   Cady, 
63  Law  T.  27. 

32  Daniel  Nego.  Instru.  §  1708.   An 
owner  of  stock  who  permitted  a  cer- 
tificate to  be  issued  to  another  for 
stock  which  he  had  transferred  to 
such   other   person   without   consid- 
eration, and  who  takes  a  blank  as- 
signment   of    such,   certificate,    can 
hold   the   stock   as    against   an    at- 
taching creditor  of  that  other  ner- 


129 


NEW  CERTIFICATES  IN  PLACE  OF  LOST FRAUD. 


80 


however,  a  corporation  is  organized  under  a  public  law  which  provides 
that  the  corporation  shall  have  a  lien  upon  all  the  stock  or  property  of 
its  members  invested  therein  for  any  indebtedness  of  such  members  to 
the  corporation,  such  law  is  notice  to  the  world ;  and,  in  the  absence  of 
any  representations  as  to  such  lien  on  the  part  of  the  corporation,  a 
purchaser  of  such  stock  will  take  it  subject  to  such  lien.33 

§  80.  New  certificates  in  place  of  lost — Fraud. — "A  bond  of  in- 
demnity may  be  required  by  a  corporation  as  a  condition  of  issuing 
new  certificates  of  stock  for  those  that  have  been  lost,  where  the  owner 
is  an  assignee  and  has  never  had  possession  of  the  old  certificates,  and 
the  lapse  of  time  is  not  so  great  as  to  preclude  danger  of  their  reap- 
pearance."34 A  purchaser  of  corporate  stock  receiving  new  certificates 
therefor,  signed  by  the  proper  officers,  although  issued  through  their 
fraud,  is,  if  he  acts  in  good  faith,  and  without  notice,  entitled  to  be 
protected  as  a  bona  fide  purchaser.  He  owes  no  duty,  ordinarily,  to 
the  corporation  to  see  to  it  that  the  seller  surrenders  any  old  certifi- 
cates and  transfers  them  on  the  books  of  the  corporation,35  and  the 


son.  Andrews  v.  Worcester,  &c.  R. 
Co.  159  Mass.  64,  33  N.  E.  1109. 
They  have,  however,  been  held  to 
he  so  far  non-negotiable  instruments 
that  a  bona  fide  purchaser  of  such 
certificates  standing  on  the  com- 
pany's books  in  the  name  of  the 
former  owner,  regularly  indorsed 
by  him  in  blank,  and  stolen  from 
the  present  owner  without  his  fault, 
gets  no  title.  East  Birmingham 
Land  Co.  v.  Dennis,  85  Ala.  565,  5 
R.  &  Corp.  L.  J.  296,  2  L.  R.  A.  836. 
See,  also,  Masury  v.  Arkansas  Nat. 
Bank,  93  Fed.  603,  35  C.  C.  A.  476; 
Sherwood  v.  Meadow  Valley,  &c.  Co. 
50  Cal.  412;  Barstow  v.  Savage,  &c. 
Co.  64  Cal.  388,  1  Pac.  349,  49  Am. 
R.  705;  Knot  v.  Eden,  &c.  Co.  148 
N.  Y.  441,  42  N.  E.  988,  31  L.  R.  A. 
779,  51  Am.  St.  700. 

33  Hammond  v.  Hastings,  134  U. 
S.  401,  10  Sup.  Ct.  727. 

S4Guilford  v.  Western  U.  Tel.  Co. 
43  Minn.  434,  46  N.  W.  70.  Where, 
on  application  to  a  company  to 

ELL.  RAILROADS — 9 


register  a  transfer  of  stock,  the 
company  sent  a  letter  giving  notice 
of  it  to  the  holder  of  stock  on  the 
register,  and  stating  that,  unless 
she  advised  them  to  the  contrary, 
the  stock  would  be  transferred  in 
their  books;  and  she  failed  to  an- 
swer the  letter;  and  the  company 
subsequently  registered  the  trans- 
fer,— she  was  held  not  estopped 
from  showing  that  her  signature  to 
the  transfer  was  a  forgery,  and  de- 
manding to  have  her  name  replaced 
on  the  register  as  holder  of  the 
stock.  Barton  v.  London,  &c.  R.  Co. 
L.  R.  24  Q.  B.  D.  77.  See,  also,  Gal- 
veston  City  Co.  v.  Sibley,  56  Tex. 
269;  Butler  v.  Glen  Cove  Starch  Co. 
18  Hun  (N.  Y.)  47. 

35  Allen  v.  South  Boston  R.  Co. 
150  Mass.  200,  22  N.  E.  917,  5  L.  R. 
A.  716,  15  Am.  St.  185.  See,  also, 
Salisbury  Mills  v.  Townsend,  109 
Mass.  115;  American  Wire  Nail  Co. 
v.  Bayless,  91  Ky.  94,  15  S.  W.  10; 
New  York,  &c.  R.  Co.  v.  Schuyler, 


81] 


STOCK. 


130 


corporation  may  be  held  liable  to  damages  for  the  fraud  of  its  officers 
in  issuing  such  stock,  where  it  cannot  be  compelled  to  issue  valid 
shares  in  place  of  those  fraudulently  issued  for  the  reason  that  this 
would  cause  an  overissue  of  its  capital  stock.36  On  the  other  hand,  it 
has  been  held  that  if  a  purchaser  exhibits  to  the  corporation  a  forged 
assignment  of  stock,  and  thus  obtains  a  new  certificate,  which  he 
sells,  he  may  become  liable  to  the  corporation  which  he  has  deceived 
by  impliedly  representing  that  the  signature  is  genuine,37  and  it  has 
also  been  held  that  one  who  receives  stock  from  an  agent  to  secure  the 
agent's  own  private  debt,  knowing  that  the  surrender  of  the  old 
certificate  is  a  prerequisite  to  the  issue  of  the  new,  without  making 
any  inquiry  as  to  whether  it  has  been  surrendered,  is  not  a  bona  fide 
purchaser  and  cannot  hold  the  corporation  liable  in  damages.38  The 
issue  of  new  certificates  of  stock  in  place  of  other  certificates,  prop- 
erly issued,  which  have  been  lost,  does  not,  however,  constitute  an 
overissue  of  stock.39 

§  81.  Preferred  stock. — Preferred  stock  is  usually  issued  in  ex- 
change for  common  stock  as  an  inducement  for  the  shareholders  to 
advance  money  to  meet  certain  exigencies  which  arise  in  prosecuting 
the  corporate  enterprises ;  or  as  security  to  the  holders  of  stock  in  the 
more  prosperous  of  two  consolidating  companies;  or  in  exchange  for 
mortgage  bonds  of  the  corporation.40  It  has  been  held  that  it  cannot 


34  N.  Y.  30.  But  see  Moores  v.  Citi- 
zens' Nat  Bank,  111  U.  S.  156,  4 
Sup.  Ct.  345.  This  case  is  severely 
criticised  in  29  Alb.  Law  Jour.  364, 
and  in  Lowell  Transfer  of  Stock, 
§  112,  n.  2. 

38  New  York,  &c.  R.  Co.  v.  Schuy- 
ler,  34  N.  Y.  30;  Titus  v.  Great 
Western,  &c.  Co.  61  N.  Y.  237; 
Bridgeport  Bank  v.  New  York,  &c. 
R.  Co.  30  Conn.  231;  Cleveland,  &c. 
R,  Co.  v.  Robbins,  35  Ohio  St.  483; 
Kisterbochs'  Appeal,  127  Pa.  St.  601, 
18  Atl.  381,  14  Am.  St.  868;  Tome 
v.  Parkersburg  R.  Co.  39  Md.  36,  17 
Am.  R.  540;  Supply  Ditch  Co.  v. 
Elliott,  10  Colo.  327,  15  Pac.  691,  3 
Am.  St.  586;  Western  Un.  Tel.  Co. 
v.  Davenport,  97  U.  S.  369;  Western, 
&c.  R.  Co.  v.  Franklin  Bank,  60  Md. 
36. 


"Boston,  &c.  R.  Co.  v.  Richard- 
son, 135  Mass.  473. 

Tarrington  v.  South  Boston  R. 
Co.  150  Mass.  406,  23  N.  B.  109,  5 
L.  R.  A.  849,  15  Am.  St.  222.  See, 
also,  Moores  v.  Citizens'  Nat.  Bank, 
111  U.  S.  156,  4  Sup.  Ct.  345;  Hall 
v.  Rose  Hill,  &c.  Co.  70  111.  673;  Sel- 
igson  v.  Brown,  61  Tex.  114,  10  Am. 
&  Eng.  Corp.  Gas.  143. 

39  Allen    v.    South   B.   R.   Co.    150 
Mass.  200,  22  N.  E.  917,  5  L.  R.  A. 
716,  15  Am.  St.  185. 

40  A  mortgagee  who  exchanges  his 
bonds    for    preferred    stock    is    no 
longer    a    creditor,   but   becomes    a 
stockholder,    with    a    stockholder's 
rights  and  liabilities.     St.   John  v. 
Erie  R.  Co.   22  Wall.    (U.   S.')    136. 
His  claims  are  subject  to  all  mort- 
gages executed  before  or  after  his 


131 


PEEFEEEED   STOCK DISSENTING    STOCKHOLDEES. 


[ 


be  issued  to  raise  money  to  pay  a  dividend  on  the  common  stock.41  To 
induce  investors  to  take  the  stock  it  is  usually  provided  that  the  holder 
shall  be  entitled  to  payment  of  a  certain  dividend  out  of  the  accrued 
profits  not  necessary  for  the  operation  of  the  road  or  for  repairs,42  or 
reasonable  improvements,43  before  dividends  are  paid  to  the  holders 
of  common  stock,44  and  this  is  the  reason  it  is  called  preferred  stock. 
It  usually  gives  priority  of  dividends  but  not  priority  of  assets  or 
capital.45 

§  82.  When  preferred  stock  may  be  issued — Rights  and  remedies 
of  dissenting  stockholders. — Such  stock,  at  least  when  not  provided 
for  when  the  company  is  organized,  can  only  be  issued  where  the 
power  to  issue  it  is  conferred  by  charter  or  by  statute,46  unless  it  is 


stock  was  issued.  King  v.  Ohio,  &c. 
R.  Co.  12  Chi.  Leg.  News  219,  2  Fed. 
36;  Warren  v.  King,  108  U.  S.  389, 
2  Sup.  Ct.  789.  It  seems,  however, 
that,  as  it  is  not  against  public 
policy  and  amounts  virtually  to  a 
mere  contract  on  the  part  of  the 
stockholders  as  to  how  they  shall 
divide  the  profits,  they  may  agree 
in  the  beginning  and  provide  in  the 
by-laws  for  the  classification  of  the 
stock  into  common  and  preferred, 
even  where  the  statute  is  silent 
upon  the  subject.  South,  &c.  Brew- 
ery Co.,  Re,  L.  R.  31  Ch.  Div.  261; 
Kent  v.  Quicksilver  Mining  Co.  78 
N.  Y.  159;  Hamlin  v.  Toledo,  &c. 
R.  Co.  78  Fed.  664,  670,  24  C.  C.  A. 
271,  36  L.  R.  A.  826;  Lindley  Com- 
panies, §  396;  1  Cook  Stock  and 
Stockholders,  §  268.  But  see  Guin- 
ness v.  Land  Corp.  L.  R.  22  Ch.  Div. 
349;  Ashbury  v.  Watson,  L.  R.  30 
Ch.  Div.  376,  16  Am.  &  Eng.  Corp. 
Cas.  383. 

ttHoole  v.  Great  Western  R.  Co. 
L.  R.  3  Ch.  262. 

42  It  has  been  held  that  earnings 
should  go  toward  the  payment  of  a 
floating  debt  in  preference  to  the 
payment  of  dividends  on  the  pre- 


ferred stock.  Chaffee  v.  Rutland  R. 
Co.  55  Vt.  110.  See  Belfast,  &c.  R. 
Co.  v.  Belfast,  77  Me.  445,  1  Atl.  362. 
But  as  to  the  payment  of  a  debt 
not  yet  due,  see  Hazeltine  v.  Belfast, 
&c.  R.  Co.  79  Me.  411,  10  Atl.  328, 
1  Am.  St.  330. 

43  New  York,  &c.  R.  Co.  v.  Nickals, 
119  U.  S.  296,  7  Sup.  Ct.  209,  re- 
versing 15  Fed.  575,  where  it  was 
held  that  payment  of  dividends 
could  be  enforced  before  the  im- 
provements contemplated  were 
made. 

"Totten  v.  Tison,  54  Ga.  139; 
Chaffee  v.  Rutland  R.  Co.  55  Vt. 
110;  Henry  v.  Great  Northern,  &c. 
R.  Co.  4  Kay  &  J.  (Eng.  Ch.)  1; 
Boardman  v.  Lake  Shore,  &c.  R. 
Co.  84  N.  Y.  157;  Prouty  v.  Michi- 
gan, &c.  R.  Co.  1  Hun  (N.  Y.)  655; 
Bates  v.  Androscoggin,  &c.  R.  Co. 
49  Me.  491;  Cook  Stock  and  Stock- 
holders, §  270. 

45  Jones  v.  Concord,  &c.  R.  Co.  67 
,N.  H.  234,  30  Atl.  614,  68  Am.  St. 
650. 

^Sturge  v.  Eastern,  &c.  R.  Co.  7 
De  G.,  M.  &  G.  158;  Williston  v. 
Michigan,  &c.  "R.  Co.  95  Mass.  400; 
Bard  v.  Banigan,  39  Fed.  13;  Kent 


§82] 


STOCK. 


133 


issued  by  agreement  of  all  the  stockholders.47  It  is  held  in  a  recent 
case,  however,  that  it  may  be  issued  unless  prohibited.48  A  stock- 
holder may  waive  objections  to  such  an  issue,  and  long  acquiescence 
will  be  construed  to  be  such  a  waiver.49  "A  privilege  given  by  a 
railroad  company  to  its  stockholders  to  exchange  common  stock  for 
preferred  stock  must  be  exercised  within  a  reasonable  time,  and  a 
tender  of  common  stock  and  the  additional  sum  required  for  an  ex- 
change, made  thirty-three  years  after  the  privilege  was  conferred, 
is  not  made  within  a  reasonable  time."50  It  has  been  held  that  the 


v.  Quicksilver  Mining  Co.  78  N.  Y. 
159;  Campbell  v.  American,  &c.  Co. 
122  N.  Y.  455,  25  N.  E.  853,  11  L.  R. 
A.  596.  The  power  will  not  be  ex- 
tended by  implication.  Covington, 
&c.  Co.  v.  Sargent,  1  Cin.  Super.  Ct. 
354;  Melhado  v.  Hamilton,  28  L.  T. 
(N.  S.)  578,  29  L.  T.  (N.  S.)  364; 
Harrison  v.  Mexican  R.  Co.  L.  R.  19 
Eq.  Cas.  358.  Power  granted  to  a 
railroad  company  to  do  all  the  law- 
ful acts  incident  to  its  corporate 
existence,  with  "such  additional 
powers  as  may  be  convenient  for  the 
due  and  successful  execution  of  the 
powers  granted,"  does  not  authorize 
it  to  guarantee  a  specific  dividend 
on  its  stock,  as  a  premium  to  in- 
duce a  subscription,  even  though 
the  guaranty  be  partly  in  considera- 
tion of  services  rendered  the  com- 
pany. Elevator  Co.  v.  Memphis,  &c. 
R.  Co.  85  Tenn.  703,  4  Am.  St.  798, 
5  S.  W.  52. 

47  Harrison  v.  Mexican  R.  Co.  44 
L.  J.  (Ch.)  403;  Kent  v.  Quicksilver 
Mining  Co.  78  N.  Y.  159,  178;  Hig- 
gins  v.  Lansingh,  154  111.  301,  40  N. 
E.  362.  Some  cases  have  held  that 
under  a  power  to  increase  the  capi- 
tal stock  and  to  borrow  money  such 
stock  could  be  issued  by  a  majority 
vote.  Hazlehurst  v.  Savannah,  &c. 
R.  Co.  43  Ga.  13  (1875);  Rutland, 
&c.  R.  Co.  v.  Thrall,  35  Vt.  536 
(1863) ;  West  Chester,  &c.  R.  Co.  v. 
Jackson,  77  Pa.  St.  321;  Gordon  v. 


Richmond,  &c.  R.  Co.  78  Va.  501, 
22  Am.  &  Eng.  R.  Cas.  33.  But  this 
has  been  denied.  Kent  v.  Quick- 
silver Mining  Co.  78  N.  Y.  159.  It 
has  been  held  that  the  power  to  is- 
sue preferred  stock  is  given  by  the 
grant  of  a  right  to  raise  funds  by 
a  sale  of  stock.  Chaff ee  v.  Rutland, 
&c.  R.  Co.  55  Vt.  110,  16  Am.  &  Eng. 
R.  Cas.  408.  See,  also,  State  v. 
Cheraw,  &c.  R.  Co.  16  S.  Car.  524. 

48  Continental  Trust  Co.  v.  Toledo, 
&c.  R.  Co.  86  Fed.  929,  citing  and 
relying  on  Hamlin  v.  Toledo,  &c.  R. 
Co.  78  Fed.  664,  24  C.  C.  A.  271,  36 
L.  R.  A.  826.  But  see  Mercantile 
Trust  Co.  v.  Baltimore,  &c.  R.  Co. 
82  Fed.  360. 

48  Hoyt  v.  Quicksilver  Mining  Co., 
17  Hun  (N.  Y.)  169;  Kent  v.  Quick- 
silver Min.  Co.,  78  N.  Y.  159;  Tay- 
lor v.  South,  &c.  R.  Co.  13  Fed.  152; 
Branch  v.  Atlantic,  &c.  R.  Co.  3 
Woods  (U.  S.)  481.  See  Banigan 
v.  Bard,  134  U.  S.  291,  10  Sup.  Ct. 
565;  Lockhart  v.  Van  Alstyne,  31 
Mich.  76,  18  Am.  R.  156,  163;  Hazle- 
hurst v.  Savannah,  &c.  R.  Co.  43  Ga. 
13,  and  compare  American  Tube 
Works  v.  Boston,  &c.  Co.  139  Mass. 
5,  29  N.  E.  63;  National  Bank  v. 
Drake,  29  Kans.  311,  44  Am.  R.  646. 

50  Holland  v.  Cheshire  R.  Co.  151 
Mass.  231,  24  N.  E.  206,  8  R.  &  Corp. 
L.  J.  49.  See,  also,  Pearson  v.  Lon- 
don, &c.  R.  Co.  14  Sim.  541. 


133 


PBEFEBEED    STOCKHOLDEE  AS    CEEDITOK. 


[§    83 


directors  cannot  issue  such  stock  under  an  authorization  to  the  cor- 
poration to  do  so,51  but  this  decision  seems  of  doubtful  soundness, 
and,  in  any  event,  such  an  issue  is  susceptible  of  ratification  by  a  sub- 
sequent vote  of  the  stockholders.52  A  dissenting  stockholder  may  en- 
join an  unauthorized  issue  of  preferred  stock,53  or  may  have  it  set  aside 
by  suit  brought  within  a  reasonable  time.64 

§  83.  Holder  of  preferred  stock  not  a  creditor — His  rights  and 
remedies. — The  holder  of  preferred  stock  is  not  a  creditor  of  the  cor- 
poration,55 but  simply  a  shareholder  with  a  superior  right  to  receive 
dividends  when  the  profits  are  insufficient  to  pay  them  to  all  the 
holders  of  stock,56  and  he  can  claim  the  payment  of  dividends  only 
out  of  the  net  earnings.57  The  ownership  of  such  stock  usually  confers 


51  McLaughlin    v.    Detroit,   &c.    R. 
Co.  8  Mich.  99. 

52  McLaughlin    v.    Detroit,    &c.    R. 
Co.  8  Mich.  99. 

53  Sturge  v.  Eastern  R.  Co.  7  DeG., 
M.  &  G.  158;  Moss  v.  Syers,  32  L.  J. 
Ch.  711;  Hutton  v.  Scarborough,  &c. 
Co.   4   DeG.,   J.   &   S.   672;    Kent  v. 
Quicksilver,  &c.  Co.  78  N.  Y.  159. 

64  A  long  delay  in  bringing  suit  or 
other  acquiescence  may  confirm  the 
issue.     Taylor  v.  South,  &c.  R.  Co. 
4  Woods    (U.   S.)    575,  13  Fed.  152 
(10    years) ;    Kent    v.    Quicksilver 
Mining  Co.  78  N.  Y.  159  (4  years) ; 
Banigan  v.  Bard,  134  U.  S.  291,  10 
Sup.  Ct.  565;   Hazlehurst  v.  Savan- 
nah, &c.  R.  Co.  43  Ga.  13.     One  ac- 
cepting such  stock  can  not  question 
its  validity  in  a  suit  for  the  pur- 
chase price,  if  the  other  stockhold- 
ers   do    not   complain.      Evansville, 
&c.  R.  Co.  v.  Evansville,  15  Ind.  395, 
415.     See,  also,   Branch  v.  Jessup, 
106  U.  S.  468,  1  Sup.  Ct.  495.     But 
compare  Reed  v.  Boston,  &c.  Co.  141 
Mass.  454,  5  N.  E.  852;  Anthony  v. 
Household,  &c.  Co.  16  R.  I.  571,  18 
Atl.  176,  5  L.  R.  A.  575. 

65  Belfast,  &c.  R.  Co.  v.  Belfast,  77 
Me.  445,  1  Atl.  362;   Chaffee  v.  Rut- 
land, &c.  R.  Co.  55  Vt.  110;  Warren 


v.  King,  108  U.  S.  389,  2  Sup.  Ct. 
789;  Taft  v.  Hartford,  &c.  R.  Co. 
8  R.  I.  310,  5  Am.  R.  575;  Bailey  v. 
Railroad  Co.  1  Dill.  (U.  S.)  174; 
Birch  v.  Cropper,  61  Law  T.  621; 
Field  v.  Lamson,  &c.  Co.  162  Mass. 
388,  38  N.  E.  1126,  27  L.  R.  A.  136, 
and  note.  See,  also,  People  v.  St. 
Louis,  &c.  R.  Co.  176  111.  512,  52 
N.  E.  292;  note  in  73  Am.  St. 
228;  2  Purdy's  Beach  Priv.  Corp. 
§  476.  But  see  Emerson  v.  New 
York,  &c.  R.  Co.  14  R.  I.  555,  16. Am. 
&  Eng.  R.  Cas.  404;  Burt  v.  Rattle, 
31  Ohio  St.  116.  See  generally  Hel- 
ler v.  National  Marine  Bank,  89  Md. 
602,  43  Atl.  800,  45  L.  R.  A.  438,  73 
Am.  St.  212,  and  note. 

56  Bates   v.   Androscoggin,   &c.   R. 
Co.   49   Me.   491;    Taft  v.  Hartford, 
&c.  R.  Co.  8  R.  I.  310,  5  Am.  R.  575; 
Warren  v.  King,   108  U.   S.   389,   2 
Sup.   Ct  789;    St.  John  v.  Erie  R. 
Co.  22  Wall.  (U.  S.)  136;  Chaffee  v. 
Rutland,  &c.  R.  Co.  55  Vt.  110;  State 
v.  Cheraw,  &c.  R.  Co.  16  S.  Car.  524. 
Held  subject  to  the  statutory  liabil- 
ity of  a  stockholder  in  Railroad  Co. 
v.  Smith,  48  Ohio  St.  219. 

57  Belfast,  &c.  R.  Co.  v.  Belfast,  77 
Me.    445,    1    Atl.    362;    Lockhart   v. 
Van  Alstyne,   31   Mich.   76;    Henry 


83] 


STOCK. 


134 


upon  the  holder  a  right  to  vote  it  at  meetings  of  the  shareholders ; 
but  it  has  been  held  competent  for  a  railroad  company,  in  issuing  cer- 
tificates of  preferred  stock,  to  stipulate  therein  that  the  holders  shall 
not  have  or  exercise  the  right  to  vote  as  stockholders  at  such  meet- 
ings.58 The  directors  may  be  compelled  by  suit  to  pay  dividends  on 
preferred  stock  before  otherwise  disposing  of  net  earnings,59  subject 
to  a  reasonable  discretion  on  their  part  as  to  making  improvements,60 
and,  possibly,  as  to  the  liquidation  of  a  floating  debt,61  yet  no  suit 
can  be  maintained,  as  a  rule,  against  the  corporation  for  a  preferred 
dividend  until  profits  with  which  to  pay  it  have  accrued  and  it  has  been 
declared.62  But  if  such  accrued  profits  be  appropriated  to  the  payment 
of  dividends  on  common  stock  while  the  guaranteed  dividends  on 
preferred  stock  remain  unpaid,  payment  of  such  common  dividends 


v.  Great  Northern,  &c.  R.  Co.  1  De 
Gex  &  J.  606;  Elkins  v.  Camden,  &c. 
R.  Co.  36  N.  J.  Eq.  233;  Miller  v. 
Ratterman,  47  Ohio  St.  141,  24  N.  E. 
496.  But  see  Cotting  v.  New  York, 
&c.  R.  Co.  54  Conn.  156,  5  Atl.  851; 
Totten  v.  Tison,  54  Ga.  139.  As  to 
what  are  net  earnings,  see  St.  John 
v.  Erie  R.  Co.  10  Blatchf.  (U.  S.) 
271,  affirmed  in  22  Wall.  136;  War- 
ren v.  King,  108  U.  S.  389,  398; 
Van  Dyck  v.  McQuade,  86  N.  Y.  38; 
Phillips  v.  Eastern  R.  Co.  138  Mass. 
122;  Union  Pac.  R.  Co.  v.  United 
States,  99  U.  S.  402. 

68  Miller  v.  Ratterman,  47  Ohio  St. 
141,  24  N.  E.  496.  See,  also,  note  in 
73  Am.  St.  239. 

B9Boardman  v.  Lake  Shore,  &c.  R. 
Co.  84  N.  Y.  157,  180;  Bailey  v.  Han- 
nibal, &c.  R.  Co.  1  Dill.  (U.  S.)  174; 
Bates  v.  Androscoggin,  &c.  R.  Co. 
49  Me.  491;  Barnard  v.  Vermont,  &c. 
R.  Co.  89  Mass.  512;  Hazeltine  v. 
Belfast,  &c.  R.  Co.  30  Am.  &  Eng. 
R.  Cas.  528,  79  Me.  411,  1  Am.  St. 
330;  Mackintosh  v.  Flint,  &c.  R.  Co. 
32  Fed.  350;  Dickinson  v.  Chesa- 
peake, &c.  R.  Co.  7  W.  Va.  390.  See, 
also,  Storrow  v.  Texas,  &c.  Assn.  87 
Fed.  612,  31  C.  C.  A.  139;  Cotting 


v.  New  York,  &c.  R.  Co.  54  Conn. 
156,  5  Atl.  851. 

60  New  York,  &c.  R.  Co.  v.  Nickals, 
119  U.  S.  296,  7  Sup.  Ct.  209.    It  is 
suggested   that   where   arrears   are 
not     collectable     the     corporation 
should    not    be    allowed    to    retain 
profits  for  the  making  of  improve- 
ments  before   paying  dividends  on 
preferred     stock,     as     such     power 
would  give  the  corporation  an   op- 
portunity  to   defeat  the  preference 
by  waiting  to  declare  a  dividend  un- 
til the  profits  sufficed  for  dividends 
on   all  the   capital   stock.     1   Cook 
Stock  and  Stockholders,  §  272. 

61  Chaffee  v.  Rutland,  &c.  R.  Co.  55 
Vt.  110;   Belfast,  &c.  R.  Co.  v.  Bel- 
fast,  77   Me.   445,   1   Atl.   362.     See 
Hazeltine  v.  Belfast,  &c.  R,  Co.  79 
Me.  411,  30  Am.  &  Eng.  R.  Cas.  528. 

62  Taf t  v.  Hartford,  &c.  R.  Co.  8  R. 
I.  310,  5  Am.  R.  575;   Lockhart  v. 
Van  Alstyne,  31  Mich.  76,  18  Am.  R. 
156;    Webb  v.  Earle,  L.  R.   20  Eq. 
556.    The  declaration  of  such  a  divi- 
dend is  very  largely  within  the  dis- 
cretion of  the  directors  as  long  as 
they   act   in   good   faith.     Field   v. 
Lamson,   162    Mass.    388,   38    N.    E. 
1126,  27  L.  R.  A.  136,  and  note. 


135 


GUARANTEED  DIVIDENDS — FUTURE  DIVIDENDS. 


[§'84 


may  be  enjoined.63  Or,  if  the  payment  is  actually  made,  the  holder  of 
preferred  stock  is  entitled  to  interest  on  his  accrued  dividends  from 
the  date  of  this  misappropriation.64  If  from  a  lack  of  net  profits  with 
which  to  pay  the  guaranteed  dividends  upon  preferred  stock  they 
should  remain  unpaid  for  a  time,  the  holders  are  entitled  to  payment 
of  arrears  before  any  dividends  are  declared  on  common  stock,65 
unless  different  provision  is  made  by  statute  or  otherwise.66 

§  84.  Rights  of  preferred  stockholders  after  payment  of  guaran- 
teed dividend — Future  dividends. — After  the  holders  of  preferred 
stock  have  received  the  dividend  guaranteed  to  them,  the  net  profits 
remaining  on  hand  may  be  devoted  to  the  payment  of  dividends  on 
the  common  stock  alone,  until  the  holders  qf  such  stock  have  received 
a  dividend  equal  to  that  paid  on  the  preferred  stock,  after  which  all 
stock  shares  equally  in  any  additional  dividends  which  the  net  earnings 
on  hand  may  suffice  to  pay.67  The  preferred  shareholders  are  not  en- 
titled to  have  the  profits  reserved  to  pay  their  dividends  which  may 
accrue  in  the  future.  An  assignment  of  the  stock  carries  with  it  all 


83  Union  Pac.  R.  Co.  v.  United 
States,  99  U.  S.  402;  Taft  v.  Hart- 
ford, &c.  R.  Co.  8  R.  I.  310,  5  Am. 
R.  575;  Prouty  v.  Michigan  South- 
ern, &c.  R.  Co.  1  Hun  (N.  Y.)  655. 

64  Prouty  v.  Michigan,  &c.  R.  Co.  1 
Hun    (N.  Y.)    655;   Henry  v.  Great 
Northern  R.  Co.  4  K.  &  J.  1.     See, 
also,  Boardman  v.  Lake  Shore,  &c. 
R.  Co.  84  N.  Y.  157,  4  Am.  &  Eng. 
R.  Cas.  265. 

65  Bailey  v.  Hannibal,  &c.  R.  Co.  1 
Dillon  (U.  S.)  174,  17  Wall.  (U.  S.) 
96;  Elkins  v.  Camden,  &c.  R.  Co.  36 
N.  J.  Eq.   233;    Boardman  v.   Lake 
Shore,    &c.    R.    Co.    84    N.    Y.    157; 
Henry  v.  Great  Northern  R.  Co.  1 
DeG.  &  J.  606   (1857);   Matthews  v. 
Great  Northern,  &c.  R.  Co.  28  L.  J. 
Ch.  375  (1859).  But  see,  contra,  Bel- 
fast, &c.  R.  Co.  v.  Belfast,  77  Me. 
445,  1  Atl.  362;  Gordon  v.  Richmond, 
&c.  R.  Co.  78  Va.  501.     See,  where 
there  was  a  reduction  of  stock  be- 
cause of  losses,  Roberts  v.  Roberts- 


Wicks  Co.  184  N.  Y.  257,  77  N.  E.  13, 
3  L.  R.  A.  (N.  S.)  1034. 

86  See  Dent  v.  London,  &c.  Co.  L. 
R.  16  Ch.  Div.  344;  Belfast,  &c.  R. 
Co.  v.  Belfast,  77  Me.  445,  1  Ati.  362, 
where  a  by-law  was  held  to  have 
controlling  influence.  See  Com- 
panies Clauses,  act  of  1863,  26  and 
27  Viet.  Ch.  16,  §  14,  for  statute 
provision  limiting  the  fund  for  the 
payment  of  preferred  dividends  to 
the  profits  of  the  current  year.  See 
Stimson  Am.  Stat.  (1892),  §  8620, 
for  statutes  of  Indiana,  Michigan, 
Iowa,  Minnesota,  Missouri  and  Mon- 
tana, providing  that  the  terms  and 
conditions  of  payment  of  preferred 
stock  shall  be  prescribed  by  the  di- 
rectors or  by  the  company,  at  the 
time  it  is  issued. 

6T  Bailey  v.  Hannibal,  &c.  R.  Co.  1 
Dillon  (U.  S.)  174,  17  Wall.  (U.  S.) 
96;  Allen  v.  Londonderry,  &c.  R. 
Co.  25  W.  R.  524. 


85] 


STOCK. 


13G 


arrears  of  dividends,68  not  expressly  separated  and  reserved  to  the 
grantor,89  unless  the  dividend  has  been  declared  before  the  trans- 
fer.70 

§  85.  Rights  of  preferred  stockholders  on  dissolution. — Unless  a 
preference  in  repayment  of  capital  invested  has  been  specially  con- 
tracted for71  or  is  given  by  statute,72  the  holder  of  preferred  stock 
shares  equally  with  common  shareholders  in  a  distribution  of  assets 
upon  dissolution.73  His  claims  are  subject  to  those  of  creditors  for 
debts  contracted  subsequently  to  the  issue  of  his  stock.74  This  results 
from  the  rule  that  he  is  a  stockholder  and  not  a  creditor.75 


§  86.  Guaranteed,  interest-bearing,  income  and  debenture  stock. 
— An  agreement  on  the  part  of  the  corporation  to  pay  a  specified 
dividend  or  interest  on  its  stock  absolutely  and  at  all  events,  whether 
any  profits  are  earned  or  not,  would  be  contrary  to  public  policy  and 
void/6  and  it  has  been  held  that  a  railroad  company  cannot,  with- 


68  Manning  v.  Quicksilver  Min. 
Co.  24  Hun  (N.  Y.)  360;  Hyatt  v. 
Allen,  56  N.  Y.  553,  15  Am.  R.  449. 

69Jermain  v.  Lake  Shore,  &c.  R. 
Co.  91  N.  Y.  483. 

70  Ohio,  City  of,  v.  Cleveland,  &c. 
R.  Co.  6  Ohio  St.  490. 

71  Bangor,  &c.  Co.,  Re,  L.  R.  20  Eq. 
59;  Bridgewater  Nav.  Co.,  Re,  L.  R. 
39  Ch.  Div.  1,  58  Law  T.  476,  26  Am. 
&  Eng.  Corp.  Gas.  386. 

72  McGregor  v.  Home  Ins.   Co.   33 
N.  J.  Eq.  181. 

73  McGregor  v.  Home   Ins.   Co.  33 
N.  J.  Eq.  181;  Bridgewater  Nav.  Co., 
Re,  58  Law  T.  476;  Griffith  v.  Paget, 
L.  R.  6  Ch.  Div.  511;  Birch  v.  Crop- 
per, 61  Law  T.  621.     But  see  Gor- 
don v.  Richmond,  &c.  R.  Co.  78  Va. 
501,  22  Am.  &  Eng.  R.  Cas.  33.     So, 
when  the  capital   stock   is  reduced 
the  preferred  stock  may  be  reduced 
equally  with  the  common.     Barrow, 
&c.  Co.,  Re,  59  Law  T.  500;   Great 
Western,  &c.  Co.,  Re,  56  L.  J.  Ch.  3; 
Bannatyne  v.  Direct,  &c.  Co.  55  Law 
T.  716.    Unless  it  is  preferred  as  to 


assets  as  well  as  dividends.  Que- 
brada  R.,  Re,  60  Law  T.  482.  But 
see  American  Pastoral  Co.,  Re,  62 
Law  T.  625.  See  generally,  note  in 
73  Am.  St.  243. 

74  Warren  v.  King,  108  U.  S.  389,  2 
Sup.   Ct.   789;    St.  John  v.   Erie  R. 
Co.  22  Wall.    (U.   S.)    136;   King  v. 
Ohio,  &c.  R.  Co.  2  Fed.  36;  Birch  v. 
Cropper,  61  Law  T.  621. 

75  See  ante,  §  83.    This  section  is 
quoted    in    Heller    v.    Nat.    Marine 
Bank,  89  Md.  602,  43  Atl.  800,  44  L. 
R.   A.   438,   443,   73   Am.   St.    212   n. 
See,  also,  Higgins  v.  Lansingh,  154 
111.  301,  40  N.  E.  362. 

78  Lockhart  v.  Van  Alstyne,  31 
Mich.  76,  18  Am.  R.  156;  State  v. 
Cheraw,  &c.  R.  Co.  16  S.  Car.  524; 
Crawford  v.  Northeastern,  &c.  R. 
Co.  3  Jur.  (N.  S.)  1093;  Ohio  Col- 
lege v.  Rosenthal,  45  Ohio  St.  183, 
12  N.  E.  665;  Chase  v.  Vanderbilt, 
62  N.  Y.  307;  Elevator  Co.  v.  Mem- 
phis, &c.  R.  Co.  85  Tenn.  703,  5  S. 
W.  52,  4  Am.  St.  798. 


137     GUARANTEED INTEREST-BEARING INCOME— DEBENTURE.      [§    86 


out  legislative  authority,  contract  to  pay  interest  on  its  stock  before 
the  road  is  completed  or  any  income  received.77  But  in  Massachu- 
setts, the  statute  provides  for  "special  stock,"  upon  which  a  semi- 
annual dividend  or  interest  is  payable  absolutely  and  as  a  debt,  with- 
out regard  to  the  corporate  earnings,78  and,  even  in  the  absence  of  ex- 
press legislative  authority,  a  corporation  has  the  same  power  to 
guaranty  dividends  and  provide  for  interest  out  of  the  profits  that  it 
has  to  issue  preferred  stock,  for  such  guaranteed  or  interest-bearing 
stock  is  virtually  preferred  stock  and  nothing  more.79  It  will  gener- 


77  Painesville,  &c.  R.  Co.  v.  King, 
17  Ohio  St.  500,  534,  49  Am.  Dec. 
478.  See,  also,  Troy,  &c.  R.  Co.  v. 
Tibbits,  18  Barb.  (N.  Y.)  297;  Pitts- 
burg,  &c.  R.  Co.  v.  Allegheny  Co.  63 
Pa.  St.  136.  But  we  believe  that  a 
railroad  company  ordinarily  has 
power,  for  the  purpose  of  getting 
subscriptions  and  money  to  build 
the  road,  to  issue  interest-bear- 
ing stock  or  to  agree  to  pay  interest 
until  the  road  is  built  or  until  some 
other  •  designated  time,  at  least 
where  the  interest,  although  ac- 
crued, is  not  to  be  paid  until  the 
road  is  in  operation  and  sufficient 
profits  are  made.  Thus,  in  the  case 
of  Evansville,  &c.  R.  Co.  v.  Evans- 
ville,  15  Ind.  395,  415,  the  court  said: 
"The  work  of  constructing  a  rail- 
road sometimes  requires  years  for 
its  completion,  and  dividends  to 
stockholders  seldom,  if  ever,  accrue 
before  the  road  is  fully  completed. 
If  interest  were  not  allowed  upon 
the  stock,  those  who  invest  their 
funds  at  the  beginning  would  re- 
ceive nothing  more  than  those  who 
take  their  stock  when  the  work 
may  be  nearly  completed.  We  see 
nothing  against  the  law  or  public 
policy  in  this  arrangement.  The 
construction  of  a  railroad  requires 
a  large  outlay  of  capital,  much  of 
which  must  be  furnished  before  the 
work  can  progress  to  any  consider- 
able extent.  If  interest  is  allowed 


on  the  stock  from  the  time  it  is 
paid  for,  there  is  an  inducement  for 
capitalists  to  invest  early  and  fur- 
nish the  means  to  successfully  carry 
on  the  enterprise."  To  the  same 
effect  are  the  decisions  in  Richard- 
son v.  Vermont,  &c.  Co.  44  Vt.  613, 
618;  Rutland,  &c.  Co.  v.  Thrall,  35 
Vt.  536;  Wright  v.  Vermont,  &c.  R. 
Corp.  12  Gush.  (Mass.)  68;  Mil- 
waukee, &c.  R.  Co.  v.  Field,  12  Wis. 
340;  Barnard  v.  Vermont,  &c.  R.  Co. 
7  Allen  (Mass.)  512;  Ohio  v.  Cleve- 
land, &c.  R.  Co.  6  Ohio  St.  489.  See, 
also,  People  v.  Preston,  140  N.  Y. 
549,  35  N.  E.  979,  24  L.  R.  A.  57; 
Miller  v.  Pittsburgh,  &c.  R.  Co.  40 
Pa.  St.  237,  80  Am.  Dec.  570;  Water- 
man v.  Troy,  &c.  R.  Co,  8  Gray 
(Mass.)  433. 

"American  Tube  Works  v.  Bos- 
ton, &c.  Co.  139  Mass.  5,  29  N.  E.  63; 
Reed  v.  Boston,  &c.  Co.  141  Mass. 
454,  5  N.  E.  852,  12  Am.  &  Eng. 
Corp.  Cas.  153;  Williams  v.  Parker, 
136  Mass.  204,  6  Am.  &  Eng.  Corp. 
Cas.  566.  See,  also,  Gordon  v.  Rich- 
mond, &c.  R.  Co.  78  Va.  501. 

79Taft  v.  Hartford,  &c.  R.  Co.  8 
R.  I.  310,  5  Am.  R.  575;  Miller  v. 
'Ratterman,  47  Ohio  St.  141,  24  N. 
E.  496;  Henry  v.  Great  Northern, 
&c.  R.  Co.  4  K.  &  J.  1.  See,  also, 
note  in  73  Am.  St.  227,  228,  235.  Ex- 
cept that  the  dividends  are  more 
clearly  cumulative  and  more  clearly 
show  that  the  holder  is  entitled  to 


86] 


STOCK. 


138 


ally  be  construed  to  mean  that  the  interest  or  dividend  is  payable 
only  out  of  the  profits  and  upheld  on  that  ground,80  but  much,  of 
course,  will  necessarily  depend  upon  the  language  used,  and  where 
the  interest  is  guaranteed  absolutely  and  the  corporation  also  agrees 
to  liquidate  the  principal  at  a  specified  time,  or  the  like,  so  that  the 
so-called  stock  is  in  reality  an  interest-bearing  debenture  the  relation 
created  thereby  will  be  that  of  debtor  and  creditor  and  the  holder 
will  not  be  merely  a  shareholder  as  he  would  be  if  it  were  preferred  or 
interest-bearing  stock  payable  only  out  of  the  profits.81  Its  validity, 
therefore,  would  depend  upon  some  other  power  than  the  power  to 
issue  preferred  stock.82  Sometimes  an  agreement  is  made  between 
two  corporations  whereby  one  guarantees  to  the  other  a  certain  speci- 
fied annual  dividend  on  its  capital  stock.  Such  an  agreement  is  held 
to  be  a  guarantee  to  the  corporation  and  not  to  the  stockholders 
severally,  and  the  directors  have  power  to  modify  the  terms  of  such 
guaranty,  and  their  action  in  so  doing  will  not  be  disturbed  by  the 
courts  where  they  have  acted  fairly  and  in  good  faith.83 


arrears  as  soon  as  the  profits  are 
earned  and  the  dividend  declared. 
Bpardman  v.  Lake  Shore,  &c.  R.  Co. 
84  N.  Y.  157;  Henry  v.  Great  North- 
ern, &c.  R.  Co.  4  K.  &  J.  1;  Field  v. 
Lamson,  &c.  Co.  162  Mass.  388,  38 
N.  E.  1126,  27  L.  R.  A.  136. 

""Lockhart  v.  Van  Alstyne,  31 
Mich.  76,  18  Am.  R.  156;  Taft  v. 
Hartford,  &c.  R.  Co.  8  R.  I.  310,  5 
Am.  R.  575;  Scott  v.  Central  R.  Co. 
52  Barb.  (N.  Y.)  45;  Waterman  v. 
Troy,  &c.  R.  Co.  8  Gray  (Mass.) 
433;  Field  v.  Lamson,  &c.  Co.  162 
Mass.  388,  38  N.  E.  1126,  27  L.  R. 
A.  136,  and  note.  See,  also,  Bar- 
nard v.  Vermont,  &c.  R.  Co.  7  Allen 
(Mass.)  512;  Richardson  v.  Ver- 
mont, &c.  R.  Co.  44  Vt.  613. 

81  Burt  v.  Rattle,  31  Ohio  St.  116 ; 
West  Chester,  &c.  R.  Co.  v.  Jackson, 
77  Pa.  St.  321;   Totten  v.  Tison,  54 
Ga.  139. 

82  Quoted  in  Heller  v.  National  Ma- 
rine Bank,  89  Md.  602,  43  Atl.  800,  45 
L.  R.  A.  438,  443,  73  Am.  St.  212  n. 
where  it  is  said  that  ordinarily  pre- 
ferred stock  does  not  constitute  a 


lien  upon  the  franchise  and  prop- 
erty, but  that  merely  calling  it  pre- 
ferred stock  does  not  necessarily 
have  the  effect  of  making  it  ordi- 
nary preferred  stock,  and  that  the 
statute  may  make  it  a  lien,  although 
the  term  "preferred  stock"  is  used. 

^Flagg  v.  Manhattan  R.  Co.  10 
Fed.  413,  20  Blatch.  (U.S.)  142;  Bev- 
eridge  v.  New  York,  &c.  R.  Co.  112 
N.  Y.  1,  19  N.  E.  489,  2  L.  R.  A.  648. 
A  guarantee  of  a  specified  dividend 
upon  the  stock  of  another  company 
absolutely  and  without  regard  to 
profits  was  held  unauthorized  and 
not  enforceable  in  Elevator  Co.  v. 
Memphis,  &c.  R.  Co.  85  Tenn.  703,  5 
S.  W.  52,  4  Am.  St.  798.  It  has  also 
been  held  that  a  railroad  company 
has  no  implied  power  to  guarantee 
the  interest  and  dividends  on  stocks 
and  bonds  of  a  summer  hotel,  al- 
though the  business  of  the  railroad 
might  thus  be  increased.  Western, 
&c.  R.  Co.  v.  Blue  Ridge  Hotel  Co. 
102  Md.  307,  62  Atl.  351,  3  L.  R.  A. 
(N.  S.)  887,  and  note. 


139 


INCREASE  AND  REDUCTION  OF   CAPITAL  STOCK. 


[§  87 


§  87.  Increase  and  reduction  of  capital  stock. — A  corporation  can 
neither  increase  nor  reduce  its  fixed  capital  stock  without  legislative 
authority.84  The  power  to  increase  it  can  not,  ordinarily,  be  im- 
plied from  the  power  to  reduce  it,85  nor  can  the  power  to  reduce  it  be 
implied  from  the  mere  power  to  increase  it.86  And  when  the  statute 
confers  the  power  to  increase  or  decrease  the  capital  stock  the  statu- 
tory method  of  procedure  should  be  substantially  followed.87  Unless 
otherwise  provided,  the  power  so  given  can  only  be  exercised  by  the 
stockholders,  and  not  by  the  directors.88  But  the  stockholders  may  be 
estopped  by  their  acquiescence,  in  such  a  case,  from  questioning  the 
legality  of  an  increase  or  decrease  made  by  the  directors.89  When 


84  Spring  Co.  v.  Knowlton,  103  U. 
S.  49;    Scovill  v.  Thayer,  105  U.  S. 
143;    Oldtown  R.  Co.  v.  Veazie,  39 
Me.   571;    Railway   Co.   v.  Allerton, 
18  Wall.  (U.  S.)  233;  New  York,  &c. 
R.  Co.  v.  Schuyler,  34  N.  Y.  30;  Me- 
chanics' Bank  v.  New  York,  &.c.  R. 
Co.  13  N.  Y.   599,  617;    Winters  v. 
Armstrong,  37  Fed.  508;  Peck'v.  El- 
liott, 79  Fed.  10,  24  C.  C.  A.  425; 
Tschumi  v.  Hills,  6  Kans.  App.  549, 
51  Pac.  619;  Cooke  v.  Marshall,  191 
Pa.  St.  315,  43  Atl.  314,  64  L.  R.  A. 
413.     But  the   authorized   issue  of 
bonds  convertible  into  stock  may,  in 
effect,  amount  to  authority  to   in- 
crease the  capital  stock  to  that  ex- 
tent.    Belmont  v.   Erie   R.    Co.    52 
Barb.   (N.  Y.)   637;   Ramsey  v.  Erie 
R.  Co.  38  How.  Pr.  (N.  Y.)  193,  216. 
See,  also,  Van  Allen  v.  Illinois  Cent. 
R.  Co.  7  Bosw.  (N.  Y.)  515. 

85  See  Sutherland  v.  Olcott,  95  N. 
Y.    93;     Lexington,    &c.    R.    Co.    v. 
Chandler,  13  Met.  (Mass.)  311. 

^Seignouret  v.  Home  Ins.  Co.  24 
Fed.  332,  10  Am.  &  Eng.  Corp.  Gas. 
131,  25  Am.  L.  R.  29;  Sutherland 
v.  Olcott,  95  N.  Y.  93.  See,  also, 
Smith  v.  Goldsworthy,  4  Q.  B.  (4 
Ad.  &  E.  N.  S.)  430. 

"Spring  Co.  v.  Knowlton,  103  U. 
S.  49;  Aspinwall  v.  Butler,  133  U. 
S.  595,  10  Sup.  Ct.  417;  Smith  v. 


Franklin  Park  Land,  &c.  Co.  168 
Mass.  345,  47  N.  E.  409;  Knowlton 
v.  Congress  Spring  Co.  57  N.  Y.  518; 
Grangers',  &c.  Co.  v.  Kamper,  73 
Ala.  325,  6  Am.  &  Eng.  Corp.  Cas. 
497.  Wheeler,  In  re,  2  Abb.  Pr.  N. 
S.  (N.  Y.)  361;  State  v.  McGrath, 
86  Mo.  239.  But  see  Handley  v. 
Stutz,  139  U.  S.  417,  11  Sup.  Ct.  530, 
34  Am.  &  Eng.  Corp.  Cas.  624.  The 
general  rule  is  that  if  the  stock  is 
an  overissue  so  that  there  is  an  en- 
tire want  of  power  the  holder  does 
not  become  a  stockholder,  and  is  not 
liable  as  such,  but  if  there  is  power 
to  issue  it,  mere  informalities  or 
irregularities  will  not  vitiate  it  and 
one  who  receives  it  may  become  lia- 
ble as  a  stockholder.  This  distinc- 
tion is  drawn  in  Scovill  v.  Thayer, 
105  U.  S.  143,  where  the  authorities 
are  reviewed  and  distinguished. 

""Eidman  v.  Bowman,  58  111.  444, 
11  Am.  R.  90;  Percy  v.  Millaudon, 
9  La.  326  (6  Mart.  N.  S.  616),  7  Am. 
Dec.  196;  Gill  v.  Balis,  72  Mo.  424; 
Chicago  City  R.  Co.  v.  Allerton,  18 
Wall.  (U.  S.)  233;  McNulta  v.  Corn 
Belt  Bank,  164  111.  427,  45  N.  E.  954, 
56  Am.  St.  203.  But  see  Suther- 
land v.  Olcott,  95  N.  Y.  93. 

89  Chicago  City  R.  Co.  v.  Allerton, 
18  Wall.  (U.  S.)  233;  Payson  v. 
Stoever,  2  Dill.  (U.  S.)  428;  Sewell's 


87] 


STOCK. 


140 


the  capital  stock  is  increased  new  shares  of  stock  are  generally  issued 
and  sold,  but  the  existing  shareholders,  it  seems,  have  the  first  right  to 
take  their  proportionate  part  of  the  new  stock,90  although  they  have  no 
right  to  demand  a  gratuitous  distribution  of  it  to  them91  and  may  lose 
their  right  to  take  precedence  of  other  purchasers  by  failing  to  act 
within  the  time  specified,  or  within  a  reasonable  time.92  The  capital 
stock  may  also  be  increased,  when  authorized,  by  means  of  stock  divi- 
dends.93 The  ordinary  method  of  reducing  the  capital  stock  is  by  re- 
funding to  each  stockholder  a  proportionate  part  of  the  surplus  over 
and  above  the  amount  of  the  capital  stock  as  reduced.94  So,  a  corpo- 


Case,  L.  R.  3  Ch.  131.  See,  also, 
Veeder  v.  Mudgett,  95  N.  Y.  309; 
Barrows  v.  Natchang,  &c.  Co.  72 
Conn.  658,  45  Atl.  951;  Columbia 
Nat.  Bank  v.  Matthews,  85  Fed.  934, 

29  C.  C.  A.  491. 

00  Cunningham's  Appeal,  108  Pa. 
St.  546;  Jones  v.  Morrison,  31  Minn. 
140,  6  N.  W.  854;  Gray  v.  Portland 
Bank,  3  Mass.  364,  3  Am.  Dec.  156; 
Humboldt,  &c.  Ass'n  v.  Stevens,  34 
Neb.  528,  52  N.  W.  568,  33  Am.  St. 
654;  Crosby  v.  Stratton,  17  Colo. 
App.  212,  68  Pac.  130;  Jones  v.  Con- 
cord, &c.  R.  Co.  67  N.  H.  119,  38 
Atl.  120,  68  Am.  St.  650;  Way  v. 
American,  &c.  Co.  60  N.  J.  Eq.  263, 
47  Atl.  44.  It  has,  however,  been 
questioned  whether  this  rule  applies 
to  a  railroad  company  existing  inde- 
pendently of  the  stockholders .  with 
its  economy  and  modes  of  action 
defined  by  statute.  See  Pierce  Railw. 
124;  1  Wood  Railw.  §  72.  And  it 
does  not  apply  to  old  shares  pur- 
chased by  the  corporation  and  reis- 
sued. State  v.  Smith,  48  Vt.  266; 
nor,  it  seems,  to  original  shares  of 
authorized  stock  remaining  undis- 
posed of.  Curry  v.  Scott,  54  Pa.  St. 
270,  275. 

91  Miller  v.  Illinois,  &c.  R.  Co.  24 
Barb.  (N.  Y.)  312,  330;  Brown  v. 
Florida,  &c.  R.  Co.  19  Fla.  472. 

82  Hart  v.   St.  Charles   St   R.  Co. 

30  La.  Ann.  1,  758;  Brown  v.  Flor- 


ida, &c.  R.  Co.  19  Fla.  472.  See, 
also,  Sewall  v.  Eastern  R.  Co.  9 
Gush.  (Mass.)  5;  Terry  v.  Eagle- 
Lock  Co.  47  Conn.  141.  See,  also, 
Crosby  v.  Stratton,  17  Colo.  212,  6& 
Pac.  130;  Hammond  v.  Edison,  &c. 
Co.  131  Mich.  79,  90  N.  W.  1040,  100 
Am.  St.  582. 

83  Beach  Priv.  Corp.  §  477;  Purdy's 
Beach  Priv.  Corp.  §  440;  1  Cook 
Stock  and  Stockholders,  §  287;  post, 
§§  331,  338.  In  one  sense,  perhaps, 
a  stock  dividend  does  not  increase 
the  capital  stock  as  the  theory  is 
that,  while  it  may  increase  the  num- 
ber of  shares,  the  aggregate  interest 
of  the  stockholders  is  the  same  as 
before;  in  other  words,  it  simply 
dilutes  the  existing  shares  to  the 
extent  that  new  shares  are  issued. 
Williams  v.  Western  Un.  Tel.  Co.  93: 
N.  Y.  162. 

94  Seeley  v.  New  York  Exchange 
Bank,  8  Daly  (N.  Y.)  400,  affirmed 
in  78  N.  Y.  608;  Strong  v.  Brooklyn, 
&c.  R.  Co.  93  N.  Y.  426;  Currier 
v.  Lebanon,  &c.  Co.  56  N.  H.  262, 
But  a  stockholder  in  a  bank  which 
reduces  its  capital  stock  to  the  ex- 
tent that  its  capital  has  become  im- 
paired on  account  of  bad  debts,  to 
prevent  an  assessment  upon  the 
stockholders,  cannot  compel  a  dis- 
tribution of  money  afterward  real- 
ized on  the  "bad  debts,"  as  in  case 
of  a  reduction  where  the  capital  is 


141 


WATEEED   STOCK. 


[§    88 


ration  may  effect  a  reduction  by  purchasing  and  cancelling  its  own 
shares,  where  it  has  authority  to  do  so.95  This,  however,  will  not  neces- 
sarily operate  as  a  reduction,  unless  so  intended,  for  they  may  be  re- 
sold and  reissued.98  And  the  mere  power  to  reduce  the  capital  stock 
does  not  authorize  the  corporation  to  purchase  the  shares  of  particular 
shareholders,  over  the  objection  of  others,  on  such  terms  or  in  such 
a  way  as  to  benefit  the  former  at  the  expense  of  the  latter.97  Nor  is 
the  "writing  off"  of  a  loss,  which  the  corporation  has  suffered,  such  a 
reduction  as  is  generally  authorized.98 

§  88.  Watered  stock. — What  is  known  as  "watered  stock"  is  fic- 
titiously paid-up  stock  or  stock  which  does  not  represent  its  face  or 
par  value  in  money  or  money's  worth  added  to  the  assets  of  the  corpo- 
ration,99 but  which  is  issued  as  a  bonus  or  exchanged  for  money, 
property,  services,100  or  demands  upon  the  company101  of  a  less  value 
than  the  par  value  of  the  stock.102  Such  issues  of  stock  are  frequently 


unimpaired.  McCann  v.  First  Nat. 
Bank,  112  Ind.  354,  14  N.  E.  251. 

96  Taylor  v.  Miami,  &c.  Co.  6  Ohio 
176;  Chicago,  &c.  R.  Co.  v.  Mar- 
seilles, 84  111.  145;  State  v.  Smith, 
48  Vt.  266;  Williams  v.  Savage,  &c. 
Co.  3  Md.  Ch.  418;  Gatling  Gun,  &c., 
Re,  62  L.  T.  R.  312;  British,  &c. 
Trustee,  &c.  v.  Couper  (1894),  A.  C. 
399;  Berger  v.  United  States, Steel 
Corp.  63  N.  J.  Eq.  809,  53  Atl.  68. 
See  article  in  8  So.  Law  Rev.  U.  S. 
369;  Tulare,  &c.  Dist.  v.  Kaweah, 
Ac.  Co.  (Gal.),  44  Pac.  662. 

96  Commonwealth  v.  Boston,  &c.  R. 
Co.  142  Mass.  146,  7  N.  E.  716;  City 
Bank  v.  Bruce,  17  N.  Y.  507;  Vail 
v.  Hamilton,  85  N.  Y.  453;  Jefferson 
T.  Burford  (Ky.),  17  S.  W.  855; 
State  Bank  v.  Fox,  3  Blatchf.  (U. 
S.)  431;  Clapp  v.  Peterson,  104  111. 
26;  Bank  v.  Wickersham,  99  Cal. 
655,  34  Pac.  444.  See,  also,  Leonard 
v.  Draper,  187  Mass.  536,  73  N.  E. 
€44;  Berger  v.  United  States  Steel 
Corp.  63  N.  J.  Eq.  809,  53  Atl.  68. 

"Currier  v.  Lebanon,  &c.  Co.  56 
N.  H.  262;  Chetlain  v.  Republic  Life 


Ins.  Co.  86  111.  220;  Gill  v.  Balis,  72 
Mo.  424.  See,  also,  Pacific  Fruit  Co. 
v.  Coon,  107  Cal.  447,  40  Pac.  542. 

""Ebbw  Vale,  &c.  Co.,  In  re,  L.  R. 
4  Ch.  Div.  832;  Seignouret  v.  Home 
Ins.  Co.  24  Fed.  332. 

89  Cook  Stock  and  Stockholders, 
§  28;  Handley  v.  Stutz,  139  U.  S. 
417,  418,  11  Sup.  Ct.  530. 

100  Capital  stock  to  an  amount  far 
beyond  the  actual  cost  of  the  road 
is  frequently  issued  to  the  construc- 
tion company  in  payment  for  build- 
ing it.     Cyclopedia  of  Political  Sci- 
ence, &c.  Vol.  Ill,  page  527,  cited  in 
Cook  Stock  and  Stockholders,  §  28. 

101  Such  stock  is  frequently  issued 
in   the   shape   of   a   stock   dividend 
when  no  corresponding  amount  has 
been  added  to  the  value  of  the  com- 
pany's property. 

102  Barnes  v.  Brown,  80  N.  Y.  527, 
53*4;  Sturges  v.  Stetson,  1  Biss.   (U. 
S.)   246;  Tobey  v.  Robinson,  99  111. 
222,  228;  Oliphant  v.  Woodburn,  &c. 
Co.  63  Iowa  332,  19  N.  W.  212.     But 
see  Scovill  v.  Thayer,  105  U.  S.  143; 
Lorillard   v.   Clyde,   86    N.   Y.    384. 


§  89] 


STOCK. 


142 


said  to  be  contrary  to  public  policy,103  and  a  fraud  upon  those  who  take 
it  as  full  paid  stock,104  and  are  sometimes  said  to  be  cause  for  the 
forfeiture  of  the  company's  charter.  In  Louisiana  the  constitution 
provides  that  this  penalty  shall  follow  such  action.105 

§  89.  Watered  stock  not  absolutely  void. — The  stock  so  issued  is 
not,  however,  absolutely  void,  where  it  is  not  an  overissue,  even  though 
there  is  a  constitutional  provision  declaring  fictitious  issues  void,  if 
there  is  a  consideration  to  support  it,  as  where  it  is  sold  below  par, 
or  issued  in  payment  for  work  or  property  of  less  than  its  face 
value.106  The  general  rule,  however,  is  that  if  it  is  an  overissue  in 
excess  of  the  amount  limited  by  charter,  it  is  ultra  vires  and  void 
even  in  the  hands  of  a  bona  fide  purchaser.107  And  the  stock,  if  issued 


Mere  inflation,  or  gratuitous  distri- 
bution of  stock  upon  no  increase  of 
value  in  the  corporate  property,  is 
condemned  by  law.  Williams  v. 
Western  Union  Tel.  Co.  93  N.  Y.  162. 
103  State  v.  Atchison,  &c.  R.  Co.  24 
Neb.  143,  38  N.  W.  43;  Morrow  v. 
Iron,  &c.  Co.  87  Tenn.  262,  10  S.  W. 
495,  5  R.  &  Corp.  L.  J.  206;  Sturges 
v.  Stetson,  1  Biss.  (U.  S.)  246;  Oli- 
phant  v.  Woodburn  Coal,  &c.  Co.  63 
Iowa  332,  19  N.  W.  212.  Quo  war- 
ranto  does  not  lie  against  a  corpora- 
tion in  Minnesota  merely  because  it 
issues  its  stock  below  par.  State  v. 
Minnesota,  &c.  Co.  40  Minn.  213,  41 
N.  W.  1020,  3  L.  R.  A.  510  n.  But 
such  an  act  is  said  to  be  clearly 
ultra  vires.  Fisk  v.  Chicago,  &c.  R. 
Co.  53  Barb.  (N.  Y.)  513.  And  it 
is  held  that  a  forfeiture  may  be  de- 
creed for  ultra  vires  acts  which  are 
detrimental  to  the  interests  of  the 
public.  People  v.  Utica  Ins.  Co.  15 
Johns.  (N.  Y.)  358,  8  Am.  Dec.  243; 
Commonwealth  v.  Delaware,  &c.  Ca- 
nal Co.  43  Pa.  St.  295;  State  v.  Peo- 
ple's, &c.  Assn.  42  Ohio  St.  579; 
People  v.  Improvement  Co.  103  111. 
491.  See,  also,  Holman  v.  State, 
105  Ind.  569,  5  N.  E.  702.  And  the 
constitutions  and  laws  of  many  of 
the  states  provide  that  railroad  cor- 


porations shall  not  issue  stock  ex- 
cepting for  money  or  its  equivalent 
actually  received.  Stimson  Am. 
Stat.  §  452.  See,  also,  Fitzpatrick 
v.  Dispatch,  &c.  Co.  83  Ala.  604,  2 
So.  727,  19  Am.  &  Eng.  Corp.  Cas. 
423. 

104  Barnes  v.  Brown,  80  N.  Y.  527. 

105  Const.  La.  §  238. 

106  Peoria  R.  Co.  v.  Thompson,  103 
111.   187;    Stein  v.  Howard,  65   Cal. 
616,  4  Pac.  662;  Gasquet  v.  Crescent 
City,  &c.  Co.  49  Fed.  496;   Barr  v. 
New  York,  &c.  R.  Co.  125  N.  Y.  263, 
26   N.   E.   145;    Lorillard   v.   Clyde, 
86  N.  Y.  384;   Memphis,  &c.  R.  Co. 
v.   Dow,   120  U.  S.   287,  7   Sup.   Ct. 
482;    Scovill  v.   Thayer,   105   U.    S. 
143;   Knapp  v.  Publishers,  127  Mo. 
53,  29   S.  W.   885;    Northern   Trust 
Co.    v.    Columbia,   &c.    Co.    75    Fed. 
936;   Dickerman  v.  Northern  Trust 
Co.  80  Fed.  450,  25  C.  C.  A.  549;  Coit 
v.  Gold  Amalgamated  Co.  119  U.  S. 
343,   7    Sup.   Ct.   231;    Ambrose,  &c. 
Co.,  In  re,  L.  R.   14   Ch.   Div.   390, 
394.    But  see  New  Castle,  &c.  R.  Co. 
v.    Simpson,    21    Fed.    533,    23   Fed. 
214;  Sturges  v.  Stetson,  1  Biss.  (U. 
S.)  246;  Fisk  v.  Chicago,  &c.  R.  Co. 
53  Barb.  {N.  Y.)  513. 

IOT  First  Ave.  Land  Co.  v.  Parker, 
111  Wis.  1,  86  N.  W.  604,  87  Am.  St 


143 


WATEBED   STOCK  NOT   ABSOLUTELY   VOID. 


gratuitously,108  or  such,  a  proportion  of  it  as  will  reduce  the  face 
value  of  the. shares  held  to  the  sum  paid  for  the  stock,109  may,  it  has 
heen  held,  where  it  is  sold  below  par,  be  at  the  suit  of  a  dissenting 
stockholder,110  recalled  for  cancellation,  fro-m  the  person  to  whom  it  is 
issued,111  or  from  his  grantee  with  notice,112  though  not,  it  would 
seem,  from  a  bona  fide  purchaser  for  value.113  Participating  stock- 
holders114 and  their  transferrees  with  notice115  are  estopped  to 
complain  of  the  transaction,118  at  least  when  not  absolutely 


841,  and  note;  Granger,  &c.  Ins.  Co. 
v.  Kamper,  73  Ala.  325;  McChord 
v.  Ohio,  &c.  R.  Co.  13  Ind.  220; 
Ryder  v.  Bushwick  R.  Co.  134  N.  Y. 
83,  31  N.  E.  251;  Kampman  v.  Tar- 
ver,  87  Tex.  491,  29  S.  W.  768; 
Scovill  v.  Thayer,  105  U.  S.  143. 
See,  however,  where  it  is  merely 
spurious  and  not  an  overissue, 
American  Wire  Nail  Co.  v.  Bayless, 
91  Ky.  94,  15  S.  W.  10;  New  York, 
&c.  R.  Co.  v.  Schuyler,  38  Barb.  (N. 
Y.)  534;  Manhattan  Beach  Co.  v. 
Harned,  27  Fed.  484,  23  Blatchf.  (U. 
S.)  494;  note  in  87  Am.  St.  849,  850, 
856. 

108  Oilman,  &c.  R.  Co.  v.  Kelly,  77 
111.  426.  See,  also,  Richardson  v. 
Green,  133  U.  S.  30,  10  Sup.  Ct.  280; 
Donald  v.  American,  &c.  Co.  62  N.  J. 
Eq.  729,  48  Atl.  771,  1116. 

109Sturges  v.  Stetson,  1  Biss.  (U. 
S.)  246;  Fosdick  v.  Sturges,  1  Biss. 
(U.  S.)  255. 

110  Since  each  shareholder  may  in- 
sist that  every  other  shareholder 
shall  contribute  his  ratable  part  of 
the  company's  capital  for  the  com- 
mon benefit,  he  may  maintain  a  suit 
to  cancel  an  unauthorized  issue  of 
shares  purporting  to  be  paid-up, 
when  they,  in  reality,  are  not. 
Morawetz  Priv.  Corp.  (2d  ed.), 
§§  275,  286.  See,  also,  Stebbins  v. 
Perry  County,  167  111.  567.,  47  N.  E, 
1048;  Kimball  v.  New  England,  &c. 
R.  Co.  69  N.  H.  485,  45  Atl.  253; 
note  in  87  Am.  St.  855,  also  show- 


ing when  the  corporation  may  main- 
tain such  a  suit. 

111  Oilman,  &c.  R.  Co.  v.  Kelly,  77 
111.  426. 

112  Upton   v.    Tribilcock,   91   U.    S. 
45;  Boulton  Carbon  Co.  v.  Mills,  78 
Iowa  460,  43  N.  W.  290,  5  L.  R.  A. 
649. 

113 1  Cook  Stock  and  Stockholders, 
§  31. 

u«  Gold  Co.,  In  re,  L.  R.  11  Ch.  Div. 
701,  712;  Scovill  v.  Thayer,  105  U. 
S.  143;  Callahan  v.  Windsor,  78 
Iowa  193,  42  N.  W.  652;  Wood  v. 
Corry,  &c.  Co.  44  Fed.  146;  Rich- 
ardson v.  Chicago,  &c.  Co.  131  Cal. 
xviii,  63  Pac.  74;  World,  &c.  Co. 
v.  Hamilton,  &c.  Co.  123  Mich.  620, 
82  N.  W.  528.  Dissenting  stockhold- 
ers may  have  relief.  Taylor  v. 
Philadelphia,  &c.  R.  Co.  7  Fed.  381; 
Parsons  v.  Joseph,  92  Ala.  403,  8  So. 
788;  Perry  v.  Tuscaloosa,  &c.  Co. 
93  Ala.  364,  9  So.  217.  If  they  act 
promptly.  Taylor  v.  South,  &c.  R. 
Co.  13  Fed.  152. 

115  Syracuse,  &c.  R.  Co.,  In  re,  91 
N.  Y.  1;  Ffooks  v.  Southwestern  R. 
1  Sm.  &  G.  142;  Foster  v.  Seymour, 
23  Fed.  65. 

118  Scovill  v.  Thayer,  105  U.  S. 
143;  Harrison  v.  Union  Pac.  R.  Co. 
13  Fed.  522;  St.  Louis,  &c.  R.  Co. 
v.  Tiernan,  37  Kans.  606,  15  Pac. 
544,  where  the  giving  of  $3,600,000 
of  stock  and  payment  of  $200,000  to 
directors  of  the  company  for  an 
old  road-bed  which  cost  them  $15,- 


§  90] 


STOCK. 


144 


void  as  an  overissue,  as  is  the  corporation  itself,  in  the  absence  of 
fraud.117 

§  90.    Eights  of  creditors  and  liabilities  of  holders  of  watered  stock. 

— But  the  creditors  of  the  corporation  may  generally  compel  the  per- 
sons receiving  stock  to  pay  the  par  value  in  full,118  or  such  part  thereof 
as  may  be  necessary  to  pay  their  claims.118  It  is  held,  however,  by 
the  Supreme  Court  of  the  United  States,  in  a  recent,  yet  much  criti- 
cised case,  that  "an  active^  corporation  may,  for  the  purpose  of  paying 
its  debts  and  obtaining  money  for  the  successful  prosecution  of  its 
business,  issue  its  stock  and  dispose  of  it  for  the  best  price  that  can  be 
obtained,"  and  that  it  may  give  the  purchaser  paid-up  stock  as  a  bonus 
without  making  him  liable  on  such  stock.120 


000,  when  all  the  stockholders  and 
directors   knew    all   the    facts,   was 
held    to    give    the    corporation    no 
cause  to  complain,  40  Am.  &  Eng. 
R.  Gas.  525,  544.    See,  also,  Arkan- 
sas, &c.  Co.  v.  Farmers',  &c.  Co.  13 
Colo.   587,   22   Pac.  954;    First  Nat. 
Bank   v.    Gustin,   &c.   Co.   42   Minn. 
327,  44  N.  W.  198,  6  L.  R.  A.  676  n, 
18  Am.  St.  510. 

117  See  Dickerman  v.  Northern  T. 
Co.  176  U.  S.  181,  20  Sup.  Ct.  311. 
See,    also,    generally    as    to    where 
there  is  or  is  not  an  estoppel.   First 
Ave.  Land  Co.  v.  Parker,  111  Wis. 

1,  86   N.   W.   604,   87  Am.   St.   841, 
856-860. 

118  Sagory  v.  Duhois,  3  Sandf .  Ch. 
(N.   Y.)    466,   499;    Upton  v.   Tribi- 
lock,  91  U.  S.  45;  Scovill  v.  Thayer, 
105  U.  S.  143;  Bates  v.  Great  West- 
ern Tel.  Co.  134   111.   536,  25  N.  E. 
521;    Hickling   v.    Wilson,    104    111. 
54;  Great  Western  Tel.  Co.  v.  Gray, 
122  111.  630,  14  N.  E.  214;  Mann  v. 
Cooke,    20   Conn.   178;    Skrainka   v. 
Allen,  76  Mo.  384;   Fisher  v.  Selig- 
man,  7  Mo.  App.  383;  Flinn  v.  Bag- 
ley,  7  Fed.  785;    Stutz  v.  Handley, 
41  Fed.  531;  Camden  v.  Stuart,  144 
U.  S.  104,  12  Sup.  Ct.  585.    But  in 
Clark   v.    Bever,    139    U.    S.    96,   11 
Sup.  Ct.  468,  it  was  held  that  a  rail- 


road company  in  financial  straits 
could  settle  with  a  creditor  by  giv- 
ing him  stock  at  twenty  cents  on 
the  dollar,  and  that  other  corporate 
creditors  could  not  afterwards  hold 
him  liable  for  the  additional  eighty 
cents. 

119  Scovill  v.  Thayer,  105  U.  S.  143, 
155.  Where  a  director  takes  shares 
of  the  capital  stock  as  a  bonus  for 
his  influence,  he  becomes  subject  to 
the  liabilities  of  a  shareholder  who 
has  taken  stock  but  has  not  paid 
for  the  same,  and  a  contract  be- 
tween him  and  the  company  that 
the  stock  shall  not  be  assessable 
cannot  relieve  him  of  the  liability. 
Richardson  v.  Green,  133  U.  S.  30, 
10  Sup.  Ct.  280;  McAvity  v.  Lin- 
coln, &c.  Co.  82  Me.  504,  20  Atl. 
82;  Allen  v.  Fairbanks,  45  Fed. 
445;  Haldeman  v.  Ainslie,  82  Ky. 
395.  But  see  Christensen  v.  Quin- 
tard,  29  N.  Y.  S.  61,  where  it  is 
held  that  a  reduction  of  forty  per 
cent,  in  the  price  of  stock  and  bonds 
was  a  donation  by  the  corporation 
to  induce  him  to  take  the  stock, 
and  a  judgment  creditor  cannot 
claim  it  in  payment  of  his  debt. 
See,  also,  Christensen  v.  Eno,  106 
N.  Y.  97,  12  N.  E.  648. 

*120  Handley  v.  Stutz,  139  U.  S.  417. 


145 


PURCHASE  WITH  OVERVALUED  PROPERTY. 


[ 


§91.  Stock  paid  for  by  overvalued  property — Sale  of  stock  on 
market. — Where  the  stock  is  paid  for  in  property  at  a  fraudulent 
overvaluation,  the  corporate  creditor  may  compel  a  rescission  of  the  sale 
in  toto,121  and  the  restoration  of  the  stock  or  its  actual  value,122  un- 
less he  knew  of  the  manner  in  which  payment  was  made  for  the  stock 
before  he  became  a  creditor.123  It  has  also  been  stated  broadly  that 
the  creditor  must  affirm  in  toto  or  rescind  in  toto  and  that  he  cannot 
hold  the  owner  of  such  stock  liable  as  for  an  unpaid  subscription.124 
But  most  of  the  cases  relied  upon  in  support  of  this  doctrine  are  cases 
in  which  the  stock  was  not  issued  upon  an  ordinary  subscription,  but 
in  payment  for  the  construction  of  the  road,  or  the  like,125  and,  what- 
ever may  be  the  rule  in  such  cases,  it  seems  unjust  and  in  violation  of 
true  principle,  to  extend  it  to  ordinary  subscriptions.126  It  is  a  ques- 
tionable doctrine  at  the  best,  and,  upon  principle,  a  subscriber  who 


11  Sup.  Ct.  530.  See,  also,  Hospes 
v.  Northwestern,  &c.  Co.  48  Minn. 
174,  50  N.  W.  1117,  15  L.  R.  A.  470, 
31  Am.  St.  637;  Coe  v.  East  &  W. 
B.  Co.  52  Fed.  531.  See  criticism  in 
2  Thomp.  Corp.  §  2092. 

^Currie's  Case,  3  DeG.,  J.  &  S. 
367;  Van  Cott  v.  Van  Brunt,  82 
N.  Y.  535;  Phelan  v.  Hazard,  5  Dill. 
TJ.  S.)  45;  Coffin  v.  Ransdell,  110 
Ind.  417,  11  N.  E.  20. 

122  In    Iowa    (Osgood   v.   King,   42 
Iowa  478)  and  in  Missouri  (Shickle 
v.  Watts,  94  Mo.  410,  7  S.  W.  274) 
it  is  held  that  the  court  will  decree 
the   payment   of   the   difference   be- 
tween the  value  of  the  property  or 
labor  given   in   exchange   for   stock 
and  its  par  value,  even  where  no 
fraud  is  proven,  but  this  is  against 
the  weight  of  authority.    See,  also, 
Libby  v.  Tobey,  82  Me.  397,  19  Atl. 
904. 

123  Bank  of  Fort  Madison  v.  Alden, 
129  U.  S.  372,  9  Sup.  Ct.  332. 

124 1  Cook  Stock  and  Stockholders, 
§  46;  1  Beach  Private  Corporations, 
§  120;  Coffin  v.  Ransdell,  110  Ind. 
417,  11  N.  E.  20.  In  Fogg  v.  Blair, 
139  U.  S.  118,  11  Sup.  Ct.  476,  the 
stock  was  not  shown  to  be  of  any 
ELL.  RAILROADS — 10 


value  and  the  court  said  that  the 
creditors  were  not,  therefore, 
wronged.  In  Anderson's  Case,  L.  R. 
7  Ch.  Div.  75,  the  court  said  that 
the  contract  was  for  paid-up  stock 
and  to  hold  the  owner  liable  as  a 
"contributory"  would  be  to  make  a 
new  contract. 

125  Fogg  v.  Blair,  139  U.  S.  118,  11 
Sup.  Ct.  476;  Van  Cott  v.  Van 
Brunt,  82  N.  Y.  535;  Barr  v.  New 
York,  &c.  R.  Co.  125  N.  Y.  263,  26 
N.  E.  145. 

128  See  Lloyd  v.  Preston,  146  U.  S. 
630,  13  Sup.  Ct.  131;  Camden  v. 
Stuart,  144  U.  S.  104,  12  Sup.  Ct. 
585;  Elyton,  &c.  Co.  v.  Birmingham, 
&c.  Co.  92  Ala.  407,  9  So.  129,  12 
L.  R.  A.  307,  25  Am.  St.  65;  Gar- 
rett  v.  Kansas,  &c.  Co.  113  Mo.  330, 
20  S.  W.  965,  35  Am.  St.  713;  Go- 
gebic,  &c.  Co.  v.  Iron  Chief,  &c.  Co. 
78  Wis.  427,  47  N.  W.  726,  23  Am. 
St.  417;  Macbeth  v.  Banfield,  45 
Qreg.  553,  78  Pac.  693,  106  Am.  St. 
670.  These  cases  would  also  seem  to 
deny  the  universal  application  of 
the  alleged  rule  stated  in  Coffin 
v.  Ransdell,  110  Ind.  417;  Sco- 
vill  v.  Thayer,  105  U.  S.  143,  and 
other  cases  cited  in  a  previous  note, 


STOCK. 


fraudulently  pays  his  subscription  in  grossly  overvalued  property,  or 
property  which  is  practically  worthless  or  of  so  little  value  that  the 
transaction  should  be  presumed  to  be  fraudulent,  and  receives  paid- 
up  stock  therefor,  ought  not  to  be  allowed  to  take  advantage  of  his  own 
fraud  and  thus  occupy  a  better  position  than  one  who  has  paid  cash 
and  acted  in  good  faith,  but  should,  on  the  contrary,  be  held  liable  to 
creditors  whom  he  has  misled  for  the  entire  subscription,  where  the 
property  is  worthless,  and,  it  would  seem,  for  the  difference  between 
the  value  of  the  property  and  the  par  value  of  the  stock,  in  other  cases, 
if  the  corporation  is  insolvent.127  But,  in  the  absence  of  fraud,  paid- 
up  stock  may  be  paid  for  in  property  such  as  the  corporation  may 
use,  and  it  will  make  no  difference  that  the  property  afterwards  turns 
out  to  be  of  less  value  than  was  supposed.128  The  court,  in  such  a  case, 


that  the  transaction  must  first  be 
set  aside  as  fraudulent  in  a  pro- 
ceeding for  that  purpose  before  the 
subscriber  can  be  held  liable  in  any 
event,  and  we  see  no  reason  for  such 
rule  in  the  code  states  where  the 
same  court  has  both  law  and  equity 
jurisdiction  and  can  give  full  re- 
lief in  one  proceeding. 

12rCamden  v.  Stuart,  144  U.  S. 
104,  12  Sup.  Ct.  585;  Clayton  v. 
Oreg.,  &c.  Co.  109  N.  C.  385,  14  S.  B. 
36;  Boulton,  &c.  Co.  v.  Mills,  78 
Iowa  460,  43  N.  W.  290,  5  L.  R.  A. 
649;  Chisholm  v.  Forny,  65  Iowa 
333,  21  N.  W.  664;  Jackson  v.  Traer, 
64  Iowa  469,  20  N.  W.  764,  52  Am. 
R.  449;  Osgood  v.  King,  42  Iowa 
478;  First  Nat.  Bank  v.  Gustin,  &c. 
Co.  42  Minn.  327,  44  N.  W.  198,  6 
L.  R.  A.  676,  18  Am.  St.  510; 
Peninsular,  &c.  Bank  v.  Black,  &c. 
Co.  105  Mich.  535,  63  N.  W.  514; 
Coleman  v.  Howe,  154  111.  458,  39 
N.  B.  725,  45  Am.  St.  133.  See, 
also,  Bates  v.  Great  Western  Tel. 
Co.  134  111.  536,  25  N.  E.  521;  Mc- 
Avity  v.  Lincoln  Pulp,  &c.  Co.  82 
Me.  504,  20  Atl.  82;  Douglass  v. 
Ireland,  73  N.  Y.  100;  Gamble  v. 
Queens,  &c.  Co.  123  N.  Y.  91,  25 


N.  E.  201,  9  L.  R.  A.  527.  The 
whole  subject  is  well  considered  in 
the  recent  case  of  Macbeth  v.  Bran- 
field,  45  Oreg.  553,  78  Pac.  693,  106 
Am.  St.  670,  and  note,  and  it  is 
there  held  that  the  creditor  or  one 
standing  in  his  stead  may  main- 
tain a  suit  in  equity  as  for  an  un- 
paid subscription  and  compel  the 
stockholder  to  respond  for  the  dif- 
ference between  the  actual  value  of 
the  property  and  the  par  value  of 
the  stock.  See,  also,  Elyton  Land 
Co.  v.  Birmingham,  &c.  Co.  92  Ala. 
407,  9  So.  129,  25  Am.  St.  65; 
Sprague  v.  Nat.  Bank,  172  111.  149, 
50  N.  E.  19,  64  Am.  St.  17;  Wishard 
v.  Hansen,  99  Iowa  307,  61  Am.  St. 
238,  and  note  to  Buck  v.  Ross,  57 
Am.  St.  67,  68.  But  compare  Colo- 
nial Trust  Co.  v.  McMillan,  188  Mo. 
547,  87  S.  W.  933,  107  Am.  St.  335. 

128  Coit  v.  North  Carolina  Gold,  &c. 
Co.  14  Fed.  12,  affirmed  in  119  U. 
S.  343;  Bickley  v.  Schlag,  46  N.  J. 
Eq.  533,  20  Atl.  250;  Clow  v.  Brown, 
134  Ind.  287,  31  N.  E.  361;  Common- 
wealth v.  Central  Pass.  R.  52  Pa. 
St.  506;  Drummond's  Case,  L.  R.  4 
Ch.  Ap.  772;  Young  v.  Erie,  &c.  Co. 
65  Mich.  Ill,  31  N.  W.  814;  White- 


147 


SALE  AND  TRANSFER  OF   STOCK. 


[§    92 


"will  treat  that  as  payment  which  the  parties  have  agreed  should  be 
payment."129  And  it  has  been  held  that  the  fact  that  one  to  whom 
such  stock  is  issued  returns  a  portion  of  it  as  a  gift  to  the  corporation 
to  sell  below  par  and  place  the  proceeds  in  the  corporate  treasury  does 
not  necessarily  prove  that  the  property  was  overvalued.130  A  corpora- 
tion may  also  distribute  to  its  shareholders,  or  sell  on  the  market, 
shares  of  stock  which  it  has  purchased  under  legislative  authority,131 
or  which  have  been  forfeited  to  it  for  non-payment  of  calls.132 

§  92.  Sale  and  transfer  of  stock. — Shares  of  stock  (unless  declared 
by  statute  to  be  real  estate)  are  personal  property,133  and  are  subject 
to  purchase  and  sale  by  natural  persons  as  other  personal  property, 
and  the  right  of -the  shareholder  to  sell  and  transfer  his  stock  cannot 
be  taken  away  or  unduly  restrained  by  a  by-law  of  the  corporation.134 


hill  v.  Jacobs,  75  Wis.  474,  44  N.  W. 
630;  Schenck  v.  Andrews,  57  N.  Y. 
133. 

^Phelan  v.  Hazard,  5  Dill.  (U. 
S.)  45,  6  Cent  L.  J.  109;  Brant  v. 
Ehlen,  59  Md.  1;  Coffin  v.  Ransdell, 
110  Ind.  417,  11  N.  E.  20;  Peck  v. 
Coalfield  Coal  Co.  11  111.  App.  88. 

130  Lake     Superior     Iron     Co.     v. 
Drexel,    90   N.   Y.    87;    Williams   v. 
Taylor,  120  N.  Y.  244,  24  -N.  E.  288. 
See,  also,  Davis  v.  Montgomery,  &c. 
Co.  101  Ala.  121,  127,  8  So.  496,  48 
Am.  St.  17.    But  compare  Ailing  v. 
Wenzel,  133  111.  264,  24  N.  E.  551; 
Ailing    v.    Ward,   30    Am.    &    Eng. 
Corp.  Gas.  133. 

131  Commonwealth    v.   Boston,    &c. 
R.  Co.  142  Mass.  146,  7  N.  E.  716. 

132Ramwell's  Case,  50  L.  J.  (Ch.) 
827;  Otter  v.  Brevoort,  &c.  Co.  50 
Barb.  (N.  Y.)  247;  People  v.  Al- 
bany, &c.  R.  Co.  55  Barb.  (N.  Y.) 
344,  371. 

133  Ante,  §  79;  note  to  Klaus,  In 
re,  26  Am.  L.  Reg.  (N.  S.)  98,  104. 
And  as  such  they  are  generally  held 
in  America  to  be  included  in  the 
phrase  "goods,  wares  and  merchan- 
dise" in  the  statute  of  frauds. 
Baltzen  v.  Nicolay,  53  N.  Y.  467; 


Tisdale  v.  Harris,  20  Pick.  (Mass.) 
9;  North  v.  Forest,  15  Conn.  400; 
Mason  v.  Decker,  72  N.  Y.  595,  28 
Am.  R.  190 ;  Boardman  v.  Cutter, 
128  Mass.  388;  Hinchman  v.  Lin- 
coln, 124  U.  S.  38,  8  Sup.  Ct  369; 
Pray  v.  Mitchell,  60  Me.  430.  But 
see  Vawter  v.  Griffin,  40  Ind.  593, 
602;  Green  v.  Brookins,  23  Mich. 
48,  9  Am.  R.  74;  Gadsden  v.  Lance, 
1  McMull.  Eq.  (S.  Car.)  87,  37  Am. 
Dec.  548.  Statute  does  not  apply  to 
agreement  to  take  back  or  repur- 
chase. Fitzpatrick  v.  Woodruff,  96 
N.  Y.  561;  Meyer  v.  Blair,  109  N. 
Y.  600,  17  N.  E.  228,  4  Am.  St.  500; 
Thorndike  v.  Locke,  98  Mass.  340; 
Richter  v.  Frank,  41  Fed.  859;  Fay 
v.  Wheeler,  44  Vt.  292. 

134  Morgan  v.  Struthers,  131  U.  S. 
246,  252,  9  Sup.  Ct.  726;  Klaus,  In 
re,  67  Wis.  401,  29  N.  W.  582;  Gould 
v.  Head,  41  Fed.  240,  247;  Feck- 
heimer  v.  Nat.  Exch.  Bank,  79  Va. 
,80;  Moore  v.  Bank,  52  Mo.  377; 
Sargent  v.  Franklin  Ins.  Co.  8  Pick. 
(Mass.)  90,  19  Am.  Dec.  306.  See, 
also,  Victor  G.  Bloede  Co.  v.  Bloede, 
84  Md.  129,  57  Am.  St.  373,  and 
note.  Such  a  by-law  would  be  in 
restraint  of  trade  and  contrary  to 


92] 


STOCK. 


148 


But  reasonable  regulations  may  be  made  regarding  the  formalities  of 
transfer  and  registration,135  and  such  matters  are  frequently  pro- 
vided for  in  the  charter  or  by  statute.136  The  transfer,  in  order  to  re- 
lieve the  transferor  from  further  liability,  must  usually  be  absolute,137 
and  to  a  person  capable  of  succeeding  to  his  liabilities.138  Where  the 
shares  are  not  fully  paid-up  a  transfer  to  an  insolvent  person,  or 
"man  of  straw,"  for  the  purpose  of  avoiding  liability,  cannot  be  made 
so  as  to  relieve  the  transferor  from  liability  to  creditors  upon  his 
stock.139  But,  as  a  general  rule,  a  regular  transfer  of  shares  of  corpo- 
rate stock  will  not  be  disturbed  by  the  courts  unless  it  is  satisfactorily 
shown  that  it  was  conditional,  designed  to  serve  as  collateral  or  pledge 
to  secure  a  payment,  or  was  simulated  and  not  intended  to  transfer 
the  ownership.140  Stock  can  generally  be  completely  transferred  only 


public  policy.  But  an  agreement  be- 
tween members  not  to  sell  except 
on  certain  conditions  may  be  valid 
if  not  in  unreasonable  restraint  of 
trade.  1  Cook  Stock  and  Stockhold- 
ers, §  332.  See,  also,  Dane  v.  Young, 
61  Me.  160;  Metropolitan,  &c.  Bank 
v.  St.  Louis,  &c.  Co.  36  Fed.  722; 
New  England  Trust  Co.  v.  Abbott, 
162  Mass.  148,  38  N.  E.  432,  27  L.  R. 
A.  271,  and  note.  The  right  to  sell 
and  transfer  stock  of  a  railroad 
company  cannot  be  exercised  to  the 
prejudice  of  the  public  in  a  manner 
prohibited  by  law,  and  illegal  agree- 
ments for  "corners"  in  stcok  and 
the  like  will  not  be  enforced.  Penn- 
sylvania R.  Co.  v.  Commonwealth 
(Pa.),  7  Atl.  368;  Town  Council  v. 
Elliott,  5  Ohio  St.  113;  Sampson 
v.  Shaw,  101  Mass.  145;  Leonard 
v.  Poole,  114  N.  Y.  371,  21  N.  E. 
707.  But  see  Havemeyer  v.  Have- 
meyer,  11  J.  &  S.  (N.  Y.)  506,  13 
J.  &  S.  (N.  Y.)  464,  86  N.  Y.  618.  As 
to  such  contracts  and  wager  or  gam- 
bling contracts  generally,  see  1 
Cook  Stock  and  Stockholders, 
§§  333,  341-348. 

135  Dane  v.  Young,  61  Me.  160; 
Planters',  &c.  Co.  v.  Selma  Sav. 
Bank,  63  Ala.  585;  Bishop  v.  Globe, 
&c.  Co.  135  Mass.  132,  5  Am.  &  Eng. 


Corp.  Cas.  161.  See,  also,  note  in 
57  Am.  St.  379. 

138  Shepherd's  Case,  L.  R.  2  Eq. 
564;  Smith  v.  Canada  Car  Co.  6 
Upper  Can.  Pr.  107;  Fractor's  &c. 
Co.  v.  Marine,  &c.  Co.  31  La.  Ann. 
149;  Merrill  v.  Call,  15  Me.  428. 

137  National  Bank  v.  Case,  99  U.  S. 
628;  Billings  v.  Robinson,  94  N.  Y. 
415;  Veiller  v.  Brown,  18  Hun  (N. 
Y.)  571. 

138 1  Beaoh  Priv.  Corp.  §  128;  Tay- 
lor's Priv.  Corp.  §  747;  Article  in 
8  Cent.  L.  J.  182;  and  see  observa- 
tion and  cases  cited  in  Pauly  v. 
State  Loan  &  Trust  Co.  165  U.  S. 
606,  17  Sup.  Ct.  465,  467. 

139Dauchy  v.  Brown,  24  Vt.  197; 
Marcy  v.  Clark,  17  Mass.  330;  Bow- 
den  v.  Johnson,  107  U.  S.  251,  2 
Sup.  Ct.  246;  Rider  v.  Morrison, 
54  Md.  429;  Gaff  v.  Flesher,  33  Ohio 
St.  107;  Aultman's  Appeal,  98  Pa. 
St.  505;  McClaren  v.  Franciscus,  43 
Mo.  452;  1  Beach  Priv.  Corp.  §  127; 
Purdy's  Beach  Priv.  Corp.  §  376, 
and  numerous  authorities  there 
cited. 

140  Small  v.  Saloy,  42  La.  Ann.  183, 
7  So.  450.  See,  also,  Farmers',  &c. 
Co.  v.  Chicago,  &c.  R.  Co.  163  U.  S. 
31,  16  Sup.  Ct.  917. 


SALE   AND   TKAXSFER   OF    STOCK. 


[ 


on  the  books  of  the  corporation,  and  the  company  is  entitled  to  re- 
quire proof  of  the  right  of  the  holder  of  certificates  to  demand  such  a 
transfer.141  If  it  negligently  or  wrongfully  permits  stock  to  be  trans- 
ferred to  one  having  no  right  to  the  same,  it  will  be  liable  to  the 
rightful  owner.142  "The  act  of  a  corporation  in  transferring  shares 


"'Buttrick  v.  Nashua,  &c.  R.  Co. 
62  N.  H.  413,  13  Am.  St.  578;  Tele- 
graph Co.  v.  Davenport,  97  U.  S. 
369;  Davis  v.  Bank  of  England,  2 
Bing.  393;  Bayard  v.  Farmers',  &c. 
Bank,  52  Pa.  St.  232.  Transfers  of 
stock  in  corporations  organized  un- 
der Ky.  Gen.  Stat.,  chap.  56,  are 
valid  against  creditors  as  well  as 
between  the  parties,  although  not 
recorded  in  the  books  of  the  com- 
pany. Thurber  v.  Crump,  86  Ky. 
408,  6  S.  W.  145.  One  acting  as 
the  agent  of  a  trust  company,  to 
enable  it  to  perpetrate  a  fraud  or 
wrong  on  the  rights  of  a  stock- 
holder, and  who  has  thus  acquired 
possession  of  certificates  of  stock, 
cannot  compel  a  transfer  of  the 
stock  to  him  on  the  books  of  the 
corporation.  Gould  v.  Head  (C.  C. 
D.  Colo.),  7  R.  &  Corp.  L.  J.  402, 
41  Fed.  240.  If  the  corporation  re- 
fuses to  make  the  transfer,  upon 
proper  request,  the  party  entitled  to 
have  it  made  has  his  remedy,  al- 
though there  is  considerable  con- 
flict among  the  authorities  as  to 
whether  it  is  by  mandamus,  by  suit 
in  equity,  or  by  an  action  at  law 
for  damages.  See  1  Cook  Stock  and 
Stockholders,  §§  389-392;  Green 
Mount,  &c.  Co.  v.  Bulla,  45  Ind.  1; 
State  v.  Cheraw,  &c.  R.  Co.  16  S. 
Car.  524;  Cushman  v.  Thayer,  &c. 
Co.  76  N.  Y.  365,  32  Am.  R.  315;  Iron 
R.  Co.  v.  Fink,  41  Ohio  St.  321,  52 
Am.  R.  84;  Hoppin  v.  Buffum,  9  R. 
I.  513,  11  Am.  R.  291;  St.  Law- 
rence, &c.  Co.,  Re,  44  N.  J.  L.  529; 
Doty  v.  First  Nat.  Bank,  3  N.  Dak. 
9,  53  N.  W.  77,  17  L.  R.  A.  259; 


Rio   Grande,   &c.  Co.   v.   Burns,  82 
Tex.  50,  17  S.  W.  1043. 

142  Pratt  v.  Boston,  &c.  R.  Co.  126 
Mass.  443;  Crocker  v.  Old  Colony  R. 
Co.  137  Mass.  417;  Livezey  v.  North- 
ern Pac.  R.  Co.  157  Pa.  St.  75; 
27  Atl.  762;  Woodhouse  v.  Crescent 
Mut.  Ins.  Co.  35  La.  Ann.  238; 
Midland  R.  Co.  v.  Taylor,  8  H.  L. 
Cases  751,  affirming  Taylor  v.  Mid- 
land R.  Co.  29  L.  J.  Ch.  731,  ante, 
§  80.  Where  an  executor  surren- 
ders stock  to  a  reorganization  com- 
mittee of  a  corporation,  taking 
therefor  negotiable  certificates  re- 
deemable after  a  reorganization  by 
a  new  issue  of  stock  and,  after  his 
removal  from  the  executorship, 
transfers  the  certificates,  which, 
after  several  transfers,  are  taken 
up  by  the  corporation  and  hew 
stock  issued  to  the  holders  in  lieu 
thereof,  the  corporation  is  liable  to 
the  legatees  for  the  value  of  the 
stock  at  the  time  of  the  transfer 
on  the  books  of  the  company.  Mo- 
bile &  O.  R.  Co.  v.  Humphries,  67 
Miss.  35,  7  So.  522,  19  Am.  St.  262. 
If  a  corporation  negligently  can- 
cels a  person's  stock  and  issues  cer- 
tificates therefor  to  a  third  party, 
the  true  owner  may  bring  action 
against  the  corporation  to  compel 
replacement  of  his  stock  or  its 
value.  St.  Romes  v.  Levee  Steam 
,  Cotton-Press  Co.  127  U.  S.  614,  8  Sup. 
Ct.  1335,  32  L.  Ed.  289.  An  agent, 
with  power  of  attorney  authorizing 
him  to  sell  and  transfer  stock  and 
other  securities  and  property, 
caused  stock  belonging  to  the  prin- 
cipal to  be  transferred  to  himself 


93] 


STOCK. 


150 


of  stock  without  the  authority  of  the  owner  is  not  ratified  by  the  lat- 
ter's  having  told  another  agent  than  the  one  on  whose  application  the 
transfer  was  made  that  he  would  not  hold  him  responsible  for  deliver- 
ing the  certificates  to  the  agent  who  applied  for  the  transfer/'143 

§  93.  Who  may  own  and  transfer  shares. — Married  women  are 
generally  enabled  to  become  the  owners  of  shares  of  stock,  by  the 
statutes  of  the  various  states,144  and  also  to  a  limited  degree  in  Eng- 
land.145 Purchases  and  sales  of  stock  by  an  infant  are  voidable  at 
any  time  during  infancy,146  or  within  a  reasonable  time  after  becom- 
ing of  age,147  as  are  his  other  contracts.  The  corporation,  it  has  been 
held,  is  bound  to  know  of  the  inability  of  a  person  who  is  non  compos 
mentis  to  make  a  valid  transfer,  and  may  become  liable  if  it  permits 
a  registry.148  A  sale  of  stock  by  a  drunken  person  will  be  set  aside, 


on  the  books  of  the  company,  with- 
out the  knowledge  of  the  principal. 
The  court  held  that  the  corporation 
was  liable  to  the  original  stock- 
holder. Tafft  v.  Presidio,  &c.  R. 
Co.  84  Cal.  131,  reversing  22  Pac. 
485,  24  Pac.  436,  11  L.  R.  A.  125,  18 
Am.  St.  166,  where  It  was  held  that 
the  power  was  sufficient  to  author- 
ize a  transfer  to  the  agent,  and  the 
fact  that  such  agent  was  a  director 
of  the  corporation  would  not  charge 
it  with  notice.  A  corporation  may 
also  be  liable  to  the  transferee 
where  it  represents  that  a  forged 
certificate  is  genuine.  Mut.  Life 
Ins.  Co.  v.  Forty-second  St.,  &c. 
Co.  74  Hun  505,  26  N.  Y.  S.  545, 
explaining  Fifth  Ave.  Bank  v. 
Forty-second  St.,  &c.  Co.  137  N.  Y. 
231,  33  N.  B.  378,  19  L.  R.  A.  331, 
33  Am.  St.  712. 

143  Quay  v.  Presidio,  &c.  R.  Co.  82 
Cal.  1,  22  Pac.  925. 

144Whitters  v.  Sowles,  38  Fed. 
700,  construing  law  of  Vermont.  A 
married  woman  has  the  legal  ca- 
pacity to  receive  a  transfer  of  stock 
in  moneyed  corporations  though 
the  consideration  may  have  been 


paid  entirely  by  the  husband.  Key- 
ser  v.  Hitz,  133  U.  S.  138,  10  Sup. 
Ct.  290,  33  L.  Ed.  531.  The  wife's 
capacity  to  hold  and  transfer  stock 
is  generally  determined  by  the  law 
of  her  domicile,  but  that  of  the 
domicile  of  the  corporation  should 
also  be  consulted.  Hill  v.  Pine 
River  Bank,  45  N.  H.  300;  Cook 
Stock  and  Stockholders,  §  319. 

145  Cook    Stock    and    Stockholders, 
§  319. 

146  Birkenhead,  &c.  R.  Co.  v.  Pil- 
cher,   5   Ex.   24.    Voidable  and   not 
void.     Smith    v.    Nashville,    &c.    R. 
Co.    91    Tenn.    221,    18    S.    W.    546; 
Lumsden's  Case,  L.  R.  4  Ch.  App. 
C.  31. 

147  Dublin,  &c.  R.  Co.  v.  Black,  8 
Ex.  181.    But  if  he  does  not  so  dis- 
affirm within  a  reasonable  time  (in 
this  case  ten   months)    he  will   be 
bound.   Ebbett's  Case,  L.  R.  5  Chan. 
App.  C.  302.    Even  a  sale  by  trans- 
fer of  the  certificate  is  not  binding 
on  an  infant.    Smith  v.  Baker,  42 
Hun  504.     ' 

148  Chew  v.  Bank  of  Baltimore,  14 
Md.  299. 


151  PURCHASE  AND  SALE  BY  TRUSTEES  AND  FIDUCIARIES.      [§    94 


unless  fairly  made  and  for  a  sufficient  consideration.149  An  unrecorded 
transfer,  made  in  good  faith  before  assignment  by  an  insolvent,  will 
be  protected.150  But  if  the  transferee  delay  unreasonably  to  claim 
his  stock,  it  may  be  awarded  to  the  assignee.151  An  officer  or  director 
of  the  company  may  buy  and  sell  its  stock  like  any  other  person,  if 
he  acts  in  good  faith  and  does  not  mislead  the  person  with  whom  he 
deals,152  and  he  is  not  bound  to  disclose  information  received  by  him 
as  such  officer.153  A  partner  may  also  sell  and  transfer  partnership 
stock,154  but  a  joint  owner  cannot  transfer  the  interest  of  the  other 
joint  owner  of  stock  registered  in  the  name  of  both.155  Stock  may  be 
bought  or  sold  by  means  of  an  agent,156  and  the  principal  will  be 
bound  by  the  acts  of  the  agent  done  in  excess  of  his  authority,  if  the 
agent  was  clothed  with  apparent  authority  and  the  limitations  im- 
posed were  unknown  to  the  person  dealing  with  him  in  good  faith.157 

§  94.    Purchase  and  sale  by  trustees  and  fiduciaries. — The  common- 
law  rule  is  that  guardians,  executors  and  trustees  may  not  use  trust 


""Thackrah  v.  Haas,  119  U.  S. 
499,  7  Sup.  Ct.  311. 

150  Dickinson  v.  Central  Nat.  Bank, 
129  Mass.  279,  37  Am.  R.  351. 

151Shipman  v.  JEtna  Ins.  Co.  29 
Conn.  245. 

""Trisconi  v.  Winship,  43  La. 
Ann.  45,  33  Am.  Eng.  Corp.  Cas. 
271;  Cawley,  In  re,  L.  R.,  42  Ch. 
Div.  209;  Board  v.  Reynolds,  44 
Ind.  509,  15  Am.  R.  245;  Carpenter 
v.  Danforth,  52  Barb.  (N.  Y.)  581; 
Crowell  v.  Jackson,  53  N.  J.  L.  656, 
23  Atl.  426.  But  see  Grant  v.  At- 
trill,  11  Fed.  469;  Gilbert's  Case,  L. 
R.  5  Ch.  App.  C.  559;  South  Lon- 
don, &c.  Co.,  In  re,  L.  R.  39  Ch. 
Div.  324,  60  L.  T.  R.  N.  S.  68; 
Fisher  v.  Budlong,  10  R.  I.  525; 
Prewett  v.  Trimble,  92  Ky.  176,  17 
S.  W.  356,  36  Am.  St.  586. 

153  Board,  &c.  v.  Reynolds,  44  Ind. 
509. 

154Quiner  v.  Marblehead  Social 
Ins.  Co.  10  Mass.  476. 

155Comstock  v.  Buchanan,  57 
Barb.  (N.  Y.)  127;  Standing  v. 
Bowring,  L.  R.,  27  Ch.  Div.  341.  In 


most  of  the  states,  a  joint-tenancy 
can  only  be  created  by  an  express 
statement  or  a  manifest  intention 
to  create  an  estate  limited  to  the 
survivor.  Stinson's  Am.  Stat.  Law, 
§  1371. 

158 1  Cook  Stock  and  Stockholders, 
Ch.  25.  An  agent  has  no  further 
real  interest  in  stock  standing  in 
his  name  than  he  has  in  any  other 
property  of  his  principal  in  his 
hands.  Cook  Stock  and  Stockhold- 
ers, Ch.  25,  §  321. 

157  McNeil  v.  Tenth  National  Bank, 
46  N.  Y.  325,  7  Am.  R.  341;  Strange 
v.  Houston,  &c.  R.  Co.  '53  Tex.  162, 
where  the  owner  of  a  certificate  of 
stock  in  an  incorporated  company, 
placed  his  certificate,  with  a  blank 
transfer  indorsed  thereon,  in  the 
hands  of  an  agent  for  sale,  the 
agent  filled  the  blank  with  his  own 
name,  and  afterward  indorsed 
thereon  a  transfer  from  himself  to 
a  bona  fide  purchaser,  and  it  was 
held  that  such  purchaser  took  a 
good  title  to  the  stock. 


94] 


STOCK. 


funds  for  the  purchase  of  shares  of  stock/58  nor  sell  shares  which  form 
a  part  of  the  trust  estate,159  except  as  empowered  to  do  so  by  the  stat- 
ute,,160 or  by  the  instrument  creating  the  trust,  or  directed  to  do  so 
by  a  court  of  chancery.161  It  is  held  under  the  English  Companies 
Act  of  1845,  paragraph  18,  that  when  the  names  of  the  executors  of  a 
deceased  shareholder  in  a  company  are  placed  on  the  register  of 
shareholders  in  respect  of  shares,  which  belonged  to  their  testator, 
they  become  joint-shareholders  in  their  individual  capacity,  although 
they  may  be  described  as  executors  in  the  register ;  and,  consequently, 
the  shares  can  only  be  transferred  by  means  of  a  transfer  executed  by 
all  of  them.162  If  a  sale  of  shares  held  in  trust  be  made  by  the  trustee 
without  authority  he  may  be  compelled  to  restore  the  stock  with  divi- 
dends, or  to  pay  over  the  amount  received  therefor  with  interest,  at  the 
election  of  the  cestui  que  trust.163  And  the  same  rule  is  enforced 
where  the  stock  is  sold  in  breach  of  the  trust  and  converted  to  the  use 
of  the  trustee,  even  though  he  was  empowered  to  sell.164  A  bona  fide 
purchaser  from  a  trustee  without  notice  takes  a  good  title  to  the  stock 
transferred.165  But  anything  which  is  sufficient  to  put  the  purchaser 


158Trafford  v.  Boehm,  3  Atk.  440 
(1746). 

150Bohlen's  Estate,  75  Penn.  St. 
304. 

160  See  22  and  23  Victoria,  Ch.  35, 
Sec.  32,  23  and  24  Victoria,  Ch.  38. 

101  This  is  the  rule  of  law  in  many 
of  the  states  at  the  present  time. 
King  v.  Talbot,  40  N.  Y.  76;  Ihm- 
sen's  Appeal,  43  Pa.  St.  431;  Ward 
v.  Kitchen,  30  N.  J.  Eq.  31;  Kimball 
v.  Reding,  31  N.  H.  352,  64  Am.  Dec. 
333;  Allen  v.  Gaillard,  1  S.  C. 
(Rich.  N.  S.)  279;  Tucker  v.  State, 
Hart,  72  Ind.  242.  This  rule  stated 
in  the  text  obtains  generally  in  the 
United  States  and  England.  Hill 
Trustees,  Marginal  page  369;  Perry 
Trusts  407,  §§  552,  553.  Some  of 
the  states  have  upheld  the  rule 
that  trustees  may  invest  the  trust 
funds  in  stocks  without  special  au- 
thority. Washington  v.  Emery,  4 
Jones  Eq.  (N.  Car.)  32;  Gray  v. 
Lynch,  8  Gill  (Md.)  403;  Smyth  v. 
Burns,  25  Miss.  422;  Lamar  v.  Mi- 


cou,  112  U.  S.  452,  5  Sup.  Ct.  221, 
and  114  U.  S.  218,  5  Sup.  Ct.  857 
(Ga.  and  Ala.).  See,  also,  Boggs  v. 
Adger,  4  Rich.  Eq.  (S.  C.)  408,  and 
dictum  in  Hunt,  Appellant,  141 
Mass.  515,  6  N.  E.  554. 

162  Barton  v.  London,  &c.  R.  Co.  L. 
R.  24  Q.  B.  D.  77. 

163  Harrison    v.    Harrison,    2    Atk. 
121;    Hart   v.    Ten   Eyck,    2   Johns. 
Ch.     (N.    Y.)     62,    117;     Pinkett   v. 
Wright,  2  Hare  120;  McKim  v.  Hib- 
bard,  142  Mass.  422,  8  N.  E.  152. 

164  McKim   v.   Hibbard,   142   Mass. 
422,  8  N.  E.  152. 

185  Smith  v.  Nashville,  &c.  R.  Co. 
18  S.  W.  546,  91  Tenn.  221;  Salis- 
bury Mills  v.  Townsend,  109  Mass. 
115;  Cook  Stock  and  Stockholders, 
§  325.  The  rule  is  otherwise  in  Eng- 
land until  the  purchaser  has  ob- 
tained registry.  Shropshire  Union 
R.,  &c.  Co.  v.  Queen,  L.  R.  7  H.  L. 
496;  Roots  v.  Williamson,  58  L.  T. 
R.  802. 


153  PURCHASE  AXD   SALE   BY   TRUSTEES   AND   FIDUCIARIES.       [§'   94 


upon  inquiry  that  would,  if  reasonably  pursued,  disclose  the  real  facts, 
will  amount  to  constructive  notice.166  If  the  trustee  has  authority  to 
transfer  the  stock  for  any  purpose,  the  purchaser  may  assume  that  the 
proceeds  of  the  sale  will  be  properly  disposed  of,167  and  he  will  be 
protected  unless  he  knows  that  the  sale  or  pledge  is  to  procure  means 
for  the  private  debts  or  purposes  of  the  trustee.168  The  corporation  is 
liable  to  the  cestui  que  trust,  if,  with  notice  that  stock  is  held  in 
trust,  it  permits  such  stock  to  be  transferred  on  the  books  of  the 
company  by  the  trustee  without  authority.169  The  word  "trustee" 
following  the  holder's  name  is  sufficient  notice,170  and  formal  notice 


166  Where  the  stockholder  is 
termed  in  the  certificate  a  "trustee" 
or  stated  therein  to  hold  the  shares 
"in  trust,"  this  is  notice  of  every- 
thing, which,  upon  inquiry,  the  pur- 
chaser could  ascertain  from  the 
cestui  que  trust.  Shaw  v.  Spencer, 
100  Mass.  382,  97  Am.  Dec.  107; 
Jaudon  v.  National  City  Bank,  8 
Blatch.  (U.  S.)  430;  Duncan  v.  Jau- 
don, 15  Wall.  (U.  S.)  165,  176;  Ger- 
ard v.  McCormick,  130  N.  Y.  261, 

29  N.  E.  115,  14  L.  R.  A.  234. 

iw  Perry  Trusts  (5th  ed.),  §  225; 
Ashton  v.  Atlantic  Bank,  85  Mass. 
217. 

168  Simons  v.  Southwestern  R. 
Bank,  5  Rich.  Eq.  (S.  C.)  270;  Jau- 
don v.  National  City  Bank,  8  Blatch. 
(U.  S.)  450;  Duncan  v.  Jaudon,  15 
Wall.  (U.  S.)  165. 

i«9  Maywood  v.  Railroad  Bank,  5  S. 
Car.  379;  Chapman  v.  City  Council, 

30  S.  Car.  549,  6  S.  E.  158,  3  L.  R. 
A.  311;   Bohlen's  Estate,  75  Pa.  St. 
304;   Barton  v.  North,  &c  R.  Co.  L. 
R.   38  Ch.  D.  458,  58  L.  T.  R.  549. 
See  Bird  v.  Chicago,  &c.  R.  Co.  137 
Mass,    428,    Weyer    v.    Second    Nat. 
Bank,    57     Ind.     198;     Marbury    v. 
Ehlen,  72  Md.  206,  19  All.  648;  Stew- 
art v.  Fireman's  Ins.  Co.  53  Md.  564; 
Wooten  v.   Wilmington,   &c.  R.   Co. 
128  N.  Car.  119,  38  S.  E.  298,  56  L. 
R.    A.    615.     A  •  corporation    having 
issued  stock  certificates  showing  on 


their  face  that  they  were  to  be  taken 
by  the  holder  as  devisee  under  and 
subject  to  the  provisions  of  a  cer- 
tain will,  is  chargeable  with  notice 
of  the  contents  of  such  will  and  of 
the  trusts  imposed  thereby,  in  all 
subsequent  dealings  with  such 
shares  of  stock,  and  is  liable  for  a 
conversion  by  a  trustee  to  the  preju- 
dice of  the  rights  of  the  cestui  que 
trust,  of  which  it  has  notice,  where 
it  aids  such  conversion  by  transfer 
of  the  stock  and  reissuance  of  cer- 
tificates. Caulkins  v.  Gaslight  Co. 
85  Tenn.  683,  4  S.  W.  287,  4  Am.  St. 
786.  Generally  the  corporation  is 
not  chargeable  with  liability  for 
transferring  stock  in  violation  of 
trusts,  of  which  it  had  no  actual 
notice.  Peck  v.  Providence  Gas  Co. 
17  R.  I.  275,  23  Atl.  967,  15  L.  R.  A. 
643.  Where  the  administrator  of  an 
estate  transferred  certain  shares  of 
stock  to  the  "heirs  and  distributees" 
of  his  decedent's  estate,  it  was  held 
that  the  corporation  was  not  bound 
to  hold  the  stock  subject  to  a  trust 
imposed  by  the  will  of  the  decedent, 
of  which  it  had  no  actual  knowl- 
edge, but  was  justified  in  transfer- 
ring her  proportion  of  the  stock  to 
the  grantee  of  the  decedent's  daugh- 
ter. Smith  v.  Nashville,  &c.  R.  Co. 
91  Tenn.  221,  18  S.  W.  546. 

"°Loring  v.   Salisbury   Mills,  125 
Mass.    138.     See,    also,    Marbury    v. 


95] 


STOCK. 


154 


to  a  board  of  directors  is  notice  to  the  corporation  under  all  future 
boards.171 

§  95.  Eight  of  corporation  to  buy  and  sell  stock. — In  England  it  is 
held  that  a  corporation  cannot  buy  shares  of  its  own  stock,172  unless 
expressly  empowered  to  do  so.  In  case  of  a  transfer  of  stock  to  the 
corporation173  or  to  a  trustee  in  trust  for  it,  where  this  rule  prevails, 
the  transferor  is  liable  on  the  subscription,  and  on  the  statutory  lia- 
bility in  case  of  insolvency  to  the  same  extent  as  if  he  still  held  the 
stock,174  unless  the  corporation  has  authority  by  charter  or  otherwise 
to  make  the  purchase.175  Where,  however,  he  does  not  know  that  the 
trustee  takes  the  stock  in  trust  for  the  corporation,  but  believes  him  to 
be  a  bona  fide  purchaser,  the  seller  is  not  so  liable.176  The  trustee  ac- 
cepting such  a  conveyance177  and  the  directors  procuring  it178  are  also 
personally  liable  to  the  corporation  and  its  creditors  on  all  shares 
so  conveyed.  A  person  who  has  been  employed  by  a  railroad  company 
to  buy  the  stock  of  a  certain  person  for  the  purpose  of  consummating 
a  sale  of  the  corporate  property,  who  buys  such  stock  in  his  own  name, 
must  be  regarded  as  holding  it  subject  to  the  equitable  considerations 
growing  out  of  an  arrangement  previously  made  by  his  vendor  with 
parties  acting  in  the  interest  of  the  corporation,  and  the  most  that  he 
can  have  after  a  transfer  of  the  corporate  property  is  tho  fair  value 


Ehlen,  72  Md.  206 ;  Geyser,  &c.  Co.  v. 
Stark,  45  C.  C.  A.  467,  53  L.  R.  A. 
684.  The  fact  that  the  transfer  is 
made  some  years  after  the  execu- 
tion of  the  trust  should  have  been 
completed,  is  notice.  Lowry  v.  Com- 
mercial, &c.  Bank,  &c.  Taney's  Dec. 
(U.  S.)  310. 

171  Mechanic's  Bank,  &c.  v.  Seton, 
1  Pet.  (U.  S.)  299. 

172  Trevor  v.  Whitworth,  L.  R.  12 
App.  C.  409,  57  L.  T.  R.  457;  Zulu- 
eta's  Claim,  L.  R.  5  Ch.  444.    See, 
also,  Coppin  v.  Greenlees,  &c.  Co.  38 
Ohio  St.  275,  43  Am.  St.  425;   Ger- 
man Sav.  Bank  v.  Wulfekuhler,  19 
Kans.  60;   Barton  v.  Port  Jackson, 
&c.  Co.  17  Barb.  (N.  Y.)  397. 

173  Dillon,  J.,  in  Johnson  v.  Laflin, 
5  Dill.  (U.  S.)  65;  Great  Eastern  R. 
Co.  v.  Turner,  L.  R.  8  Ch.  App.  149. 


174  Walters'  Second  Case,  3  DeG. 
&  Sm.  244;  Hunt's  Case,  22  Beav. 
55;  Daniell's  Case,  22  Beav.  43. 

175Grady's  Case,  1  DeG.,  J.  &  S. 
488. 

176  Johnson,  v.  Laflin,  103  U.  S.  800; 
Nicol's  Case,  3  DeG.  &  J.  387. 

177Crandall  v.  Lincoln,  52  Conn. 
73,  52  Am.  R.  560;  Allibone  v. 
Hager,  46  Pa.  St  48;  Empire  City 
Bank,  Matter  of,  18  N.  Y.  199,  226. 
One  who  has  exercised  ownership  of 
stock  by  accepting  a  dividend  can- 
not deny  his  liability  as  owner. 
Sanger  v.  Upton,  91  U.  S.  56,  60. 

178  Evans  v.  Coventry,  25  L.  J. 
(Ch.)  489,  501.  So  the  corporate 
agent  may  be  made  personally  lia- 
ble for  moneys  expended  by  him  for 
such  stock.  Crandall  v.  Lincoln,  52 
Conn.  73,  52  Am.  R.  560. 


155      EIGHT  OF  CORPORATION-  TO  BUY  AND  SELL  STOCK.    [§  95 

of  the  stock  at  the  time  of  such  transfer.179  But  the  better  American 
authority180  is  to  the  effect  that  a  railroad  company  may,  for  legiti- 
mate purposes,  purchase  shares  of  its  own  stock  which  have  been  issued 
to  individuals,181  unless  prohibited  by  statute.182  And  the  courts  of 
all  the  states  apparently  hold  or  concede  that  a  corporation  may  take 
shares  of  its  own  stock  in  payment  of,  or  as  security  for,  antecedent 
•debts  due  to  it  from  the  stockholders.183  But  it  has  been  held  that  such 
purchase  is  voidable  at  the  instance  of  corporate  creditors  who  are 
injured  thereby.184  Where  shares  of  its  own  stock  are  transferred  to 
the  corporation185  or  to  a  trustee  for  its  benefit,  the  stock  is  not  thereby 
merged,  unless  such  is  the  intention,  but  may,  it  has  been  held,  be 
resold  by  authority  of  the  board  of  directors,186  or  of  the  stockholders, 

179  Young  v.  Toledo,  &c.  R.  Co.  76  ^Cook   Stock   and    Stockholders, 

Mich.  485,  40  Am.  &  Eng.  R.  Gas.  §  311.    A  promise  of  a  stockholder 

514.  to    surrender    to    the    corporation 

180Clapp  v.  Peterson,  104  111.  26;  stock  on  which  there  is  an  unpaid 
Dupee  v.  Boston  Water-power  Co.  assessment,  which  stock  is  not  at 
114  Mass.  37;  City  Bank  v.  Bruce,  the  time  under  his  control,  having 
17  N.  Y.  507;  Eby  v.  Guest,  94  Pa.  been  pledged  by  him,  does  not  con- 
St.  160;  First  Nat.  Bank  v.  Salem,  stitute  a  surrender  of  such  stock, 
&c.  Co.  39  Fed.  89;  Johnson  County  as  against  a  subsequent  purchaser 
v.  Thayer,  94  U.  S.  631;  Marvin  v.  from  such  stockholder.  Hill  v. 
Anderson,  111  Wis.  387,  87  N.  W.  Atoka,  &c.  Co.  124  Mo.  153,  21  S. 
226;  Hartridge  v.  Rockwell,  R.  M.  W.  508,  25  S.  W.  926. 
Charlton  (Ga.)  260;  Farmers',  &c.  184Clapp  v.  Peterson,  104  111.  26; 
Bank  v.  Champlain  Trans.  Co.  18  Commercial  Nat.  Bank  v.  Burch,  141 
Vt.  131,  139;  Iowa  Lumber  Co.  v.  111.  519,  31  N.  E.  420.  See,  also, 
Foster,  49  Iowa  25,  31  Am.  R.  140;  Crandall  v.  Lincoln,  52  Conn.  73,  52 
Snyder  v.  Tunitas,  &c.  Co.  72  Cal.  Am.  R.  560;  Heggie  v.  People's,  &c. 
194,  13  Pac.  479;  Blalock  v.  Kerners-  Ass'n,  107  N.  C.  581,  12  S.  E.  275,  33 
ville,  &c.  Co.  110  N.  Car.  99,  14  S.  E.  Am.  St.  331  n,  32  Am.  &  Eng.  Corp. 
501,  36  Am.  &  Eng.  Corp.  Cas.  84,  90,  Cas.  605;  Fraser  v.  Ritchie,  8  111. 
and  note,  where  the  authorities  on  App.  554.  So,  if  the  corporation  is 
both  sides  of  the  question  are  col-  insolvent  at  the  time.  Currier  v. 
lected.  The  authorities  on  both  Lebanon,  &c.  Co.  56  N.  H.  262;  Alex- 
sides  are  also  reviewed  in  the  note  ander  v.  Relfe,  74  Mo.  495;  Colum- 
to  Hall  v.  Henderson,  126  Ala.  449,  bian  Bank,  In  re,  147  Pa.  St.  422, 
28  So.  531,  61  L.  R.  A.  621,  85  Am.  23  Atl.  626. 
St.  53.  1S5  State  Bank  of  Ohio  v.  Fox,  3 

181  Chicago,  &c.  R.  Co.  v.  President,  Bfatch.  (U.  S.)  431;  State  v.  Smith, 

fie.  Town  of  Marseilles,  84  111.  145.  48  Vt.  266;  Vail  v.  Hamilton,  85  N. 

But  see  Hall  v.   Alabama,  &c.  Co.  Y.  453;  Am.  R.  Frog  Co.  v.  Haven, 

(Ala.)  39  So.  285,  2  L.  R.  A.  (N.  S.)  101  Mass.  398. 

130.  I8a  State  v.  Smith,  48  Vt.  266;  State 

1S±  For  such  prohibition  see  Stim-  Bank  of  Ohio  v.  Fox,  3  Blatch.   (U. 

son  Am.  Stat.  (1892)  §§  8216,  8217.  S.)    431;   Williams  v.  Savage  Mfg. 


§•95] 


STOCK. 


156 


at  the  market  price,187  without  regard  to  its  par  value.  But  such  stock, 
until  resold,  is  said  to  be  lifeless  and  cannot  be  voted,  nor  can  it  draw 
dividends.188  A  railroad  company  may  not  purchase  stock  of  another 
railroad  corporation,189  without  legislative  authority  contained  in  the 
charter  or  in  the  general  statute  of  the  state,190  One  corporation  has, 


Co.,  3  Md.  Ch.  418;  Jefferson  v. 
Burford  (Ky.),  17  S.  W.  855.  See, 
also,  Vail  v.  Hamilton,  85  N.  Y.  453; 
Commonwealth  v.  Boston,  &c.  R.  Co. 
142  Mass.  146;  City  Bank  v.  Bruce, 
17  N.  Y.  507. 

187RamwelPs  Case,  50  L.  J.  (Ch.) 
827;  Otter  v.  Brevoort,  &c.  Co.  50 
Barb.  (N.  Y.)  247. 

183  Monsseaux  v.  Urquhart,  19  La. 
Ann.  482;  Brewster  v.  Hartley,  37 
Cal.  15,  99  Am.  Dec.  437;  State  v. 
Smith,  48  Vt.  266;  Vail  v.  Hamilton, 
85  N.  Y.  453;  New  England,  &c.  Ins. 
Co.  v.  Phillips,  141  Mass.  535,  6  N. 
E.  534;  American,  &c.  Co.  v.  Haven, 
101  Mass.  398;  McNeely  v.  Woodruff, 

13  N.  J.  Law  352. 

189  Such  a  purchase  may  be  en- 
joined. Central  R.  Co.  v.  Collins, 
40  Ga.  582;  Hazlehurst  v.  Savannah, 
&c.  R.  Co.  43  Ga.  13,  57;  Elkins  v. 
Camden,  &c.  R.  Co.  36  N.  J.  Eq.  5; 
Great  North.  R.  Co.  v.  Eastern 
Counties  R.  Co.  21  L.  J.  (Ch.)  837; 
Pearson  v.  Concord,  &c.  R.  Co.  62  N. 
H.  537,  13  Am.  St.  590;  Memphis, 
&c.  R.  Co.  v.  Woods,  88  Ala.  630,  7 
So.  108,  7  L.  R.  A.  605  n,  1  Lewis's 
Am.  R.  &  Corp.  55,  and  note; 
Mackintosh  v.  Flint,  &c.  R.  Co.  34 
Fed.  582;  Angell  &  Ames  Corp. 
§  392;  Green's  Brice's  Ultra  Vires, 
(2d  ed.)  91. 

180  Mayor  v.  Baltimore,  &c  R.  Co. 
21  Md.  50;  Zabriskie  v.  Cleveland, 
&c.  R.  Co.  23  How.  (U.  S.)  381  (Ohio 
Act) ;  White  v.  Syracuse,  &c.  R.  Co. 

14  Barb.  (N.  Y.)  559;  Atchison,  &c. 
R.  Co.  v.  Fletcher,  35  Kans.  236,  and 
Atchison,  &c.  R.  Co.  v.  Cochran,  43 
Kans.  225,  19  Am.  St.  129,  1  Lewis's 


Am.  R.  &  Corp.  640,  construing 
Kansas  statute;  Matthews  v.  Murch- 
ison,  17  Fed.  760.  Authority  to 
consolidate  with  a  road  gives  pow- 
er to  purchase  its  stock  with  a 
view  to  securing  that  end.  Hill  v. 
Nisbet,  100  Ind.  341.  For  a  con- 
struction of  the  provision  in  the 
constitution  of  Pennsylvania  that  a, 
railroad  company  may  not  control  a 
competing  line,  see  The  Common- 
wealth v.  South  Pa.  R.  Co.  1  Co.  Ct. 
(Pa.)  214,  223,  affirmed  in  Sup.  Ct., 
see  29  Am.  &  E.  R.  Gas.  145,  154, 
where  it  is  held  to  prohibit  a  pur- 
chase of  the  stock  of  a  competing  line 
by  a  railroad  company  in  its  own 
name  or  in  the  name  of  another  road 
which  it  controls.  To  the  same  point 
under  the  constitution  of  Georgia, 
see  Clarke  v.  Central  R.,  &c.  Co.  50 
Fed.  338  (1892).  A  railroad  com- 
pany is  authorized  to  purchase  the 
stock  of  another  company  for  the 
purpose  of  acquiring  its  roadbed 
and  right  of  way,  by  a  statute 
(How.  Mich.  3403)  which  provides 
that  "it  shall  be  lawful  for  any  rail- 
road company  in  this  state,  which 
shall  have  entered  in  good  faith 
upon  the  work  of  constructing  ita 
road,  and  shall  become  unable  to 
complete  the  construction  of  the 
same,  or  any  part  thereof,  to  sell 
and  convey  the  whole  or  any  part  of 
its  road  so  partially  completed,  to- 
gether with  the  rights  and  fran- 
chises connected  therewith,  to  any 
other  railroad  company  or  corpora- 
tion of  this  state  not  having  the 
same  terminal  points  and  not  being 
a  competing  line."  Dewey  v.  Toledo, 


157 


GIFTS  AND  BEQUESTS  OF  STOCK. 


[§   96 


generally,  no  implied  power  to  invest  money  in  the  stocks  of  an- 
other.191 But  a  corporation  may  have  the  right  to  acquire  shares  in 
another  company  in  the  usual  course  of  its  legitimate  business,192 
or  to  protect  itself  by  way  of  compromise  or  security  or  payment  of  a 
doubtful  debt  owing  to  it  by  the  corporation  whose  shares  it  receives.103 
A  contract  by  the  stockholders  of  a  corporation  to  transfer  their  stock 
to  a  person  or  corporation  not  allowed  by  law  to  hold  the  same  has  been 
held  illegal  and  void.194 

§  96.  Gifts  and  bequests  of  stock. — Shares  of  stock  in  a  corpora- 
tion may  be  the  subject  of  a  gift.195  A  clear  intent  to  give  it  must  be 
proven,  although  no  formal  method  of  transfer  is  necessary.196  But 
in  England,  under  the  statutes,  the  stock  must  be  registered  in  the 
name  of  the  donee,  in  order  to  vest  the  title  in  him.197  Siock  may  also 
be  bequeathed  by  will  like  other  property.198 

§  97.  Formalities  of  transfer. — In  making  a  complete  and  formal 
transfer  of  shares  of  stock  three  separate  and  distinct  steps  are  usually 


&c.  R.  Co.  91  Mich.  351,  51  N.  W. 
1063,  50  Am.  &  Eng.  R.  Gas.  607.  A 
railroad  company  may  purchase  and 
vote  the  stock  of  another  company 
in  like  manner  as  an  individual  un- 
der the  New  York  statute.  Oelber- 
mann  v.  New  York,  &c.  R.  Co.  (N. 
Y.  Sup.  Ct.)  77  Hun  332,  27  N.  Y. 
S.  545. 

191  Cook  Stock  and  Stockholders, 
f  315;  Morawetz  Priv.  Corp.  §  431; 
Hamilton  v.  Savannah,  &c.  R.  Co. 
49  Fed.  412;  People  v.  Chicago  Gas 
Trust  Co.  130  111.  268,  22  N.  E.  798, 
6  L.  R.  A.  497  n,  17  Am.  St.  319,  1 
Lewis's  Am.  R.  &  Corp.  562;  Frank- 
lin Bank  v.  Commercial  Bank, 
36  Ohio  St.  350,  38  Am.  R.  594; 
Franklin  Co.  v.  Lewiston  Institu- 
tion, 68  Me.  43,  28  Am.  R.  9;  Great 
Northern  R.  Co.  v.  Eastern,  &c.  R. 
Co.  21  L.  J.  Ch.  837.  But  see  Booth 
v.  Robinson,  55  Md.  419;  Ryan  v. 
Leavenworth,  &c.  R.  Co.  21  Kans. 
365. 


192  Royal  Bank  of  India's  Case,  L. 
R.  4  Ch.  App.  Cas.  252. 

193  First   Nat.    Bank   v.    Nat.,   &c. 
Bank,  92  U.  S.  122,  128;  Fleckner  v. 
Bank,  8  Wheat.  (U.  S.)  351. 

194  State  v.  Ohio,  &c.  R.  Co.  6  Ohio 
Cir.  Ct.  415. 

195  Cook    Stock   and    Stockholders, 
§  308.   See  DeCaumont  v.  Bogert,  36 
Hun  (N.  Y.)  382;  Walker  v.  Joseph, 
&c.  Co.  47  N.  J.  Eq.  342,  20  Atl.  885; 
Jackson  v.  Twenty-third  St.  R.  Co. 
88  N.  Y.  520;  Reed  v.  Copeland,  50 
Conn.  472,  47  Am.  R.  663;   Grymes 
v.  Hone,  49  N.  Y.  17,  10  Am.  R.  313; 
Roberts  Appeal,  85  Pa.  St.  84. 

198  Cook  Stock  and  Stockholders, 
§  308.  But  see  Matthews  v.  Hoag- 
land,  48  N.  J.  Eq.  455,  21  Atl.  1054. 

V7Nanney  v.  Morgan,  57  L.  T. 
R.  48. 

198  For  the  effect  of  different  forms 
of  devise  and  of  gifts  causa  mortis, 
see  Cook  Stock  and  Stockholders, 
Chap.  XVIII. 


STOCK. 


158 


taken.  The  certificate  is  assigned  by  the  transferor  to  the  transferee, 
the  certificate  is  then  surrendered  or  delivered  to  the  corporation,  and 
finally  the  transfer  is  duly  registered  in  the  books  of  the  corporation. 
A  new  certificate  is  then,  ordinarily,  issued  to  the  transferee.199  But 
where  no  certificate  has  ever  been  issued,  the  registry  of  the  transfer 
upon  the  books  of  the  company  will  be  sufficient,200  and  a  transfer 
may  be  good,  even  where  a  certificate  has  been  issued,  without  sur- 
rendering it.201  So,  in  the  absence  of  any  valid  provision  to  the  con- 
trary, a  transfer  may  be  made,  at  least  as  between  the  parties,  by 
mere  delivery  of  the  certificate  without  any  written  assignment  or 
registration.202  Ordinarily,  however,  the  assignment  is  made  in  writ- 
ing upon  the  certificate,  and  it  is  held  in  accordance  with  the  well 
established  custom,  that  the  assignment  may  be  made  in  blank,  that  is, 
it  may  be  signed  by  the  transferor  without  inserting  the  name  of  the 
transferee,  who,  upon  its  delivery  to  him,  may  insert  his  own  name.203 
Such  an  assignment  is  usually  accompanied  by  a  power  of  attorney, 
also  signed  in  blank,  authorizing  such  attorney  to  sign  the  transfer  or 
registry  upon  the  books  of  the  company,  thus  obviating  any  necessity 
for  the  presence  of  the  transferor  at  the  office  of  the  company,  and 


199  But  this  is  not  absolutely  essen- 
tial.  Chouteau  Spring  Co.  v.  Harris, 
20  Mo.  382;  First  Nat.  Bank  v.  Gif- 
ford,  47  Iowa  575. 

200  First  Nat.  Bank  v.  Gifford,  47 
Iowa    575;    Brigham    v.    Mead,    10 
Allen  (Mass.)  245. 

201  Finn  v.  Brown,  142  U.  S.  56,  12 
Sup.  Ct.  136,  Roberts'  Appeal,  85  Pa. 
St.  84;   Citizens'  St.  R.  v.  Robbins, 
128  Ind.  449,  26  N.  E.  116,  12  L.  R. 
A.  498,  25  Am.  St.  445;  De  Caumont 
v.    Bogert,    36    Hun     (N.    Y.)     382; 
Hasting  v.  Blue  Hills,  &c.  Co.  9  Pick 
(Mass.)    80;   New  York,  &c.  R.  Co. 
v.  Schuyler,  34  N.  Y.  30;   Seeligson 
v.   Brown,   61   Tex.   114,   10   Am.   & 
Eng.  Corp.  Cas.  143.  But  see  Moores 
v.  Citizens'  Nat.  Bank,  111  U.  S.  156, 
4  Sup.  Ct.  345. 

202  Walsh  v.  Sexton,  55  Barb.    (N. 
Y.)  251;  Allerton  v.  Lang,  10  Bosw. 
(N.  Y.)   362;   Reed  v.  Copeland,  50 


Conn.  472,  47  Am.  R.  663;  Common- 
wealth v.  Crompton,  137  Pa.  St.  138, 

20  Atl.   417;    F'arker  v.  Bethel,  &c. 
Co.  96  Tenn.  252,  34  S.  W.  209.   See, 
also,  Brewster  v.  Hartley,  37  Cal.  15, 
99  Am.  Dec.  237;   Jarvis  v.  Rogers, 
13    Mass.    105.     But    compare    Mat- 
thews v.  Hoagland,  48  N.  J.  Eq.  455, 

21  Atl.   1054;    Burrall  v.  Bushwick 
R.  Co.  75  N.  Y.  211;    Sitgreaves  v. 
Farmers',  &c.  Bank,  49  Pa.  St.  359. 

203  McNeil  v.  Tenth  Nat.  Bank,  46 
N.  Y.  325,  7  Am.  R.  341;  Cutting  v. 
Damerel,  88  N.  Y.  410;  Walker  v. 
Detroit,  &c.  R.  Co.  47  Mich.  338; 
Bank  of  America  v.  McNeil,  10  Bush 
(Ky.)  54;  Pennsylvania  R.  Co.'s 
-Appeal,  86  Pa.  St.  80;  Sargent,  Ex 
parte,  L.  R.  17  Eq.  Cas.  273;  Orti- 
gosa  v.  Brown,  47  L.  J.  Ch.  168.  We 
are  not  here  considering,  howevtr, 
the  question  as  to  whether  creditors 
can  attach  any  of  such  assignments. 


159 


REGISTRY  OF  TRANSFER. 


[§   98 


this  blank  may  likewise  be  filled  out  by  the  transferee,204  or  by  the 
registry  clerk.205 

§98.  Registry  of  transfer. — It  is  generally  provided  that  stock 
shall  be  transferred  only  upon  the  books  of  the  company.  Even  where 
such  a  provision  exists,  however,  a  valid  assignment  of  the  certificate 
will  estop  the  transferor  from  impeaching  his  transferee's  title  or 
that  of  any  subsequent  bona  fide  transferee,  notwithstanding  the  fact 
that  such  assignment  or  transfer  is  not  registered.206  As  to  the  cor- 
poration, however,  where  such  a  provision  exists  it  is  not  ordinarily 
bound  to  recognize  as  a  stockholder  a  purchaser  who  does  not  have  the 
transfer  registered  or  properly  apply  for  its  registration.207  But  the 
corporation  may  waive  a  formal  registry  so  far  as  its  own  rights  are 


M4Holbrook  v.  New  Jersey  Zinc 
Co.  57  N.  Y.  616,  623;  Broadway 
Bank  v.  McElrath,  13  N.  J.  Eq.  24; 
Bridgeport  Bank  v.  New  York,  &c.  R. 
Co.  30  Conn.  231;  Otis  v.  Gardner, 
105  111.  436;  Colonial  Bank  v.  Hep- 
worth,  36  Ch.  Div.  36. 

205  Cook    Stock    and    Stockholders, 
§  375;  Allen  v.  South  Boston  R.  150 
Mass.  200,  22  N.  E.  917,  5  L.  R.  A. 
716,  15  Am.  St.  185.    Such  a  power 
of  attorney  has  been  held  irrevoca- 
ble.   Skinner  v.  Ft.  Wayne,  &c.  R. 
Co.  58  Fed.  55. 

206  Noyes  v.  Spaulding,  27  Vt.  420 ; 
Black  v.  Zacherie  &  Co.  3  How.  (U. 
S.)  483,  513;  Johnson  v.  Laflin,  103 
U.    S.    800,    804;     Continental    Nat. 
Bank  v.  Eliot,  &c.  Bk.  7  Fed.  369; 
Baldwin  v.  Canfield,  26  Minn.  43,  1 
N.  W.  261;  Merchants',  &c.  Bank  v. 
Richards,  6  Mo.  App.  454;  Brown  v. 
Smith,  122  Mass.  589;  People's  Bank 
v.  Gridley,  91  111.  457;   Duke  v.  Ca- 
hawba  Nav.  Co.  10  Ala.  82,  44  Am. 
Dec.  472;   Noble  v.  Turner,  69  Md. 
519;  Ross  v.  Southwestern  R.  Co.  53 
Ga.  514;   Lund  v.  Wheaton,  &c.  Co. 
50  Minn.  36,  52  N.  W.  268;  Cushman 
v.  Thayer  Mfg.  Co.  76  N.  Y.  365,  32 
Am.  R.  315;  Bruce  v.  Smith,  44  Ind. 
1;  Smith  v.  Nashville,  &c,  R.  Co.  91 


Tenn.  221,  18  S.  W.  546.  The  same 
rule  has  been  held  to  apply  to  the 
transferor's  assignee  in  bankruptcy. 
Dickinson  v.  Central  Nat.  Bank,  129 
Mass.  279;  Sibley  v.  Quinsigamond 
Nat.  Bank,  133  Mass.  515;  Dobson, 
Ex  parte,  2  Mont.  &  D.  (Eng.  B.  R.) 
685. 

207 1  Cook  Stock  and  Stockholders, 
§  381.  As  to  the  ordinary  manner 
of  registering  the  transfer,  see  Bur- 
rail  v.  Bushwick  R.  Co.  75  N.  Y. 
211;  Green  Mount,  &c.  Co.  v.  Bulla, 
45  Ind.  1;  National  Bank  v.  Watson- 
town  Bank,  105  U.  S.  217.  As  to 
what  is  a  sufficient  registry  or  ap- 
plication in  particular  cases,  see 
Plumb  v.  Bank,  48  Kans.  484,  29  Pac. 
699;  Chemical  Nat.  Bank  v.  Cod- 
well,  132  N.  Y.  250,  30  N.  E.  644; 
American  Nat.  Bank  v.  Oriental 
Mills,  17  R.  I.  551,  23  Atl.  795;  Case 
v.  Bank,  100  U.  S.  446;  Fisher  v. 
Jones,  82  Ala.  117,  3  So.  13;  Pinker- 
ton  v.  Manchester,  &c.  R.  Co.  42  N. 
H.  424;  Newell  v.  Williston,  138 
Mass.  240.  Either  party  to  the  trans- 
fer is  usually  entitled  to  demand  a 
registry.  Johnston  v.  Laflin,  103  U. 
S.  800;  Webster  v.  Upton,  91  U.  S. 
65. 


§  98] 


STOCK. 


1GO 


concerned.208  And  in  many  jurisdictions  the  rule  is  that  a  bona  fide 
purchaser  of  a  share  of  stock  for  a  valuable  consideration  is  not 
affected  by  a  subsequent  attachment  or  levy  upon  stock  for  the  debts 
of  the  transferor,  nor,  in  general,  by  any  subsequent  equities,  although 
the  transfer  has  never  been  registered.209  But  this  rule  has  not 
passed  unchallenged,210  and  it  does  not,  of  course,  apply  to  a  purchaser 
of  stock  upon  which  a  levy  has  been  made  before  the  purchase.211 
The  corporation  may,  and  should,  generally,  we  think,  insist  upon  the 
surrender  of  the  old  certificate  as  a  condition  to  registration.212  But 
when  this  is  done  and  proper  application  made  it  is  the  duty  of 
the  company  to  register  the  transfer  in  the  absence  of  some  legal  ex- 


208  Cutting  v.    Damerel,   88   N.   Y. 
410;  Isham  v.  Buckingham,  49  N.  Y. 
216;   Robinson  v.  Nat.  Bank,  95  N. 
Y.    637;    Chambersburg   Ins.   Co.   v. 
Smith,  11  Pa.   St.   120;    Richmond- 
ville  Mfg.  Co.  v.  Frail,  9  Conn.  487; 
Wilson  v.  St.  Louis,  &c.  Co.  108  Mo. 
588,  18  S.  W.  286,  32  Am.  St.  624,  36 
Am.  &  Eng.  Corp.  Gas.  290;   Upton 
v.   Burnham,   3   Biss.    (U.   S.)    431, 
520;  American  Nat.  Bank  v.  Oriental 
Mills,  17  R.  I.  551,  23  Atl.  795. 

209  Continental  Nat.  Bank  v.  Eliot 
Nat.  Bank,  7  Fed.  369;  Scott  v.  Pe- 
quonnock  Nat.  Bank,  15  Fed.  494  j 
Broadway  Bank  v.  McElratb,  13  N. 
J.  Eq.  24;  Doty  v.  First  Nat.  Bank, 
3  N.  Dak.  9,  53  N.  W.  77,  17  L.  R.  A. 
259;  Clark  v.  German,  &c.  Bank,  61 
Miss.  611;  Lund  v.  Wheaton,  &c.  Co. 
50  Minn.  36,  36  Am.  St.  623;  Thur- 
ber  v.  Crump,  86  Ky.  408,  6  S.  W. 
145;    Seeligson   v.    Brown,    61    Tex. 
114;  Smith  v.  Crescent  City,  &c.  Co. 
30  La.  Ann.  1378;   Kern  v.  Day,  45 
La.  Ann.  71,  12   So.  6;    Comeau  v. 
Guild  Farm  Oil  Co.  3  Daly  (N.  Y.) 
218;   Smith  v.  American  Coal  Co.  7 
Lans.   (N.  Y.)   317.    At  least  where 
there    is    notice    of    the    transfer. 
Bridgewater  Iron  Co.  v.  Lissberger, 
116  U.  S.  8,  6  Sup.  Ct.  241;  Scripture 
v.   Francestown,   &c.   Co.    50   N.   H. 
571;  Wilson  v.  St.  Louis,  &c.  R.  Co. 
108  Mo.  588,  18  S.  W.  286,  32  Am.  St. 


624;Telford,  &c.  Co.  v.  Gerhab  (Pa.), 
13  Atl.  90,  21  Am.  &  Eng.  Corp.  Cas. 
471;  Commonwealth  v.  Watmough, 
6  Whart.  (Pa.)  117;  Mo  wry  v.  Haw- 
kins, 57  Conn.  453,  18  Atl.  784. 

ao  Weston  v.  Bear  River,  &c.  Co.  5 
Cal.  186,  63  Am.  Dec.  117;  Conway 
v.  John,  14  Colo.  30,  23  Pac.  170; 
State  v.  First  Nat.  Bank,  89  Ind. 
302;  Colman  v.  Spencer,  5  Blackf. 
(Ind.)  197;  Oxford,  &c.  Co.  v.  Bun- 
nel,  6  Conn.  552 ;  Buttrick  v.  Nashua, 
&c.  R.  Co.  62  N.  H.  413,  13  Am.  St. 
578;  Skowhegan  Bank  v.  Cutler,  49 
Me.  315;  Murphy,  Re,  51  Wis.  519,  8 
N.  W.  419;  Fort  Madison,  &c.  Co.  v. 
Batavian  Bank,  71  Iowa  270,  32  N. 
W.  336,  60  Am.  R.  789;  Noble  v. 
Turner,  69  Md.  519,  16  Atl.  124; 
Berney  Nat.  Bank  v.  Pinckard,  87 
Ala.  577,  6  So.  364.  But  in  several 
of  these  cases  the  statute  explicitly 
altered  the  rule. 

211  Chesapeake  and  Ohio  R.  Co.  v. 
Paine,  29  Gratt.  (Va.)  502;  Shenan- 
doah   Valley  R.   Co.  v.   Griffith,   76 
Va.  913;   Young  v.  South  Tredegar, 
&c.  Co.  85  Tenn.  189,  2  S.  W.  202,  4 
Am.  St.  752. 

212  State  v.  New  Orleans,  &c.  R.  Co. 
30  La.  Ann.  308;  Bank  v.  Lanier,  11 
Wall.  (U.  S.)  369;  New  York,  &c.  R. 
Co.  v.  Schuyler,  34  N.  Y.  30;   Bris- 
bane v.  Delaware,  &c.  R.  Co.  94  N. 
Y.   204;    Bridgeport   Bank   v.   New 


161 


REGISTRY    OF   TRANSFER. 


[§    98 


cuse.212a  Where  a  corporation  wrongfully  refuses  to  make  or  permit  the 
registry  of  a  transfer  the  party  entitled  thereto  usually  has  his  remedy 
hy  suit  in  equity,213  but  he  may,  if  he  so  elects,  bring  an  action  at  law 
for  damages,214  and,  in  some  jurisdictions,  it  is  also  held  that  mandamus 
will  lie  to  compel  the  corporation  to  make  or  permit  a  registration.215 


York,  &c.  R.  Co.  30  Conn.  231;  Fac- 
tors', &c.  Co.  v.  Marine,  &c.  Co.  31 
La.  Ann.  149;  Cleveland,  &c.  R.  Co. 
v.  Robbins,  35  Ohio  St.  483;  Na- 
tional Bank  v.  Lake  Shore,  &c.  R. 
Co.,  21  Ohio  St  221;  Supply  Ditch 
Co.  v.  Elliott,  10  Colo.  327,  3  Am.  St. 
586;  Tafft  v.  Presidio  R.  Co.  84  Cal. 
131,  22  Pac.  485,  18  Am.  St  166. 

M2a  As  to  what  will  justify  refusal, 
see  Gould  v.  Head,  41  Fed.  240;  Peo- 
ple v.  Sterling  Mfg.  Co.  82  111.  457; 
Telegraph  Co.  v.  Davenport,  97  U. 
S.  369;  Merchants'  Nat.  Bank  v. 
Richards,  6  Mo.  App.  454;  2  Beach 
Private  Corp.  §  654.  As  to  what  will 
not  justify  refusal,  see  Helm  v. 
Swiggett,  12  Ind.  194;  Kahn  v.  St. 
Joseph  Bank,  70  Mo.  262;  State  v. 
Mclver,  2  S.  Car.  25;  People  v.  Pa- 
ton,  5  N.  Y.  St.  316;  Moffatt  v.  Far- 
quhar,  L.  R.  7  Ch.  Div.  591;  Ameri- 
can, &c.  Co.  v.  Bayless,  91  Ky.  94, 
15  S.  W.  10. 

213  Cushman  v.  Thayer  Mfg.  Co.  76 
N.  Y.  365,  32  Am.  R.  315;   Shinner 
v.  Ft.  Wayne,  &c.  R.  Co.  58  Fed.  55; 
Mechanics'  Bank  v.  Seton,  1  Pet.  (U. 
S.)   299;   Wilson  v.  Atlantic,  &c.  R. 
Co.  2  Fed.  459;  lasigi  v.  Chicago,  &c. 
R.  Co.  129  Mass.  46;  Iron  R.  Co.  v. 
Fink,  41   Ohio  St.  321,  52  Am.   84; 
1     Cook     Stock    and    Stockholders, 
§  391.  In  Gould  v.  Head,  41  Fed.  240, 
the  suit  was  against  the  secretary 
and  it  was  held  that  the  corporation 
was  not  a  necessary  party. 

214  Rio  Grande,  &c.  Co.  v.  Burns,  82 
Tex.  50,  17  S.  W.  1043;   Kimball  v. 
Union  Water  Co.  44  Cal.  173,  13  Am. 
R.  157;   Doty  v.  First  Nat.  Bank,  3 
N.  Dak.  9,  53  N.  W.  77,  17  L.  R.  A. 

ELL.  RAILROADS — 11 


259;  Sargent  v.  Franklin  Ins.  Co.  8 
Pick.  (Mass.)  90,  19  Am.  Dec.  306; 
Helm  v.  Swiggett,  12  Ind.  194;  Kort- 
wright  v.  Buffalo,  &c.  Bank,  20 
Wend.  (N.  Y.)  90;  2  Thomp.  Corp. 
§  2447,  et  seq. 

215  Green  Mount,  &c.  Co.  v.  Bulla, 
45  Ind.  1;  State  v.  First  Nat.  Bank, 
89  Ind.  302;  State  v.  Cheraw,  &c.  R. 
Co.  16  S.  C.  524;  People  v.  Goss,  &c. 
Co.  99  111.  355;  Slemmons  v.  Thomp- 
son, 23  Ore.  215,  31  Pac.  514;  Good- 
win v.  Ottawa,  &c.  R.  Co.  13  Upper 
Can.  (C.  P.)  254;  Norris  v.  Irish 
Land  Co.,  8  El.  &  Bl.  512.  It  has 
been  said  that  this  remedy  is  pe- 
culiarly appropriate  in  the  case  of 
railroads  on  account  of  their  quasi 
public  nature.  State  v.  Mclver,  2 
S.  C.  25.  But,  although  we  believe 
that,  in  -many  cases,  where  the 
shares  have  comparatively  little 
value  or  an  emergency  exists,  man- 
damus ought  to  lie,  yet  we  do  not 
believe  that  the  distinction  referred 
to  in  the  case  last  cited  exists,  as 
the  rights  of  the  members  are  sub- 
stantially the  same  as  in  ordinary 
private  corporations.  See  Stackpole 
v.  Seymour,  127  Mass.  104.  The  fol- 
lowing cases  hold  that  mandamus 
will  not  lie:  Shipley  v.  Mechanics' 
Bank,  10  Johns.  (N.  Y.)  484;  Freon 
v.  Carriage  Co.  42  Ohio  St.  30,  51 
Am.  R.  794;  Townes  v.  Nichols,  73 
Me.  515;  State  v.  Guerrero,  12  Nev. 
105;  Tobey  v.  Hakes,  54  Conn.  274, 
7  Atl.  551,  1  Am.  St.  114;  Birming- 
ham, &c.  Co.  v.  Commonwealth,  92 
Pa.  St.  72;  State  v.  Rombauer,  46 
Mo.  155 ;  Baker  v.  Marshall,  15  Minn. 
177;  State  v.  People's,  &c.  Assn.  43 


§  99] 


STOCK. 


162 


§  99.  Lien  of  corporation  on  stock.  —  A  corporation  has,  at  common 
law,  no  lien  upon  a  shareholder's  stock  for  debts  due  from  him  to 
it.216  Such  a  lien  is  given  by  general  statutes  in  many  of  the 
states,217  and  is  frequently  given  by  charter.218  It  may  be  created  also, 
when  authorized,  by  a  by-law  of  the  corporation,219  but  many  of  the 


N.  J.  L.  389;  Rex  v.  Bank,  2  Doug, 
524;  Rex  v.  London,  &c.  Co.  1  Dowl. 
&  R.  510.  See,  generally,  on  the  sub- 
ject  of  this  section,  note  in  57  Am. 
St.  379,  et  seq.,  and  3  L.  R.  A.  (N. 
S.)  551. 

218  Farmers',  &c.  Bank  v.  Wasson, 
48  la.  336,  30  Am.  R.  398;  Bank  v. 
Pinson,  58  Miss.  421,  38  Am.  R.  330; 
Massachusetts  Iron  Co.  v.  Hooper,  7 
Gush.  (Mass.)  183;  Sargent  v. 
Franklin  Ins.  Co.,  8  Pick.  (Mass.) 
90,  19  Am.  Dec.  306;  Gemmell  v. 
Davis,  75  Md.  546,  23  Atl.  1032,  32 
Am.  St.  412;  Driscoll  v.  West 
Bradley,  &c.  Co.  59  N.  Y.  96;  Hagar 
v.  Union  Nat.  Bank,  63  Me.  509; 
Williams  v.  Lowe,  4  Neb.  382;  Mer- 
chants'  Bank  v.  Shouse,  102  Pa.  St. 
488;  Carroll  v.  Mullanphy,  &c.  Bank, 
8  Mo.  App.  249;  Case  v.  Bank,  100 
U.  S.  446;  Dempter,  &c.  Co.  v. 
Downs,  126  la.  80,  101  N.  W.  735, 
106  Am.  St.  340. 

a7Stimson's  Am.  Stat.  (1892) 
§  8148,  citing  the  statutes;  Pitts- 
Burgh,  &c.  R.  Co.  v.  Clarke,  29  Pa. 
St.  146,  construing  the  Pennsylvania 
statute  requiring  payment  of  the 
shareholder's  indebtedness  to  the 
corporation  before  transfer  of 
shares  in  a  railway  corporation  un- 
less  the  lien  is  waived.  Liens  upon 
shares  are  forbidden  by  statute  in 
New  Hampshire.  Hill  v.  Pine  River 
Bank,  45  N.  H.'  300,  309.  A  corpora- 
tion  has  no  special  vendor's  lien,  in 
the  absence  of  a  contract  to  that 
effect,  on  shares  or  its  capital  stock, 
for  unpaid  purchase-money.  Lan- 
kershim  Ranch  Land  &  W.  Co.  v. 
Herberger,  82  Gal.  600.  A  statute 


may  create  a  lien  in  favor  of  the 
corporation  for  debts  due  from 
shareholders  prior  to  its  enactment. 
Birmingham  Trust,  &c.  Co.  v.  East 
Lake  Land  Co.  99  Ala.  379,  13  So. 
72,  20  L.  R.  A.  600.  See,  also,  Ham- 
mond  v.  Hastings,  134  U.  S.  401,  10 
Sup.  Ct.  727;  Oliphint  v.  Bank,  60 
Ark.  198,  29  S.  W.  460.  See,  also, 
note  in  57  Am.  St.  394. 

mLeggett  v.  Bank,  24  N.  Y.  283; 
Reese  v.  Bank,  14  Md.  271,  74  Am. 
Dec.  536;  German,  &c.  Bank  v.  Jef- 
ferson,  10  Bush  (Ky.)  326;  Cross  v. 
Phenix  Bank,  1  R.  I.  39;  Sabin  v. 
Bank,  21  Vt.  353;  Kenton  Ins.  Co. 
v.  Bowman,  84  Ky.  430,  1  S.  W.  717; 
Bohmer  v.  City  Bank,  77  Va.  445; 
Bradford,  &c.  Co.  v.  Briggs,  L.  R.  12 
App.  Gas.  29. 

a9  Reading  Trust  Co.  v.  Reading 
Iron  Works,  137  Pa.  St.  282;  St. 
Louis  Perpetual  Ins.  Co.  v.  Goodfel- 
low,  9  Mo.  149;  Mechanics'  Bank  v. 
Merchants'  Bank,  45  Mo.  513,  100 
Am.  Dec.  388;  Tuttle  v.  Walton,  1 
Ga.  43  ;  Cunningham  v.  Alabama,  &c. 
Co.  4  Ala.  652;  Farmers',  &c.  Bank 
v.  Haney,  87  Iowa  101,  54  N.  W.  61; 
Bank  of  Holly  Springs  v.  Pinson,  58 
Miss.  421,  38  Am.  R.  330;  Young  v. 
Vough,  23  N.  J.  Eq.  325;  Lockwood 
v.  Mechanics'  Nat.  Bank,  9  R.  I.  30£ 
11  Am.  R.  258;  Dempster,  &c.  Co. 
v.  Downs,  126  la.  80,  101  N.  W.  735, 
106  Am.  St.  340;  1  Cook  Stock  and 
Stockholders,  §  522  ;  2  Beach  Private 
Corp.  §  644;  1  Morawetz  Corp.  §  201. 
It  has  also  been  held  that  such  a 
lien  may  be  created  by  contract. 
Jennings  v.  Bank,  79  Gal.  323,  21 
Pac.  852,  5  L.  R.  A.  233,  12  Am.  St. 


163 


WHEN   AND   TO    WHAT   THE   LIEN   ATTACHES. 


[§  100 


courts  hold  that,  if  created  in  this  way,  it  will  not  bind  a  bona  fide 
purchaser,  without  notice  that  such  a  by-law  existed,220  for  such  a 
by-law,  unless  recited  in  the  certificate,  will  not  amout  to  constructive 
notice.221  Authority  to  make  "regulations"  as  to  transfers  has  been 
held  sufficient  to  empower  the  directors  of  a  corporation  to  make  a 
by-law  reserving  such  a  lien.222  "Where,  by  general  law,  a  lien  is 
given  to  a  corporation  upon  its  stock  for  the  indebtedness  of  the 
stockholder,  it  is  valid  and  enforceable  against  all  the  world."223 

§  100.  When  and  to  what  the  lien  attaches. — It  may  attach  to  the 
stock  for  the  owner's  debts,  although  registered  in  another's  name;22* 
and  it  will  take  priority  over  antecedent  debts  which  the  stock  has 
been  pledged  to  secure,  if  the  pledgee  has  failed  to  notify  the  corpora- 
tion of  his  interest.225  No  action  of  the  directors  is  necessary  to  fix 
the  lien  upon  stock  owned  by  its  debtor.226  It  will  attach  to  trust 
stock  for  debts  of  a  trustee  holding  the  stock  in  his  own  name,  there 
being  nothing  in  the  way  of  notice  to  the  corporation  of  the  nature  of 


145;  Vansands  v.  Middlesex  Co. 
Bank,  26  Conn.  144;  Farmers',  &c. 
Bank  v.  Haney,  87  Iowa  101,  54  N. 
W.  61.  Or  by  usage.  Morgan  v. 
Bank,  8  Yerg.  &  R.  (Pa.)  73,  11  Am. 
Dec.  575,  and  note.  But  this  would 
not  bind  a  bona  fide  purchaser  with- 
out notice.  Driscoll  v.  West  Brad- 
ley, &c.  Co.  59  N.  Y.  96;  Bryon  v. 
Carter,  22  La.  Ann.  98. 

220  This  is  true  of  New  York, 
Louisiana,  Massachusetts,  Alabama, 
Pennsylvania,  California,  Missis- 
sippi and  Ohio,  and  probably  some 
others.  1  Cook  Stock  and  Stock- 
holders, §  552.  See,  also,  Bank  v. 
Lanier,  11  Wall,  369;  Kisterbock's 
Appeal,  127  Pa.  St.  601,  14  Am.  St. 
868.  Bank  v.  Pinson,  58  Miss.  421, 
38  Am.  R.  330;  Brinkerhoff-Farris 
Trust,  &c.  Co.  v.  Home,  &c.  Co.  118 
Mo.  447,  24  S.  W.  129,  and  26  Am. 
&  Eng.  Ency.  of  Law  (2d  ed.)  869. 

221 1  Cook  Stock  and  Stockholders, 
§  532;  Brinkerhoff-Ferris  Trust,  &c. 
Co.  v.  Home,  &c.  Co.  118  Mo.  447,  24 
S.  W.  129. 

^Spurlock  v.   Pacific   R.   Co.   61 


Mo.  319;  Cunningham  v.  Alabama, 
&c.  Co.  4  Ala.  652;  McCready  v. 
Rumsey,  6  Duer  (N.  Y.)  574;  Pen- 
dergast  v.  Bank,  2  Sawy.  (U.  S.)  108. 
But  see  Bank  v.  Manufacturers',  &c. 
Bank,  20  N.  Y.  501;  Bank  v.  Durfee, 
118  Mo.  431,  24  S.  W.  133. 

223  Hammond  v.  Hastings,  134  U.  S. 
401,  10  Sup.  Ct.  727,  2  Lewis'    Am. 
R.    &    Corp.    698,    and    authorities 
there  cited.   To  the  same  effect,  see 
Bishop  v.  Globe  Co.  135  Mass.  132; 
Bohmer  v.  City  Bank,  77  Va.  445. 

224  Stebbins  v.  Phrenix  F.  Ins.  Co.  3 
Paige  (N.  Y.)  350.   See,  also,  Mount 
Holley   Paper   Co.'s  Appeal,   99   Pa. 
St.  513;  Planters',  &c.  Co.  v.  Selma 
Sav.   Bank,   63   Ala.  585.    But  com- 
pare Helm  v.  Swiggett,  12  Ind.  194. 

^Platt  v.  Birmingham  Axle  Co. 
41  Conn.  255,  264;  Union  Bank  v. 
Laird,  2  Wheat.  (U.  S.)  390.  See 
where  notice  is  given,  Bradford,  &c. 
Co.  v.  Briggs,  56  L.  T.  R.  62;  Gem- 
mell  v.  Davis,  75  Md.  546,  23  Atl. 
1032,  32  Am.  St.  412. 

228  Elliott  v.  Sibley,  101  Ala.  344, 
13  So.  500. 


§  ioi] 


STOCK. 


164 


his  title.227  The  lien  attaches  to  dividends  as  well  as  to  stock,  and 
they  may  be  retained  by  the  corporation  to  discharge  a  debt  due  it 
from  the  shareholder,228  and  the  lien  may  be  enforced,  whether  the 
debts  are  due,  or  are  to  become  due  at  some  future  time.229  But  it  has 
been  held  that  no  lien  attaches  for  debts  of  a  holder  of  certificates  who 
has  re-transferred  them  without  obtaining  registry.230 

§  101.  Waiver  of  lien — Enforcement  of  lien. — The  right  to  a  lien 
is  usually  given  exclusively  for  the  benefit  of  the  corporation,231  and 
cannot  be  enforced  by  any  one  else.  It  cannot  even  be  enforced  in- 
directly by  assignment  of  another's  claim  to  the  corporation  that  it 
may  enforce  payment  for  his  benefit.232  But  a  surety  of  the  stock- 
holder, who  has  been  compelled  to  discharge  such  a  lien,  is  subrogated 
to  the  rights  of  the  corporation.233  The  corporation  may  waive  its 
lien  and  proceed  by  other  means  to  collect  the  debt,234  or  at  its  election 


227  Young  v.  Vough,  23  N.  J.  Eq. 
325;  New  London,  &c.  Bank  v. 
Brocklebank,  L.  R.  21  Ch.  Div.  302. 
Compare  Bradford,  &c.  Co.  v.  Briggs, 
L.  R.  12  App.  Gas.  29. 

228 1  Cook  Stock  and  Stockholders, 
§  526;  Hagar  v.  Union  Nat.  Bank,  63 
Me.  509.;  Sargent  v.  Franklin  Ins. 
Co.  8  Pick.  (U.  S.)  90,  19  Am.  Dec. 
306;  Bates  v.  N.  Y.  &c.  Co.  3  Johns. 
Cas.  (N.  Y.)  238.  See  Gemmell  v. 
Davis,  75  Md.  546,  23  Atl.  1032,  32 
Am.  St.  412,  and  compare  Brent  v. 
Bank,  2  Cranch  C.  C.  (U.  S.)  517. 

229  Pittsburgh,  &c.  R.  Co.  v.  Clarke, 
29  Pa.  St.  146;    St.  Louis,  &c.   Ins. 
Co.  v.  Goodfellow,  9  Mo.  149;   Cun- 
ningham v.  Alabama,  &c.  Co.  4  Ala. 
652.     The    lien    is    not    lost,    even 
though    the    statute    of    limitations 
should  interpose  as  a  bar  to  an  ac- 
tion on  the  debt.    Geyer  v.  Western 
Ins.  Co.  3  Pittsb.  (Pa.)  41;  Farmers' 
Bank  v.  Iglehart,  6  Gill  (Md.)  50. 

230  Helm  v.  Swiggett,  12  Ind.  194. 
But  see  first  note  to  this  section, 
supra. 

231 1  Cook  Stock  and  Stockholders, 
§  529;  Bank  of  Utica  v.  Smalley,  2 
Cowen  (N.  Y.)  770,  14  Am.  Dec.  526. 

232  White's  Bank  v.  Toledo,  &c.  Ins. 
Co.  12  Ohio  St.  601. 


233  Young  v.  Vough,  23  N.  J.  Eq. 
325;  Petersburg  Sav.  &c.  Co.  v. 
Lumsden,  75  Va.  327.  See,  also, 
Gray  v.  Stone,  69  L.  T.  R.  282.  But 
compare  Cross  v.  Phenix  Bank,  1 
R.  I.  39. 

234Hoylake  R.  Co.  In  re,  L.  R.  9 
Ch.  App.  0.  267,  259;  1  Cook  Stock 
and  Stockholders,  §  531.  A  corpora- 
tion may  waive  a  lien  on  its  stock, 
but  ignorance  of  the  existence  of 
the  lien,  on  the  part  of  the  pur- 
chaser, does  not  destroy  the  lien  and 
does  not  constitute  waiver  on  part 
of  the  corporation.  Hammond  v. 
Hastings,  134  U.  S.  401,  10  Sup.  Ct. 
727.  See,  generally,  as  to  waiver, 
Cecil  Nat.  Bank  v.  Watsontown 
Bank,  105  U.  S.  217;  First  Nat.  Bank 
v.  Hartford,  &c.  Co.  45  Conn.  22; 
Hill  v.  Pine  River  Bank,  45  N.  H. 
300;  Kenton  Ins.  Co.»v.  Bowman,  84 
Ky.  430;  Bishop  v.  Globe  Co.  135 
Mass.  132;  Des  Moines,  &c.  Co.  v. 
Des  Moines,  &c.  Bank,  97  la.  668, 
66  N.  W.  914;  Citizens'  State  Bank 
v.  Kalamazoo,  &c.  Bank,  111  Mich. 
313,  69  N.  W.  663  (by-law  held  no 
waiver) ;  Nat.  Bank  v.  Rochester 
Tumbler  Co.  172  Pa.  St.  614,  33  Atl. 
748. 


165  CONDEMNATION   OF   STOCK.  [§   lOla 

it  may  enforce  it  against  shares  in  the  hands  of  the  debtor  as  liens 
are  enforced  against  other  property.235  It  has  been  held  that  the 
waiver  of  the  lien  will  not  release  a  surety  unless  he  has  given  the 
corporation  express  notice  not  to  waive  it.236  The  ordinary  method 
of  enforcing  its  lien  against  shares  which  have  been  sold  by  the 
debtor  is  by  a  refusal  to  transfer  the  stock.237  The  corporation  cannot 
hold  the  purchaser  personally  liable.238  And  it  cannot  hold  a  lien  on 
stock  for  the  debts  of  a  registered  stockholder  contracted  after  it  has 
been  regularly  notified  that  he  has  sold  such  stock  and  transferred  the 
certificates.239 

§  lOla.  Condemnation  of  stock. — An  important  question,  to  which 
reference  will  also  be  made  in  another  connection,  has  recently' been 
decided  by  the  Supreme  Court  of  the  United  States.  A  state  statute 
authorized  the  condemnation,  under  certain  circumstances  and  by 
proper  proceedings,  by  a  railroad  company  of  minority  shares  of  stock 
in  another  company,  and  it  was  held  that  one  company,  which  was 
the  lessee  of  another  and  the  owner  of  three-fourths  of  the  stock  of 
the  latter,  could  lawfully  condemn  the  outstanding  shares  owned  by 
a  person  who  refused  to  sell,  where  the  improvement  of  the  lessor's 
road  was  necessary  in  order  to  serve  the  public  and  the  lessor  did  not 
have,  while  the  condemning  company  did  have,  means  to  make  the 
improvement.240  This  is  in  accordance  with  the  prevailing  view,  and 
affirmed  the  decision  of  the  state  court,241  but  the  general  question  as 
to  when  stock  of  minority  holders  can  be  thus  taken  has  been  re- 
garded as  not  entirely  free  from  doubt,  and  there  are  comparatively 
few  decisions  upon  the  subject. 

285  Brent  v.  Bank  of  Washington,  Conn.  22;  Bohmer  v.  City  Bank,  77 

10  Peters   (U.  S.)   596.    Foreclosure  Va.  445. 

and    sale    or   attachment,    Sabin    v.  238  2  Cook  Stock  and  Stockholders, 

Bank,  21  Vt.  353;  Farmers'  Bank  of  §  530. 

Maryland's     Case,     2     Eland's     Ch.  ^  Conant  v.  Reed,  1  Ohio  St.  298 ; 

(Md.)  394;  Morrison,  In  re,  10  Nat.  Nesmith    v.    Washington    Bank,    6 

Bank  Reg.  105.  Pick.  (Mass.)  324;  Bank  of  America 

234  Perrine  v.  Fireman's  Ins.  Co.  22  v.  McNeil,  10  Bush   (Ky.)   54.    See 

Ala.  575.  Gemmell  v.   Davis,   75   Md.   546,   23 

237  Reese  v.  Bank,  14  Md.  271,  74  Atl.  1032. 

Am.  Dec.  536;    Mechanics'  Bank  v.  240Offield  v.  New  York,  &c.  R.  Co. 

Merchants'   Bank,   45   Mo.   513,   100  (U.  S.)  27  Sup.  Ct.  72. 

Am.  Dec.  388;   First  Nat.  Bank  of  ""  In  New  York,  &c.  R.  Co.  v.  Of- 

Hartford   v.    Hartford,   &c.    Co.    45  field,  77  Conn.  417,  59  Atl.  510,  and 

78  Conn.  1,  60  Atl.  740. 


CHAPTER  VII. 


SUBSCRIPTIONS. 


Sec.  Sec. 

102.  Preliminary     agreements     to    119. 

subscribe. 

103.  Subscriptions    generall  y — 

Form.  120. 

104.  Construction    of    contract    of     121. 

subscription. 

105.  Contracts  of  subscription  are 

several.  122. 

106.  Effect    of    statutes    requiring 

cash     deposit    to     complete    123. 
subscription. 

107.  Who  may  subscribe  for  stock.     124. 

108.  Presumption   that  one   whose 

name    is    subscribed    is    a 
stockholder.  125. 

109.  Implied  promise  to   pay  sub- 

scription— Consideration. 

110.  Payment     of     subscription  — 

Trust  fund  doctrine.  126. 

111.  Conditional  subscription. 
Ilia.  Implied  conditions. 

112.  Valid  and  invalid  conditions.      127. 

113.  Conditional   subscription   is   a 

mere  offer  until  accepted.        128. 

114.  Subscriptions    in    escrow — Pa- 

rol  evidence. 

115.  Waiver  of  conditions.  129. 

116.  When  conditional  subscription 

becomes  payable.  130. 

117.  Construction     of     conditional 

subscriptions  —  What    is   a 
sufficient    compliance     with 
conditions  as  to  time  of  be-    131. 
ginning     and     completing 
road. 

118.  Subscriptions  payable  as  work    132. 

progresses  or  upon  expendi- 
ture of  a  certain  amount. 

166 


Failure  to  perform  parol  con- 
dition will  not  defeat  sub- 
scription. 

Conditions  in  notes. 

Subscriptions  conditioned  up- 
on location  or  construction 
of  the  road. 

Effect  of  alteration  in  route 
fixed  by  charter. 

Effect  of  abandonment  or  sale 
of  road. 

Condition  as  to  terminus  — 
Question  of  intention  for 
jury. 

What  is  sufficient  compliance 
with  condition  as  to  termi- 
nus or  location  of  depot  at  a 
certain  place. 

General  rule  of  construction — 
Performance  of  condition  by 
consolidated  company. 

Fraudulent  representations  in 
obtaining  subscriptions. 

Misrepresentations  in  pros- 
pectus and  by  agents  gener- 
ally. 

Fraud  may  be  shown  by  parol 
evidence. 

Subscriber  must  be  free  from 
negligence  in  order  to  be 
released  upon  the  ground  of 
fraud. 

Subscription  induced  by  fraud 
is  merely  voidable  — When 
it  will  be  enforced. 

Ratification  and  estoppel  — 
Rescission. 


167 


PRELIMINARY   AGREEMENTS   TO    SUBSCRIBE. 


[§  102 


§  102.  Preliminary  agreements  to  subscribe. — It  frequently  hap- 
pens, especially  where  corporations  are  formed  under  general  laws, 
that,  prior  to  their  incorporation,  a  preliminary  agreement  is  made 
by  those  who  are  interested,  to  take  a  certain  amount  of  stock.1  There 
is  a  sharp  conflict  among  the  authorities  as  to  the  effect  of  such 
agreements  and  the  liability  of  those  who  execute  them.  A  distinction 
is  sometimes  drawn  between  an  agreement  to  subscribe,  and  a  present 
subscription  or  agreement  stating  that  each  subscriber  "hereby  sub- 
scribes" a  certain  sum,  or  the  like;2  but  while  this  may  be  good  law 
where  the  facts  justify  such  a  distinction,  it  would  seem  that  although 
the  company  is  not  yet  incorporated  and  the  agreement  is  made  in 
contemplation  of  its  future  incorporation,  yet  if  each  one  who  signs 
the  agreement  relies  and  must  rely  upon  each  and  every  other  party 
thereto  in  order  to  obtain  the  means  to  incorporate  and  carry  out  the 
purposes  of  the  agreement,  the  effect  is  practically  the  same,  no 
matter  whether  the  agreement  is  in  terms  that  they  agree  to  subscribe 


by  his  failure  to  accept  and  pay  for 
the  stock,  which  should  be  meas- 
ured, however,  not  by  the  par  value 
of  the  stock  but  by  the  difference 
between  its  par  value  and  its  mar- 
ket value.  Thrasher  v.  Pike  County 
R.  Co.  25  111.  340  (393  orig.  ed.). 
See,  also,  Stowe  v.  Flagg,  72  111. 
397,  402;  Quick  v.  Lemon,  105  111. 
578;  Rhey  v.  Ebensburg,  &c.  Co.  27 
Pa.  St.  261;  Peninsular  R.  Co.  v. 
Duncan,  28  Mich.  130;  Cartwright  v. 
Dickinson,  88  Tenn.  476,  12  S.  W. 
1030,  7  L.  R.  A.  706,  17  Am.  St.  910; 
Irwin  Creek,  &c.  Co.  v.  Taylor,  51 
N.  Y.  969;  Lake  Ontario,  &c.  R.  Co. 
v.  Curtiss,  80  N.  Y.  219  (intimating 
that  one  of  the  parties  to  the  agree- 
ment, if  made  for  his  benefit,  could 
bring  such  an  action  and  that  the 
measure  of  damages  would  be  as 
above  stated).  The  preliminary 
agreement  may,  of  course,  be  so 
worded  as  to  be  binding  only  in  case 
a  de  jure  corporation  is  formed. 
Capps  v.  Hastings,  &c.  Co.  40  Neb. 
470,  58  N.  W.  956,  24  L.  R.  A.  259, 
42  Am.  St.  677. 


is  often  contemplated  by 
the  statutory  scheme  of  incorpora- 
tion, even  where  there  is  no  express 
provision  upon  the  subject.  Thus, 
in  Anderson  v.  New  Castle,  &c.  R. 
Co.  12  Ind.  376,  74  Am.  Dec.  218, 
it  is  said:  "Under  the  general  rail- 
road law,  subscriptions  of  a  certain 
amount  of  stock  are  necessary  for 
the  organization  of  the  contem- 
plated corporation,  and  for  that  rea- 
son and  purpose  are  valid  before  the 
corporation  is  organized,  and  may 
be  collected  by  it  after  organiza- 
tion." See,  also,  Hughes  v.  Antietam, 
&c.  Co.  34  Md.  316;  Cross  v.  Pickney- 
ville,  &c.  Co.  17  111.  54;  Hamilton, 
£c.  Co.  v.  Rice,  7  Barb.  (N.  Y.)  157. 
2  See  Mt.  Sterling,  &c.  Co.  v.  Little, 
14  Bush  (Ky.)  429;  Lake  Ontario, 
&c.  R.  Co.  v.  Curtiss,  80  N.  Y.  219; 
Strasburg  R.  Co.  v.  Echternacht,  21 
Pa.  St.  220,  60  Am.  Dec.  49.  In  such 
a  case  it  is  held  that  while  the 
agreement  does  not  amount  to  a 
subscription  which  can  be  enforced, 
yet  the  corporation  may  recover 
from  the  signer  the  damages  caused 


102] 


SUBSCRIPTIONS. 


168 


a  certain  amount  or  that  they  do  subscribe  a  certain  amount.8  In 
either  case,  if  a  signer  of  the  agreement  receives  shares  after  the  com- 
pany is  incorporated,  pays  calls,  takes  part  in  the  corporate  proceed- 
ings, or  otherwise  ratifies  the  subscription,  the  corporation,  after  also 
ratifying  it,  may  hold  him  liable  the  same  as  any  other  subscriber.4 
Upon  this  proposition  there  is  substantial  unanimity  among  the  au- 
thorities, although  it  is  sometimes  said  that  a  corporation  not-  in 
existence  at  the  time  a  contract  is  made  cannot  become  a  party  to  it 
so  far  as  to  enforce  it  after  the  incorporation,5  and,  in  a  recent  Massa- 
chusetts case  the  rule  is  broadly  stated  that  although  a  contract  is 
made  in  the  name  and  for  the  benefit  of  a  projected  corporation,  it 
cannot,  after  its  organization,  become  a  party  to  the  contract  even 
by  adoption  or  ratification  of  it.6  But  the  better  rule  is  that  such 
an  agreement,  if  not  a  completed  contract,  is  at  least  a  continuing 
offer  made  for  the  benefit  of  the  corporation,  which  is  practically  the 
aggregate  of  the  individuals  who  entered  into  the  agreement  upon 
the  faith  of  each  other's  subscription,  and  that  the  corporation  may 
adopt  and  enforce  it.7  The  statute  may,  however,  provide  that  sub- 


8  See  Cook  Stock  and  Stockhold- 
ers, §  75;  1  Thomp.  Corp.  §§  1164, 
1165;  Auburn,  &c.  Asso.  v.  Hill,  113 
Cal.  382,  45  Pac.  695;  Nickum  v. 
Burckhardt,  30  Oreg.  464,  47  Pac. 
788,  48  Pac.  474,  60  Am.  St.  822. 

4Tonica,  &c.  R.  Co.  v.  McNeely, 
21  111.  71;  Cross  v.  Pickneyville,  &c. 
R.  Co.  17  111.  54;  Maltby  v.  North- 
western, &c.  R.  Co.  16  Md.  422; 
Inter  Mountain  Pub.  Co.  v.  Jack,  5 
Mont.  568,  6  Pac.  20;  Rockville,  &c. 
Co.  v.  Van  Ness,  2  Cranch  C.  C.  (U. 
S.)  449;  Kansas  City  Hotel  Co.  v. 
Hunt,  57  Mo.  126;  Bell's  Appeal,  115 
Pa.  St.  88,  8  Atl.  177,  2  Am.  St.  532; 
Buffalo,  &c.  R.  Co.  v.  Gifford,  87  N. 
Y.  294;  Buffalo,  &c.  R.  Co.  v.  Dudley, 
14  N.  Y.  336;  Twin  Creek,  &c.  Co. 
v.  Lancaster,  79  Ky.  552;  Kennebec, 
&c.  R.  Co.  v.  Palmer,  34  Me.  366; 
Penobscot  R.  Co.  v.  Dummer,  40  Me. 
172,  63  Am.  Dec.  654;  McCormick  v. 
Gas  Co.  48  Kans.  614,  29  Pac.  1147; 
Red  Wing  Hotel  Co.  v.  Freidrich, 
26  Minn.  112,  1  N.  W.  827;  Minneap- 


olis, &c.  Co.  v.  Davis,  40  Minn.  110, 
41  N.  W.  1026,  3  L.  R.  A.  796  n,  12 
Am.  St.  701;  International,  &c. 
Ass'n  v.  Walker,  83  Mich.  386,  47  N. 
W.  338,  3  Lewis  Am.  R.  &  Corp.  731, 
and  note,  where  the  authorities  are 
collected  and  reviewed. 

5  Lake  Ontario,  &c.  Co.  v.  Curtiss, 
80  N.  Y.  219;   Mt.  Sterling,  &c.  Co. 
v.  Little,  14  Bush   (Ky.)  429;  Pitts- 
burgh, &c.  R.  Co.  v.  Gazzam,  32  Pa. 
St.    340;    Charlotte,    &c.    R.    Co.    v. 
Blakely  (S.  Car.),  3  Strob.  245;  and 
note  to  Winston  v.  Dorsett,  &c.  Co. 
129  111.  64,  21  N.  E.  514,  4  L.  R.  A. 
507,  508.     See,  also,  Rikhoff  v.  Ma- 
chine Co.  68  Ind.  388. 

6  Abbott    v.    Hapgood,    150    Mass. 
248,  22  N.  B.  907,  5  L.  R.  A.  586,  15 
Am.  St.  193. 

7Marysville,  &c.  Co.  v.  Johnson, 
93  Cal.  538,  29  Pac.  126,  27  Am.  St. 
215,  6  Lewis  Am.  R.  &  Corp.  9; 
Ashuelot  Shoe  Co.  v.  Hoit,  56  N.  H. 
548;  Lake  Ontario,  &c.  R.  Co.  v. 
Mason,  16  N.  Y.  451;  Buffalo,  &c.  R. 


169 


PKELIillNABT  AGREEMENTS   TO   SUBSCRIBE. 


[§  103 


scriptions  shall  be  made  by  signing  the  articles  of  incorporation,  with 
certain  other  formalities,  and  it  has  been  held  that  in  such  a  case 
one  who  has  merely  signed  a  preliminary  agreement,  and  has  not 
signed  or  joined  in  the  execution  of  the  articles  of  incorporation  in 
the  manner  provided  by  statute,  cannot  be  held  liable  upon  the  in- 
complete subscription  or  agreement.8  It  is  also  urged,  in  support  of 
this  doctrine,  and,  indeed,  in  support  of  the  broader  doctrine  an- 
nounced in  some  of  the  cases,  which  requires  a  ratification  by  the 
corporation  and  the  alleged  stockholder,  before  he  can  be  held  liable 
as  a  subscriber,  that,  as  every  contract  must  be  mutually  binding  upon 
both  parties,  the  corporation  cannot  enforce  such  an  agreement  because 
it  is  not  itself  bound  thereby.9  In  line  with  these  decisions,  it  has  also 
been  held  that  one  who  signs  such  an  agreement  may  withdraw 
before  acceptance  by  the  corporation,10  but  this  would,  in  some  cases, 


Co.  v.  Clark,  22  Hun  (N.  Y.)  359; 
Nulton  v.  Clayton,  54  Iowa  425,  6 
N.  W.  685,  37  Am.  R.  213;  Auburn, 
&c.  Assn.  v.  Hill  (Cal.),  32  Pac.  587; 
Heaston  v.  Cincinnati,  &c.  R.  Co.  16 
Ind.  275,  79  Am.  Dee.  430  n;  Miller 
v.  Wild  Cat,  &c.  Co.  52  Ind.  51;  note 
to  Winston  v.  Dorsett,  &c.  Co.  129 
111.  64,  21  N.  E.  514,  4  L.  R.  A.  507, 
and  authorities  cited  in  notes  to  §  14, 
ante.  In  no  case,  perhaps,  is  this 
more  clearly  stated  than  it  is  by  the 
supreme  court  of  Massachusetts  in 
the  case  of  Athol  Music  Hall  Co.  v. 
Carey,  116  Mass.  471,  and  yet  this  is 
difficult  to  reconcile  with  the  ex- 
treme rule  that  a  corporation  can- 
not ratify  a  contract  made  for  its 
benefit,  announced  in  Abbott  v.  Hap- 
good,  150  Mass.  248,  22  N.  E.  907,  5 
L.  R.  A.  586,  15  Am.  St.  193,  hereto- 
fore cited. 

"Coppage  v.  Hutton,  124  Ind.  401, 
24  N.  E.  112,  7  L.  R.  A.  591;  Reed 
v.  Richmond  St.  R.  Co.  50  Ind.  342; 
Dutchess,  &c.  R.  Co.  .v.  Mabbett,  58 
N.  Y.  397;  Poughkeepsie,  &c.  R.  Co. 
v.  Griffin,  24  N.  Y.  150;  Troy,  &c. 
R.  Co.  v.  Tibbits,  18  Barb.  (N.  Y.) 
297;  Erie,  &c.  R.  Co.  v.  Owen,  32 
Barb.  (N.  Y.)  616;  Sedalia,  &c.  R. 


Co.  v.  Wilkerson,  83  Mo.  235;  Parker 
v.  Northern  Cent.  &c.  R.  Co.  33 
Mich.  23;  Carlisle  v.  Saginaw,  &c.  R. 
Co.  27  Mich.  315;  Monterey,  &c.  R. 
Co.  v.  Hildreth,  53  Cal.  123;  Butcher 
v.  Dillsburg,  &c.  R.  Co.  76  Pa.  St. 
306.  But  see  McClure  v.  People's 
Freight  R.  Co.  90  Pa.  St.  269;  Buf- 
falo, &c.  R.  Co.  v.  Gifford,  87  N.  Y. 
294. 

9  Strasburg  R.  Co.  v.  Echternacht, 
21  Pa.  St.  220,  60  Am.  Dec.  49; 
Gleaves  v.  Brick  Church  Co.  1 
Sneed  (Tenn.)  491;  GofE  v.  Win- 
chester College,  6  Bush  (Ky.)  443; 
Monterey,  &c.  R.  Co.  v.  Hildreth,  53 
Cal.  123;  Fanning  v.  Insurance  Co. 
37  Ohio  St.  339,  41  Am.  R.  517.  But 
compare  Shober  v.  Lancaster,  &c. 
Assn.  68  Pa.  St.  429,  and  Edinboro 
Academy  v.  Robinson,  37  Pa.  St.  210, 
78  Am.  Dec.  421,  with  the  Pennsyl- 
vania case  above  cited.  While  some 
of  the  cases  in  which  this  rule  is 
stated  were,  perhaps,  correctly  de- 
cided, yet  we  think  the  broad  doc- 
trine they  announce  is  unsound  in 
principle  and  upon  authority. 

"Garrett  v.  Dillsburg,  &c.  R.  Co. 
78  Pa.  St.  465;  Auburn  Bolt  and 
Nut  Works  v.  Shultz,  143  Pa.  St. 


103] 


SUBSCRIPTIONS. 


170 


be  very  unfair  to  the  other  subscribers,  and  one  court,  at  least,  has 
denied  the  existence  of  such  a  right.11  Where  a  company  has  been 
incorporated  before  the  subscription  is  made,  the  objection  made  in 
some  of  the  cases  to  the  enforcement  of  preliminary  subscriptions  upon 
the  ground  that  a  corporation  not  in  existence  could  not  be  a  party, 
does  not,  of  course,  obtain  even  though  it  may  not  have  completed 
its  organization  before  the  subscription  is  made.12  But  the  conditions 
of  the  agreement  must  be  substantially  complied  with,  at  least  so 
far  as  they  are  conditions  precedent,  and  if  the  contemplated  scheme 
becomes  impossible  of  performance  or  a  different  corporation  from 
that  contemplated  is  organized,  the  subscriber  to  the  preliminary 
agreement  cannot  be  held  liable  as  a  shareholder.13 

§  103.  Subscriptions  generally — Form. — ISTo  particular  formality 
is  required  in  making  a  subscription  to  the  capital  stock  of  a  corpora- 
tion, but  a  binding  subscription  may,  in  general,  be  made  in  any  way 
in  which  other  contracts  are  entered  into.14  The  courts  will  look  to 
the  intention  of  the  parties  rather  than  to  the  manner  in  which  it  is 
manifested,  and  if  it  appear  that  a  writing  was  intended  as  a  sub- 
scription, it  will  be  sufficient  in  the  absence  of  some  provision  to  the 
contrary,  no  matter  how  informal  it  may  be.15  Indeed,  it  would  seem 


256,  22  Atl.  904;  Patty  v.  Hillsboro, 
&c.  Co.  4  Tex.  Civ.  App.  224,  23  S. 
W.  336;  Hudson  Real  Estate  Co.  v. 
Tower,  156  Mass.  82,  30  N.  E.  465, 
32  Am.  St.  434.  See,  also,  Holt  v. 
Winfield  Bank,  25  Fed.  812;  Plank's 
Tavern  Co.  v.  Burkhard,  87  Mich. 
182. 

"Kidwelly  Canal  Co.  v.  Raby,  2 
Price  93.  See,  also,  Lake  Ontario, 
&c.  R.  Co.  v.  Mason,  16  N.  Y.  451; 
Peninsular,  &c.  R.  Co.  v.  Duncan,  28 
Mich.  130;  Bullock  v.  Falmouth,  &c. 
Co.  85  Ky.  184,  3  S.  W.  129,  1 
Thomp.  Corp.  §  1181. 

12  The  right  to  enforce  the  sub- 
scription is  merely  suspended  until 
organization.  Danbury,  &c.  R.  Co.  v. 
Wilson,  22  Conn.  435;  Marlborough 
Branch  R.  Co.  v.  Arnold,  9  Gray 
(Mass.)  159,  69  Am.  Dec.  279;  Ver- 
mont, &c.  Co.  v.  Windham  Bank,  44 


Vt.  489;  Oregon  Cent.  R.  Co.  v.  Scog- 
gin,  3  Ore.  161 ;  Low  v.  Conn.  &c.  R. 
Co.  45  N.  H.  370;  Diman  v.  Provi- 
dence, &c.  R.  Co.  5  R.  I.  130.  But  see 
Starrett  v.  Rockland  Ins.  Co.  65  Me. 
374;  Wilmington,  &c.  R.  Co.  v. 
Wright,  5  Jones  (N.  Car.)  304. 

13  Knox  v.  Childersburgh,  &c.  Co. 
86  Ala.  180;  Dorris  v.  Sweeney,  60 
N.  Y.  463.  See,  also,  Indianapolis, 
&c.  Co.  v.  Herkimer,  46  Ind.  142; 
Marshall  Foundry  Co.  v.  Killian,  99 
N.  Car.  501,  6  S.  E.  680,  6  Am.  St. 
539;  note  in  33  Am.  St.  185. 

"Blunt  v.  Walker,  11  Wis.  334, 
349,  78  Am.  Dec.  709.  See,  also, 
Dupee  v.  Chicago,  &c.  Co.  117  Fed. 
40;  Hays  v.  Ottawa,  &c.  R.  Co.,  61 
111.  422. 

"Fry  v.  Lexington,  &c.  R.  Co.  2 
Met.  (Ky.)  314;  Nulton  v.  Clayton, 
54  Iowa  425,  6  N.  W.  685,  37  Am.  R. 


171 


SUBSCRIPTIONS   GENERALLY — FORM. 


[§    103 


that  a  parol  subscription  may  be  valid,16  and  merely  accepting  and 
holding  a  certificate  of  stock  is,  ordinarily,  sufficient  to  make  one 
liable  as  a  stockholder,17  or  if  he  assumes  the  duties  and  claims  the 
rights  of  a  stockholder,  and  acts  as  such  with  the  acquiescence  and 
consent  of  the  corporation,18  it  is  sufficient  to  bind  both  him  and  the 
corporation.  But  the  charter  or  statute  may  require  subscriptions  to 
be  made  in  a  specified  manner ;  and,  unless  there  is  a  subsequent  rati- 
fication, express  or  implied,  by  the  parties,  the  statute  must  be  sub- 
stantially complied  with  in  order  to  hold  the  subscriber.19  It  has  also 


213;  Phoenix,  &c.  R.  Co.  v.  Badger, 
67  N.  Y.  294;  Cayuga,  &c.  R.  Co.  v. 
Kyle,  64  N.  Y.  185;  Hagerstown,  &c. 
€o.  v.  Creeger,  5  Hair.  &  J.  (Md.) 
122,  9  Am.  Dec.  495;  Woodruff  v. 
McDonald,  33  Ark.  97;  Stuart  v. 
Valley  R.  Co.  32  Gratt.  (Va.)t  146; 
Ogdensburgh,  &c.  R.  Co.  v.  Frost,  21 
Barb.  (N.  Y.)  541;  Melvin  v.  Lamar 
Ins.  Co.  80  111.  446,  22  Am.  R.  199; 
State  v.  Beck,  81  Ind.  500;  Ottawa, 
&c.  R.  Co.  v.  Black,  79  111.  262; 
Oler  v.  Baltimore,  &c.  R.  Co.  41  Md. 
583;  Brownlee  v.  Ohio,  &c.  R.  Co. 
18  Ind.  68;  Ashtabula,  &c.  R.  Co.  v. 
Smith,  15  Ohio  St.  328,  and  note  to 
Parker  v.  Thomas,  81  Am.  Dec.  385, 
395.  But  see  McClelland  v.  White- 
ley,  11  Biss.  (U.  S.)  444,  15  Fed. 
322. 

"Cook  Stock  and  Stockholders, 
§  52;  Coif  ax,  &c.  Co.  v.  Lyon,  69 
Iowa  683,  29  N.  W.  780;  Man- 
chester St.  R.  Co.  v.  Williams,  71 
N.  H.  312,  52  Atl.  461.  See,  also, 
Walter  v.  Merced  Academy,  126  Cal. 
582,  59  Pac.  136;  Electric  Tel.  Co.  In 
re,  3  De  G.  &  J.  170.  If  it  may  be 
performed  within  a  year,  it  is  not 
within  the  statute  of  frauds.  Bul- 
lock v.  Falmouth,  &c.  Co.  85  Ky. 
184,  3  S.  W.  129;  Straughan  v.  In- 
dianapolis, &c.  R.  Co.  38  Ind.  185. 
But  see  Pittsburgh,  &c.  Co.  v.  Gaz- 
zam,  32  Pa.  St.  340;  Vreeland  v. 
New  Jersey,  &c.  Co.  29  N.  J.  Eq. 
188;  Fanning  v.  Ins.  Co.  37  Ohio 


St.  339,  41  Am.  R.  517.  And  in  a 
number  of  other  cases  a  mere  in- 
formal offer  or  promise  to  subscribe 
has  been  held  insufficient.  26  Am. 
&  Eng.  Ency.  of  Law  (2d  ed.),  904. 

"Upton  v.  Tribilicock,  91  U.  S. 
45;  Stutz  v.  Handley,  41  Fed.  531; 
McLaughlin  v.  Detroit,  &c.  R.  Co. 
8  Mich.  99.  See,  also,  Shickle  v. 
Watts,  94  Mo.  410,  7  S.  W.  274; 
Clark  v.  Continental,  &c.  Co.  57  Ind. 
135;  Hamilton,  &c.  Co.  y.  Rice,  7 
Barb.  (N.  Y.)  157;  Lane  v.  Brain- 
erd,  30  Conn.  565;  Nulton  v.  Clay- 
ton, 54  Iowa  425,  37  Am.  R.  213; 
Rensselaer,  &c.  R.  Co.  v.  Barton,  16 
N.  Y.  457. 

18  Such  acts  operate  as  an  estoppel 
to  deny  his  membership  in  the  com- 
pany.   Boston,  &c.  R.  Co.  v.  Welling- 
ton, 113  Mass.  79;  Philadelphia,  &c. 
R.  Co.  v.  Cowell,  28  Pa.  St.  329,  70 
Am.  Dec.  128;  Jewell  v.  Rock  River, 
&c.  Co.  101  111.  57;  Griswold  v.  Selig- 
man,  72   Mo.   110;   Cheltenham,  &c. 
R.  Co.  v.  Daniel,  2  Q.  B.  281;  Wheel- 
er v.  Millar,  90  N.  Y.  353 ;  Sanger  v. 
Upton,  91  U.  S.  56.    But  see  Shields 
v.  Casey,  155  Pa.  St.  253,  25  Atl.  619. 

19  Coppage  v.  Hutton,  124  Ind.  401, 
24  N.  E.  112,  7  L.  R.  A.  591;  Reed  v. 

'Richmond  St.  R.  Co.  50  Ind.  342; 
Bucher  v.  Dillsburg,  &c.  R.  Co.  76 
Pa.  St.  306;  Dutchess,  &c.  R.  Co.  v. 
Mabbett,  58  N.  Y.  397;  Troy,  &c.  R. 
Co.  v.  Tibbetts,  18  Barb.  (N.  Y.) 
297;  Union  R.  Co.  v.  Sneed,  99  Tenn. 


§   104]  SDBSOBIPTION8.  172 

been  held  that  an  agreement  by  one  to  accept  so  many  shares  as  should 
be  allotted  to  him,  and  sending  to  the  company's  banker  a  sufficient 
deposit  to  cover  the  advancement  required  upon  a  subscription  to  such 
shares,  although  it  is  acted  upon  by  the  corporation  and  a  certain 
number  of  shares  are  allotted,  and  the  rest  of  his  deposit  returned, 
is  not  sufficient  to  constitute  him  a  stockholder  until  he  has  accepted 
the  shares,  although  his  name  is  placed  upon  the  register  as  a  stock- 
holder, and  he  has  notice  that  his  certificates  of  stock  are  ready  for 
him,  and  he  requests  that  they  be  forwarded  to  him.20 

§  104.  Construction  of  contract  of  subscription. — Where  the  place 
of  performance  is  not  specified  in  a  contract  made  in  one  state  to 
subscribe  for  shares  of  stock  of  a  railroad  company  incorporated  under 
the  laws  of  another  state  where  it  has  its  road  and  treasury,  the  con- 
tract is  to  be  performed  in  the  latter  state  and  is  to  be  construed  by 
its  laws.21  It  is  a  well-established  rule  that  the  construction  of  a 
written  contract  is  for  the  court,  and  this  is  true  of  a  contract  of  sub- 
scription.22 But,  on  the  other  hand,  questions  of  ratification  and 
intention  are  usually  questions  of  fact  for  the  jury,  and  it  has  been 
held  that  the  intention  of  an  alleged  subscriber  to  take  stock  as  a 
subscriber,  or  to  ratify  an  insufficient  subscription,  or  an  act  of  the 
corporation  treating  him  as  a  subscriber,  is  a  question  of  fact  for  the 
jury.23 

§  105.  Contracts  of  subscription  are  several. — Contracts  of  sub- 
scription, as  usually  made,  are  several  and  not  joint.24  This  is  true, 

1,  41  S.  W.  364,  47  S.  W.  89 ;  Carlisle  the  corporation  is  created  govern- 
v.  Saginaw  Val.  R.  Co.  27  Mich.  315;  ing,  note  in  93  Am.  St.  393,  394. 
Ashtabula,  &c.  R.  Co.  v.  Smith,  15  ^Monadnock  R.  Co.  v.  Felt,  52  N. 
Ohio  St.  328;   Eppes  v.  Mississippi,  H.  379;  1  Elliott  Gen.  Pr.  §  431. 
&c.  R.  Co.  35  Ala.  33.    But  see  Phoe-  »  Philadelphia,  &c.  R.  Co.  v.  Co- 
nix,  &c.  Co.  v.  Badger,  67  N.  Y.  294;  well,   28  Pa.   St.   329,   70  Am.   Dec. 
Buffalo,   &c.    R.   Co.   v.   Gifford,    87  128;  Galveston,  &c.  Co.  v.  Bolton,  46 
N.  Y.  294;  Jewell  v.  Rock  River,  &c.  Tex.  633;  Macomb  v.  Barcelona,  &c. 
Co.  101  111.  57,  and  compare  Gran-  Assn.  134  N.  Y.  598,  31  N.  E.  613. 
gers',  &c.  Co.  v.  Vinson,  6  Oreg.  172.  M  Whittlesey  v.  Frantz,  74  N.  Y. 

29  New   Brunswick,   &c.   R.   Co.  v.  456;   Wayne,  &c.  Inst.  v.  Smith,  36 

Muggeridge,  4  H.  &  N.  160.  Barb.  (N.  Y.)  576;  Herron  v.  Vance, 

"Penobscot  &c.  R.  Co.  v.  Bartlett,  17  Ind.  595;  Connecticut,  &c.  R.  Co. 

12  Gray   (Mass.)   244,  71  Am.  Dec.  v.  Bailey,  24  Vt.  465,  58  Am.  Dec. 

753.    See,  generally,  as  to  conflict  of  181;  Orynski  v.  Loustaunan  (Tex.) 

laws  and  the  law  of  the  state  where  15  S.  W.  674 ;  Gibbons  v.  Grinsel,  79 


STATUTES  REQUIRING  CASH  DEPOSIT. 


[§  106 


ordinarily,  even  where  they  are  joint  in  form,  because  it  is  clear  from 
the  nature  of  the  contract  that  each  subscriber  intends  to  bind  himself 
alone  for  his  own  subscription,  and  this  intention  must  prevail  not- 
withstanding the  joint  form  of  the  promise.25  In  accordance  with  this 
rule  it  has  even  been  held  that  where  one  person  makes  two  subscrip- 
tions in  two  different  capacities,  that  is,  as  an  individual  and  as  a 
trustee,  a  separate  action  must  be  brought  to  enforce  each  subscrip- 
tion.26 

§  106.  Effect  of  statutes  requiring  cash  deposit  to  complete  sub- 
scription.— Several  of  the  states  by  general  statute27  require  that  a 
certain  sum  shall  be  paid  upon  each  share  of  stock  at  the  time  of  sub- 
scribing, and  such  a  provision  is  frequently  found  in  special  charters 
and  in  by-laws.  It  is  generally  held  that  an  entire  omission  to  make 
such  a  payment  at  the  time  of  subscribing  will  -not  render  the  sub- 
scription absolutely  void  so  that  the  subscriber  can  defend  against 
payment  of  it  for  this  cause,28  since  this  would  be  permitting  him  to 
take  advantage  of  his  own  wrong  in  failing  to  pay.29  The  theory  of 
these  cases  is  that  the  requirement  is  made  for  the  benefit  of  the  cor- 
poration and  that  it  may  waive  the  right  to  avoid  the  subscription 
for  this  cause,30  and  enforce  payment  thereof,  notwithstanding  the 


Wis.  365,  48  N.  W.  255;  Robertson 
v.  March,  4  111.  198;  Miller  v.  Pres- 
ton, 4  N.  Mex.  314. 

K  Clark  Contracts  605;  Landwer- 
len  v.  Wheeler,  106  Ind.  523,  5  N.  E. 
888;  Davis  v.  Belford,  70  Mich.  120, 
37  N.  W.  919;  Price  v.  Grand  Rap- 
ids, &c.  R.  Co.  18  Ind.  137;  Hall  v. 
Thayer,  12  Met.  (Mass.)  130;  Davis, 
&c.  Co.  v.  Barber,  51  Fed.  148;  Gib- 
bons v.  Bente,  51  Minn.  499,  53  N. 
W.  756,  22  L.  R.  A.  80,  and  note; 
but  see  Davis  v.  Shafer,  50  Fed.  764; 
Davis  v.  Bronson,  2  N.  Dak.  300,  16 
L.  R.  A.  655;  Darnell  v.  Lyon,  85 
Tex.  455,  22  S.  W.  304,  960;  Gait  v. 
Swain,  9  Gratt.  (Va.)  633,  60  Am. 
Dec.  311. 

28  Erie,  &c.  R.  Co.  v.  Patrick,  2 
Abb.  App.  Cas.  72,  2  Keyes  (N.  Y.) 
256. 

"Stimson  Am.  Stat  (1892) 
§§  8110,  8517. 


28  Illinois  River  R.  Co.  v.  Zimmer, 
20  111.  654;  Pittsburgh,  &c.  R.  Co.  v. 
Applegate,  21  W.  Va.  172;  Minneap- 
olis, &c.  R.  Co.  v.  Bassett,  20  Minn. 
535,  18  Am.  R.  376;    Barrington  v. 
Mississippi    Cent.   R.    Co.    32    Miss. 
370;    Vicksburg,  &c.  R.  Co.  v.  Mc- 
Kean,  12  La.   Ann.   638;    Wight  v. 
Shelby  R.  Co.  55  Ky.  4,  63  Am.  Dec. 
522;  Mitchell  v.  Rome  R.  Co.  17  Ga. 
574;  Selma,  &c.  R.  Co.  v.  Roundtree, 
7  Ala.  670 ;  Henry  v.  Vermillion,  &c. 
R.   Co.  17  Ohio  187;    Spartanburg, 
&c.  R.   Co.  v.  Ezell,  14   S.   C.   281; 
Webb  v.   Baltimore,  &c.  R.  Co.  77 
Md.  92,  39  Am.  St.  396;  Oler  v.  Bal- 
timore, &c.  R.  Co.  41  Md.  583;  East 
Gloucestershire  R.  Co.  v.  Bartholo- 
mew, L.  R.  3  Ex.  15. 

29  Haywood,  &c.  R.  Co.  v.  Bryan,  6 
Jones  L.  (N.  C.)  82. 

30  Piscataqua  Ferry  Co.  v.  Jones, 
39  N.  H.  491;  Lake  Ontario,  &c.  R. 


106] 


SUBSCRIPTIONS. 


174 


fact  that  the  statute,  if  literally  construed,  would  seem  to  make  a 
cash  deposit  essential  to  the  validity  of  the  subscription.  In  some  of 
the  states,  however,  this  defense  is  allowed,  because  of  the  stringent 
language  of  the  statute,31  but  even  in  such  states  it  is  strongly  dis- 
approved,82 and  is  restricted  to  the  narrowest  possible  limits.33  Thus 
a  few  subscribers  have  been  permitted  to  pay  the  percentage  for  all  ;34 
payment  by  check,35  or  by  promissory  note,36  or  in  services  rendered 
to  the  company  under  a  contract,37  has  been  held  a  sufficient  compli- 
ance with  the  statute ;  and  it  has  been  held  that  actual  payment  at  any 
period  after  subscription  with  intent  to  effectuate  and  complete  the 
subscription  is  sufficient.38  Indeed,  acts  indicating  that  the  sub- 


Co,  v.  Mason,  16  N.  Y.  451;  Garrett 
v.  Dillsburg,  &c.  R.  Co.  78  Pa.  St. 
465.  Cases  cited  in  two  preceding 
notes.  But  see  McRea  v.  Russell,  12 
Ired.  (N.  C.)  224,  where  it  is  said 
that  the  provision  "was,  moreover, 
meant  to  protect  men  from  the  con- 
sequences of  making  such  subscrip- 
tions under  the  influence  of  mo- 
mentary excitement,  which  they 
could  not  fulfill." 

31  Charlotte,  &c.  R.  Co.  v.  Blakely, 
3   Strobh.  Eq.    (S.  C.)    245;    People 
v.  Chambers,  42  Cal.  201;   Taggart 
v.  Western  Md.  R.  Co.  24  Md.  563, 
89  Am.  Dec.  760  n;  Wood  v.  Coosa, 
&c.  R.  Co.  32  Ga.  273;   New  York, 
&c.  R.  Co.  v.  Van  Horn,  57  N.  Y.  473; 
Hibernia  T.   Cor.   v.   Henderson,    8 
Serg.  &  R.   (Pa.)   219,  11  Am.  Dec. 
593;    Fiser    v.    Mississippi,    &c.    R. 
Co.  32  Miss.  359.   If  the  requirement 
is  merely  in  the  by-laws,  and  not  in 
the   charter   or  statute,   failure   to 
comply  with  it  will  not  vitiate  the 
subscription  so  as  to  prevent  its  en- 
forcement by  the  company.    Water 
Valley,  &c.  Co.  v.  Seaman,  53  Miss. 
655;  Piscataqua,  &c.  Co.  v.  Jones,  39 
N.  H.  491. 

32  Rensselaer,  &c.  R.  Co.  v.  Barton, 
16  N.  Y.  457,  note;  Erie,  &c.  R.  Co. 
v.  Brown,  25  Pa.  St.  156.     In  Wood 
v.  Coosa,  &c.  R.  Co.  32  Ga.  273,  the 


court  based  its  decision  upon  the 
positive  language  of  the  statute  that 
a  subscription  without  a  prelimi- 
nary payment  should  be  void. 

83  See  note  to  Parker  v.  Thomas, 
81  Am.  Dec.  385,  397,  398. 

84  Ogdensburgh,  &c.  R.  Co.  v.  Wool- 
ey,  3  Abb.  Ct.  of  App.  398.    See,  also, 
Mississippi,  &c.  R.  Co.  v.  Harris,  36 
Miss.  17. 

85  Syracuse,  &c.  R.  Co.  v.  Gere,  4 
Hun  (N.  Y.)  392;  Staten  Isl.  &c.  R. 
Co.  Re,  37  Hun  (N.  Y.)  422,  where 
the  check  was  certified;    People  v. 
Stockton,  &c.  R.  Co.  45  Cal.  306,  13 
Am.  R.  178,  -when  it  was  shown  that 
the  check  would  have  been  paid  if 
presented. 

36  Ogdensburgh,  &c.  R.  Co.  v.  Wool- 
ey,  3  Abb.  Ct.  of  App.  398;  Vermont 
Cent.  R.  Co.  v.  Clayes,  21  Vt.  30,  35; 
Greenville,  &c.  R.  Co.  v.  Woodsides, 
5  Rich.  L.  (N.  C.)  145,  55  Am.  Dec. 
708.  Contra  Boyd  v.  Peach  Bottom 
R.  Co.  90  Pa.  St.  169;  Leighty  v. 
Susquehanna,  &c.  Co.  14  Serg.  &  R. 
(Pa.)  434. 

"Beach  v.  Smith,  30  N.  Y.  116, 
aff'g  same  case,  28  Barb.  (N.  Y.) 
254.  But  see  New  York,  &c.  R.  Co.  v. 
Hunt,  39  Conn.  75. 

38  Black  River,  &c.  R.  Co.  v.  Clarke, 
25  N.  Y.  208;  Barrington  v.  Missis- 
sippi Cent.  R.  Co.  32  Miss.  370. 


175 


WHO   MAY   SUBSCRIBE   FOR   STOCK. 


[§    107 


scriber  holds  himself  to  be  a  shareholder  may  amount  to  a  waiver  of 
this  defense.39  And  the  statute  is  held  to  apply  only  to  subscriptions 
expressly  mentioned  in  it,  and  not  to  embrace  conditional  subscrip- 
tions,40 nor  subscriptions  taken  before  incorporation,41  where  the 
language  of  the  statute  is  general  as  to  subscriptions  given  to  the  cor- 
poration. So,  where  the  statute  expressly  referred  only  to  subscrip- 
tions taken  by  the  commissioners,  the  provision  was  held  to  apply  to 
no  others.42 

§  107.  Who  may  subscribe  for  stock. — In  general  any  one  may 
subscribe  for  stock  who  is  competent  to  enter  into  an  ordinary  con- 
tract.43 Married  women  are  enabled  by  statute  in  England44  and  gen- 
erally in  the  United  States,45  to  become  subscribers  for  stock.  An  in- 
fant's subscription  is  subject  to  the  same  rules  which  apply  to  his 
other  contracts.48  And  the  general  rules  applicable  to  agency  govern 
contracts  made  by  the  agents  of  the  subscriber47  or  of  the  corporation,48 
or  by  persons  assuming  to  act  as  such  in  case  their  acts  are  subse- 
quently ratified.49  The  corporation  itself  cannot  make  a  valid  sub- 


39  Erie,  &c.  R.  Co.  v.  Brown,  25  Pa. 
St.  156;  Everhart  v.  West  Chester, 
&c.  R.  Co.  28  Pa.  St.  339.    See,  also, 
Cole  v.  Satsop  R.  Co.  9  Wash.  487, 
43   Am.    St.   858,   and   note   to   the 
effect  that  it  is  no  defense  to  sub- 
scribers  as  against  creditors,  that 
part  of  the  necessary  amount  is  ille- 
gally subscribed  by  others,  if  they 
knew  the  facts  at  the  time  they  sub- 
scribed. 

40  Hanover,  &c.   R.   Co.  v.   Halde- 
man,  82  Pa.  St.  36. 

"Garrett  v.  Dillsburg,  &c.  R.  Co. 
78  Pa.  St.  465,  construing  Pennsyl- 
vania act  of  1868.  See,  also,  Lake 
Ontario,  &c.  R.  Co.  v.  Mason,  16  N. 
Y.  457. 

42  Philadelphia,  &c.  R.  Co.  v.  Hick- 
man,  28  Pa.  St.  318. 

43 1  Cook  Stock  and  Stockholders, 
§  63. 

44  Mrs.  Matthewman's  Case,  L.  R. 
3  Eq.  781;  Pugh  &  Sharman's  Case, 
L.  R.  13  Eq.  566. 

"Stimson  Am.  St.  (1886)  §  6450; 
Witter's  v.  Sowles,  32  Fed.  767. 


48  See  Mitchell's  Case,  L.  R.  9  Eq. 
363;  Ebbett's  Case,  L.  R.  5  Chan. 
302;  Baker's  Case,  L.  R.  7  Chan. 
115;  Dublin,  &c.  R.  Co.  v.  Black,  8 
Exch.  181. 

47Musgrave  v.  Morrison,  54  Md. 
161;  New  York,  &c.  Co.  In  re,  35 
Hun  220;  New  York,  &c.  R.  Co. 
In  re,  99  N.  Y.  12;  Rhey  v.  Evens- 
burgh,  &c.  27  Pa.  St.  261;  Merrick, 
&c.  Co.  v.  Philadelphia,  &c.  Co.  115 
Pa.  314,  8  Ati.  794.  It  has  been 
held  that  a  subscription  by  a  trustee 
of  an  undisclosed  principal  is  bind- 
ing on  the  trustee.  State  v.  Supe- 
rior Court  (Wash.),  88  Pac.  332. 

48  Walker  v.  Mobile,  &c.  R.  Co.  34 
Miss.  245. 

49Judah  v.  American,  &c.  Co.  4 
Ind.  333;  Musgrove  v.  Morrison,  54 
Md.  161;  Mississippi,  &c.  R.  Co.  v. 
Harris,  36  Miss.  17;  Philadelphia, 
&c.  R.  Co.  v.  Cowell,  28  Pa.  St.  329, 
70  Am.  Dec.  128;  Mobile,  &c.  R.  Co. 
v.  Yandal,  5  Sneed  (Tenn.)  294;  1 
Cook  Stock  and  Stockholders,  §§  67, 
68. 


§  108] 


SUBSCRIPTIONS. 


176 


scription  to  its  own  stock,50  and  one  corporation  cannot,  as  a  general 
rule,  subscribe  for  stock  in  another  corporation51  unless  making  such 
a  subscription  is  within  the  powers,  express  or  implied,  conferred  by 
its  charter  or  by  statute.52  It  has  been  held,  however,  that  a  construc- 
tion company  has  implied  power  to  take  stock  in  a  railroad  which  it 
is  building.53  Commissioners  to  take  subscriptions54  and  corporate 
officers  may  take  stock  where  the  subscriptions  are  fairly  made  and  no 
advantage  is  taken  of  the  public  or  of  other  subscribers.55  So  munici- 
pal corporations  are  frequently  given  authority  by  the  legislature  to 
aid  railroads  by  subscribing  to  their  stock.56 

§  108.  Presumption  that  one  whose  name  is  subscribed  is  a  stock- 
holder.— The  appearance  of  a  person's  name  on  the  books  of  a  com- 
pany as  a  subscriber  or  stockholder,57  or  its  appearance  on  the  original 
subscription  paper,58  or  books,59  or  its  entry  in  the  books  kept  by  com- 
missioners60 to  take  subscriptions  is  said  to  be  prima  facie  evidence 


"Holladay  v.  Elliott,  8  Ore.  84; 
Allibone  v.  Hager,  46  Pa.  St.  48; 
Preston  v.  Grand  Colliery,  &c.  Co. 
11  Sim.  327. 

B1Maunsell  v.  Midland,  &c.  R.  Co. 
1  Hem.  &  M.  130;  Franklin  Bank  v. 
Commercial  Bank,  36  Ohio  St.  350, 
38  Am.  R.  594;  Berry  v.  Yates,  24 
Barb.  (N.  Y.)  199,  410;  Zabriskie  v. 
Railroad  Co.  23  How.  (U.  S.)  381; 
Valley  R.  Co.  v.  Lake  Erie  Iron  Co. 
46  Ohio  St.  44,  1  L.  R.  A.  412;  Peo- 
ple v.  Chicago  Gas  Trust  Co.  130 
111.  268,  22  N.  E.  798,  17  Am.  St.  R. 
319;  Merz  Capsule  Co.  v.  United 
States,  &c.  Co.  67  Fed.  414. 

52  White  v.  Syracuse,  &c.  R.  Co.  14 
Barb.  N.  Y.  559.  See  Mayor,  &c.  v. 
Baltimore,  &c.  R.  Co.  21  Md.  50; 
Zabriskie  v.  Cleveland,  &c.  R.  Co. 
23  How.  (U.  S.)  381;  Matthews  v. 
Murchison,  17  Fed.  760;  Ryan  v. 
Leavenworth,  &c.  R.  Co.  21  Kans. 
365;  Pearson  v.  Concord,  &c.  R.  Co. 
62  N.  H.  537,  13  Am.  St.  590,  13 
Am.  &  Eng.  R.  Gas.  102. 

03  Rochester,  &c.  R.  Co.  In  re,  45 
Hun  (N.  Y.)  126. 

"Walker  v.   Devereaux,   4   Paige 


(N.  Y.)  229.  See,  also,  Cheraw,  &c. 
R.  Co.  v.  White,  14  S.  Car.  51. 

55  Sims  v.  Street  R.  Co.  37  Ohio  St. 
556.  See  Brower  v.  Passenger  R. 
Co.  3  Phila.  161. 

MSharpless  v.  Mayor,  21  Pa.  St. 
147;  Selma,  &c.  R.  Co.  Ex  parte,  45 
Ala.  696,  6  Am.  R.  722;  Commission- 
ers v.  Miller,  7  Kans.  479,  12  Am. 
R.  425,  where  the  authorities  are 
collected  and  reviewed;  1  Thomp. 
Corp.  §  1118.  Post,  §  875  et  seq. 
So,  a  state  may  subscribe.  Curran 
v.  Arkansas,  15  How.  (U.  S.)  304; 
Brady  v.  State,  26  Md.  290;  Balti- 
more, &c.  R.  Co.  v.  State,  36  Md.  519. 

"Pittsburgh,  &c.  R.  Co.  v.  Apple- 
gate,  21  W.  Va.  172;  Turnbull  v. 
Payson,  95  U.  S.  418;  Hoagland  v. 
Bell,  36  Barb.  (N.  Y.)  57;  Iowa,  &c. 
R.  Co.  v.  Perkins,  28  Iowa  281. 

88  Partridge  v.  Badger,  25  Barb. 
(N.  Y.)  146. 

69  Marlborough,  &c.  R.  Co.  v.  Arn- 
old, 75  Mass.  159,  69  Am.  Dec.  279; 
Rockville,  &c.  Co.  v.  Van  Ness,  2 
Cranch  C.  C.  (U.  S.)  449. 

80  Wood  v.  Coosa,  &c.  R.  Co.  32 
Ga.  273. 


177  IMPLIED  PROMISE  TO  PAY  SUBSCRIPTION — CONSIDERATION.   [§    109 


that  he  is  a  stockholder.61  But  it  is  not  conclusive  unless  shown  to 
have  been  placed  there  by  himself  or  by  his  authority.62  Where  the 
books  are  lost  or  destroyed,  a  certified  copy  of  the  list  of  stockholders 
from  the  files  or  records  of  a  public  office  is  held  to  be  evidence  in 
like  manner  as  the  books  themselves,  if  such  list  is  required  by  law 
to  be  so  filed  or  recorded,03  but  not  otherwise.64  The  erasure  of  a 
name  from  a  subscription  list  by  the  subscriber  will  not  necessarily 
end  his  liability,65  but  the  fact  that  he  became  bound  may  be  proved 
by  parol,  where  the  written  evidences  of  that  fact  have  been  lost  or  de- 
stroyed.66 

§  109.    Implied  promise  to  pay  subscription — Consideration. — An 

action  by  the  corporation  to  recover  the  amount  subscribed  may  be 
maintained  upon  the  implied  promise  to  pay  contained  in  a  subscrip- 
tion to  its  capital  stock,67  and  the  right  to  membership  in  the  corpora- 


81  But  see,  on  this  general  subject, 
3  Elliott  Ev.  §  1946;  Harrison  v. 
Remington,  &c.  Co.  140  Fed.  385, 
402;  Chesapeake,  &c.  R.  Co.  v.  Deep- 
water,  57  W.  Va.  641,  50  S.  E.  890, 
906.  The  presumption  arising  from 
his  name  being  entered  in  the  books 
may  be  overcome  by  proof.  Mudgett 
v.  Horrell,  33  Cal.  25. 

62  New  Brunswick,  &c.  R.  Co.  v. 
Muggeridge,  4  H.  &  N.  160;  Water- 
ford,  &c.  R.  Co.  v.  Pidcock,  8  Exch. 
279. 

83  Cleveland  v.  Lurnham,  55  Wis. 
598. 

"Troy,  &c.  R.  Co.  v.  Kerr,  17 
Barb.  (N.  Y.)  581,  600. 

65  Johnson  v.  Wabash,  &c.  Co.  16 
Ind.  389;  Greer  v.  Chartiers,  &c.  R. 
Co.  96  Pa.  St.  391,  42  Am.  R.  548; 
Bordentown  v.  Imlay,  4  N.  J.  L. 
285.  But  see  Burt  v.  Farrar,  24 
Barb.  (N.  Y.)  518,  to  the  effect  that 
a  subscriber  having  access  to  the 
certificate  before  it  is  filed  may 
erase  or  modify  his  subscription 
even  though  he  has  previously 
induced  others  to  subscribe. 

""Galveston   Hotel   Co.  v.  Bolton, 

ELL.  RAILROADS — 12 


46  Tex.  633;   Haynes  v.  Brown,  36 
N.  H.  545. 

67  Upton  v.  Tribilcock,  91  U.  S.  45; 
Hawley  v.  Upton,  102  U.  S.  314;  Mil- 
ler v.  Wild  Cat,  &c.  Co.  52  Ind.  51; 
Coppage  v.  Hutton,  124  Ind.  401,  24 
N.  E.  112,  7  L.  R.  A.  591;  Windsor 
Electric  Light  Co.  v.  Tandy,  66  Vt. 
248,  29  Atl.  248,  44  Am.  St.  838; 
Lake  Ontario,  &c.  R.  Co.  v.  Mason, 
16  N.  Y.  451;  Chase  v.  Tennessee, 
&c.  R.  Co.  5  Lea  (Tenn.)  415;  Sel- 
ma,  &c.  R.  Co.  v.  Tipton,  5  Ala.  787, 
39  Am.  Dec.  344;  Ventura,  &c.  R. 
Co.  v.  Collins  (Cal.),  46  Pac.  287; 
Branch  v.  Augusta,  &c.  Works,  95 
Ga.  573,  23  S.  E.  128;  Atlantic,  &c. 
Co.  v.  Andrews,  97  Mich.  466,  56  N. 
W.  858;  Greenville,  &c.  R.  Co.  v. 
Cathcart,  4  Rich.  (S.  Car.)  89;  note 
to  Parker  v.  Thomas,  81  Am.  Dec. 
385,  393,  394;  Cook  Stock  and  Stock- 
holders, §  71;  note  in  93  Am.  St. 
357,  358,  359,  where  this  is  stated  to 
be  the  rule  supported  by  the  weight 
of  authority.  A  few  courts,  however, 
seem  to  require  an  express  promise. 
See  note  last  above  referred  to  in 
93  Am.  St.,  on  pages  356  and  357,  for 
citation  of  such  cases. 


110] 


SUBSCRIPTIONS. 


178 


tion,  with  the  probable  advantages  to  be  derived  from  such  member- 
ship, is  a  sufficient  consideration  to  support  the  action.08  Indeed,  a 
consideration  arising  from  the  mutual  obligations  entered  into  by  the 
subscribers,69  will,  it  seems,  be  conclusively  implied  by  law  from  the 
fact  of  the  subscription.70  A  subscription  to  the  -capital  stock  of  a 
corporation  amounts  to  an  agreement  to  take  the  stock  at  its  par  value, 
and  where  a  land-owner  agrees  to  take  the  stock  of  a  railroad  company 
in  payment  of  damages  to  his  land  caused  by  the  construction  of  the 
road,  he  cannot  demand  the  stock  at  its  market  value.71 

§110.  Payment  of  subscription — Trust  fund  doctrine. — As  al- 
ready stated,  'a  subscription  to  corporate  stock  is,  in  effect,  a  contract 
to  pay  for  it  in  the  mode  prescribed,  although  it  contains  no  express 
promise  to  pay.72  The  fund  contributed  and  agreed  to  be  contributed 
by  the  stockholders  constitutes,  in  equity,  a  trust  fund  for  the  benefit 
or  security  of  the  corporate  creditors,73  and  the  general  rule,  therefore, 


68  Bullock  v.  Falmouth,  &c.  Co.  85 
Ky.  184,  3  S.  W.  129;  Selma,  &c.  R. 
Co.  v.  Tipton,  5  Ala.  787,  39  Am. 
Dec.  344;  Walter  A.  Woods  Harves- 
ter Co.  v.  Robbins,  56  Minn.  48,  57 
N.  W.  317;  New  Albany,  &c.  R.  Co. 
v.  Fields,  10  Ind.  187;  Osborn  v. 
Crosby,  63  N.  H.  583;  Lake  Ontario, 
&c.  R.  Co.  v.  Mason,  16  N.  Y.  451; 
St.  Paul,  &c.  R.  Co.  v.  Robbins,  23 
Minn.  439.  In  most  of  the  New 
England  States,  however,  it  is  held 
that  the  only  remedy  available  to 
the  corporation  is  to  declare  the 
shares  forfeited,  unless  the  sub- 
scriber expressly  promises  to  pay, 
or  the  charter  expressly  provides 
that  a  subscription  on  his  part  shall 
bind  him  to  pay  for  the  shares  sub- 
scribed. Belfast,  &c.  R.  Co.  v.  Moore, 
60  Me.  561;  Connecticut,  &c.  R.  Co. 
v.  Bailey,  24  Vt.  465,  58  Am.  Dec. 
181;  Boston,  &c.  R.  Co.  v.  Welling- 
ton, 113  Mass.  79;  White,  &c.  R.  Co. 
v.  Eastman,  34  N.  H.  124;  Russell 
v.  Bristol,  49  Conn.  251. 

« Northern,  &c.  R.  Co.  v.  Miller, 
10  Barb.  (N.  Y.)  260;  Twin  Creek, 


&c.  Co.  v.  Lancaster,  79  Ky.  552; 
Belton  Compress  Co.  v.  Saunders,  70 
Tex.  699,  6  S.  W.  134;  West  v.  Craw- 
ford, 80  Cal.  19,  21  Pac.  1123.  But 
see  Cottage,  &c.  Church  v.  Kendall, 
121  Mass.  528,  23  Am.  R.  286. 

70  East  Tennessee,  &c.  R.  Co.  v. 
Gammon,  5  Sneed  (Tenn.)  567. 

"Hoffman  v.  Bloomsburg,  &c.  R. 
Co.,  157  Pa.  St.  174,  27  Atl.  564. 

"Ante,  §  109;  1  Morawetz  Priv. 
Corp.  §  128.  Beach  Priv.  Corp. 
§  555;  Purdy's  Beach  Priv.  Corp. 
§  338;  note  to  Winston,  v.  Brooks,  4 
L.  R.  A.  507. 

TSAdler  v.  Milwaukee,  &c.  Co.  13 
Wis.  57;  Wood  v.  Dummer,  3  Mason 
(U.  S.)  308;  Sawyer  v.  Hoag,  17 
Wall.  (U.  S.)  610;  Upton  v.  Tribil- 
cock,  91  U.  S.  45;  Germantown  Pass. 
R.  v.  Fitler,  60  Pa.  St.  124,  100  Am. 
Dec.  546  and  note;  Graham  v.  Rail- 
road Co.  102  U.  S.  148,  161;  Camden 
v.  Stewart,  144  U.  S.  104,  12  Sup. 
Ct.  585;  2  Thomp.  Corp.  §  1569; 
2  Morawetz  Priv.  Corp.  §  820  et  seq. 
This  doctrine,  which  is  not  found 
in  the  old  English  cases,  is  now  too 


179  PAYMENT  OF   SUBSCRIPTION — TRUST   FUND  DOCTRINE.    [§    110 


is  that  subscriptions  must  be  paid  in  money  or  "money's  worth."74 
But  this  does  not  mean  that  stock  must  necessarily  be  paid  for  in  cash 
at  the  time  it  is  issued.75  Unless  otherwise  provided,  payment  may 
be  made  in  notes,76  checks,77  or  municipal  bonds,78  where  the  munici- 


well  settled  in  this  country  to  need 
the  citation  of  all  the  authorities. 
They  are  collected  and  reviewed  in 
the  note  to  Thompson  v.  Reno  Sav. 
Bank,  3  Am.  St.  797,  808,  and  in 
1  Beach  Priv.  Corp.  §  116  et  seq. 
See,  also,  note  in  5  L.  R.  A.  649. 
For  explanations  of  the  general 
doctrine  and  limitations  upon  an- 
other phase  of  it  see  Hollins  v. 
Brierfield,  &c.  Co.  150  U.  S.  371,  14 
Sup.  Ct.  127;  Worthen  v.  Griffith,  59 
Ark.  562,  28  S.  W.  286,  43  Am.  St. 
50,  and  note;  Henderson  .v.  Indiana 
Trust  Co.  143  Ind.  561,  40  N.  E. 
516;  Chattanooga,  &c.  R.  Co.  v.  Ev- 
ans, 66  Fed.  809;  First  Nat.  Bank  v. 
Dovetail,  &c.  Co.  143  Ind.  550,  40 
N.  E.  810;  O'Bear,  &c.  Co.  v.  Volfer 
106  Ala.  205,  17  So.  525,  28  L.  R.  A. 
707,  54  Am.  St.  31.  The  doctrine  has 
been  criticised  in  some  respects,  but 
the  same  result  has  been  reached  on 
other  principles.  See  Macbeth  v. 
Banfield,  45  Ore.  553,  78  Pac.  693, 
106  Am.  St.  670,  677;  Hospes  v. 
Northwestern,  &c.  Co.  48  Minrh  174, 
50  N.  W.  1117,  15  L.  R.  A.  470,  31 
Am.  St.  637. 

74Drummond's  case,  L.  R.  4  Ch. 
772;  Marshall  Foundry  Co.  v.  Kil- 
lian,  99  N.  Car.  501,  6  S.  E.  680,  6 
Am.  St.  539;  Wetherbee  v.  Baker, 
35  N.  J.  Eq.  501;  note  to  Winston  v. 
Brooks,  4  L.  R.  A.  507. 

75  "Where  a  share  is  issued,  if  the 
price  be  paid  in  cash,  so  much  is 
added  to  the  working  capital,  there- 
by enhancing  the  creditor's  security. 
If  the  price  be  not  paid,  the  pur- 
chaser's indebtedness  may  be  looked 
to  for  a  like  effect."  Chouteau  v. 
Dean,  7  Mo.  App.  210,  214.  "Unpaid 


stock  is  as  much  a  part  of  this 
pledge  (that  the  capital  stock  shall 
constitute  a  trust  fund  for  the  cred- 
itor), and  as  much  a  part  of  the  as- 
sets of  the  company,  as  the  cash 
which  has  been  paid  in  upon  it, 
creditors  have  the  same  right  to 
look  to  it  as  to  anything  else,  and 
the  same  right  to  insist  upon  its 
payment  as  upon  the  payment  of 
any  other  debt  due  the  company." 
Sanger  v.  Upton,  91  U.  S.  56,  60,  61, 
and  authorities  there  cited.  . 

78  Goodrich  v.  Reynolds,  31  111. 
490,  83  Am.  Dec.  240;  Ogdensburg, 
&c.  R.  Co.  v.  Wooley,  3  Abb.  App. 
Dec.  (N.  Y.)  398;  Stoddard  v.  She- 
tucket,  &c.  Co.  34  Conn.  542;  Ver- 
mont Cent.  R.  Co.  v.  Clayes,  21  Vt. 
30;  Hardy  v.  Merriweather,  14  Ind. 
203;  Blunt  v.  Walker,  11  Wis.  334, 
78  Am.  Dec.  709;  Pacific  Trust  Co. 
v.  Dorsey,  72  Cal.  55.  And  see 
Mitchell  v.  Beckman,  64  Cal.  117; 
Union  Cent.  &c.  Co.  v.  Curtis,  35 
Ohio  St.  343;  McDowell  v.  Chicago 
Steel  Works,  124  111.  491,  16  N.  E. 
854,  7  Am.  St.  381;  Doak  v.  Stahl- 
man  (Tenn.),  58  S.  W.  741. 

"Staten  Island,  &c.  R.  Co.  In  re, 
37  Hun  (N.  Y.)  422;  Syracuse,  &c. 
R.  Co.  v.  Gere,  4  Hun  (N.  Y.)  392; 
People  v.  Stockton,  &c.  R.  Co.  45 
Cal.  306,  13  Am.  R.  178. 

78  See  2  Beach  Priv.  Corp.  §  556; 
15  Am.  &  Eng.  Ency.  of  Law  1242, 
-and  authorities  there  cited.  See, 
also,  Southern,  &c.  Co.  v.  Lanier,  5 
Fla.  110,  58  Am.  De'c.  448;  Valk  v. 
Crandall,  1  Sandf.  Ch.  (N.  Y.)  179; 
Leavitt  v.  Pell,  27  Barb.  (N.  Y.) 
322. 


§  no] 


SUBSCRIPTION'S. 


180 


pality  is  authorized  to  issue  them  for  that  purpose.  So,  it  may  be 
made  in  labor  or  services.70  And  property  which  is  necessary  to  the' 
corporation  in  carrying  out  its  legitimate  business,  or  which  it  is 
authorized  to  purchase,  may  likewise  be  received  in  payment.80  It 
has  also  been  held  that  stock  may  be  issued  in  satisfaction  of  a  debt 
due  from  the  corporation.81  But  the  transaction  must  be  bona  fide, 
and  the  overvaluation  of  services  or  property  received  in  payment  may 
be  so  grossly  excessive  as  to  raise  a  presumption  of  fraud.82  Yet  the 
courts  will  usually  treat  that  as  a  payment  which  the  parties  have 
agreed  shall  be  payment,83  and  it  will  make  no  difference,  in  the  ab- 


79  Cincinnati,  &c.  R.  Co.  v.  Clark- 
son,  7   Ind.  595;    Liebke  v.  Knapp, 
79   Mo.   22,   49   Am.   R.   212;    Beach 
v.    Smith,    30    N.    Y.    116;    Rich    v. 
State    Nat.    Bank,    7    Neb.    201,    29 
Am.  R.  382;  State  v.  Timken,  48  N. 
J.  L.  87,  2  Atl.  783;  Lake  St.  El.  R. 
Co.  v.  Ziegler,  99  Fed.  114,  39  C.  C. 
A.    431;    La   Crosse,   &c.    Harvester 
Co.  v.  Goddard,  114  Wis.  610,  91  N. 
W.    225,   and   note   in   19   Am.   and 
Eng.  Corp.  Cas.  258.    Upon  princi- 
ple, where  the  corporation  has  au- 
thority to  pay  its  officers   salaries 
or   compensation    for    special    serv- 
ices,  there    seems   to   be   no    valid 
reason  why  the  indebtedness  of  the 
corporation    to    them    may   not   be 
used  to  pay  for  stock  issued  to  him 
in    good    faith.     2    Thomp.     Corp. 
§  1652.   But  see  Daniell,  Ex  parte,  1 
De  G.  and  J.  372. 

80  Coffin  v.  Ransdall,  110  Ind.  417, 
11  N.  E.  20;  Ohio,  &c.  R.  Co.  v.  Cra- 
mer, 23  Ind.  490;  New  Haven  Nail 
Co.  v.  Linden  Spring  Co.  142  Mass. 
349,  7  N.  E.  773;   Philadelphia,  &c. 
R.  Co.  v.  Hickman,  28  Pa.  St.  318; 
Liebke  v.  Knapp,  79  Mo.  22,  49  Am. 
R.  212;  Clark  v.  Farrington,  11  Wis. 
306;   Beach  v.  Smith,  30  N.  Y.  116; 
Donald  v.  American,  &c.  Co.  62  N. 
J.  Eq.  729,  48  Atl.  771,  1116;  Frenk- 
el  v.   Hudson,  82  Ala.  158,  60  Am. 
R.    736;    Bedford    County   v.   Nash- 
ville,  &c.   R.   Co.   14   Lea    (Tenn.) 


525;  Branch  v.  Jessup,  106  U.  S. 
468,  1  Sup.  Ct.  495.  Contra,  Henry 
v.  Vermilion,  &c.  R.  Co.  17  Ohio  187; 
Neuse,  &c.  Co.  v.  Commissioners,  6 
Jones  (N.  Car.  L.)  204. 

81Lohman  v.  New  York,  &c.  R. 
Co.  2  Sandf.  (N.  Y.)  39;  Reed  v. 
Hayt,  51  N.  Y.  Sup.  Ct.  121;  Carr 
v.  LeFevre,  27  Pa.  St.  413;  Apple- 
yard's  Case,  49  L.  J.  Ch.  290;  Wood- 
fall's  Case,  3  DeG.  &  Sm.  63.  So,  it 
has  been  held  that  it  may  be  issued 
in  payment  of  damages.  Philadel- 
phia, &c.  R.  Co.  v.  Hickman,  28  Pa. 
St.  318. 

82  Douglass  v.  Ireland,  73  N.  Y. 
100;  Boynton  v.  Andrews,  63  N.  Y. 
93;  Carr  v.  LeFevre,  27  Pa.  St.  413; 
Elyton  Land  Co.  v.  Birmingham, 
&c.  92  Ala.  407,  9  So.  129,  12  L.  R. 
A.  307,  25  Am.  St.  65;  Boulton,  &c. 
Co.  v.  Mills,  78  Iowa  460,  43  N.  W. 
290,  5  L.  R.  A.  649  n,  6  R.  &  Corp.  L. 
J.  417.  See,  also,  National  Tube 
Works  Co.  v.  Gilflllan,  124  N.  Y. 
302,  26  N.  E.  538;  Chishblm  v. 
Forny,  65  Iowa  333,  21  N.  W.  664; 
Osgood  v.  King,  42  Iowa  478.  And 
in  a  few  states  the  property  must 
be  taken  at  its  true  value  in  order 
to  amount  to  a  complete  payment  as 
against  a  creditor.  Libby  v.  Tobey, 
82  Me.  397,  19  Atl.  904;  Shickle  v. 
Watts,  94  Mo.  410,  7  S.  W.  274,  2 
Thomp.  Corp.  §  1616. 

v.  Hazard,  5  Dill.    (U. 


181  PAYMENT   OF   SUBSCRIPTION — TRUST  FUND  DOCTRINE.    [§    110 


sence  of  fraud,  that  the  property  afterwards  turns  out  to  be  of  less 
value  than  was  supposed.84  The  doctrine  which  we  have  been  con- 
sidering would  seem  to  prevent  a  corporation,  at  least  as  against  credi- 
tors, from  issuing  paid-up  stock  and  releasing  the  subscriber  upon 
payment  in  money  of  less  than  its  par  value;85  but  where  all  the 
other  stockholders  consent,  and  it  is  not  forbidden  by  the  charter  or 
statute,  such  a  transaction  is  binding  upon  the  company,  and  it  cannot 
collect  the  difference  between  the  amount  paid  and  the  face  value  of 
the  stock  for  its  own  benefit.86  And  in  a  recent  case,  the  supreme 
court  of  the  United  States  went  still  further  and  held  that  an  active 
corporation  might  issue  stock  and  sell  it  upon  the  market  for  far  less 
than  its  par  value,  in  order  to  obtain,  money  to  prosecute  its  business 
and  pay  its  debts,  and  that  creditors  could  not  compel  the  purchaser 
to  pay  its  face  value.87  This  case,  however,  has  met  with  much 
criticism,88  and  the  rule  therein  announced  should  not  be  extended  in 


S«)  45,  6  Cent.  L.  J.  109;  Coffin  v. 
Ransdell,  110  Ind.  417,  11  N.  E.  20; 
Brant  v.  Ehlen,  59  Md.  1;  Peck  v. 
Coalfield  Coal  Co.  11  111.  App.  88. 

MCoit  v.  North  Carolina,  &c.  Co. 
14  Fed.  12,  affirmed  in  119  U.  S. 
343,  7  Sup.  Ct.  231;  Young  v.  Erie, 
&c.  R.  Co.  65  Mich.  Ill,  31  N.  W. 
814;  Arapahoe,  &c.  Co.  v.  Stevens, 
13  Colo.  534,  22  Pac.  823;  Coe  v. 
East  &  West  R.  Co.  52  Fed.  531; 
Grant  v.  East  &  West  R.  Co.  54  Fed. 
569;  Schenck  v.  Andrews,  57  N.  Y. 
133;  Dupont  v.  Tilden,  42  Fed.  87; 
Brickley  v.  Schlag,  46  N.  J.  Eq.  533, 
20  Atl.  250. 

88  See  Chouteau  v.  Dean,  7  Mo. 
App.  210;  Williams  v.  Evans,  87 
Ala.  725,  6  So.  702,  6  L.  R.  A.  218  n; 
Upton  v.  Tribilcock,  91  U.  S.  45; 
Sawyer  v.  Hoag,  17  Wall.  (U.  S.) 
610;  Bates  v.  Great  Western  Tel. 
Co.  134  111.  536,  25  N.  E.  521;  Goge- 
bic,  &c.  Co.  v.  Iron  Chief,  &c.  Co.  78 
Wis.  427,  47  N.  W.  726,  23  Am.  St. 
417;  Macbeth  v.  Banfield,  45  Ore. 
553,  78  Pac.  693,  106  Am.  St.  670; 
Remington,  &c.  Co.  In  re,  139  Fed. 
766  (distinguishing  Handley  v. 
Stutz,  139  U.  S.  417,  11  Sup.  Ct. 


530);   Taylor  Corp.  §  702;   2  Beach 
Priv.  Corp.  §§  561,  562. 

""Scovill  v.  Thayer,  105  U.  S.  143; 
Harrison  v.  Arkansas  Valley  R.  Co. 
4  McCrary  (U.  S.)  264.  See,  also, 
Higgins  v.  Lansingh,  154  111.  301,  40 
N.  E.  362;  Foster  v.  Seymour,  23 
Fed.  65;  Stewart  v.  Railroad  Co. 
41  Fed.  736;  St.  Louis  &c.  R.  Co.  v. 
Tiernan,  37  Kans.  606,  15  Pac.  544; 
Memphis,  &c.  R.  Co.  v.  Dow,  120  U. 
S.  287,  7  Sup.  Ct.  482;  Dickerman 
v.  Northern  Trust  Co.  80  Fed.  450, 
25  C.  C.  A.  549;  Coler  v.  Tacoma, 
&c.  R.  Co.  53  N.  J.  Eq.  680,  53  Atl. 
680. 

87  Handley  v.  Stutz,  139  U.  S.  417, 
11    Sup.    Ct.    530.     See,    also,    cases 
cited   in  Grant  v.  East  &  West  R. 
Co.  54  Fed.  569,  575,  and  Van  Cott 
v.  Van  Brunt,  82  N.  Y.  535. 

88  See  article  by  R.  C.  McMurtrie 
in  25  Am.  L.  Rev.  749;   2  Thomp. 

,Corp.  §  1665.  See,  also,  Kimbell  v. 
Chicago,  &c.  Co.  119  Fed.  102; 
Smith  v.  Ferries,  &c.  R.  Co.  (Cal.) 
51  Pac.  723;  Martin  v.  South  Salem 
Land  Co.  94  Va.  28,  26  S.  E.  591; 
Adamant  Mfg.  Co.  v.  Wallace,  16 
Wash.  614,  48  Pac.  415. 


Ill] 


SUBSCRIPTIONS. 


182 


its  application  to  a  different  state  of  facts.  In  some  jurisdictions  the 
action  of  the  directors  and  stockholders  in  good  faith  determining 
the  value  of  the  property,  services,  or  the  like  taken-  in  payment  of  a 
stock  subscription  is  conclusive,  in  the  absence  of  actual  fraud,  but  in 
others  the  rule  is  not  so  strict,  and  a  gross  overvaluation  of  property, 
whose  value  is  easily  ascertained  is  presumptive  if  not  conclusive  evi- 
dence of  fraud,  in  the  absence  of  anything  to  the  contrary.89 

§  111.  Conditional  subscriptions. — A  subscription  may  be  made 
upon  a  condition  precedent,  in  which  case  it  can  only  be  enforced  after 
the  performance  of  the  condition.90  The  courts,  however,  lean  toward 
a  construction  of  the  subscription  which  will  hold  any  conditions  ex- 
pressed therein  to  be  conditions  subsequent,91  in  which  case  the  sub- 


89Coleman  v.  Howe,  154  111.  458, 
39  N.  B.  725,  727,  45  Am.  St.  133; 
National  Tube  Works  v.  Gilfillan, 
124  N.  Y.  302,  307,  26  N.  E.  538; 
Coit  v.  North  Carolina,  &c.  Co.  119 
U.  S.  343,  7  Sup.  Ct.  231;  Lloyd  v. 
Preston,  146  U.  S.  630,  13  Sup.  Ct. 
131.  In  Macbeth  v.  Banfield,  45 
Ore.  553,  78  Pac.  693,  106  Am.  St. 
670,  680,  it  is  said:  "It  is  competent 
for  the  determination  of  the  question 
to  take  into  consideration  the  na- 
ture of  the  property,  the  purposes 
for  which  it  is  accepted,  and  all  the 
conditions  and  circumstances  at- 
tending and  surrounding  the  trans- 
action; and  if,  from  the  whole,  it 
appears  that  the  board  has  acted 
in  good  faith,  in  the  honest  exercise 
of  its  best  judgment,  no  adverse 
presumption  pending,  then  are  its 
acts  conclusive,  otherwise  not. 
Clark  Corporations,  380,  381;  Van 
Cleve  v.  Berkey,  143  Mo.  109,  44  S. 
W.  743,  42  L.  R.  A.  593,  598;  Boyn- 
ton  v.  Andrews,  63  N.  Y.  93;  Doug- 
lass v.  Ireland,  73  N.  Y.  100;  Lake 
Superior  Iron  Co.  v.  Drexel,  90  N. 
Y.  87;  Elyton  Land  Co.  v.  Birming- 
ham, &c.  Co.  92  Ala.  407,  423,  9 
South.  129,  12  L.  R.  A.  307,  25  Am. 
St.  65;  Osgood  v.  King,  42  Iowa 


478;  Jackson  v.  Traer,  64  Iowa  469, 
20  N.  W.  764,  52  Am.  R.  449."  See, 
also,  note  in  42  L.  R.  A.  593. 

BOTaggart  v.  Western  Md.  R.  Co. 
24  Md.  563,  89  Am.  Dec.  760  n;  Lowe 
v.  Edgefield,  &c.  R.  Co.  1  Head 
(Tenn.)  659;  Ashtabula,  &c.  R.  Co. 
v.  Smith,  15  Ohio  St.  328;  Porter  v. 
Raymond,  53  N.  H.  519;  Montpelier, 
&c.  R.  Co.  v.  Langdon,  46  Vt.  284; 
Bucksport,  &c.  R.  Co.  v.  Buck,  68 
Me.  81;  Peoria,  &c.  R.  Co.  v.  Pres- 
ton, 35  Iowa  115;  Chartiers,  &c.  R. 
v.  Hodgens,  85  Pa.  St.  501;  Mil- 
waukee, &c.  R.  Co.  v.  Field,  12  Wis. 
340;  Allman  v.  Havana,  &c.  R.  Co. 
88  111.  521;  Monroe  v.  Fort  Wayne, 
&c.  R.  Co.  28  Mich.  272;  North,  &c. 
R.  Co.  v.  Winfree,  51  Ga.  318;  note 
to  Parker  v.  Thomas,  81  Am.  Dec. 
385,  398.  See,  also,  Missouri  Pac. 
R.  Co.  v.  Tygard,  84  Mo.  263,  54  Am. 
R.  97. 

81  Swartout  v.  Michigan  Air  Line 
R.  Co.  24  Mich.  389;  Chamberlain  v. 
Painesville,  &c.  R.  Co.  15  Ohio  St. 
225.  The  electors  of  a  county  voted 
to  subscribe  for  stock  in  the  plain- 
tiff's railroad  and  issue  the  bonds 
of  the  county  for  the  same,  on  con- 
dition that  the  railroad  should  be 
-completed  and  in  operation  in  the 


183 


CONDITIONAL   SUBSCRIPTIONS. 


[ 


scription  is  held  to  be  absolute,92  and  the  condition  subsequent  a 
separate  contract  on  the  part  of  the  corporation  to  be  enforced  like 
other  contracts.93  Subscriptions  made  before  incorporation  and  taken 
for  the  purpose  of  raising  the  capital  required  to  secure  incorporation 
under  a  general  statute,  must  be  absolute.94  Advance  subscriptions 
made  upon  condition  are  held  void  in  Xew  York,95  while  the  condition 
only  is  held  void  in  Pennsylvania,96  and  the  subscription  is  upheld 
as  an  absolute  one.  But  the  cases  generally  agree  that  a  conditional 
subscription  is  not  to  be  counted  in  estimating  the  stock  subscribed,97 


county,  by  lease  or  otherwise,  from 
a  connection  with  existing  roads  in 
the  state,  and,  also,  conditioned 
that  the  acceptance  of  the  bonds 
issued  in  payment  of  the  stock 
should  constitute  a  covenant  bind- 
ing upon  the  railroad  company,  its 
lessees  or  assigns,  to  maintain  and 
operate  said  line  of  road,  by  lease  or 
otherwise,  over  its  route  for  a  term 
of  ninety-nine  years.  The  court 
held  that  an  agreement  by  the  rail- 
road company,  executed  after  such 
subscription,  to  sell  and  transfer  its 
road  after  it  was  completed,  in  or- 
der to  obtain  money  for  its  construc- 
tion, did  not  discharge  or  release 
the  county  from  the  payment  of  its 
subscription.  Southern,  &c.  R.  Co. 
v.  Tower,  41  Kans.  72. 

'2  Belfast,  &c.  R.  Co.  v.  Moore,  60 
Me.  561,  576;  Henderson,  &c.  R.  Co. 
v.  Leavell,  16  B.  Mon.  (Ky.)  358; 
Paducah,  &c.  R.  Co.  v.  Parks,  86 
Tenn.  554,  8  S.  W.  842;  Miller  v. 
Pittsburgh,  &c.  R.  Co.  40  Pa.  St. 
237,  80  Am.  Dec.  570;  Johnson  v. 
Georgia,  &c.  R.  Co.  81  Ga.  725. 

83 1  Cook  Stock  and  Stockholders, 
§  78. 

84  Boyd  v.  Peach  Bottom  R.  Co.  90 
Pa.  St.  169,  1  Am.  &  Eng.  R.  Cas. 
631;  Troy,  &c.  R.  Co.  v.  Newton,  8 
Gray  (Mass.)  596;  Chamberlin  v. 
Painesville,  &c.  R.  Co.  15  Ohio  St. 
225;  Brand  v.  Lawrenceville,  &c.  R. 
Co.  77  Ga.  506,  1  S.  E.  255;  New 


York,  &c.  R.  Co.  v.  Hunt,  39  Conn. 
75;  Troy,  &c.  R.  Co.  v.  Tibbits,  18 
Barb.  (N.  Y.)  297;  Ellison  v.  Mobile, 
&c.  R.  Co.  36  Miss.  572. 

85  Troy,  &c.  R.  Co.  v.  Tibbits,  18 
Barb.  (N.  Y.)  297. 

86  Boyd  v.  Peach  Bottom  R.  Co.  90 
Pa.  St.  169;   Caley  v.  Philadelphia, 
&c.  R.  Co.  80  Pa.  St.  363.    See,  also, 
Burke  v.   Smith,   16   Wall.    (U.   S.) 
390,  396. 

87  Caley  v.  Philadelphia,  &c.  R.  Co. 
80  Pa.  St.   363;    California,  &c.  Co. 
v.  Russell,  88  Cal.  277,  26  Pac.  105; 
Ticonic,  &c.  Co.  v.  Lang,  63  Me.  480; 
New  York,  &c.  R.  Co..v.  Hunt,  39 
Conn.  75;  Boston,  &c.  R.  Co.  v.  Wel- 
lington, 113  Mass.  79 ;  Brand  v.  Law- 
renceville,  &c.   R.   Co.    77    Ga.   506. 
Nor  colorable  or  fictitious  subscrip- 
tions.    Memphis  Branch  R.   Co.  v. 
Sullivan,  57  Ga.  240.    Nor  subscrip- 
tions by  persons  having  no  reasona- 
ble expectation  of  being  able  to  pay. 
Holman  v.  State,  105  Ind.  569,  5  N. 
E.  702;  Belfast,  &c.  R.  Co.  v.  Inhab- 
itants of  Brooks,  60  Me.  568.     See, 
also,  Branch  v.  Augusta,  &c.  Works, 
95  Ga.  573,  23  S.  E.  128;  Denny  Ho- 
tel Co.  v.  Schram,  6  Wash.  134,  32 
Pac.   1002,  36  Am.  St.  137.     But  if 
there   is   good   faith,   insolvency   of 
some  may  not  be  a  defense  for  oth- 
ers.    Penobscot  R.  Co.  v.  Dummer, 
40  Me.  172,  63  Am.  Dec.  654;  Salem, 
&c.  Corp.  v.  Ropes,  9  Pick.   (Mass.) 
187,  19  Am.  Dec.  363. 


§  Ilia] 


SUBSCRIPTIONS. 


184 


and  the  better  reason  and  weight  of  authority  would  seem  to  be  that, 
when  made  for  this  purpose,  only  absolute  subscriptions  are  valid  and 
enforceable  by  either  the  subscriber  or  the  corporation.98  Yet,  a  con- 
dition in  a  preliminary  subscription  that  the  organization  shall  not  be 
completed  until  a  certain  amount  of  stock  has  been  subscribed,  is 
valid."  And  such  a  provision  in  the  charter  constitutes  a  condition 
precedent  annexed  to  every  subscription.100 

§  Ilia.  Implied  conditions. — It  is  not  only  true  that  a  provision 
in  a  charter  to  the  effect  that  no  subscription  shall  be  enforceable  until 
a  certain  amount  of  stock  has  been  subscribed  for  is  a  condition  prece- 
dent, but  it  is  also  held  in  many  jurisdictions  that  where  the  capital 
stock  is  fixed,  it  is  an  implied  condition,  in  the  absence  of  anything  to 
the  contrary,  that  it  shall  all  be  subscribed  for  before  a  subscriber  is 


88 1  Cook  Stock  and  Stockholders, 
§  79,  note. 

""Penobscot,  &c.  R.  Co.  v.  Dunn, 
39  Me.  587;  Philadelphia,  &c.  R.  Co. 
v.  Hickman,  28  Pa.  St.  318.  And,  ac- 
cording to  the  weight  of  authority, 
there  is  even  at  common  law,  an 
implied  condition  that  all  the  re- 
quired stock  shall  be  subscribed  be- 
fore a  subscription  shall  become 
due.  Anderson  v.  Middle,  &c.  R. 
Co.  91  Tenn.  44,  52  Am.  &  Eng.  R. 
Gas.  149,  151;  Denny  Hotel  Co.  v. 
Schram,  6  Wash.  134,  32  Pac. 
1002,  36  Am.  St.  130;  Salem  Mill 
Dam  Corp.  v.  Ropes,  6  Pick.  (Mass.) 
23;  Livesey  v.  Omaha  Hotel  Co.  5 
Neb.  50,  and  authorities  there  cited; 
Peoria,  &c.  R.  Co.  v.  Preston,  35 
Iowa  115;  New  Hampshire  Cent.  R. 
Co.  v.  Johnson,  30  N.  H.  390,  64  Am. 
Dec.  300,  23  Am.  &  Eng.  Ency.  of 
Law  840,  and  authorities  cited  in 
note.  But  see  Astoria,  &c.  R.  Co.  v. 
Hill,  20  Ore.  177;  Newcastle,  &c. 
R.  Co.  v.  Bell,  8  Blackf.  (Ind.)  584; 
Chubb  v.  Upton,  95  U.  S.  665;  Che- 
raw,  &c.  R.  Co.  v.  White,  14  S.  Car. 
51;  Stewart  v.  Minnesota,  &c.  R. 
Co.  36  Minn.  355  (as  to  rights  of 
creditors).  See,  also,  ante,  §  18. 


100  Memphis  Branch  R.  Co.  v.  Sulli- 
van, 57  Ga.  240;  Peoria,  &c.  R.  Co.  v. 
Preston,  35  Iowa  115;  New  Hamp- 
shire, &c.  R.  Co.  v.  Johnson,  30  N. 
H.  390,  64  Am.  Dec.  300;  Somerset 
R.  Co.  v.  Clarke,  61  Me.  379.  Sub- 
scribers for  stock  of  an  incorporated 
company,  whose  capital  is  fixed  at 
a  certain  sum,  whose  shares  are 
limited  to  a  certain  number,  and 
whose  charter  provides  that  pay- 
ment shall  be  made  as  may  be  de- 
termined by  the  board  of  directors, 
cannot  be  compelled  to  pay  until  the 
whole  capital  has  been  subscribed 
for  and  the  board  has  called  for 
payment,  unless  it  is  shown  that  by 
their  acts  they  have  waived  their 
rights  in  those  regards.  Exposition 
R.  &c.  Co.  v.  Canal  St.  E.  R.  Co.  42 
La.  Ann.  370.  This  is  the  common- 
law  rule  where  the  charter  does  not 
otherwise  provide,  but  such  defense 
may  be  waived  by  the  subscriber. 
Masonic  Temple  Ass'n  v.  Channell, 
43  Minn.  353;  International,  &c. 
Ass'n  v.  Walker,  83  Mich.  386,  47  N. 
W.  338,  3  Lewis'  Am.  R.  &  Corp. 
731. 


185 


IMPLIED   CONDITIONS. 


[ 


liable  upon  his  subscription.  Thus  it  is  said:  "It  is  a  general  and 
well-settled  rule,  subject  to  a  few  qualifications  cmly,  that  where  the 
capital  stock  of  a  corporation  is  fixed,  it  is  implied  in  every  contract 
of  subscription,  as  a  condition  precedent  to  liability  thereunder,  that 
all  the  capital  stock  must  be  subscribed.  Until  all  the  capital  stock 
is  subscribed,  payment  of  his  subscription  or  any  part  thereof  cannot 
be  required  of  any  subscriber."101  But  if  the  subscription  contract  or 
agreement  shows  a  contrary  intention  there  is  no  room  for  such  an 


101  Note  to  Gettysburg  Nat.  Bank 
v.  Brown  (95  Md.  367),  in  93  Am. 
St.  339,  368;  Stoneham  Branch  R. 
Co.  v.  Gould,  68  Mass.  277;  Contuo- 
cook  Valley  R.  Co.  v.  Barker,  32  N. 
H.  363.  See,  also,  Santa  Cruz  R. 
Co.  v.  Schwartz,  53  Cal.  106;  Stearns 
v.  Sopris,  4  Colo.  App.  191,  35  Pac. 
281;  Allman'v.  Havana,  &c.  R."  Co. 
88  111.  521;  McCoy  v.  World's  Co- 
lumbian Exposition,  186  111.  356,  57 
N.  E.  1043,  78  Am.  St.  288;  Hoag- 
land  v.  Cincinnati,  &c.  R.  Co.  18 
Ind.  452;  Peoria,  &c.  R.  Co.  v.  Pres- 
ton, 35  Iowa  115;  Exposition  R.,  &c. 
Co.  v.  Canal  St.  &c.  R.  Co.  42  La. 
Ann.  370,  7  So.  627;  Somerset,  &c.  R. 
Co.  v.  Gushing,  45  Me.  524;  Somer- 
set, &c.  R.  Co.  v.  Clarke,  61  Me.  379 ; 
Rockland,  &c.  Co.  v.  Sewall,  78  Me. 
167,  3  Atl.  181,  80  Me.  400,  14  Atl. 
939;  Hughes  v.  Antietam  Mfg.  Co. 
34  Md.  316;  Musgrove  v.  Morrison, 
54  Md.  161;  Worcester,  &c.  R.  Co.  v. 
Hinds,  62  Mass.  110;  Shurtz  v. 
Schoolcraft,  &c.  R.  Co.  9  Mich.  270; 
International,  &c.  Assn.  v.  Walker, 
88  Mich.  62,  49  N.  W.  1086;  Curry 
Hotel  Co.  v.  Mullins,  93  Mich.  318, 
53  N.  W.  360;  Masonic  Temple  Ass'n 
v.  Chanwell,  43  Minn.  353,  45  N.  W. 
716;  Duluth  Inv.  Co.  v.  Witt,  63 
Minn.  538,  65  N.  W.  956;  Haskell  v. 
Worthington,  94  Mo.  560,  7  S.  W. 
481;  Sedalia,  &c.  R.  Co.  v.  Abell,  17 
Mo.  App.  645;  McCann  v.  American 
Cent.  Ins.  Co.  4  Neb.  256;  Macfar- 
land  v.  West  Side,  &c.  Assn.  53  Neb. 


417,  73  N.  W.  736;  Jewett  v.  Valley 
R.  Co.  34  Ohio  St.  601;  Astoria,  &c. 
R.  Co.  v.  Hill,  20  Ore.  177,  25  Pac. 
379;  Read  v.  Memphis,  &c.  Gas  Co. 
56  Tenn.  545;  Anderson  v.  Middle, 
&c.  R.  Co.  91  Tenn.  44,  17  S.  W. 
803;  Galveston  Hotel  Co.  v.  Bolton, 
46  Tex.  633;  Norwich  Lock  Mfg. 
Co.  v.  Hockaday,  89  Va.  557,  16  S. 
E.  877;  Denny  Hotel  Co.  v.  Schram, 
6  Wash.  134,  32  Pac.  1002,  36  Am. 
St.  130;  Birge  v.  Browning,  11 
Wash.  249,  39  Pac.  643;  Greenbrier 
Industrial  Exp.  v.  Ocheltree,  44  W. 
Va.  626,  30  S.  E.  78;  Milwaukee 
Brick,  &c.  Co.  v.  Schoknecht,  108 
Wis.  457,  84  N.  W.  838;  Wontner  v. 
Shairp,  4  Com.  B.  404.  But  see 
South.  Ga.,  &c.  R.  Co.  v.  Ay  res,  56 
Ga.  230;  Rensselaer,  &c.  Plank  Road 
Co.  v.  Wetsel,  21  Barb.  (N.  Y.)  56; 
Schenectady  Plank  Road  Co.  v. 
Thacher,  11  N.  Y.  102;  Lynch  v. 
Eastern,  &c.  R.  Co.  57  Wis.  430,  15 
N.  W.  743,  825.  As  to  the  rule 
where  the  capital  stock  is  not  fixed, 
see  note  in  93  Am.  St.  375,  citing 
apparently  conflicting  authorities 
from  the  same  states,  most  of 
which,  however,  may  probably  be 
reconciled  in  view  of  the  fact  that 
in  all  or  nearly  all  of  those  holding 
that  there  was  no  such  implied  con- 
dition there  was  an  express  promise 
to  pay,  and  that  both  the  fact  of 
the  express  promise  and  of  the  capi- 
tal not  being  fixed  were  influential 
factors  in  the  decision. 


SUBSCRIPTIONS. 


186 


implication,102  and  an  express  unconditional  provision  to  pay  has  been 
held  in  some  cases  to  evince  such  an  intention.103  So,  the  matter  is 
frequently  regulated  and  determined  by  statute.104  And  a  subscriber 
may  be  responsible  for  preliminary  expenses,  even  though  not  subject 
to  calls  and  assessments  for  the  general  purpose  of  the  corporation.105 

§  112.  Valid  and  invalid  conditions. — Where  the  condition  is  that 
the  capital  stock  shall  be  limited  to  a  certain  amount,  a  subscription 
in  excess  thereof  cannot  be  enforced  by  the  corporation.106  Parol  con- 
ditions annexed  to  an  absolute  subscription  are  held  void  as  a  fraud 
upon  the  corporate  creditors  and  other  subscribers  who  are  injured 
thereby,107  and  the  subscription  is  enforceable  according  to  its  terms. 


102  Arkadelphia    Cotton     Mills    v. 
Trimble,  54  Ark.  316,  15  S.  W.  776; 
Troy,  &c.  R.  Co.  v.  Newton,  74  Mass. 
596;    Sedalia,   &c.   R.    Co.   v.   Abell, 
17  Mo.  App.  645;  Anderson  v.  Mid- 
dle, &c.  R.  Co.  91  Tenn.  44,  17  S.  W. 
803. 

103  See  West  v.  Crawford,  80  Cal. 
19,  21  Pac.  1123;  Lail  v.  Mt.  Sterling 
Coal   Road   Co.    76   Ky.    32;    Skow- 
hegan,  &c.   R.   Co.   v.   Kinsman,   77 
Me.  370;  Rockland,  &c.  Co.  v.  Sewell, 
80  Me.  400,  14  Atl.  939. 

104  See  San  Bernardino,  &c.  Co.  v. 
Merrill,  108  Cal.  490,  41  Pac.  487; 
Mandel  v.  Swan,  &c.  Co.  154  111.  177, 
40  N.  E.  462,  45  Am.  St.  124;  Anglo- 
American,  &c.  Co.  v.  Dyer,  181  Mass. 
593,  64  N.  E.  416;   Fairview  R.  Co. 
v.    Spillman,    23    Ore.   587,    32   Pac. 
688.     This   the   statutes   frequently 
provide    for   organizing   and    doing 
business  when  a  certain  amount  less 
than  all  the  stock  is  subscribed,  and 
a  subscriber  is  generally  liable  in 
such  a  case,  having  subscribed  with 
reference    to    such    provision.      See 
Jewett  v.  Valley  R.  Co.  34  Ohio  St. 
601;    Hanover    Junction    R.    Co.    v. 
Haldeman,   82  Pa.   St.   36;    Milwau- 
kee, &c.  Co.  v.  Schoknecht,  108  Wis. 
457,   84   N.   W.    838,   and   other   au- 
thorities cited  in  note  in  93  Am.  St. 
373. 


105  Covington,  &c.  R.  Co.  v.  Moore, 
3  Ind.  510;  Salem  Mill,  &c.  Corp. 
v.  Ropes,  23  Mass.  23;  Littleton 
Mfg.  Co.  v.  Parker,  14  N.  H.  543; 
Anvil  Min.  Co.  v.  Sherman,  74  Wis. 
226,  42  N.  W.  226,  4  L.  R.  A.  232  n. 
Such  a  condition  is  waived  if  the 
subscriber,  with  knowledge  that  the 
required  proportion  of  the  stock  has 
not  been  subscribed  attends  the 
meetings  of  the  company  and  par- 
ticipates in  its  organization,  but  not 
if  he  acted  in  ignorance  of  the  fact 
that  the  required  stock  had  not 
been  subscribed.  Fairview,  &c.  R. 
Co.  v.  Spillman,  23  Ore.  587,  32  Pac. 
688;  Auburn  Opera  House,  &c.  v. 
Hill  (Cal.),  32  Pac.  587;  Interna- 
tional, &c.  Ass'n  v.  Walker,  97  Mich. 
159,  56  N.  W.  344. 

io«  Burrows  v.  Smith,  10  N.  Y.  550; 
Oler  v.  Baltimore,  &c.  R.  Co.  41  Md. 
583;  Clark  v.  Turner,  73  Ga.  1; 
Merrill  v.  Gamble,  46  Iowa  615.  See, 
also,  Laredo  Imp.  Co.  v.  Stevenson, 
66  Fed.  633. 

107  New  Albany,  &c.  R.  Co.  v. 
Fields,  10  Ind.  187;  Kishacoquillas, 
&c.  R.  Co.  v.  McConaby,  16  Serg. 
&  R.  (Pa.)  140;  Robinson  v.  Pitts- 
burg,  &c.  R.  Co.  32  Pa.  St.  334; 
Philadelphia,  &c.  R.  Co.  v.  Conway, 
177  Pa.  St.  364,  35  Atl.  716;  Connec- 
ticut, &c.  R.  Co.  v.  Bailey,  24  Vt 


187"         CONDITIONAL  SUBSCRIPTION  AN  OFFER  UNTIL  ACCEPTED.    [§    113 


It  cannot  even  be  varied  by  a  separate  written  contract  executed  at  the 
time  the  subscription  was  made,  if  such  separate  contract  was  un- 
known to  other  subscribers  and  creditors.108  But  any  condition  which 
can  be  legally109  performed  or  complied  with  by  the  corporation,110 
may  be  annexed  to  a  subscription  given  for  stock  in  a  corporation 
which  is  already  organized,  if  such  condition  be  expressed  therein.111 
A  condition  will  be  presumed  to  have  been  made  when  the  subscrip- 
tion was  given,  in  the  absence  of  proof  to  the  contrary,112  and  will 
be  held  valid  when  annexed  to  the  subscription  after  it  was  given,  if 
done  with  the  consent  of  all  the  parties,  and  for  a  consideration.113 

§  113.     Conditional  subscription  is  a  mere  offer  until  accepted. — A 

conditional  subscription  usually  constitutes  only  an  offer  on  the  part 
of  the  subscriber  until  it  is  accepted  by  the  corporation,114  after  which, 


465,  58  Am.  Dec.  181;  Preston  v. 
Grand  Collier  Dock  Co.  2  Eng.  Rail. 
&  Canal  Cas.  335;  Davidson's  Case, 

3  DeG.  &  S.  21;   Mann  v.  Cooke,  20 
Conn.  178;   Chouteau  Co.  v.  Floyd, 
74   Mo.  286;    Ridgefield,  &c.  R.  Co. 
v.  Brush,  43  Conn.  86;   Johnson  T. 
Pensacola,  &c.   R.   Co.   9  Fla.  299; 
Mississippi,  &c.  R.  Co.  v.  Cross,  20 
Ark.  443. 

108  Brownlee  v.  Ohio,  &c.  R.  Co.  18 
Ind.  68;  White  Mountains  R.  Co.  v. 
Eastman,   34  N.   H.   124;    Meyer  v. 
Blair,  109  N.  Y.  600,  17  N.  E.  228, 

4  Am.  St.  500. 

109  As  to  the  effect  of  an  ultra  vires 
condition  in  a  subscription,  see  Pel- 
latt's  Case,  L.  R.  2  Ch.  527;   Thig- 
pen   v.    Mississippi,   &c.   R.    Co.    32 
Miss.    347.      See,    also,    Morrow    v. 
Nashville,  &c.  Co.  87  Tenn.  262,  10 
S.  W.  495,  3  L.  R.  A.  37,  10  Am.  St. 
658;  Laredo  Imp.  Co.  v.  Stevenson, 
66  Fed.  633. 

110  Penobscot,  &c.  R.  Co.  v.  Dunn, 
39  Me.  587;  Louisville,  &c.  R.  Co.  v. 
Sumner,  106  Ind.  55,  60,  55  Am.  R. 
719;  Ashtabula,  &c.  R.  Co.  v.  Smith, 
15  Ohio  St.  328;  McMillan  v.  Mays- 
ville,  &c.  R.  Co.  54  Ky.  218,  61  Am. 
Dec.  -181;    Dayton,    &c.    R.    Co.    v. 


Hatch,  1  Disney  (Gin.  Super.  Ct.) 
84;  Lake  Ontario  Shore  R.  Co.  v. 
Curtiss,  80  N.  Y.  219.  See  Chicago, 
&c.  R.  Co.  v.  Aurora,  99  111.  205, 
where  it  is  held  that  a  town  may 
issue  railroad  aid  bonds,  payable 
upon  a  condition  which  can  not  le- 
gally be  fulfilled. 

m  For  conditions  which  have  been 
held  valid  see  1  Cook  Stock  and 
Stockholders,  §  83;  23  Am.  &  Eng. 
Ency.  of  Law,  836,  837. 

112  Robinson   v.    Pittsburg,   &c.    R. 
Co.  32  Pa.  St.  334,  72  Am.  Dec.  792. 

113  Pittsburg,  &c.  R.   Co.  v.  Stew- 
art, 41  Pa.  St.  54;  New  Hampshire 
Cent.  R.  Co.  v.  Johnson,  30  N.  H. 
390,  64  Am.   Dec.  300;   Tonica,  &c. 
R.  Co.  v.  Stein,  21  111.  96. 

114  Junction    R.    Co.   v.    Reeve,    15 
Ind.  236.     See,  also,  Cass  v.  Pitts- 
burg, &c.  R.  Co.  80  Pa.  St.  31;  Tag- 
gart  v.  Western  Md.  R.  Co.  24  Md. 
563,  89  Am.  Dec.  760.    But  see  Mans- 
field, &c.  R.  Co.  v.   Stout,  26   Ohio 
St.'  241,  to  the  effect  that  the  ques- 
tion   of    acceptance    is    immaterial 
where  the  corporation  has  fully  per- 
formed the  condition  imposed.    The 
death  of  the  subscriber  before  ac- 
ceptance of  a  conditional  subscrip- 


§114] 


SUBSCRIPTIONS. 


188 


upon  performance  of  the  condition,  it  has  the  binding  force  of  any 
other  subscription,115  but  it  has  been  held  that  such  a  subscription 
may  be  recalled  if  there  is  an  unreasonable  delay  in  accepting  it.11* 
So,  a  gratuitous  subscription  with  only  one  signer  is  said  to  be  an 
offer,  which,  until  accepted  by  the  promisee  in  express  terms,  or  by 
a  performance  of  the  conditions  stipulated  therein,  is  but  a  nudum 
pactum,  and  cannot  be  enforced,  against  the  will  of  the  subscriber,  by 
an  action  at  law.117 

§  114.  Subscriptions  in  escrow — Parol  evidence. — A  contract  of 
subscription  to  capital  stock,  absolute  on  its  face,  may,  like  any  other 
contract,  be  delivered  to  a  third  person  to  be  held  in  escrow  until  the 
performance  of  certain  conditions.  But  if  delivered  to  the  railroad 
company  it  becomes  valid  and  binding,  and  the  delivery  is  effectual  to 
convey  title  to  the  company.118  Where  a  subscription  is  delivered  in 


tion  amounts  to  a  revocation.  Wal- 
lace v.  Townsend,  43  Ohio  St.  537, 
54  Am.  R.  829;  Sedalia,  &c.  R.  Co. 
v.  Wilkinson,  83  Mo.  235.  Where 
the  acceptance  must  be  formal,  as 
in  an  offer  to  give  land  in  payment 
for  stock,  it  must  be  by  the  board 
of  directors,  or  a  specially  author- 
ized agent,  so  as  to  bind  the  com- 
pany to  issue  stock  in  exchange  for 
it  before  the  subscriber  will  be 
bound.  An  acceptance  by  less  than 
a  quorum  of  the  directors  will  not 
bind  him.  Junction  R.  Co.  v.  Reeve, 
15  Ind.  236. 

w  New  Albany,  &c.  R.  Co.  v.  Mc- 
Cormick,  10  Ind.  499,  71  Am.  Dec. 
337;  Ashtabula,  &c.  R.  Co.  v.  Smith, 
15  Ohio  St.  328;  Armstrong  v. 
Karshner,  47  Ohio  St.  276,  24  N.  E. 
897;  Webb  v.  Baltimore,  &c.  R.  Co. 
77  Md.  92,  39  Am.  St  396,  54  Am. 
&  Eng.  R.  Cas.  202.  Immediately 
upon  performance  of  the  condition, 
a  promise  on  the  part  of  the  sub- 
scriber to  pay,  and  of  the  company 
to  issue  its  stock  upon  such  pay- 
ment, is  implied.  Mansfield,  &c.  R. 
Co.  v.  Brown,  26  Ohio  St.  223;  St. 
Paul,  &c.  R.  Co.  v.  Robbins,  23  Minn. 
439. 


""Taggart  v.  Western  Md.  R.  Co. 
24  Md.  563,  89  Am.  Dec.  760  n.  See, 
also,  Wood's  Case,  L.  R.  15  Eq.  236, 
holding  that  notice  of  such  recall 
may  be  given  to  the  secretary.  That 
a  conditional  subscription  may  be 
revoked  while  still  in  the  hands  of 
the  corporate  agent,  see  Lowe  v. 
Edgefield,  &c.  R.  Co.  1  Head 
(Tenn.)  659. 

UTBroadbent  v.  Johnson,  2  Idaho 
300,  13  Pac.  83. 

™  Cass  v.  Pittsburg,  &c.  R.  Co.  80 
Pa.  St.  31;  Madison,  &c.  Co.  v.  Ste- 
vens, 10  Ind.  1;  Wight  v.  Shelby  R. 
Co.  16  B.  Mon.  (Ky.)  4,  63  Am.  Dec. 
522,  where  delivery  was  made  to  a 
commissioner  to  take  subscriptions. 
But  a  director  not  authorized  to 
take  subscriptions  directly  may 
hold  one  in  escrow.  Ottawa,  &c.  R. 
Co.  v.  Hall,  1  Bradw.  (111.)  612. 
And  it  has  been  held  that  where 
the  subscription  was  left  in  the 
hands  of  an  agent  to  solicit  sub- 
scriptions with  directions,  to  which 
he  assented,  to  hold  it  until  the  sub- 
scriber made  investigations  and  not 
to  deliver  it  to  the  company  until 
the  subscriber  directed  him  to  do 
so,  and  the  subscriber,  on  the  inve*K 


189 


WAIVER  OF   CONDITIONS. 


[ 


escrow,  parol  evidence  is  admissible  to  show  the  conditions  upon  which 
it  is  held.119  But  such  evidence  is  not,  as  a  rule,  admissible  to  estab- 
lish an  escrow  in  the  hands  of  the  company,120  although  it  has  been 
held  admissible  to  show  that  a  subscription  left  with  a  soliciting  agent 
•was  not  to  be  delivered  until  the  subscriber  should  have  made  an  in- 
vestigation and  directed  its  delivery,  and  that,  upon  the  investigation 
proving  unsatisfactory,  he  had  at  once  notified  the  agent  to  withhold 
and  cancel  it.121  If  a  subscription,  delivered  to  a  committee  of  citi- 
zens to  be  held  as  an  escrow  to  await  the  performance  of  certain  parol 
'conditions  annexed  thereto,  be  delivered  to  the  company  before  the 
condition  is  fulfilled,  such  delivery  is  ineffective,  and  the  subscription 
cannot  be  enforced.122  When  a  subscription  is  given  on  a  separate  pa- 
per, parol  evidence  is  admissible  to  show  that  it  was  to  be  annexed 
to  the  books  only  on  the  performance  of  certain  conditions.123  So, 
on  the  other  hand,  it  has  been  held  that  where  a  subscription  is  in  the 
name  of  a  party  as  "trustee"  it  may  be  shown  by  parol  evidence  that 
he  acted  as  agent  for  others,  and  creditors,  or  a  receiver  appointed  at 
their  instance,  may  maintain  an  action  to  recover  the  subscription 
from  the  real  parties  in  interest.124 

§  115.    Waiver  of  conditions. — The  condition  may  be  waived  by  the 
subscriber,  by  express  agreement,125  by  acting  as  an  officer  of  the 


tigation  proving  unsatisfactory,  im- 
mediately notified  the  agent  to  with- 
hold and  cancel  it,  the  subscriber 
did  not  become  a  stockholder  and 
was  not  liable  thereon.  Great  West- 
ern Tel.  Co.  v.  Loewenthal,  154  111. 
261,  40  N.  E.  318. 

119  Ottawa,   &c.   R.   Co.   v.   Hall,   1 
Bradw.    (111.)    612;    Great   Western 
Tel.  Co.  v.  Loewenthal,  154  111.  261, 
40  N.  B.  318. 

120  Wight  v.  Shelby  R.  Co.  55  Ky. 
4,  63  Am.  Dec.  522. 

121  Great  Western  Tel.  Co.  v.  Loew- 
enthal,  154    111.    261,   40   N.  E.   318., 
See,  also,  Cass  v.  Pittsburg,  &c.  R. 
€o.  80  Pa.  St.  31. 

122Beloit,  &c.  R.  Co.  v.  Palmer,  19 
Wis.  574.  The  same  is  true  if  it  be 
put  into  the  hands  of  a  special 
agent  of  the  company  to  be  deliv- 


ered only  upon  the  performance  of 
conditions  annexed.  Saginaw,  &c. 
R.  Co.  v.  Chappell,  56  Mich.  190. 

123Bucher  v.  Dillsburg,  &c.  R.  Co. 
76  Pa.  St.  306;  Tonica,  &c.  R.  Co.  v. 
Stein,  21  111.  95. 

124  Cole  v.  Satsop  R.  Co.  9  Wash. 
487,  43  Am.  St.  858.     But  see  as  to 
the    inadmissibility    of    parol    evi- 
dence generally,  Smith  v.  Tallahas- 
see, &c.  Co.  30  Ala.  650;   Martin  v. 
Pensacola,  &c.  R.  Co.  8  Fla.  370,  73 
Am.  Dec.  713;   New  Albany,  &c.  R. 
Co.  v.  Fields,  10  Ind.  187;  Wight  v. 
Shelby  R.  Co.  16  B.  Mon.   (Ky.)   4, 
63  Am.  Dec.  522;   Kennebec,  &c.  R. 
Co.  v.  Waters,  34  Me.  369;  Miller  v. 
Hanover,  &c.  R.  Co.  87  Pa.  St.  95, 
30  Am.  R.  349. 

125  Hanover  Junction,  &c.  R.  Co.  v. 
Haldeman,  82  Pa.  St.  36.    The  con- 


SUBSCRIPTIONS. 


190 


corporation,126  by  paying  the  whole  subscription,127  or  giving  an  abso- 
lute, promissory  note  therefor/28  or  by  any  act,  with  knowledge  of 
the  facts,  which  shows  an  intention  to  hold  himself  to  be  an  absolute 
shareholder  in  the  enterprise.129  So,  as  a  general  rule,  any  acts  on 
the  part  of  the  subscriber  which  have  induced  others  to  act  in  reliance 
upon  the  fact  that  he  was  a  stockholder  will  be  sufficient  to  establish 
such  a  waiver  or  estoppel  without  any  necessity  for  showing  that 
either  the  corporation  or  any  other  subscriber  has  in  fact  been  in- 
fluenced by  such  acts.130  The  rule  as  to  waiver  of  the  implied  con- 


ditions implied  by  law  in  subscrip- 
tions to  stock,  that  payment  shall 
not  be  enforced  until  all  the  stock 
is  subscribed  is  waived  by  the  sub- 
scribers to  the  stock  of  a  railroad 
company  expressly  agreeing,  for  the 
purpose  of  enabling  the  company  to 
build  a  certain  part  of  its  road,  to 
pay  their  subscriptions;  and  if  the 
company  acts  upon  this  agreement 
and  constructs  the  road,  the  sub- 
scribers making  such  an  agreement 
must  pay,  though  others  do  not.  An- 
derson v.  Middle,  &c.  Tenn.  Cent. 
R.  Co.  91  Tenn.  44,  52  Am.  &  Eng. 
R.  Gas.  149.  As  to  waiver  of  such 
condition  by  express  agreement,  see, 
also,  Skowhegan,  &c.  R.  Co.  v.  Kins- 
man, 77  Me.  370. 

126  Dayton,  &c.  R.  Co.  v.  Hatch,  1 
Disney   (Cin.  Super.  Ct.)    84;   Lane 
v.  Brainerd,  30  Conn.  565.    See,  also, 
Macfarland  v.  West  Side  Imp.  Ass'n, 
53  Neb.  417,  73  N.  W.  736. 

127  Parks  v.  Evansville,  &c.  R.  Co. 
23  Ind.  567. 

128  Evansville,  &c.  R.  Co.  v.  Dunn, 
17  Ind.  603;   Slipher  v.  Earhart,  83 
Ind.    173;    Chamberlain    v.    Paines- 
ville,    &c.    R.    Co.    15    Ohio    St.    225. 
But  when  the  company's  agent  in- 
duces the  subscriber  to  execute  the 
notes  by  means  of  falsely  represent- 
ing that  the  condition  has  been  com- 
plied with,  their  execution  is  not  a 
waiver.    Taylor  v.  Fletcher,  15  Ind. 
80.    See,  also,  Parker  v.  Thomas,  19 


Ind.  213,  81  Am.  Dec.  385  n.  And 
where  payments  are  made  under  a 
mistaken  belief  induced  by  false 
and  fraudulent  representations  that 
the  condition  has  previously  been 
performed,  such  payment  is  not  a 
waiver.  Ridgefield,  &c.  R.  Co.  v. 
Brush,  43  Conn.  86;  Somerset,  &c. 
R.  Co.  v.  Gushing,  45  Me.  524;  Mor- 
ris, &c.  Co.  v.  Nathan,  2  Hall  (N. 
Y.)  239.  The  note  given  subsequent 
to  the  contract  of  subscription  can 
not  be  regarded  as  forming  a  part 
of  such  contract  and  so  is  not  sub- 
ject to  the  conditions  annexed  to  it. 
O'Donald  v.  Evansville,  &c.  R.  Co. 
14  Ind.  259. 

129  Parks  v.  Evansville,  &c.  R.  Co. 
23  Ind.  567;   Parker  v.  Thomas,  19 
Ind.  213,  81  Am.  Dec.  385  n;  Willa- 
mette Freighting  Co.  v.  Stannus,  4 
Ore.  261.     See,  also,  California,  &c, 
Co.  v.  Callender,  94'Cal.  120,  29  Pac. 
859,  28  Am.  St.  99;  Hendrix  v.  Acad- 
emy of  Music,  73  Ga.  437;  Hards  v. 
Platte  Val.  &c.  Co.  35  Neb.  263,  53 
N.  W.   73;    Fairview,  &c.  R.  Co.  v. 
Spillman,  23  Ore.  587,  32  Pac.  688; 
note  in  93  Am.  St.  380-383.     Delay 
in    cancelling    a    subscription    may 
bind  one  where  it  shows  an  inten- 
tion to  become  an  absolute  stock- 
holder.   Wheatcroft's  Case,  29  L.  T. 
R.  324. 

130  Railway  Co.  v.  Lacey,  3  Younge 
&  J.  80. 


191  WAIVER  OF   CONDITIONS.  [§    115 

dition  that  no  subscription  shall  be  payable  until  all  of  the  capital 
stock  has  been  subscribed  is  well  stated  in  a  recent  case,  as  follows: 
"The  courts,  in  stating  what  will  estop  the  subscriber,  or  prevent  his 
being  heard  to  make  the  objection  (that  the  full  capital  stock  of  the 
corporation  has  not  been  subscribed)  refer  only  to  his  acts,  and  do 
not  include  the  fact  that  they  did  influence  others.  If  a  technical 
estoppel  were  required  to  prevent  a  subscriber  withdrawing  his  sub- 
scription on  this  ground  much  fraud  might  be  committed ;  for,  if  it 
must  be  shown  that  the  corporation  or  some  subscriber,  of  whom  there 
may  be  many  hundreds  or  even  thousands,  was  in  fact  influenced  by 
the  acts  of  the  subscriber  who  seeks  to  withdraw,  it  might  be  impos- 
sible to  prove  the  fact,  even  though  it  exist.  The  safer  rule  in  such 
a  case  is  that,  if  his  acts  are  of  such  a  character  that  either  the  corpora- 
tion or  subscribers  may  have  been  induced  by  them  to  act,  and  will 
be  prejudiced  if  he  be  permitted  to  withdraw,  he  shall  be  held  to  have 
waived,  or  to  be  estopped  to  assert  the  defense.  It  is  immaterial 
which  word  is  used,  except,  perhaps,  for  the  sake  of  strict  verbal  ac- 
curacy."131 A  waiver  will  generally  be  implied  if  the  subscriber 
consents  to  the  letting  of  contracts,  the  creation  of  debt,  or  the  doing 
of  any  corporate  act  involving  the  necessity  of  calling  in  the  subscribed 
stock,  unless  the  charter  expressly  forbid  the  doing  of  any  corporate 
act  until  the  requisite  capital  is  subscribed.132  An  express  condition 
may  also  be  waived  or  qualified  by  another  clause  of  the  agreement 
which,  is  inconsistent  with  it.133  But  a  subscriber's  mere  silence,134 
or  a  part  payment,135  or  soliciting  subscriptions  and  permitting  him- 
self to  be  chosen  to  a  corporate  office,  without  acting  as  such,136  is  not 
necessarily  such'  a  waiver.  Nor,  in  general,  is  participation  in  any 
acts  done  for  perfecting  the  organization  and  setting  it  on  its  feet  for 
business,  such  as  preparing  and  procuring  the  execution  of  the  ar- 
ticles, procuring  subscriptions  to  its  stock,  preparing  b}r-laws  for  its 

131  Masonic  Temple  Ass'n  v.  Chan-  R.  Co.  v.  Stewart,  41  Pa.  St.  54.    But 
nell,  43  Minn.  353,  45  N.  W.  716.  see  Klein  v.  Alton,  &c.  R.  Co.  13  111. 

132  Anderson   v.  Middle,  &c.  Tenn.  514.     The  distinction  is  made  as  to 
Cent.  R.  Co.  91  Tenn.  44,  52  Am.  &  whether  the  payments  are  such  as 
Eng.  R.  Cas.  149.  to  entitle  the  subscriber  to  demand 

133  Woonsocket    Union    R.    Co.    v.  his  stock  and  preclude  the  company 
Sherman,  8  R.  I.  564.  from   denying  that  he   is   a  stock- 

134  Burlington,  &c.  R.  Co.  v.  Boest-  holder.     Appeal   of   Mack    (Pa.),   7 
ler,  15  Iowa  555;   Bucksport,  &c.  R.  Atl.  481.     See,  also,  Parks  v.  Evans- 
Co,  v.  Inhabitants,  &*  67  Me.  295.  ville,  &c.  R.  Co.  23  Ind.  567. 

133Jewett    v.    Lawrenceburgh,    &c.        138  Ridgefield,   &c.   R.   Co.  V. 
R.   Co.  10   Ind.   539;    Pittsburg,  &c.     nolds,  46  Conn.  375. 


116] 


SUBSCRIPTIONS. 


192 


government,  and  the  like,  to  be  considered  a  waiver  of  the  condition 
that  the  corporation  shall  not  begin  business  until  the  capital  stock  is 
all  subscribed,  for  these  things  are  proper,  and  to  some  extent  neces- 
sary to  be  done,  although  the  subscriptions  are  incomplete.137  If  the 
annexed  condition  be  a  reserved  right  to  withdraw  the  subscription, 
this  right  must  be  exercised  within  a  reasonable  time  or  it  will  be  held 
to  be  waived.138 

§116.  When  conditional  subscription  becomes  payable. — Where 
certain  acts  are  to  be  done  within  a  specified  time,  the  expiration  of 
the  time  without  performance  will  generally  operate  to  discharge  the 
subscriber  from  liability,139  at  least  where  they  are  conditions  prece- 
dent and  time  is  of  the  essence.  A  subscription  made  on  condition  that 
the  road  shall  be  "permanently"  located  on  a  certain  route  becomes 
payable  when  the  route  is  adopted  by  the  directors,140  but  a  change 
in  the  route  so  that  it  does  not  fulfill  the  conditions,  after  part  of  the 
money  is  paid,  may  enable  the  subscriber  to  recover  his  money.141 
Whether  the  conditions  have  been  performed  is  a  question  of  fact 
which  may  be  proved  by  parol,142  as  may  fraud  or  bad  faith  on  the 


137  Gillfillan,  C.  J.,  in  Masonic  Tem- 
ple Assn.  v.  Channell,  43  Minn.  353; 
Oldtown,   &c.   R.   Co.   v.   Veazie,   39 
Me.    571;    Memphis,    &c.    R.    Co.   v. 
Sullivan,  57  Ga.  240.    See,  also,  Live- 
sey  v.  Omaha,  &c.  Co.  5  Neb.  50;  In- 
ternational, &c.  Assn.  v.  Walker,  88 
Mich.  62,  49  N.  W.  1086. 

138  Wilmington,  &c.  R.  Co.  v.  Robe- 
son,  5  Ired.  (N.  C.)  391. 

139  Freeman  v.  Matlock,  67  Ind.  99; 
Moore  v.  Campbell,  111  Ind.  328,  12 
N.  E.  495;    Memphis,  &c.  R.  Co.  v. 
Thompson,  24  Kans.  170;   Portland, 
&c.  R.  Co.  v.  Inhabitants,  &c.  58  Me. 
23.    See,  also,  Cincinnati,  &c.  R.  Co. 
v.  Bensley,  51  Fed.  738,  19  L.  R.  A. 
796.    Where  performance  of  the  con- 
dition was  completed  soon  after  the 
expiration  of  the  time,  and  the  sub- 
scriber neglected  to  take  his  name 
off  the  books,  he  was  held  bound. 
Lee  v.  Imbrie,  13  Ore.  510,  11  Pac. 
270.     And  see  Missouri  Pac.  R.  Co. 
v.   Tygard,  84  Mo.   263,  54  Am.  R. 


97.    See,  however,  Freeman  v.  Mat- 
lock*  68  Ind.  99. 

140  Smith  v.  Allison,  23  Ind.  366. 

141  Jewett   v.    Lawrenceburgh,    &c. 
R.    Co.    10    Ind.    539.      But    if    the 
change  is  unauthorized  by  law  it  is 
said  that  the  alteration  is  inopera- 
tive and  the  subscription  not  made 
voidable.     Danbury,   &c.   R.    Co.   v. 
Wilson,  22  Conn.  435,  456. 

143  St.  Louis,  &c.  R.  Co.  v.  Eakins, 
30  Iowa  279;  Jewett  v.  Lawrence- 
burgh,  &c.  R.  Co.  10  Ind.  539.  See, 
also,  Toledo,  &c.  R.  Co.  v.  Johnson, 
49  Mich.  148;  Brand  v.  Lawrence- 
ville  Branch  R.  Co.  77  Ga.  506,  1  S. 
E.  255.  In  some  cases  proof  is  made 
by  the  corporate  records.  Penob- 
scot,  &c.  R.  Co.  v.  Dunn,  39  Me.  587. 
And  the  burden  is  usually  upon  the 
company.  Santa  Cruz  R.  Co.  v. 
Schwartz,  53  Cal.  106;  Bucksport, 
&c.  R.  Co.  v.  Buck,  65  Me.  536; 
Chase  v.  Sycamore,  &c.  R.  Co.  38 
111.  215. 


193 


CONDITIONAL   SUBSCRIPTIONS. 


[ 


part  of  the  corporation  or  its  officers  in  this  connection.143  Where  the 
agreement  leaves  the  question  as  to  when  the  condition  has  been  per- 
formed to  the  judgment  of  the  directors,  their  decision,  if  made  in 
good  faith,  is  final.144  Notice  of  such  performance  must  usually  be 
given  to  the  subscriber,  and  payment  demanded  before  the  subscrip- 
tion will  become  payable.145  But  a  formal  notice  of  performance  is 
not  necessary  before  suit,  where  the  subscriber  has  actual  knowledge 
that  the  condition  has  been  fulfilled.146  Property  subscribed  in  pay- 
ment for  stock  taken  must  be  specially  demanded  by  the  corporation, 
if  no  time  is  fixed  for  delivery.147  And  upon  the  failure  of  the  sub- 
scriber to  furnish  the  property,  the  subscription  becomes  payable  in. 
cash.148 

§  117.  Construction  of  conditional  subscriptions — What  is  a  suffi- 
cient compliance  with  condition  as'  to  time  of  beginning  and  complet- 
ing road. — The  conditions  most  commonly  annexed  to  subscriptions  to 
the  stock  of  a  railroad  company  relate  to  the  time  of  beginning  and 
completing  the  road,  or  to  the  route  over  which  the  road  shall  run. 
Where  the  condition  requires  the  railroad  to  be  begun  or  finished  be- 
fore a  certain  date,  it  is  held  that  time  is  of  the  essence  of  the  con- 
tract,149 and  the  subscriber  may  be  discharged  from  liability  by  a  fail- 
ure to  comply  with  the  condition.  But  a  substantial  compliance  is 
sufficient,150  while  a  mere  colorable  compliance  with  a  condition  that 


143  New  York  Ex.  Co.  v.  De  Wolf, 
31  N.  Y.  273.    But  see  Ellison  v.  Mo- 
bile, &c.  R.  Co.  36  Miss.  572. 

144  Cass  v.  Pittsburg,  &c.  R.  Co.  80 
Pa.  St.  31. 

145  Chase  v.  Sycamore,  &c.  R.  Co.  38 
111.  215;   Trott  v.  Sarchett,  10  Ohio 
St.   241;    1   Cook   Stock   and   Stock- 
holders, §  89.    Contra,  Spartanburg, 
&c.  R.  Co.  v.  De  Graffenreid,  12  Rich. 
L.  (S.  C.)   675. 

146  New  Albany,  &c.  R.  Co.  v.  Mc- 
Cormick,  10   Ind.  499,  71  Am.  Dec. 
337.     See,  also,  Nichols  v.  Burling- 
ton,  &c.   Co.   4   Greene    (Iowa)    42; 
Spartanburg,  &c.  R.  Co.  v.  De  Graf- 
fenreid, 12  Rich.  L.  (S.  Car.)  675. 

147  Ohio,  &c.  R.  Co.  v.  Cramer,  23 
Ind.  490.     See  McClure  v.   People's 
R.  Co.  90  Pa.  St.  269. 

ELL.  RAILROADS — 13 


148  Haywood,  &c.  R.  Co.  v.  Bryan, 
6  Jones  L.   (N.  Car.)   82;   Sperry  v. 
Johnson,  11  Ohio  452. 

149  Jackson  v.  Shortridge,  29  Tex. 
394,  94  Am.  Dec.  290;   Ticonic,  &c. 
Co.  v.  Lang,  63  Me.  480;  Burlington, 
&c.  R.  Co.  v.  Boestler,  15  Iowa  555; 
Memphis,  &c.  R.  Co.  v.  Thompson, 
24  Kans.  170;  Freeman  v.  Matlock, 
67  Ind.  99.    But  see  Johnson  v.  Kess- 
ler,  76  Iowa  411,  41  N.  W/.  57. 

""Missouri  Pac.  R.  Co.  v.  Tygard, 
84  Mo.  26S.  54  Am.  R.  97;  Hall  v. 
Sims,  106  Ala.  56r  17  So.  534;  South- 
ern, Kansa«,  &c.  R.  Co.  v.  Towner, 
41  Kans.  22;  Freeman  v.  Matlock, 
67  Ind.  99;  Brocaw  v.  Board,  &c.  73 
Ind.  543;  Fort  Worth,  &c.  R.  Co.  v. 
Williams,  82  Tex.  553,  18  S.  W.  206; 
Williams  v.  Ft.  Worth,  &c.  R.  Co.  82 


SUBSCRIPTIONS. 


194 


the  road  should  be  completed  and  a  train  run  over  the  road  by  laying 
a  temporary  track,  over  which  an  engine  and  a  few  cars  are  run,  but 
which  must  be  replaced  by  another  before  regular  trains  can  be  run, 
would  not  be  sufficient  to  bind  the  subscriber.151  A  condition  that 


Tex.  553,  18  S.  W.  206.  See,  also, 
Hunt  v.  Upton  (Wash.),  87  Pac.  56. 
But  compare  Toledo,  &c.  R.  Co.  v. 
Hinsdale,  45  Ohio  St.  556,  15  N.  E. 
665;  Martin  v.  Pensacola  R.  Co.  8 
Fla.  390,  73  Am.  Dec.  713.  The  road 
may  be  substantially  built  to  a  cer- 
tain point,  although  a  depot  has  not 
been  erected  nor  a  station  agent  em- 
ployed. Ogden  v.  Kirby,  79  111.  555. 
The  court  held  it  a  substantial  com- 
pliance where  the  road  was  not 
finally  completed  for  two  and  a  half 
months  after  the  stipulated  time. 
De  Moines  Valley  R.  Co.  v.  Graff, 
27  Iowa  99,  1  Am.  R.  256.  See,  also, 
Missouri  Pac.  R.  Co.  v.  Tygart,  84 
Mo.  264.  A  condition  in  the  vote 
of  bonds  by  a  county  in  aid  of  a 
railroad  company,  that  it  shall  es- 
tablish and  maintain  a  division  ter- 
minus at  a  point  situated  between 
two  named  cities  in  the  county,  is 
substantially  complied  with  if  the 
terminus  is  established  at  a  point 
on  the  line  of  the  road  between  the 
two  cities  a  few  rods  off  from  a  di- 
rect line  between  them.  Chicago, 
&c.  R.  Co.  v.  (Board,  etc.)  Harris, 
49  Kans.  399,  30  Pac.  456.  See,  also, 
Wullenwaber  v.  Dunigan,  30  Neb. 
877. 

isi  Freeman  v.  Matlock,  67  Ind.  99 ; 
Brocaw  v.  Board,  &c.  73  Ind.  543; 
Paris,  &c.  R.  Co.  v.  Henderson,  89 
111.  86.  The  condition  is  not  ful- 
filled by  making  a  temporary  ar- 
rangement by  which  cars  are  run 
to  the  required  terminus  over  a  por- 
tion of  another  company's  track. 
Lawrence  v.  Smith,  57  Iowa  701; 
Indianapolis,  &c.  R.  Co.  v.  Holmes, 
101  Ind.  348.  A  person  subscribed 
$5,000  in  aid  of  a  railroad  company, 


"one-half  of  said  sum  to  be  due  and 
payable  when  said  company  shall 
construct  or  secure  a  continuous 
line  of  railway  from  T.  to  M." 
Trains  ran  from  T.  into  M.  over  the 
road  in  the  specified  time,  but  the 
road  belonging  to  the  company  only 
extended  to  D.,  and  from  D.  to  T.; 
trains  were  run  over  the  road  of 
another  company  under  an  arrange- 
ment by  which  the  track  was  to  be 
used  by  the  new  company,  but  in 
subordination  to  the  use  of  the  com- 
pany owning.  The  court  held  that 
there  was  no  performance  under 
which  the  subscriber  could  be  held 
upon  his  subscription.  Brown  v. 
Dibble,  65  Mich.  520,  32  N.  W.  656. 
See,  also,  Tabor,  &c.  R.  Co.  v.  Mc- 
Cormick,  90  Iowa  446,  57  N.  W.  949. 
But  see  People  v.  Holden,  82  111.  93, 
where  the  company  used  one  mile 
of  track  and  terminals  belonging  to 
another  railroad  company  in  order 
to  reach  one  of  the  towns  named  in 
the  condition,  and  it  was  held  to  be 
a  sufficient  compliance  to  render  the 
subscriber  liable.  A  notice  of  elec- 
tion stated  that  the  question  to  be 
submitted  was  whether  aid  should 
be  voted  for  the  construction  of  a 
railroad  between  W.  and  a  point  on 
the  W.  R.  Co.  in  W.  county,  the  pe- 
tition stated  that  the  road  should 
be  completed  so  that  trains  could  be 
run  from  W.  to  L.  on  the  line  of  the 
W.  R..  Co.  by  a  stated  time.  It  was 
held  that  the  company  was  not  re- 
quired to  build  an  independent,  con- 
tinuous line  to  L.,  but  a  junction 
with  the  W.  R.  Co.  was  sufficient. 
Young  v.  Webster  City,  &c.  R.  Co. 
75  Iowa  140. 


195  SUBSCRIPTIONS   PAYABLE  AS  WOBK  PROGRESSES,  ETC.     [§    118 


"cars  shall  run  to  B,  upon  a  completed  railroad  from  B,"  is,  however, 
sufficiently  complied  with  by  running  leased  cars  over  the  road.152 
Where  payment  is  to  be  made  upon  completion  of  a  portion  of  the 
road,  it  is  not  necessary  that  it  be  made  a  first-class  road  before  pay- 
ment  can  be  enforced,  but  the  specified  portion  must  be  substantially 
finished  and  capable  of  being  operated  for  the  transaction  of  railroad 
business.153  Upon  such  a  completion  of  the  specified  part  of  the  road 
the  subscription  becomes  an  absolute  one.164 

§  118.  Subscriptions  payable  as  work  progresses,  or  upon  expendi- 
ture of  a  certain  amount. — Subscriptions  are  sometimes  made  payable 
as  the  work  progresses,  or  upon  the  construction  of  a  certain  portion 
of  the  work,  or  the  expenditure  of  a  certain  sum  or  percentage.  Such 
a  stipulation  in  the  contract  of  subscription  may  operate  as  a  waiver 
of  the  implied  condition  that  all  the  stock  shall  be  subscribed  before 
any  subscription  can  be  collected,  and  an  agreement  by  subscribers 
to  pay  their  subscription  as  the  work  progresses,  in  order  to  enable 
the  company  to  build  a  certain  portion  of  the  road,  will  operate  as 
such  a  waiver  and  render  such  subscribers  liable  to  pay  their  sub- 
scription as  the  specified  portion  of  the  work  is  done  under  the  agree- 
ment.155 Where  a  subscription  when  made  was  unauthorized  and  in- 


152  Courtright  v.    Deeds,   37    Iowa 
503.     But  see  St.  Louis,  &c.  R.  Co. 
v.  Houck  (Mo.  App.),  97  S.  W.  963. 

153  Armstrong  v.  Karshner,  47  Ohio 
St.    276.     When    the   company    has 
constructed  a  road  which  is  reason- 
ably safe,  fit  and  convenient  for  the 
public  use  and   accommodation,  as 
new   railroads   are  ordinarily  used 
in    similar    localities,    it    has    com- 
plied with  a  condition  in  a  vote  of 
a    municipal    corporation    granting 
aid  in  the  construction  of  the  rail- 
road, that  it  shall  be  paid  when  the 
road  is  completed  for  use.     Where 
an   act   providing  for  the   issuance 
of  bonds  for  the  purpose  of  aiding 
a     railroad     authorizes     preferred 
stock  to  be  issued  to  the  county  ex- 
tending the  aid  when  the  road  is 
completed,     the     county     will     be 
estopped  to  deny  that  the  road  is 


•completed  if.  it  receives  and  retains 
stock.  Lancaster  County  v.  Cheraw, 
&c.  R.  Co.  28  S.  C.  134,  5  S.  E.  338. 

154  Webb  v.  Baltimore,  &c.  R.  Co. 
77  Md.  92,  26  Atl.  113,  39  Am.  St. 
396,  54  Am.  &  Eng.  R.  Gas.  202.   The 
entire  road  need  not  be  completed 
in  such  a  case  before  the  subscrip- 
tion  can  be   collected.     Gardner  v. 
Walsh,  95  Mich.  505,  55  N.  W.  355, 
59  Am.  &  Eng.  R.  Cas.  1. 

155  Anderson    v.     Middle    &    East 
Tenn.  Cent.  R.  Co.  91  Tenn.  44,  17 
S.  W.  803,  52  Am.  &  Eng.  R.  Co.  149. 
In  this  case  subscribers  to  the  capi- 
tal stock  of  a  railroad  chartered  to 
run   from   Gallatin  to  Knoxville,  a 
distance  of  one  hundred  and  fifty 
miles,  signed  an  agreement  to  pay 
their  subscriptions  "as  fast  as  the 
work  progressed,"  upon  a  section  of 
the  road  eleven  and  one-half  miles 


SUBSCRIPTIONS. 


19G 


valid  because  the  company  had  not,  at  that  time,  expended  ten  per 
centum  of  its  authorized  capital  in  the  construction  of  its  road,  nor 
obtained  actual  bona  fide  subscriptions  to  its  capital  stock,  to  the 
amount  of  twenty  per  cent  thereof,  as  required  by  statute,156  it  was 
held  that  such  subscription  could  be  enforced  against  the  subscriber, 
after  the  company  had  fully  complied  with  its  conditions.157  Although 
originally  invalid,  it  constituted  a  continuing  offer  by  the  subscriber 
to  pay  the  company  the  amount  subscribed,  upon  the  performance  by 
it  of  the  prescribed  conditions,  which,  when  not  withdrawn  before  the 
conditions  were  fully  complied  with,  became  an  absolute  subscription, 
and  was  no  longer  open  to  the  objection  that  the  company  was  without 
corporate  capacity  to  receive  it.  But  a  requirement  in  the  subscription 
that  certain  things  be  done  must  clearly  appear  to  be  intended  as  a 
condition  precedent,  or  it  will  not  be  construed  to  have  that  effect.168 

§  119.  Failure  to  perform  parol  condition  will  not  defeat  subscrip- 
tion.— A  condition  will  not  be  permitted  to  defeat  a  subscription  un- 
less clearly  required  by  what  is  set  forth  in  the  writing,159  for,  in  the 


long,  extending  from  Hartsville  to  a 
point  on  the  Chesapeake  and  Nash- 
ville railroad,  eight  and  one-half 
miles  from  Gallatin,  which  they 
agreed  should  be  constructed  before 
the  company  had  procured  sufficient 
finances  to  build  the  whole  road. 
They  were  held  liable  to  pay  their 
subscriptions  upon  suit  brought  to 
enforce  payment  when  seventy  per 
cent,  of  the  work  had  been  done 
upon  such  section  of  the  road,  al- 
though the  company  was  insolvent, 
and  wholly  unable  to  complete  the 
road  as  originally  contemplated,  and 
although  the  subscribers  were  busi- 
ness men  of  Gallatin,  whose  object 
in  taking  stock  was  to  secure  an 
outlet  from  their  city  to  Knoxville. 
The  court  said  that  they  were 
estopped  by  their  express  agreement 
to  deny  their  liability  as  subscrib- 
ers, for  by  such  an  agreement  they 
waived  the  conditions,  express  and 
implied,  annexed  to  their  original 
contract  of  subscription.  A  com- 


pany, having  accepted  a  donation 
from  a  city,  in  consideration  that  it 
permanently  establish  its  terminus, 
main  office,  shops  and  car  works  in 
said  city,  has  fulfilled  its  obligation 
when  the  terminus,  office,  shops  and 
car  works  have  been  established 
therein  without  any  intention  of  re- 
moving them,  and  the  company  can 
not  be  compelled  to  keep  them  there 
when  the  interests  of  the  road  and 
of  the  public  require  a  removal. 
The  city  is  relegated  to  its  remedy 
for  a  breach  by  action  for  damages. 
Texas,  &c.  R.  Co.  v.  Marshall.  136  U. 
S.  393,  10  Sup.  Ct.  846,  34  L.  Ed.  385, 
8  R.  &  Corp.  L.  J.  162,  42  Am.  & 
Eng.  R.  Cas.  637. 
«"  Rev.  Stat  Ohio,  §  3298. 

157  Armstrong  v.  Karshner,  47  Ohio 
276,  24  N.  E.  897. 

158  Armstrong  v.  Karshner,  47  Ohio 
276,  24  N.  E.  897;  Johnson  v.  Kess- 
ler,  76  Iowa  411,  41  N.  W.  57. 

159  Cairo,   &c.    R.   Co.   v.    Delap,   7 
Brad.   (111.)  60;  Johnson  v.  Georgia 


197  CONDITIONS   IN   NOTES.  [§    120 

absence  of  fraud,  or  mistake,  the  written  subscription  cannot,  as  a 
rule,  be  varied  or  controlled  by  parol  evidence.160  Thus,  it  was  held 
in  a  recent  case,  that  "it  is  no  defense  in  an  action  on  a  railroad  aid 
subscription,  conditioned  on  the  completion  of  the  road  to  Iowa  Falls, 
by  September  1,  1884,  that  the  company  had  broken  an  oral  promise, 
which  was  part  of  the  consideration,  to  complete  the  line  from  Iowa 
Palls  to  Forest  City  within  one  year  from  the  date  fixed  in  the  con- 
tract for  the  completion  of  the  road  to  Iowa  Falls,  and  that  the  com- 
pany had  abandoned  the  project  of  building  the  line  between  those 
points.  The  rights  of  the  parties  are  governed  by  the  written  con- 
tract, and  parol  evidence  is  not  admissible  to  show  a  condition  not 
embodied  in  the  written  agreement/'161 

§'120.  Conditions  in  notes. — A  note  payable  two  years  after  the 
road  is  completed  and  trains  are  running  to  a  certain  point  and  ex- 
pressed to  be  in  consideration  of  the  completion  of  the  line  within 
sixty  days,  is  not  defeated  by  a  failure  to  complete  it  within  such 
time,162  and  a  note  payable  when  the  track  is  laid  and  cars  run 
thereon  cannot  be  defeated  by  showing  that  the  consideration  for 
such  note  was  that  the  track  should  be  so  laid  within  three  years  of 
its  date.163  But  a  long  delay  in  constructing  the  road  may  defeat  a 
note  given  upon  this  condition.164  The  words  "the  road  to  be  finished 
by  September  1,  1872,"  in  such  a  note  will  not  imply  a  condition 
precedent.165  Notes  made  payable  when  the  railroad  between  two  points 
"with  the  privilege  of  entering  Atlanta,  Ga.,  on  the  track  of  any  rail- 
road having  terminal  facilities  there,"  is  graded  and  ready  for  the 
cross-ties,  trestles  and  bridges,  were  held  payable  when  the  grading 
was  done,  although  the  road  had  not  yet  acquired  such  privilege.166 

Midland,  &c.   R.   Co.   81   Ga.   725,   8  163  Cairo,   &c.   R.    Co.   v.    Delap,    7 

S.  E.  531.    See,  also,  Meyer  v.  Blair,  Brad.  (111.  App.)  60. 

109  N.  Y.  600,  17  N.  B.  228,  4  Am.  164A  period   of  fourteen  years  is 

St.  500;   Paducah,  &c.  Co.  v.  Parks,  not    "a     reasonable     time"     within 

86  Tenn.  554,  8  S.  W.  842.  which  to  build  a  railroad,  where  it 

160  Low  v.  Studabaker,  110  Ind.  57,  is  the  evident  intent  of  the  parties 

10   N.   E.   301;    Johnson  v.   Georgia  that  the  road  should  be  completed 

Midland,  &c."  R.  Co.  81  Ga.  725;   Ta-  within  "a  reasonable  time,"  so  as  to 

bor,   &c.   R.   Co.   v.    McCormick,    90  'render  subscribers  to  capital  stock 

Iowa  446,  57  N.  W.  949.     But  com-  liable  on  notes  payable  when  cars 

pare  Lake  Manawa  R.  Co.  v.  Squire,  shall  be  running.    Blake  v.  Brown, 

89  Iowa  576,  57  N.  W.  307.  80  Iowa  277. 

101  Blair  v.   Buttolph,  72   Iowa  31,  103  Davis  v.  Cobban,  39  Iowa  392. 

33  N.  W.  349.  188  Johnson  v.  Georgia  Midland,  &c. 

192  Traer  v.  Stuart,  46  Iowa  k!5.  R.  Co.  81  Ga.  725,  8  S.  E.  531.   The 


SUBSCRIPTIONS. 


198 


And  when  the  notes  were  payable  at  specified  times  "as  the  work 
progressed  through  the  county,  provided  the  company  establish  a 
depot"  at  a  certain  place,  the  condition  to  erect  a  depot  was  held  not 
a  condition  precedent.167 

§  121.  Subscriptions  conditioned  upon  location  or  construction  of 
the  road. — A  subscription  conditioned  upon  the  location  of  the  rail- 
road through  a  certain  town  becomes  absolute  when  such  location  is 
permanently  made,  although  the  road  has  not  been  constructed.168 
So,  where  the  subscription  was  payable  at  such  times  and  in  such 
instalments  as  the  directors  should  prescribe,  provided  the  road  should 
be  "permanently  located"  on  a  certain  route,  and  a  "freight  house  and 
depot  be  built"  at  a  certain  point,  the  provision  that  the  buildings  be 
erected  was  held  to  be  a  stipulation  merely,  and  not  a  condition  prece- 
dent, to  be  performed  before  the  subscription  could  be  collected.169 
And  so  a  stipulation  that  the  road  should  be  operated  independently 
of  an  existing  railroad  was  held  to  relate  to  what  should  be  done  after 
payment  was  made  and  the  road  was  completed.170  Where  the  sub- 
scribers promised  to  pay  the  sums  set  opposite  their  names,  in  equal 
instalments  at  six,  twelve  and  eighteen  months  from  a  certain  date, 
to  be  used  only  toward  paying  the  damages  and  costs  in  acquiring  the 
right  of  way,  if  the  plaintiff's  railroad  should  be  permanently  located 
and  constructed  through  Lexington,  it  was  held  that  the  construction 
of  the  road  was  not  a  condition  precedent.171  It  is  generally  held,  in 


court,  by  Bleckly,  C.  J.,  says.  "There 
was  no  stipulation  that  the  privi- 
lege of  entering  Atlanta  was  to  be 
secured  before  the  notes  became  pay- 
able. The  clause  relating  to  that 
privilege  was  introduced  to  describe 
the  railroad  as  it  was  to  be  ulti- 
mately, not  as  it  was  to  be  at  the 
maturity  and  payment  of  the  sub- 
scriptions to  the  capital  stock." 

167Paducah,  &c.  R.  Co.  v.  Parks, 
86  Tenn.  554,  8  S.  W.  842;  Williams 
v.  Fort  Worth,  &c.  R.  Co.  82  Tex. 
553,  18  S.  W.  206. 

168  Smith  v.  Allison,  23  Ind.  366; 
McMillan  v.  Maysville,  &c.  R.  Co. 
15  B.  Mon.  (Ky.)  218,  61  Am.  Dec. 
181;  Wemple  v.  St.  Louis,  &c.  R. 


Co.  120  111.  196,  11  N.  E.  906;  Swart- 
out  v.  Michigan  Air  Line  R.  Co. 
24  Mich.  389;  North  Missouri,  &c. 
R.  Co.  v.  Winkler,  29  Mo.  318;  Mil- 
ler v.  Pittsburgh,  &c.  R.  Co.  40  Pa. 
St.  237,  80  Am.  Dec.  570  (where 
subscription  said  "located  and  con- 
structed") ;  Berryman  v.  Cincinnati 
Southern  R.  14  Bush  (Ky.)  755 
(same  as  last  case). 

169  Chamberlain  v.  Painesville,  &c. 
R.  Co.  15  Ohio  St.  225;   Ashtabula, 
&c.   R.    CO.    v.    Smith,   15   Ohio    St. 
328.     See,    also,    Pittsburg,    &c.    R. 
Co.  v.  Biggar,  34  Pa.  St.  455. 

170  Johnson  v.  Georgia  Midland,  &c. 
R.  Co.  81  Ga.  725,  8  S.  E.  531. 

171  Berryman  v.  Cincinnati,  &c.  R. 


199  LOCATION  OR  CONSTRUCTION  OF  ROAD.         [§  121 

accordance  with  the  authorities  already  cited,  that  a  subscription, 
made  upon  the  express  condition  that  the  company  shall  locate  and 
construct  its  railroad  to  a  certain  point,  becomes  payable  at  the  time 
or  times  mentioned  in  the  contract  of  subscription,  if  the  railroad 
shall  have  been  located  at  that  point,  and  that  the  construction  of  the 
road,  unless  expressly  made  so,  is  not  a  condition  precedent  to  the 
payment  of  the  subscription.172  Where  the  subscription  is  made  upon 
condition  that  the  road  be  "built"  to  a  certain  point,  the  money  is 
payable  upon  call  when  the  road  is  permanently  located,  in  good 
faith,  upon  the  designated  route.173  And  the  same  rule  applies  where 
the  condition  is  that  the  railway  shall  "pass"  through  a  certain  coun- 
try.174 Payment  of  such  a  subscription  may  be  enforced,  it  seems, 
although  work  upon  the  road  has  been  suspended  from  lack  of  means 
to  prosecute  it.  To  permit  the  subscriber  to  set  up  such  a  suspension 
as  a  defense  in  a  suit  to  collect  the  subscription  would  be  to  permit  him 
to  take  advantage  of  his  own  wrong  and  bad  faith  in  refusing  to  pay 
what  he  agreed  to  pay  at  a  time  fixed  in  order  that  the  company  might 
have  means  with  which  to  build  the  road.175  It  is  now  established  by 
the  decided  weight  of  authority  that  stock  may  be  subscribed  or  money 
donated  to  a  railroad  company  upon  condition  that  it  will  locate  or 
build  its  road  upon  a  specified  route  not  inconsistent  with  its  charter, 
and  which  does  not  plainly  conflict  with  the  interests  of  the  public; 
and  that  any  such  agreement  to  take  stock  or  to  pay  money  will  be- 
come binding  when  the  road  is  so  located.176  But  where  a  citizen  and 

Co.  14  Bush  (Ky.)  755.  But  see  Bur-  225;  North  Missouri  R.  Co.  v.  Wink- 

lington,  &c.  R.   Co.  v.   Boestler,  15  ler,  29  Mo.  318. 

Iowa  555.  175  Miller  v.  Pittsburgh,  &c.  R.  Co. 

172  Miller  v.  Pittsburgh,  &c.  R.  Co.  40  Pa.  St.  237,  80  Am.  Dec.  570. 

40  Pa.   237,   80  Am.   Dec.   570;    Me-  1T8  Jewett   v.    Lawrenceburgh,    &c. 

Millan  v.  Maysville,  &c.  R.  Co.  15  B.  R.  Co.  10  Ind.  539;  Missouri  Pacific 

Mon.  (Ky.)   218,  61  Am.  Dec.  181.  R.  Co.  v.  Taggard,  84  Mo.  263,  54 

173  Warner  v.   Callender,   20   Ohio  Am.  R.  97;  Tygard  v.  Western  Md. 
St.  190;    Swartout  v.  Michigan  Air  R.    Co.    24    Md.    563,    89    Am.    Dec. 
Line   R.   Co.    24   Mich.   389;    Woon-  760;  Connecticut,  &c.  R.  Co.  v.  Bax- 
socket  Union  R.  Co.  v.  Sherman,  8  ter,  32  Vt.  805;  Cumberland  Valley 
R.   I.   564.    In  this  latter  case  the  R.  Co.  v.  Baab,  9  Watts  (Pa.)   458; 
subscription    was    payable    "if    the  Mansfield,  &c.  R.  Co.  v.  Brown,  26 
road  is  built"  through  a  certain  vil-  Ohio   St.   223;    Des  Moines,   &c.   R. 
lage.     See,    also,    Hunt    v.    Upton  Co.  v.  Graff,  27  Iowa  99,  1  Am.  R. 
(Wash.),  87  Pac.  56.  256;  Nashville,  &c.  R.  Co.  v.  Jones, 

174  Ashtabula,  &c.  R.  Co.  v.  Smith,  2    Cold.    (Tenn.)    574;    Burlington, 
15    Ohio    St.    328;    Chamberlain    v.  &c.  R.  Co.  v.  Boestler,  15  Iowa  555; 
Painesville,  &c.  R.  Co.  15  Ohio  St.  Swartout  v.  Michigan,  &c.  R.  Co.  24 


SUBSCRIPTIONS. 


200 


business  man  of  a  town  made  a  subscription  on  condition  that  the 
company  would  construct  and  operate  its  road  through  or  into  the 
town,  it  was  held  that  this  had  reference  to  the  limits  of  the  town  as 
they  existed  at  the  time,  and  that  the  construction  of  the  road  into 
territory  afterwards  annexed  to  the  town  was  not  a  compliance  there- 
with.1763 


Mich.  389;  Paris,  &c.  R.  Co.  v.  Hen- 
derson, 89  111.  89;  Martin  v.  Pensa- 
cola,  &c.  R.  Co.  8  Fla.  370,  78  Am. 
Dec.  713;  Bucksport,  &c.  R.  Co.  v. 
Brewer,  67  Me.  295;  Agricultural, 
&c.  R.  Co.  v.  Winchester,  13  Allen 
(Mass.)  29;  Charlotte,  &c.  R.  Co.  v. 
Blakeley,  3  Strobh.  (S.  C.)  245; 
Woonsocket,  &c.  R.  Co.  v.  Sherman, 
8  R.  I.  564;  Buffalo,  &c.  R.  Co.  v. 
Pottle,  23  Barb.  (N.  Y.)  21;  McMil- 
lan v.  Maysville,  &c.  R.  Co.  15  B. 
Mon.  (Ky.)  218,  61  Am.  Dec.  181; 
Racine  Co.  Bank  v.  Ayres,  12  Wis. 
512;  Rose  v.  San  Antonio,  &c.  R. 
Co.  31  Tex.  49;  Moore  v.  Hanover 
Junction  R.  Co.  94  Pa.  St.  324; 
Cedar  Rapids,  &c.  R.  Co.  v.  Spafford, 
41  Iowa  292;  Cayuga  Lake,  &c.  R. 
Co.  v.  Kyle,  5  T.  &  C.  (N.  Y.)  659. 
Post,  §§  362,  363.  But  see  Pacific  R. 
Co.  v.  Seely,  45  Mo.  212,  100  Am. 
Dec.  369;  Woodstock  Iron  Co.  v. 
Richmond,  &c.  Extension  Co.  129  TJ. 
S.  643,  9  Sup.  Ct.  402;  Florida,  &c. 
R.  Co.  v.  State,  31  Fla.  482,  13  So. 
103,  34  Am.  St.  30;  St.  Louis,  &c. 
R.  Co.  v.  Mathers,  104  111.  257;  St. 
Joseph,  &c.  R.  Co.  v.  Ryan,  11  Kans. 
602,  15  Am.  R.  357.  An  agreement 
to  pay  a  stated  sum  to  secure  the 
location  of  a  railroad  upon  a  speci- 
fied route  was  upheld  and  enforced 
on  the  ground  that  the  public  inter- 
est was  not  opposed  to  the  location 
required  by  the  condition,  in  First 
National  Bank  v.  Hendre,  49  Iowa 
402,  31  Am.  R.  153.  A  condition  in- 
volving the  location  of  the  proposed 
route  of  a  turnpike  company's  road 


has  been  held  void  in  New  York  as 
an  attempt  to  influence  by  improper 
means  the  decision  of  a  question  in 
which  public  interests  are  involved, 
and  therefore  against  public  policy. 
Butternuts,  &c.  T.  Co.  v.  North,  1 
Hill  (N.  Y.)  518;  Fort  Edwards,  &c. 
Co.  v.  Payne,  15  N.  Y.  583;  Mace- 
don,  &c.  Plank  R.  Co.  v.  Snediker, 
18  Barb.  (N.  Y.)  317.  See  to  the 
same  effect  as  to  railroads,  Utica, 
&c.  R.  Co.  v.  Brinckerhoff,  21  Wend. 
(N.  Y.)  139,  34  Am.  Dec.  220.  But 
see  later  New  York  cases  cited, 
supra. 

178aSt.  Louis,  &c.  R.  Co.  v.  Houck 
(Mo.  App.),  97  S.  W.  963.  The  court 
also  held  that  the  construction  of  a 
new  line  from  the  point  named  to 
a  point  where  it  connected  with  an 
old  line  extending  into  the  town 
would  be  sufficient,  but  that  where 
it  was  also  a  condition  to  the  pay- 
ment of  the  subscription  that  the 
railroad  company  "shall  have  con- 
structed and  begun  the  operation" 
of  a  road  through  or  into  a  certain 
town,  and  "shall  have  caused"  a 
certain  trust  company  "to  execute 
in  favor  of  the  undersigned  a 
bond"  in  a  certain  sum,  conditioned 
that  the  line  would  be  maintained 
and  operated  for  the  period  of  five 
years,  it  was  understood  that  the 
operation  of  the  road  should  be  be- 
gun in  good  faith  and  with  the  in- 
tention of  continuing  to  run  trains 
for  five  years,  and  an  operation  de- 
signed to  be  temporary,  either  in 
order  to  conform  to  the  words  of 


201     EFFECT   OF   ALTERATION   IN   ROUTE   FIXED  BY    CHARTER.      [§    120 

§  122.  Effect  of  alteration  in  route  fixed  by  charter. — Generally, 
if  a  subscription  be  made  to  a  railroad,  whose  route  is  fixed  by  its 
charter,  any  material  alterations  in  such  route,  made  without  his  con- 
sent, will  release  the  subscriber  from  liability.177  In  a  Georgia  case 
where  the  southern  terminus  was  changed  by  act  of  the  legislature, 
passed  upon  application  of  the  corporation,  from  Hawkinsville  to 
Thomasville,  and  the  authorized  capital  was  greatly  increased,  the 
court  held  that  a  dissenting  subscriber  was  released  by  such  altera- 
tions, although,  when  he  subscribed,  the  general  law  under  which  the 
first  charter  was  obtained  authorized  amendments  to  be  made  to  the 
charter,  the  route  to  be  changed,  and  the  capital  stock  to  be  in- 
creased.178 The  same  is  true  if  the  subscription  paper  specifies  the 
route  and  termini,  and  material  alterations  are  made  in  them  after  it 
is  signed ;  and  passing  a  resolution  to  make  such  a  change  will  be  evi- 
dence of  an  abandonment  of  the  route  as  originally  contemplated.179' 
Where  a  subscription  is  made  upon  a  condition  as  to  location,  the 
subscriber  may  show  that  the  alterations  made,  though  very  slight, 
are  material  alterations  as  to  him.  Thus,  where  the  road  is  con- 
structed 1,200  feet  from  the  subscriber's  mill,  instead  of  500  feet,  as 
required  by  the  condition  annexed  to  the  subscription,  it  has  been  held 
that  the  subscriber  may  show  that  his  interests  are  so  injuriously  af- 
fected by  the  change  that  he  would  have  no  inducement  to  subscribe 
stock  in  a  road  on  the  new  location.180  And  building  a  railroad  twenty- 
four  hundred  feet  from  a  certain  point,  with  a  branch  passing  over 
the  route  mentioned  in  the  condition,  will  not  fulfill  a  requirement 
that  the  road  shall  be  built  within  twelve  hundred  feet  of  the  desig- 
nated point.181  But  a  condition  that  the  road  should  be  constructed 
from  Stockton  up  the  valley  of  the  San  Joaquin  river,  in  the  direction 
of  another  town  lying  to  the  south,  was  held  to  be  substantially 
complied  with  by  the  construction  of  the  road  toward  the  east  across 

the  subscription,  or  as  a  makeshift,  1TS  Snook  v.  Georgia  Imp.  Co.  83 

until  a  depot  was  built  outside  of  Ga.  61. 

the  town  named,  to  be  stopped  as  "9  Caley    v.    Philadelphia,    &c.    R. 

soon  as  the  new  depot  was  finished  Co.  80  Pa.  St.  363.    See,  also,  Bur- 

and   the   mere   running   of   a   local  lington,  &c.  R.  Co.  v.  Whitney,  43 

train  to  and  from  the  depot  for  con-  ,Iowa  113;   Plattville  v.  Galena,  &c. 

venience  of  the  train  crew,  was  not  R.    Co.    43    Wis.    493;    Burrows    v. 

sufficient.  Smith,  10  N.  Y.  550. 

177  Caley  v.  Philadelphia,  &c.  R.  Co.  18°  Caley   v.    Philadelphia,    &c.    R. 

80  Pa.  St.  363;  Buckfield,  &c.  R.  Co.  Co.  80  Pa.  St.  363. 

v.  Irish,  39  Me.  44 ;  Danbury,  &c.  R.  1S1  Virginia   &   Truckee   R.    Co.   v. 

Co.  v.  Wilson,  22  Conn.  435.  Commissioners,  6  Nev.  68. 


§  123]  SUBSCRIPTIONS.  202 

the  valley  for  the  first  few  miles,  and  then  up  the  valley  toward  the 
town  named.182  Where  the  charter  empowers  the  corporation  to 
change  its  route  or  termini,  a  subscription  must,  however,  as  a  gen- 
eral rule,  expressly  make  the  construction  of  the  road  to  a  given 
point  operate  as  a  condition  precedent  or  the  subscription  will  be  con- 
strued to  be  absolute  and  such  changes  as  are  deemed  necessary  may 
be  made  without  affecting  the  subscriber's  liability.183  The  same  rule 
applies  to  a  note  given  for  donated  aid,  even  where  an  improper  mo- 
tive prompted  the  change,  if  it  was  legally  made.184 

§  123.  Effect  of  abandonment  or  sale  of  road. — The  fact  that  the 
corporation  has  abandoned  a  part  of  its  road,185  or  has  not  completed, 
and  apparently  has  no  intention  of  completing  it,186  is  no  defense  to 
an  action  for  the  payment  of  a  subscription,  unless  the  completion  of 
the  road  is  clearly  made  a  condition  precedent.  Neither,  it  has  been 
held,  is  the  sale  of  a  portion  of  the  road  under  authority  of  a  stat- 
ute,187 which  provides  that  any  dissenting  stockholder  may  exchange 
his  shares  for  shares  in  the  purchasing  company.188  In  Indiana  it  is 
provided  by  statute,189  that  in  case  of  a  sale  of  any  railroad  by  virtue 
of  any  mortgage  foreclosure,  and  the  formation  by  the  purchasers  of 
a  new  corporation  to  operate  the  road,  all  subscribers  to  the  original 
stock  of  said  railroad  company  shall  be  released  and  discharged  from 
all  their  unpaid  subscriptions.  "Kecognizing  the  fact  that  stock  in 
an  insolvent  railway  company,  the  property  of  which  has  been  sold  in 
a  foreclosure  or  other  judicial  proceeding,  is  worthless,  this  statute 
was  intended  to  protect  subscribers  by  cancelling  all  obligations  to 

182  Stockton,  &c.  R.  Co.  v.  Stockton,  18  Ohio  St.  208 ;  Dorman  v.  Jackson- 
51  Cal.  328.  ville,  &c.  Co.  7  Fla.  265.    But  total 

183  Jewett  v.  Valley  R.  Co.  34  Ohio  abandonment  causing  a  loss  of  the 
St.  601;  Armstrong  v.  Karshner,  47  charter  or  the  like  may  be.    Sodus 
Ohio  St.  276.  Bay,  &c.  R.  Co.  v.  Lapham,  43  Hun 

184 Greenville,  &c.  R.  Co.  v.  John-  (N.  Y.)   314;   Pittsburg,  &c.  R.  Co. 

son,  8  Baxter  (Tenn.)  332.  v.  Byers,  32  Pa.  St.  22,  72  Am.  Dec. 

185  Armstrong  v.  Karshner,  47  Ohio  770;    McCully   v.   Pittsburg,   &c.   R. 

St.  276;  Dorman  v.  Jacksonville,  &c.  Co.  32  Pa.  St.  25;  Fountain  Ferry, 

R.  Co.  7  Fla.  265;  Ogden  v.  Kirby,  &c.  Co.  vf  Jewell,  8  B.  Mon.   (Ky.) 

79   111.   555.    See,  also,  McMillan  v.  147. 

Maysville,   &c.   R.    Co.    15    B.   Mon.  18TRev.  Stat.  Ohio,  §  3409. 

(Ky.)  218,  61  Am.  Dec.  181.  1M  Armstrong  v.  Karshner,  47  Ohio 

188  Buffalo,  &c.  R.  Co.  v.  Gifford.  87  St.  276,  24  N.  E.  897. 

N.  Y.   294,  22  Hun  359.    See,  also,  ^Rev.  Stat.  Ind.,  §  3947. 
Four  Mile  Valley  R.  Co.  v.  Bailey, 


203  CONDITION   AS   TO  TERMINUS.  [§    124 

pay  unpaid  subscriptions  to  such  stock  in  all  cases  where  there  shall 
not  have  been  an  adjustment  by  agreement  or  compromise.  In  other 
words,  the  statute  was  intended  to  enact  into  a  law  the  rule  of  fair 
dealing,  that  no  one  should  be  required  to  pay  something  for  noth- 
ing."190 

§  124.  Condition  as  to  terminus — Question  of  intention  for  jury. — 
Where  a  condition  requires  the  road  to  run  to  a  certain  named  place, 
and  there  are  both  a  township  and  a  village  of  that  name,  it  is  a  ques- 
tion of  intention  as  to  which  is  meant.  And  this  is  true  though  the  vil- 
lage is  not  incorporated,  if  it  is  commonly  designated  by  that  name.191 
The  question  as  to  which  is  meant  in  such  a  case  is  to  be  determined 
by  the  jury  upon  evidence  offered,  like  any  other  question  of  fact.192 

§  125.  What  is  sufficient  compliance  with  condition  as  to  terminus 
or  location  of  depot  at  a  certain  place — Illustrative  cases. — Where 
subscriptions  to  the  capital  stock  of  a  railroad  company  were  to  be 
paid  when  the  road  "is  completed  and  cars  running  from  T.  to  M.," 
it  was  held  that  payment  could  not  be  enforced  when  the  road  had  been 
built  to  a  point  nine  hundred  and  fifty  feet  from  the  limits  of  T. 
and  in  another  county,  at  which  place  its  terminal  facilities  were  lo- 
cated. The  fact  that  the  company  had  built  a  track  leading  from  its 
main  line  into  the  town  of  T.,  where  it  had  built  a  platform  and 
transacted  some  business,  did  not,  it  was  held,  constitute  a  compli- 
ance with  the  condition  of  the  subscription,  where  it  was  shown  that 
such  track  was  built  upon  ground  leased  for  one  year,  and  the  plain- 
tiff's president  had  stated  that  it  was  not  intended  to  be  permanent. 
Such  a  condition  in  a  subscription  to  the  capital  stock  of  a  railroad 
company  chartered  to  build  a  railroad  from  one  town  to  another, 
requires  that  the  principal  business  at  the  latter  should  be  transacted 
at  a  point  within  its  corporate  limits.193  Where  the  subscription  is 
made  upon  condition  that  a  depot  be  established  within  a  certain  dis- 
tance of  a  town,  the  distance  may  be  measured  in  a  straight  line  from 
the  corporate  limits  without  regard  to  buildings  or  improvements,194 
or  from  the  recorded  plat,  as  it  was  at  the  time  the  subscription  was 

190  Zollars,  J.,  in  Board,  &c.  v.  "193  Tabor,  &c.  R.  Co.  v.  McCormick, 

State,  115  Ind.  64,  88,  4  N.  E.  589,  90  Iowa  446,  57  N.  W.  949.  See,  also, 

17  N.  E.  855.  St.  Louis,  &c.  R.  Co.  v.  Houck  (Mo. 

'  mOgden  v.  Kirby,  79  111.  555.  App.),  97  S.  W.  963. 

198  Connecticut,  &c.  R.  Co.  v.  Box-  m  Courtright  v.  Strickler,  37  Iowa 

ter,  32  Vt.  805.  382. 


§    126]  SUBSCRIPTIONS.  204 

made,  and  is  not  affected  by  a  subsequent  annexation  of  adjoining 
territory.195  The  measurement  of  distance  is  not  controlled  by  the 
traveled  route  between  the  two  points.198  The  location  of  the  depot 
at  the  designated  point,  fulfills  the  condition,  although  the  side-tracks 
and  switches  are  placed  at  a  greater  distance  away  from  the  town.197 
A  subscription  made  on  condition  that  the  depot  shall  be  located  at 
the  nearest  practicable  point  within  one  mile  of  the  courthouse,  is 
not  violated  by  a  failure  to  locate  it  at  the  nearest  possible  point ;  but 
the  company  has  fulfilled  the  condition  when  it  has  built  a  depot  at 
the  nearest  point  within  one  mile  of  the  courthouse  at  which  it  could 
be  located  at  a  reasonable  cost,  with  reference  to  all  the  circumstances 
under  which  it  was  to  be  done.198  An  agreement  to  subscribe  a  certain 
amount  of  stock  upon  condition  that  the  railroad  company  shall  locate 
a  depot  at  a  certain  point  is  held  to  become  an  absolute  subscription, 
of  which  payment  may  be  enforced  according  to  its  terms  upon  the 
location  of  the  depot.199  Where  the  condition  is  that  the  road  shall 
be  "permanently  located  to  and  within  the  town  of  W.,  with  a  station 
at  the  same,"  the  condition  is  not  fulfilled  by  the  construction  of  the 
road  through  the  town  with  a  depot  just  outside  its  limits.200 

§  126.  General  rule  of  construction — Performance  of  condition  by 
consolidated  company. — Generally,  where  it  can  be  done  without  doing 
violence  to  the  language  used,  any  conditions  imposed  will  be  given 
such  a  construction  as  will  further  the  enterprise.  And  a  condition 
relating  to  the  construction  of  the  road  may  be  so  far  complied  with 
by  another  company  which  builds  it,  as  to  hold  the  subscriber;201  for 

195  Davenport,  &c.  R.  Co.  v.  Rogers,  Gamble,  46  Iowa  615;  Muscatine,  &c. 

39  Iowa  298.  R.  Co.  v.  Horton,  38  Iowa  33;  Mun- 

198  Cedar  Falls,  &c.  R.  Co.  v.  Rich.,  roe  v.   Fort  Wayne,  &c.   R.   Co.    28 
33  Iowa  113.  Mich.  272.   The  purchaser  of  a  rail- 

197  Courtright  v.  Strickler,  37  Iowa  road,  under  a  decree  of  foreclosure, 

382.  after  one  installment  on  a  township 

198Wooters  v.  International  R.  Co.  subscription  to  the  railroad  has 

54  Tex.  294.  been  paid,  acquires  no  interest  in 

199  North  Missouri  R.  Co.  v.  Miller,  the   money  subscribed  to  the  orig- 
31  Mo.  19.  inal    company.     Board    of    Commis- 

200  Davenport,  &c.  R.  Co.  v.  O'Con-  sioners    v.    State,    115    Ind.    64.     A 
ner,    40    Iowa    477.     See,    also,    St.  promise    to    pay    money    upon    the 
Louis,    &c.   R.    Co.   v.    Houck    (Mo.  completion   of  a  railroad   described 
App.),  97  S.  W.  963.  in  the  contract  as  the  Delphos,  Bluff- 

201  Michigan,  &c.  R.  Co.  v.  Bacon,  ton    and    Frankfort    Railroad    can 
33   Mich.  466.    See,  also,  Merrill  v.  only   be   enforced   by   the  promisee 


205 


GENERAL  RULE   OF   CONSTRUCTION. 


[§ 


it  is  usually  of  no  importance  to  the  subscriber  who  builds  the  road, 
if  it  is  built  in  pursuance  of  the  plan  existing  when  the  subscription 
was  made.  But  the  subscriber  can,  of  course,  limit  his  subscription 
to  a  single  company,  by  express  stipulation.  And  the  consolidation 
of  the  railroad  company  with  another  made  after  the  subscription, 
but  before  the  stock  was  issued  under  a  power  existing  when  the  sub- 
scription was  made,  has  been  Jield  not  to  release  a  town  from  liability 
upon  bonds  issued  in  payment  of  such  a  subscription.202  The  liability 
upon  such  a  subscription  cannot  be  denied  where  the  municipality  took 
an  active  part  in  bringing  about  the  consolidation.203  But  where  the 
consolidated  company  has  a  longer  route  and  different  termini  than 
the  company  to  which  the  subscription  was  made,  and  the  consolidation 
is  entered  into  without  the  consent  of  the  subscriber,  it  has  been  held 
that  the  subscription  cannot  be  enforced.204  Such  contracts  are  in- 
terpreted by  the  same  rules  as  other  contracts,  with  reference  to  the 
true  intent  and  meaning  of  the  parties ;  and  in  order  to  ascertain  such 


upon  proof  that  the  railroad  named 
has  been  completed,  and  it  will  not 
be  sufficient  to  entitle  the  promisee 
to  a  recovery  to  prove  that  a  rail- 
road has  been  built,  for  it  must  be 
shown  that  the  railroad  described 
has  been  built.  Low  v.  Studabaker, 
110  Ind.  57. 

202Menasha  v.  Hazard,  102  U.  S. 
81;  Mt.  Vernon  v.  Hovey,  52  Ind. 
563.  The  subscription  of  a  county 
to  bonds  in  aid  of  a  railroad  is 
not  annulled  by  consolidation  of 
such  railroad  company  with  another, 
under  a  law  providing  that  the  rail- 
road company  might  consolidate 
with  other  companies  with  the  ap- 
proval of  two-thirds  of  the  stock 
held  in  each  company.  Chicago,  &c. 
R.  Co.  v.  Board,  &c.  36  Kans.  121, 
12  Pac.  593. 

203  County  of  Tipton  v.  Locomotive 
Works,  103  U.  S.  523.  A  township 
in  Missouri  voted  bonds  in  aid  of 
the  C.  &  O.  R.  Co.,  whose  road  was 
not  then  built,  and  whose  articles 
of  association  declared  that  its  ob- 
ject was  to  construct  and  operate  a 


railroad  from  C.  to  such  point  on 
the  line  between  Missouri  and  Iowa 
as  should  be  deemed  the  best  route 
for  operating  a  road  between  C.  and 
Omaha,  Neb.  Before  the  bonds  were 
issued,  the  C.  &  O.  consolidated  with 
an  Iowa  company,  and  the  consoli- 
dated company  proceeded  to  con- 
struct and  operate  a  road  from  St. 
Louis,  by  way  of  C.,  to  Council 
Bluffs,  Iowa,  and  Omaha,  and  the 
bonds  were  issued  to  the  consoli- 
dated company.  The  court  held  that 
as  consolidation  was  necessary,  in 
order  to  carry  out  the  purpose  for 
which  the  C.  &  O.  Co.  was  organ- 
ized, the  existing  statutory  provi- 
sion therefor  became  a  part  of  the 
contract  with  the  township,  and  the 
issuance  of  bonds  to  the  consoli- 
dated company  was  valid.  Livings- 
ton County  v.  First  Nat.  Bank,  128 
U,  S.  102,  9  Sup.  Ct.  18. 

Z<H  Rochester,  &c.  R.  Co.  v.  Cuyler, 
7  Lans.  (N.  Y.)  431.  See,  also, 
Marsh  v.  Fulton  County,  10  'Wall. 
(U.  S.)  676. 


§    127]  SUBSCRIPTIONS.  206 

intent  and  meaning,  the  circumstances  under  which  the  agreement 
was  made  may  be  shown.205  The  condition,  to  be  valid,  must  be  ex- 
pressed in  the  subscription.  Secret  agreements  between  the  subscriber 
and  the  officers  of  the  company  afford  no  protection  to  the  subscriber, 
but  the  subscription  will  usually  be  enforced  as  an  absolute  one.206 

§  127.    Fraudulent  representations  in  obtaining  subscriptions. — A 

subscription  to  capital  stock  is  understood  to  be  made  upon  the  implied 
condition  that  the  representations  of  the  company  or  its  officers  and 
authorized  agents  and  promoters  as  to  the  financial  condition  of 
the  enterprise,  the  amount  and  kind  of  property  which  it  owns,  or 
any  other  existing  facts  that  would  influence  subscriptions,  upon  the 
faith  of  which  such  subscription  is  made,  shall  be  true  and  made  in 
good  faith.207  And  not  only  is  this  true,  but  where  statements  are 
made  to  induce  subscriptions  there  must  be  a  full  and  fair  statement 
of  all  material  facts,  which  it  is  the  duty  of  the  corporation  or  its 
agents  to  disclose.  A  suppression  of  part  of  the  truth  will  often 
amount  to  a  misrepresentation.208  But  representations,  in  order  to 
be  so  far  binding  upon  the  corporation  as  to  avoid  the  subscription 
in  case  they  prove  to  be  false,  must  generally  relate  to  some  fact 

206  Detroit,  &c,  R.  Co.  v.  Starnes,  208New  Brunswick,  &c.  R.  Co.  v. 

38  Mich.   698.    See,   also,   State   v.  Muggeridge,  1  Dr.  &  Sm.  363,  381; 
Old   Town   Bridge   Co.    85   Me.   17,  Directors,  &c.  R.  Co.  v.  Kisch,  L.  R. 
26  Atl.  947;  Rogers  v.  Galloway,  &c.  2  H.  L.  Cas.  99;  Oakes  v.  Turquand, 
College,  64  Ark.  627,  44  S.  W.  454,  L.  R.  2  H.  L.  Cas.  325,  2  Pom.  Eq. 

39  L.  R.  A.  636.  Jur.  §§  901,  902.  Where  the  prospec- 
508  York  Park,  &c.  Assn.  v.  Barnes,    tus  set  forth  the  ownership  by  the 

39  Neb.   834,  58  N.  W.  440;    Great  corporation  of  a  piece  of  property 

Western  Tel.  Co.  v.  Haight,  49  111.  claimed  to  be  of  great  ralue,  the 

App.  633;  Downie  v.  White,  12  Wis.  omission  to  state  that  a  very  large 

176,  78  Am.  Dec.  731;   Robinson  v.  sum  of  money  was  paid  for  it  was 

Pittsburgh,  &c.  R.   Co.   32   Pa.   St.  held  to  be  a  fraudulent  suppression 

334,  72  Am.  Dec.  792;  Madison,  &c.  of   facts.    Directors,  &c.   v.   Kisch, 

R.  Co.  v.  Stevens,  6  Ind.  379;  Cun-  L.  R.  2  H.  L.  Cas.  99.   An  omission 

ningham  v.  Edgefield,  &c.  R.  Co.  2  to  state  in  a  prospectus  how  many 

Head   (Tenn.)   23;  Minneapolis,  &c.  shares  have  been  taken  by  the  direc- 

Co.  v.  Davis,  40  Minn.  110,  12  Am.  tors  is  not.   Directors,  &c.  v.  Kisch, 

St.  701.    See  article  in  28  Am.  Law  L.  R.  2  H.  L.  Cas.  99;  Atlanta,  &c. 

Reg.    (N.   S.)    306;    also  Oswald  v.  R.  Co.  v.  Hodnett,  36  Ga.  669;  Puls- 

Minneapolis,  &c.  Co.  65  Minn.   249,  ford   v.   Richards,   17   Beav.    87,   17 

68  N.  W.  15.  Jur.  865 ;  Heymann  v.  European,  Ac. 

207 1  Cook  Stock  and  Stockholders,  R.  Co.  L.  R.  7  Eq.  154. 
Ch.  9. 


207 


FRAUDULENT    REPRESENTATIONS. 


[§  127 


existing  either  in  the  past  or  present  time  which  has  an  influence  upon 
the  status  of  the  corporation.209  And  it  must  appear  that  the  repre- 
sentations were  relied  upon  as  true  by  the  subscriber,  and  formed  an 
inducement  to  make  the  subscription.210  Any  representations  as  to 


209  Edgington  v.  Fitzmaurice,  L.  R. 
29  Ch.  Div.  459.  See,  generally,  Ala- 
bama, &c.  Works  v.  Dallas,  127  Ala. 
513,  29  So.  459;  Tyler  v.  Savage,  143 
U.  S.  79,  12  Sup.  Ct.  340.  A  person 
induced  to  give  a  note  for  subscrip- 
tion to  the  capital  stock  of  a  rail- 
road by  representations  that  only 
a  certain  amount  of  stock  would  be 
issued  when  there  had  already  been 
issued  a  larger  amount,  is  relieved 
from  his  subscription.  Weems  v. 
Georgia,  &c.  R.  Co.  84  Ga.  356,  11 
S.  E.  503.  So  is  one  who  is  induced 
to  subscribe  by  means  of  a  false 
statement  that  certain  stock  has 
been  subscribed.  Arnison  v.  Smith, 
59  L.  T.  R.  627;  Spellier,  &c.  Co.  v. 
Leedom,  149  Pa.  St.  185,  24  Atl.  197. 
Or  that  a  government  guaranty  has 
been  obtained.  Kisch  v.  Central  R., 
&c.  34  L.  J.  (Ch.)  545.  So,  a  false 
statement  by  an  officer  that  none  of 
the  stock  had  been  sold  for  less 
than  par  has  been  held  sufficient  to 
authorize  a  rescission.  Hubbard  v. 
International  Mercantile  Agency 
(N.  J.  Ch.),  59  Atl.  24.  So,  a  repre- 
sentation that  a  certain  promi- 
nent business  man  has  subscribed 
for  a  large  amount,  when  it  was 
given  to  him  without  the  payment 
of  any  purchase  price  therefor,  is 
sufficient  to  render  voidable  any 
subscription  induced  by  such  repre- 
sentations. Coles  v.  Kennedy,  81 
Iowa  360.  And  so  is  a  false  repre- 
sentation that  certain  property  has 
been  purchased  and  is  owned  by  the 
company,  and  that  the  company  is 
in  good  condition  and  is  earning  on 
the  completed  portion  of  the  road 
four  and  one-half  per  cent,  on  the 


entire  cost  of  the  road,  when  the 
agent  knew  that  the  company  was 
almost  bankrupt,  having  neither 
money  nor  credit,  and  that  its  stock 
was  almost  worthless.  Waldo  v. 
Chicago,  &c.  R.  Co.  14  Wis.  575. 

210  Authorities  cited  in  preceding 
note.  Jennings  v.  Broughton,  22  L. 
J.  (N.  S.)  Ch.  585;  Mitchell  v.  Deeds, 
49  111.  416,  95  Am.  Dec.  621;  Me- 
lendy  v.  Keen,  89  111.  395;  Oregon 
Central  R.  Co.  v.  Scoggin,  3  Ore. 
161;  Sinnett  v.  Moles,  38  Iowa  25; 
2  Pom.  Eq.  Jur.  §  890.  See  Crump 
v.  U.  S.  Mining  Co.  7  Gratt.  (Va.) 
352,  56  Am.  Dec.  116.  It  is  said  that 
the  misrepresentations  must  not 
only  be  made  without  an  honest  be- 
lief in  their  truth,  but  must  have 
been  intended  for  the  subscriber  to 
act  upon,  and  he  must  have  acted 
in  reliance  upon  them.  Woods'  Rail- 
way Law,  116.  But  the  authorities 
do  not  bear  out  this  rule  any  fur- 
ther than  that  the  subscriber  must 
have  been  so  far  influenced  by  the 
misrepresentations  as  to  material 
facts  concerning  the  enterprise  that 
it  would  operate  as  a  fraud  upon 
him  to  hold  him  to  a  contract  into 
which  he  would  not  knowingly  have 
entered,  although  there  are  many 
dicta  which  go  much  further.  In  an 
action  on  a  note  given  for  subscrip- 
tion to  the  stock  of  a  railroad,  de- 
fendant claimed  that  plaintiff  when 
soliciting  the  subscription  repre- 
sented that  the  road  would  be 
stocked  and  bonded  only  to  a  cer- 
tain amount  per  mile,  whereas  it 
was  stocked  and  bonded  to  a  much 
larger  amount  per  mile,  but  he  did 
not  testify  that  he  would  not  have 


§  127] 


SUBSCRIPTIONS. 


208 


the  future  policy  or  intentions  of  the  corporation211  or  any  parol 
promises  or  agreements  as  to  what  the  corporation  will  or  will  not 
do  cannot  be  interposed  as  a  defense  to  an  absolute  subscription,212 


subscribed  and  given  his  note  if  he 
had  known  how  much  stock  and 
bonds  had  been  or  would  be  issued, 
and  it  appeared  that  other  true  rep- 
resentations were  the  chief  induce- 
ment to  his  subscription.  He  was 
held  bound  by  his  subscription. 
Weems  v.  Georgia  Midland,  &c.  R. 
Co.  88  Ga.  303,  14  S.  E.  583. 

211  McAllister   v.   Indianapolis,   &c. 
R.  Co.  15  Ind.  11;   Topeka,  &c.  Co. 
v.  Hale,  39  Kans.  23,  17  Pac.  601; 
Jefferson    v.    Hewitt,    95    Cal.    535; 
Weston  v.  Columbus,  &c.  R.  Co.  90 
Ga.  289,  15  S.  E.  773;  Anderson  v. 
Middle,  &c.  R.  Co.  91  Tenn.  44,  52 
Am.  &  Eng.  R.  Gas.  149. 

212  White  Mts.  R.  Co.  v.  Eastman, 
34  N.  H.  124;  LaGrange,  &c.  Co.  v. 
Mays,  29  Mo.  64;  Clem  v.  Newcastle, 
&c.  R.  Co.  9  Ind.  488,  68  Am.  Dec. 
653;  Smith  v.  Tallassee  Branch,  &c. 
R.  Co.  30  Ala.  650;  East  Tennessee, 
&c.    R.    Co.    v.    Gammon,    5    Sneed 
(Tenn.)    567;    Grossman  v.  Penrose 
Ferry  Bridge  Co.  26  Pa.  St.  69 ;  Walk- 
er v.  Mobile,  &c.  R.  Co.  34  Miss.  245; 
Ogilvie  v.   Knox   Ins.   Co.   22   How. 
(U.    S.)    380;    Swatara    R.    Co.    v. 
Brune,  6  Gill.   (Md.)   41;   Jewett  v. 
Valley  R.  Co.  34  Ohio  St.  601;  Syra- 
cuse, &c.  R.  Co.  v.  Gere,  4  Hun  (N. 
Y.)    392;   Oregon  Central  R.  Co.  v. 
Scoggin,  3  Ore.  161;  Wight  v.  Shel- 
by R.   Co.  16  B.   Mon.    (Ky.)    4,  63 
Am.  Dec.  522;  Dill  v.  Wabash  Valley 
R.  Co.  21  111.  91;  Vicksburgh,  &c.  R. 
Co.   v.   McKean,   12   La.   Ann.    638; 
Milwaukee,  &c.  R.  Co.  v.  Field,  12 
Wis.  340;  N.  E.  R.  Co.  v.  Rodrigues, 
10  Rich.    (S.  C.)    278;   German  Na- 
tional Bank's  Receiver  v.  Nagel,  26 
Ky.  748,  82  S.  W.  433.    Proof  that 
the   execution   of  the   contract  was 


procured  by  false  and  fraudulent 
representations  by  the  company  that 
the  means  were  already  provided 
for  the  construction  of  the  road  be- 
tween two  points  within  the  time 
specified,  where  the  subscription 
was  made  upon  condition  that  an- 
other portion  of  the  road  should  be 
constructed  within  that  time  was 
held  insufficient  to  constitute  a  de- 
fense to  an  action  on  the  subscrip- 
tion. Blair  v.  Buttolph,  72  Iowa  31, 
33  N.  W.  349.  A  representation  that 
payment  will  not  be  demanded  until 
certain  work  is  completed  does  not 
bind  the  company.  LaGrange,  &c.  R. 
Co.  v.  Mays,  29  Mo.  64;  Clem  v.  New- 
castle, &c.  R.  Co.  9  Ind.  488,  68  Am. 
Dec.  653.  Nor  does  a  representation 
that  the  road  will  be  extended  to  a 
certain  point.  Low  v.  Studebaker, 
110  Ind.  57,  10  N.  E.  301.  Or  that 
a  branch  road  will  be  built.  McAl- 
lister v.  Indianapolis,  &c.  R.  Co.  15 
Ind.  11;  Guarantee,  &c.  Co.  v.  Weil, 
141  Pa.  St.  511,  21  Atl.  665.  But  it 
is  said  that  if  a  person  is  induced 
to  subscribe  for  stock  by  means  of 
an  agreement  made  by  an  officer  of 
the  corporation  within  the  scope  of 
his  authority,  the  subscriber  may, 
upon  a  failure  of  the  corporation  to 
perform  the  agreement,  cancel  his 
subscription  and  recover  back  the 
sums  paid  on  the  stock.  Weeden  v. 
Lake  Erie,  &c.  R.  Co.  14  Ohio  563; 
Grossman  v.  Penrose  Ferry  Bridge 
Co.  26  Pa.  St.  69.  The  fact  that  the 
subscription  was  made  in  reliance 
upon  the  statement  of  the  com- 
pany's agent  who  procured  the  sub- 
scription that  the  road  would  be 
economically  built,  and  that  the 
stock  would  prove  a  good  invest- 


209 


FRAUDULENT    REPRESENTATIONS. 


[§  127 


even  though  made  with  a  fraudulent  intent  by  the  company's  agents 
in  order  to  procure  the  subscription.  Nor  will  any  statement  as  to  the 
legal  effect  of  the  contract  of  subscription,  or  as  to  the  legal  rights 
and  liabilities  assumed,  prove  a  defense,  for  every  one  is  bound  to 
know  the  law.213  Statements  of  facts,  however,  need  not,  ordinarily, 
be  made  with  knowledge  of  their  falsity ;  for,  if  the  corporation  or  its 
agents  mislead  a  subscriber  by  statements  recklessly  made  in  ignorance 
of  the  truth,  it  may  not  take  advantage  of  the  acts  induced  by  its  own 
misstatements.214  Statements  which  amount  only  to  an  expression  of 
opinion,  if  honestly  made  without  intent  to  deceive,  or  if  made  in 
relation  to  matters  equally  open  to  the  knowledge  of  both  parties,  will 
not  amount  to  fraudulent  representations.215  Thus,  a  representation 
that  a  sufficient  amount  of  solvent  stock  was  subscribed  to  complete 
the  road  within  two  years,  and  that  the  company  was  able  and  would 
complete  it  within  that  time,  does  not  amount  to  a  fraudulent  repre- 
sentation even  though  untrue.216  Nor  would  a  satement  that  the  con- 
struction company,  which  had  undertaken  to  build  and  equip  the  road, 
was  able  to  complete  it  by  the  use  of  its  own  resources,  without  any 
advance  from  the  company.217  Eepresentations  made  by  an  agent  of 


ment,  is  no  defense  to  an  action  to 
enforce  payment.  Weston  v.  Colum- 
bus Southern  R.  Co.  90  Ga.  289,  15 
S.  B.  773. 

213  Clem  v.  Newcastle,  &c.  R.  Co.  9 
Ind.  488,  68  Am.  Dec.  653;   Parker 
v.  Thomas,  19  Ind.  213,  81  Am.  Dec. 
385  n;  Upton  v.  Tribilcock,  91  U.  S. 
45;    N.  E.  R.  Co.  v.  Rodrigues,  10 
Rich.   (S.  C.)   278;  Pom.  2  Eq.  Jur. 
§  877.    But  see  Upton  v.  Englehart, 
3  Dill.    (U.  S.)    496,  where  a  mis- 
representation as  to  the  legal  lia- 
bility of  the  stockholders  in  a  cor- 
poration organized  in  another  state 
was  held  to  be  a  defense. 

214  Henderson  v.   Railroad   Co.  17 
Tex.  560,  67  Am.  Dec.  675;    Reese 
River,  &c.  Co.  v.  Smith,  L.  R.  4  H. 
L.  64;  Edgington  v.  Fitzmaurice,  L. 
R.  29  Ch.  Div.  459;  2  Pom.  Eq.  Jur. 
§    887.     The    courts    incline    very 
strongly  to  uphold  subscriptions  to 
capital  stock,  and  many  cases  inti- 

ELL.  RAILBOADS — 14 


mate  that  the  person  making  the 
statement  must  have  had  a  fraudu- 
lent purpose,  or  such  knowledge  as 
would  impute  such  fraudulent  pur- 
pose to  him.  Nugent  v.  Cincinnati, 
&c.  R.  Co.  2  Disney  (Ohio)  302; 
Selma,  &c.  R.  Co.  v.  Anderson,  51 
Miss.  829;  Cunningham  v.  Edgefleld, 
&c.  R.  Co.  2  Head.  (Tenn.)  23. 

215  Montgomery,  &c.  R.  Co.  v.  Mat- 
thews, 77  Ala.  357,  54  Am.  R.  60; 
Walker  v.  Mobile  R.  Co.  34  Miss. 
245;  2  Pom.  Eq.  Jur.  §  878.  See, 
also,  German  Nat.  Bank's  Receiver 
v.  Nagel,  26  Ky.  748,  82  S.  W.  433; 
West.  Eng.  &c.  Co.  v.  Claiborne,  97 
Va.  734,  34  S.  E.  900. 

218  Brownlee  v.  Ohio,  &c.  R.  Co.  18 
Ind.  68;  Weston  v.  Columbus,  &c. 
R.  Co.  90  Ga.  289,  15  S.  E.  773.  See, 
also,  Johnson  v.  National,  &c.  Assn. 
125  Ala.  465,  28  So.  2. 

217  Andrews  v.  Ohio,  &c.  R.  Co.  14 
Ind.  169. 


§  128]  SUBSCRIPTIONS.  210 

a  railroad  company  in  reference  to  the  value  of  a  donation  of  land 
made  by  congress  to  the  company,  and  in  relation  to  the  amount  of 
assets  of  the  company,  and  its  ability  to  complete  the  road  within  a 
certain  time,  and  the  probable  cost  and  profits  of  the  road,  though 
false  and  exaggerated,  and  made  to  induce  persons  to  subscribe  for 
the  stock,  were  held  to  be  but  expressions  of  opinion,  and  not  to  amount 
to  fraudulent  representations.218  And  representations  that  the  road 
would  be  constructed  over  a  certain  route  within  a  certain  time,  al- 
though offered  as  an  inducement  to  subscribe  for  stock,  and  operating 
as  such,  have  been  held  to  be  no  defense  to  an  action  for  payment  of 
the  subscription.219  Where  the  directors,  in  good  faith  and  by  honest 
mistake  of  judgment,  added  to  the  assets  certain  debts  which  proved 
not  to  be  collectible,  and  thereby  showed  the  company  to  be  solvent, 
when  the  loss  of  the  money  represented  by  such  debts  threw  it  into 
insolvency,  it  was  held  not  a  fraudulent  misrepresentation.220  The 
same  holding  was  made  where  it  was  stated  in  good  faith  that  the 
corporation  had  a  valid  government  contract,  but,  upon  litigation, 
this  was  found  to  be  untrue.221  And  it  has  even  been  held  that  a  repre- 
sentation that  title  to  land  was  good  when  in  fact  it  was  bad,  if  made 
in  good  faith  with  an  honest  belief  that  it  is  true  is  not  a  fraudulent 
misrepresentation.222  The  mere  intent  on  the  part  of  the  company  to 
deceive  and  defraud  by  misrepresentations  is  immaterial  if  it  does 
not  cause  any  damage  to  the  subscriber.223  Eepresentations,  false  when 
made,  but  which  become  true  by  the  force  of  intervening  events  before 
the  subscription  is  completed,  cannot  afterward,  it  seems,  be  com- 
plained of  by  the  subscribers.224 

§  128.    Misrepresentations  in  prospectus  and  by  agents  generally. 

— The  fraudulent  representations  which  will  avoid  a  subscription  may 

218  Walker  v.  Mobile,  &c.  R.  Co.  34     Ellison  v.  Mobile,  &c.  R.  Co.  36  Miss. 
Miss.    245.     See,    also,    Union    Nat.     572. 

Bank  v.  Hunt,  76  Mo.  439.  22°  Jackson  v.  Turquand,  L.  R.  4  H. 

219  Montgomery,  &c.  R.  Co.  v.  Mat-    L.  305. 

thews,  77  Ala.   357,  54  Am.   R.   60.  221  Kennedy  v.  Panama,  &c.  Co.  L. 

The   court,   by    Stone,   C.   J.,   says:  R.  2  Q.  B.  580. 

"The    representations   set   forth    in  222  New  Brunswick,  &c.   R.   Co.  v. 

each    of    the    special    pleas   *    *    *  Conybeare,  9  H.  L.  Cas.  711. 

could  be  nothing  but  opinion.  These  223  Keller  v.  Johnson,  11  Ind.  337, 

pleas  are  fatally  bad,  because  they  71   Am.   Dec.    355;    Cunningham   v. 

do  not   aver   that   Kirkpatrick   did  Edgefleld,     &c.     R.     Co.     2     Head 

not  honestly  entertain  the  opinions  (Tenn.)  23;  Pom.  Eq.  Jur.  §  898. 

he  expressed."    See,  also,  Blair  v.  224Ship  v.  Crosskill,  L.  R.  10  Eq. 

Buttolph,  72  Iowa  31,  33  N.  W.  349;  Cas.  73. 


211  MISREPRESENTATIONS  IN  PROSPECTUS  AND  BY  AGENTS.     [§    128 


be  made  by  statements  contained  in  a  prospectus  issued  by  the  author- 
ity of  the  directors  or  the  stockholders  of  a  corporation  if  they  in- 
duced the  subscription  to  be  made.225  Or  they  may  be  contained  in  a 
report  made  by  the  corporate  officers  to  the  stockholders ;  for  a  person 
may  rely  upon  such  a  report  when  subscribing  for  stock.226  And  the 
corporation  is  chargeable  with  the  frauds  and  misrepresentations  of 
its  authorized  agents  to  procure  subscriptions.227  It  was  formerly  held 
in  England  that  the  corporation  was  only  bound  by  such  representa- 
tions as  the  agent  was  authorized  to  make.228  But  the  rule  is  said  to 
be  now  well  established  both  in  that  country  and  in  this  that  a  cor- 
poration cannot  claim  or  retain  the  benefit  of  a  subscription  obtained 
through  the  fraud  of  its  agents.229  And  the  fact  that  the  person  mak- 
ing the  fraudulent  representations  had  no  express  authority  from 
the  corporation,  or  exceeded  such  authority,  will  not  affect  this  rule, 
provided  he  was  legally  connected  with  the  taking  of  the  subscrip- 
tion.230 If  the  corporation  adopts  a  subscription  taken  without  au- 


225Oakes  v.  Turquand,  L.  R.  2  H. 
L.  Gas.  325.  See,  also,  Bosher  v. 
Richmond,  &c.  Co.  89  Va.  455,  16 
S.  B.  360,  37  Am.  St.  879;  2  Pom. 
Eq.  Jur.  §  881;  1  Purdy's  Beach 
Priv.  Corp.  §  263.  But  due  allow- 
ance must  be  made  for  high  color- 
ing and  some  exaggeration  due  to 
the  sanguine  expectations  of  the  pro- 
moters. Directors,  &c.  Central  R. 
Co.  v.  Kisch,  L.  R.  2  H.  L.  Gas.  99. 
The  language  of  the  prospectus  will 
be  construed  in  favor  of  the  validity 
of  the  subscription.  1  Cook  Stock 
and  Stockholders,  §  143. 

228  New  Brunswick,  &c.  R.  Co.  v. 
Conybeare,  9  H.  L.  Cas.  711;  Na- 
tional, &c.  Co.  v.  Drew,  32  Eng. 
Law  and  Eq.  1.  See,  also,  Peterson 
v.  People's,  &c.  Assn.  124  Mich.  573, 
83  N.  W.  606. 

227  Montgomery,  &c.  R.  Co.  v.  Mat- 
thews, 77  Ala.  357,  54  Am.  R.  60; 
Ranger  v.  Great  Western  R.  Co.  5 
H.  L.  Cas.  72.  If  the  president  had 
no  authority  to  take  subscriptions 
and  did  not  in  fact  take  the  sub- 
scription, the  subscriber  cannot 


charge  the  company  with  fraud  be- 
cause of  any  representations  he  may 
have  made.  Rives  v.  Montgomery 
South  Plank  R.  Co.  30  Ala.  92.  And 
the  subscriber  is  bound  to  know 
that  commissioners  with  statutory 
powers  to  take  subscriptions  cannot 
bind  the  corporation  by  any  repre- 
sentations which  they  may  make. 
Bavington  v.  Pittsburgh,  &c.  R.  Co. 
34  Pa.  St.  358;  Wight  v.  Shelby  R. 
Co.  16  B.  Mon.  (Ky.)  4,  63  Am.  Dec. 
522;  Syracuse,  &c.  R.  Co.  v.  Gere, 
4  Hun  (N.  Y.)  392;  North  Carolina 
R.  Co.  v.  Leach,  4  Jones  L.  (N.  C.) 
340. 

228  Cook    Stock   and    Stockholders, 
§  139.   In  Pennsylvania  the  corpora- 
tion is  held  bound  only  when  it  has 
clothed  the  agent  with  actual  or  ap- 
parent   authority    to    make    repre- 
sentations.   Custar  v.  Titusville,  &c. 
-Co.  63  Pa.  St.  381. 

229  Cook   Stock   and    Stockholders, 
§  140.   Compare  1  Purdy's  Beach  on 
Priv.  Corp.  §§  260,  261. 

230  Crump  v.  United  States  Min.  Co. 
7  Gratt.  (Va.)  352,  56  Am.  Dec.  116; 


129] 


SUBSCRIPTIONS. 


212 


thority,  it  must  also  adopt  the  representations  by  which  that  subscrip- 
tion was  procured.231  But  false  representations  by  persons  who  have 
no  authority  from  the  company  and  who  do  not  take  the  subscription 
for  its  benefit  cannot  affect  the  binding  force  and  validity  of  the 
subscriptions.232  Parol  declarations  and  representations  made  by  an 
officer  of  the  corporation  at  a  public  meeting,  though  false  and  made 
with  intent  to  deceive,  will  not  ordinarily  so  far  bind  the  corporation 
as  to  release  a  subscription  made  in  reliance  upon  them.233  The  sub- 
scriber must  be  presumed  to  know  that  an  officer  has  received  no  au- 
thority from  the  corporation  to  bind  it  in  this  manner;234  and  there 
could  be  but  little  security  for  the  creditors  of  a  corporation  if  it 
were  held  answerable  for  all  the  declarations  of  its  officers  made  out- 
side the  scope  of  their  authority.235  The  question  as  to  whether  the 
person  making  the  false  representations  had  authority  from  the  cor- 
poration to  act  as  its  agent  is  usually  a  question  of  fact  for  the  jury.236 

§  129.     Fraud  may  be  shown  by  parol  evidence. — The  fraud  may  be 
established  by  parol  evidence,237  since  this  only  goes  to  show  that  no 


Waldo  v.  Chicago,  &c.  R.  Co.  14  Wis. 
575. 

231  Crump  v.  United  States  Min.  Co. 
7  Gratt.  (Va.)  352,  56  Am.  Dec.  116. 
See,  also,  Walker  v.  Mobile,  &c.  R. 
Co.  34  Miss.  245;  Garrison  v.  Tech- 
nic,  &c.  Works,  55  N.  J.  Eq.  708,  37 
Atl.  741.    See,  also,  Virginia  Land 
Co.  v.  Haupt,  90  Va.  533,  20  S.  E. 
824,  44  Am.  St.  939. 

232  Cunningham  v.  Edgefield,  &c.  R. 
Co.  2  Head.   (Tenn.)   23.    See,  also, 
Miller  v.  Wild  Cat,  &c.  Co.  57  Ind. 
541,  holding  that  an  agent  taking 
subscriptions  before  the  incorpora- 
tion of  the  company  cannot  bind  it 
by  his  misrepresentations.  An  agent 
must  at  least  have  implied  or  ap- 
parent authority  before  he  can  bind 
his  principal.   2  Pom.  Eq.  Jur.  §  909. 

233  Buffalo,  &c.  R.  Co.  v.  Dudley,  14 
N.  Y.  336;  First  Nat.  Bank  v.  Hur- 
ford,  29  Iowa  579.    A  different  rule 
is    announced    in     Wisconsin     and 
Georgia,  but  the  rule  in  the  text  is 
most  consonant  with  the  current  of 
authority.   See  Atlanta,  &c.  R.  Co.  v. 


Hodnett,  36  Ga.  669;  McClellan  v. 
Scott,  24  Wis.  81.  See,  also,  Weems 
v.  Georgia,  &c.  R.  Co.  88  Ga.  303,  14 
S.  E.  583,  where  the  question  was 
submitted  to  the  jury. 

234  Smith  v.  Tallassee  Branch,  &c. 
R.  Co.  30  Ala.  650. 

235  Vicksburg,   &c.   R.   Co.   v.    Mc- 
Kean,  12  La.  Ann.  638. 

^Kelsey  v.  Northern,  &c.  Co.  45 
N.  Y.  505;  Crump  v.  United  States 
Min.  Co.  7  Gratt.  (Va.)  352,  56  Am. 
Dec.  116. 

237  Jewett  v.  Valley  R.  Co.  34  Ohio 
St.  601;  N,  Y.  Exchange  Co.  v.  De 
Wolf,  31  N.  Y.  273;  New  Orleans, 
&c.  R.  Co.  v.  Williams,  16  La.  Ann. 
315;  Henderson  v.  Railway  Co.  17 
Tex.  560,  67  Am.  Dec.  675;  Wert  v. 
Crawfordsville,  &c.  Co.  19  Ind.  242; 
Connecticut,  &c.  R.  Co.  v.  Bailey, 
24  Vt.  465,  58  Am.  Dec.  181;  St. 
Louis,  &c.  R.  Co.  v.  Tierman,  37 
Kans.  606,  15  Pac.  544.  See,  also, 
Anderson  v.  Scott,  70  N.  H.  350,  47 
Atl.  607. 


213  RELEASE  OX  GROUND  OF  FRAUD.  [§  130 

contract  was  formed,  and  not  to  vary  it  as  made.238  This  rale  does  not, 
therefore,  conflict  with  the  general  rule  that  parol  evidence  is  not  ad- 
missible to  alter  or  vary  the  terms  of  a  written  contract.  On  the  con- 
trary, it  is  in  accord  with  the  rule  that  parol  evidence  is  admissible, 
especially  in  case  of  fraud,  to  show  that  there  never  was,  in  reality,  a 
valid  agreement.239 

§  130.  Subscriber  must  be  free  from  negligence,  in  order  to  be  re- 
leased upon  the  ground  of  fraud. — In  order  to  secure  a  release  from 
his  subscription  upon  the  ground  that  his  subscription  was  induced 
by  fraud,  the  subscriber  must  show  that  he  was  not  misled  by  his  own 
negligence  in  not  making  prudent  inquiries.240  For  where  both  parties 
have  equal  access  to  the  means  of  information,  the  subscriber  has  no 
right  to  rely  entirely  upon  the  representations  of  the  agent,  unless 
some  means  or  artifices  are  used  to  prevent  investigation.241  A  sub- 
scriber who  reads  contradictory  statements  in  different  documents  can- 
not rely  upon  a  part  only  of  such  representations  without  investiga- 
tion.242 But  where  the  facts  are  such  as  are  within  the  knowledge  of 
the  corporation  and  its  agents,  the  subscriber  is  only  bound  to  exercise 
reasonable  caution  in  accepting  as  true  the  representations  made.243 
He  is  not  bound  to  pursue  independent  inquiries,  even  though  they 
would  have  shown  him  the  falsity  of  the  statements  made  by  the  agent 
or  contained  in  the  prospectus.244 

§  131.  Subscription  induced  by  fraud  is  merely  voidable — When 
it  will  be  enforced. — A  subscription  induced  by  fraudulent  repre- 
sentations is  voidable  only,  and  not  void;245  and  is  binding  on  both 

248  2  Beach  Priv.  Corp.  §  530;  "Sub-  ^Scholey  v.  Central  R.  Co.  L.  R. 

scriptions    to    Capital     Stock,"    by  9  Eq.  Cas.  267,  n. 

James  M.  Kerr,  6  R.  Corp.  L.  J.  422.  *"  New  Brunswick,  &c.  R.   Co.   v. 

239  Clark    Contracts,    569,    570;     2  Muggeridge,  1  Dr.  &  Sin.  363;   Up- 
Rice    Ev.    259,    292;    1    Elliott   Ev.  ton   v.   Englehart,    3    Dill.    (U.    S.) 
§§  592,  593;  3  Elliott  Ev.  §  1947.  496;  Directors,  &c.  Central  R.  Co.  v. 

240  Upton  v.  Englehart,  3  Dill.  (U.  Kisch,  L.  R.  2  H.  L.  Cas.  99. 

S.)  496;   Hughes  v.  Antietam  Mfg.  ^Documents  referred   to   in   the 

Co.  34  Md.  316;  Davis  v.  Dumont,  prospectus  need  not  be  examined, 
37  Iowa  47;  Custar  v.  Titusville,  &c.  ,  even  though  they  would  show  the 

Co.  63  Pa.  St.  381;  Connecticut,  &c.  falsity  of  statements  made  therein. 

R.  Co.  v.  Bailey,  24  Vt.  465,  58  Am.  Kisch   v.   Central   R.   Co.   34   L.   J. 

Dec.  181.  (Ch.)  545;  Directors,  &c.  Central  R. 

241  Walker  v.  Mobile,  &c.  R.  Co.  34  Co.  v.  Kisch,  L.  R.  2  H.  L.  Cas.  99. 
Miss.  245;    Jennings  v.  Braughton,  ^  Upton  v.  Englehart,  3  Dill.  (U. 
22  L.  J.  (Ch.)  585.  S.)    496;    Reese  River  Min.   Co.  v. 


§•  132] 


SUBSCRIPTIONS. 


parties  unless  disaffirmed  or  rescinded.246  If  fraud  is  established, 
however,  it  has  been  held  that  no  action  can  be  maintained  by  the 
corporation  to  recover,  either  upon  the  original  subscription  or  upon 
a  note  given  therefor,247  unless  the  subscriber  has  ratified  it  or  in  some 
way  become  estopped,  and  the  subscriber  may  recover  back  whatever 
money  he  has  paid  before  discovery  of  the  fraud.248  Where,  however, 
his  subscription  was  made  in  pursuance  of  a  fraudulent  purpose  he 
may  not  complain  that  his  strict  legal  liabilities  are  enforced.249  A 
subscription,  absolute  on  its  face,  made  under  a  secret  agreement  with 
the  directors  of  the  company,  by  which  the  subscriber  was  to  be  per- 
mitted to  reduce  the  number  of  shares  taken  after  it  had  operated  as 
an  inducement  to  others  to  subscribe,  should  be  enforced  according  to 
its  terms.250  And,  in  general,  a  secret  agreement  between  the  com- 
pany and  subscriber,  lessening  his  liability  and  changing  the  ostensible 
terms  of  the  subscription,  can  neither  be  enforced  nor  successfully 
used  as  a  defense  to  defeat  his  subscription.  To  release  the  subscriber 
would  operate  as  a  fraud  upon  the  other  subscribers  and  the  corporate 
creditors.251 
\ 

§132.     Ratification     and     estoppel — Rescission. — The    subscriber 
should  take  steps  to  have  his  subscription  canceled  within  a  reason- 


Smith,  L.  R.  4  H.  L.  64;  Cunning- 
ham v.  Edgefield,  &c.  R.  Co.  2  Head 
(Tenn.)  23. 

248Tennent  v.  City  of  Glasgow 
Bank,  L.  R.  4  App.  Gas.  615. 

247 1.  Occidental  Ins.  Co.  v.  Zanz- 
horn,  2  Mo.  App.  205.  But  an  inno- 
cent third  person  may  enforce  such 
a  note  where  it  is  negotiable  and  is 
taken  by  him  upon  a  valuable  con- 
sideration in  the  usual  course  of 
business.  Andrews  v.  Hart,  17  Wis. 
297. 

248  Atkinson  v.  Pocock,  1  Exch. 
796,  12  Jur.  60;  Jarrett  v.  Kennedy, 
6  C.  B.  319;  Grangers'  Ins.  Co.  v. 
Turner,  61  Ga.  561. 

""Litchfield  Bank  v:  Peck,  29 
Conn.  384.  The  subscribers  "could 
not  be  permitted  to  set  up  any  fraud 
to  which  they  were  a  party,  as  a 
ground  for  their  own  discharge." 


Southern  P.  R.  Co.  v.  Hixon,  5  Ind. 
165,  169.  See  County  of  Crawford 
v.  Pittsburgh,  &c.  R.  Co.  32  Pa.  St. 
141;  Downie  v.  White,  12  Wis.  176, 
78  Am.  Dec.  731. 

250  White  Mountain  R.  Co.  v.  East- 
man, 34  N.  H.  124. 

251  Meyer  v.  Blair,  109  N.  Y.  600, 
4  Am.  St.  500;  York  Park,  &c.  Assn. 
v.  Barnes,  39  Neb.  834,  9  Lewis  Am. 
R.  and  Corp.  240,  244;  Graff  v.  Pitts- 
burgh, &c.  R.  Co.  31  Pa.  St.  489; 
Miller  v.  Hanover,  &c.  R.  Co.  87  Pa. 
St.   95,  30  Am.  R.   349;    Melvin  v. 
Lamar  Ins.  Co.  80  111.  446,  22  Am. 
R.  199.    See,  also,  Chubb  v.  Upton, 
95  U.  S.  665;   Schaeffer  v.  Missouri 
Home,  &c.  Co.  46  Mo.  248;  Howard 
v.  Glenn,  85  Ga.  238,  11  S.  E.  610; 
2  Beach  Priv.  Corp.  §  543;  2  Thomp. 
Corp.  §  1400;  2  Purdy's  Beach  Priv. 
Corp.  §  646. 


215  RATIFICATION  AND  ESTOPPEL — RESCISSION.  [§    132 

able  time  after  he  discovers  the  fraud ;  for,  if  he  permits  the  interests 
of  other  subscribers  and  corporate  creditors  to  attach  by  reason  of  his 
delay,  his  own  laches  will  be  a  bar  to  his  relief  in  equity.252  And  any 
acts  on  his  part  after  he  has  knowledge  of  the  fraud,  which  are  in- 
consistent with  an  intention  to  disaffirm  the  subscription  contract 
will  be  held  to  amount  to  a  ratification,  and  render  it  absolutely  bind- 
ing.253 Thus,  it  has  even  been  held  that  one  who  subscribes  in  con- 
sideration of  the  extension  of  a  railroad  to  a  certain  point  is  estopped 
to  deny  his  obligation  after  the  road  has  been  built  on  the  faith  thereof, 
although  such  point  is  outside  of  the  state  which  granted  the  charter 
and  such  charter  does  not  purport  to  authorize  a  line  beyond  the  lim- 
its of  the  state.254  He  may  also  be  guilty  of  laches  in  failing  to  inform 
himself  as  to  facts  which  would  give  him  notice  of  the  fraud  that  has 
been  practiced  upon  him.  It  is  held  that  it  is  the  duty  of  a  person 
taking  shares  in  a  company  to  inform  himself  as  to  the  provisions  of 
the  articles  of  association,  they  being  registered,  and  he  must  take  the 
consequences  of  his  neglect  to  do  so,255  and  if  they  show  that  the 
representations  by  which  he  was  induced  to  subscribe  were  untrue,  he 
must  rescind  within  a  reasonable  time  after  he  has  an  opportunity  to 
know  the  truth  by  consulting  them.  But  it  has  been  held  that  he  is 
not  guilty  of  laches  until  after  he  has  knowledge  of  the  fraud,  or  of 
facts  which  should  reasonably  put  him  on  inquiry,  and  that  he  is  not 

232  Graff  v.  Pittsburgh,  &c.  R.  Co.  513.  So,  also,  Is  instructing  his 
31  Pa.  St.  489;  Chubb  v.  Upton,  95  broker  to  sell.  Briggs,  Ex  parte,  L. 
U.  S.  665;  London,  &c.  Ins.  Co.,  Re,  R.  1  Eq.  483.  And  so  is  participa- 
L.  R.  24  Ch.  Div.  149;  Heymann  v.  tion  in  stockholders'  meetings. 
European  Central  R.  Co.  L.  R.  7  Eq.  Chaffin  v.  Cummings,  37  Me.  76. 
Cas.  154;  Schaeffer  v.  Missouri  But  attendance  on  a  meeting  has 
Home  Ins.  Co.  46  Mo.  248;  Cook  been  held  not  to  be  a  waiver.  Stew- 
Stock  and  Stockholders,  §  161;  2  art's  Case,  L.  R.  1  Ch.  App.  574. 
Thomp.  Corp.  §  1438,  et  seq.  See,  And  the  same  has  been  held  as  to 
also,  Wallace  v.  Bacon,  86  Fed.  553;  voting  shares  by  proxy.  Greenville, 
Barcus  v.  Gates,  89  Fed.  783;  Bar-  &c.  R.  Co.  v.  Coleman,  5  Rich.  L. 
tol  v.  Walton,  &c.  Co.  92  Fed.  13.  (S.  C.)  118;  McCully  v.  Pittsburgh, 

253  Upton  v.  Jackson,  1  Flipp.   (U.  &c.  R.  Co.  32  Pa.  St.  25.    Paying  a 

S.)   413;  Chubb  v.  Upton,  95  U.  S.  call  after  knowledge  of  the  fraud 

667;   City  Bank  v.  Bartlett,  71  Ga.  is  held  to  be  a  waiver.    Scholey  v. 

797;  2  Thomp.  Corp.  §  1377;  Martin  Central  R.  Co.  L.  R.  9  Eq.  267,  n. 

v.    Paul    O'Burne,    &c.    Co.    99    Cal.  ^  Doherty  v.  Arkansas,  &c.  R.  Co. 

355,  33  Pac.  1107;  Wilson  v.  Hund-  5  Ind.  Ter.  537,  82  S.  W.  899. 

ley,  96  Va.  96,  30  S.  E.  492,  70  Am.  ^Oakes  v.  Turquand,  L.  R.  2  H. 

St.   837.    Selling  part  of  his  stock  L.  325. 
Is  a  waiver.    Ayre's  Case,  25  Beav. 


§  132] 


SUBSCRIPTIONS. 


216 


chargeable  with  knowledge  of  facts  disclosed  at  a  stockholders'  meet- 
ing at  which  he  was  not  present  but  was  represented  by  the  perpetrator 
of  the  fraud,  to  whom  he  had  given  his  proxy.256  If  he  elects  to  rescind 
the  contract,  he  must  do  so  in  toto,  and  must  generally  tender  back  his 
stock  certificates.257  In  England,258  and  apparently  by  the  weight  of 
authority  in  this  country,259  it  is  held  that  a  subscription  cannot  be 
rescinded  on  the  ground  that  it  was  induced  by  fraudulent  representa- 
tions unless  proceedings  are  begun  before  the  corporation  becomes  in- 
solvent, or,  at  least,  while  it  is  a  "going  concern."260 


256  Virginia  Land  Co.  v.  Haupt,  90 
Va.   533,   19    S.   E.   168,   44  Am.   St. 
939  n,  9  Lewis'    Am.  R.  &  Corp.  235. 

257  Parks  v.  Evansville,  &c.  R.  Co. 
23  Ind.  567.    A  subscriber  to  stock 
cannot  rescind  for  fraud,  when  he 
has  had  the  stock  transferred  to  his 
infant  children,   unless   their  right 
thereto  is  also  tendered  back.   Fran- 
cis v.  New  York,  &c.  R.  Co.  108  N. 
Y.  93.  But  compare  West,  Ex  parte, 
56  Law  Times  (N.  S.)  622. 

^Tennent  v.  City  of  Glasgow 
Bank,  L.  R.  4  App.  Cas.  615;  Reese 
River  Co.  v.  Smith,  L.  R.  4  H.  L. 
64;  Oakes  v.  Turquand,  L.  R.  2  H.  L. 
Cas.  325;  Kent  v.  Freehold,  &c.  Co. 
L.  R.  3  Ch.  App.  493. 

^Duffield  v.  Barnum,  &c.  Works 
64  Mich.  293,  31  N.  W.  310;  Saffold 
v.  Barnes,  39  Miss.  399;  Ruggles  v. 
Brock,  6  Hun  (N.  Y.)  164;  Chubb 
v.  Upton,  95  U.  S.  665;  Ogilvie  v. 
Knox  Ins.  Co.  22  How.  (U.  S.)  380; 
Clarke  v.  Thomas,  &c.  Co.  34  Ohio 
St.  46. 


260  This  was  the  rule  in  our  bank- 
ruptcy courts  under  the  bankrupt 
act  of  1867.  Farrar  v.  Walker,  13 
Nat.  Bankr.  Reg.  82.  See,  also,  Up- 
ton v.  Tribilcock,  91  U.  S.  45;  Tur- 
ner v.  Grangers,  &c.  Co.  65  Ga.  649, 
38  Am.  R.  801;  Cunningham  v. 
Edgefield,  &c.  R.  Co.  2  Head  (Tenn.) 
23.  Certainly  this  is  true  where 
there  is  unreasonable  delay  and  the 
rights  of  creditors  are  involved. 
Newton  Nat.  Bank  v.  Newbegin,  74 
Fed.  135,  20  C.  C.  A.  339,  33  L.  R.  A. 
727;  Howard  v.  Turner,  155  Pa.  St. 
349,  26  Atl.  753,  35  Am.  St.  883.  In 
Bosher  v.  Richmond,  &c.  Co.  89  Va. 
455,  16  S.  E.  360,  37  Am.  St.  879, 
where  several  subscriptions  had 
been  obtained  by  means  of  fraudu- 
lent representations  in  a  prospectus, 
it  was  held  that  such  subscribers 
had  a  common  interest,  and  several 
might  join  in  a  bill  for  the  benefit 
of  themselves  and  others  similarly 
situated,  to  set  aside  their  subscrip- 
tions. 


CHAPTEE   VIII. 


CALLS   AND   ASSESSMENTS. 


Sec.  Sec. 

133.  When    payment    of    subscrip-    144. 

tion  must  be  made. 

134.  Calls — Nature  and  effect  of.        145. 

135.  Directors   may    make    calls — 

Delegation  and  ratification.       146. 

136.  Directors  must  act  as  a  body 

— De     facto     board — Illegal    147. 
calls. 

137.  Discretion  of  board  in  making 

calls.  148. 

138.  Charter  and  statutory  limita- 

tions upon  discretion — Peri- 
odical instalments.  149. 

139.  Call  should  affect  all  alike- 

Motive  and  expediency. 

140.  Subscription  payable  upon  de-    150. 

mand — Notice. 

141.  Requisites  of  notice.  151. 

142.  Constructive  notice.  152. 

143.  Waiver  by  stockholder  of  no- 

tice and  formalities  of  call    153. 
— Estoppel.  154. 


Demand  and  suit  for  assess- 
ment. 

Assignment  of  right  to  collect 
subscription  or  assessment. 

When  courts  may  compel  call 
and  payment. 

Extent  of  stockholder's  liabil- 
ity for  assessments — Agree- 
ments as  affecting  liability. 

Construction  of  charter  and 
statutory  provisions  regard- 
ing assessments. 

Remedies  where  stockholder 
fails  to  pay  subscription  or 
assessment — Forfeiture. 

Cumulative  remedies  —  Elec- 
tion. 

Effect  of  forfeiture. 

Statutory  method  of  forfeiture 
must  be  pursued. 

Notice  of  forfeiture. 

Defeating  and  annulling  for- 
feiture— Estoppel. 


§  133.  When  payment  of  subscription  must  be  made. — Where  a 
subscription  contains  a  promise  to  pay  upon  a  certain  day,  the  sub- 
scriber is  bound  to  pay  at  that  time  without  further  notice  or  he  is 
liable  to  suit  immediately  upon  his  default,1  and  he  is  also  bound,  in 

1  Estell  v.  Knightstown,  &c.  Turnp.  R.  Co.  v.  Strait,  35  N.  J.  L.  322; 

Co.  41  Ind.  174;  Beckner  v.  River-  Roberts   v.    Mobile,   &c.   R.    Co.   32 

side,   &c.   Turnp.   Co.   65    Ind.    468;  Miss.  373.    Even  though  the  statute 

Waukon,   &c.   R.   Co.   v.   Dwyer,   49  fixes  the  time  of  payment.   Iowa,  &c. 

Iowa   121;    Northwood   Union   Shoe  R.  Co.  v.  Perkins,  28  Iowa  281.   See, 

Co.  v.   Pray,  67  N.  H.  435,  32  Atl.  also,  West  v.  Crawford,  80  Cal.  19, 

770.    A   subscription   may   regulate  21  Pac.  1123. 
the  time  of  payment.  N.  J.  Midland 

217 


§  133] 


CALLS   AND   ASSESSMENTS. 


218 


the  absence  of  any  provision  in  the  subscription,  if  the  charter  or  a 
general  statute  specifies  the  time  of  payment,  to  pay  at  the  designated 
time.2  The  same  is  true  where  the  subscription  is  made  payable  upon 
the  happening  of  a  certain  event  and  at  stated  periods  thereafter.  The 
subscriber  must  know  when  his  subscription  becomes  payable.3  The 
stockholder  may  pay  his  subscription  as  soon  after  the  corporation  is 
organized  as  he  may  choose,  without  awaiting  the  formality  of  a  call,4 
if  he  act  in  good  faith.5  But  where  the  capital  stock  is  to  be  paid  at 
such  times  and  in  such  instalments  as  may  be  required  by  the  presi- 
dent and  directors,  such  a  requirement,  being  an  uncertain  event, 
forms  a  condition  which,  as  between  the  corporation  and  the  stock- 
holder, suspends  the  obligation  to  pay  until  it  is  made.6  And  an  ordi- 
nary subscription  made  without  any  designated  time  for  payment  is 
generally  held  to  become  payable  only  after  a  formal  declaration  to 
that  effect  by  the  corporate  authorities.7 


2  Phoenix  Warehousing  Co.  v.  Bad- 
ger, 67  N.  Y.  294. 

3Breedlove  v.  Martinsville,  &c.  R. 
Co.  12  Ind.  114,  where  the  subscrip- 
tion was  payable  in  instalments  of 
ten  per  cent,  every  sixty  days  after 
the  work  was  put  under  contract. 

4  Marsh  v.  Burroughs,  1  Wood  (U. 
S.)  463;  Poole,  Jackson  &  Whyte's 
Case,  L.  R.  9  Ch.  D.  322.  Where  the 
corporation  owes  money  to  the  sub- 
scriber, it  is  frequently  applied  to 
discharge  his  indebtedness  without 
awaiting  a  call.  Adamson's  Case,  L. 
R.  18,  Eq.  Cas.  670. 

B  If  it  be  merely  a  colorable  pay- 
ment to  escape  liability  in  case  of 
insolvency  he  will  not  be  permitted 
to  claim  a  release  from  indebted- 
ness on  his  subscription.  Syke's 
Case,  L.  R.  13  Eq.  Cas.  255;  Barge's 
Case,  L.  R.  5  Eq.  Cas.  420. 

8  Purton  v.  New  Orleans,  &c.  R. 
Co.  3  La.  Ann.  19.  See,  also,  Wil- 
liams v.  Taylor,  120  N.  Y.  244,  24 
N.  E.  288. 

TSpangler  v.  Indiana,  &c.  R.  Co. 
21  111.  276;  Braddock  v.  Phila- 
delphia, &c.  R.  Co.  45  N.  J.  L.  363; 
Alabama,  &c.  R.  Co.  v.  Rowley,  9 


Fla.  508;  North,  &c.  St.  R.  Co.  v. 
Spullock,  88  Ga.  283,  14  S.  E.  478; 
Ventura,  &c.  R.  Co.  v.  Hartman,  116 
Cal.  260,  48  Pac.  65.  A  call  is  not 
applicable  to  stock  which  was  sub- 
scribed for  after  the  call  was  made. 
Pike  v.  Bangor,  &c.  R.  Co.  68  Me. 
445.  Some  cases  in  New  York  have 
asserted  the  rule  that  unless  the 
contract  provides  for  calls,  the  sub- 
scription is  payable  absolutely  and 
at  once.  Lake  Ontario,  &c.  R.  Co.  v. 
Mason,  16  N.  Y.  451;  Phoenix,  &c.  R. 
Co.  v.  Badger,  67  N.  Y.  294.  But  the 
point  was  not  decided  in  either  of 
these  cases  and  other  cases  in  that 
state  recognize  the  doctrine  of  the 
text.  Mann  v.  Pentz,  3  N.  Y.  415; 
Seymour  v.  Sturgess,  26  N.  Y.  134; 
Williams  v.  Meyer,  41  Hun  (N.  Y.) 
545.  See,  also,  Williams  v.  Taylor, 
120  N.  Y.  244,  24  N.  E.  288;  South 
Georgia,  &c.  R.  Co.  v.  Ayres,  56  Ga. 
230.  In  a  suit  on  a  subscription  to 
the  capital  stock  of  a  company 
which  provided  that  the  subscrip- 
tions should  be  paid  "in  such  in- 
stalments and  at  such  times  as  may 
be  decided  by  a  majority  of  the 
stockholders  or  board  of  directors, 


219 


CALLS — NATURE  AND  EFFECT   OF. 


[§  134 


§  134.  Calls — Nature  and  effect  of. — Such  a  declaration  as  that 
referred  to  in  the  preceding  section  is  termed  a  "call/'8  and  the  sum 
of  money  so  rendered  payable  may  be  payable  in  one  or  more  instal- 
ments, where  the  directors  are  invested  with  entire  discretion  and  there 
is  no  contract  to  the  contrary,  according  to  the  terms  of  the  resolu- 
tion.9 Any  declaration  or  resolution  to  the  effect  that  the  whole,10  or 
a  certain  part,11  of  the  unpaid  subscriptions  shall  be  paid  in,  though 
informal  and  irregular,12  will  be  a  valid  call  if  it  be  sufficient  to  show 
a  clear  official  intent  to  render  payable  so  much  of  the  subscription  as 
is  embraced  by  the  terms,13  and  is  susceptible  of  legal  proof.14  The 
resolution  need  not  state  the  time  or  place  of  payment,15  but  these  may 


•or  a  trustee  empowered  for  the  pur- 
pose by  a  majority  of  the  stock- 
holders," no  proof  was  offered  to 
show  that  any  provisions  as  to  the 
amount  of  the  instalments  or  the 
time  of  payment  of  such  had  ever 
been  so  made,  nor  that  any  call  for 
payment  had  ever  been  made  in  said 
manner,  and  it  was  held  that  there 
should  be  a  judgment  of  non-suit 
against  the  plaintiff.  North,  &c.  R. 
Co.  v.  Spullock,  88  Ga.  283,  14  S.  E. 
478. 

8  Braddock  v.  Philadelphia,  &c.  R. 
Co.  45  N.  J.  L.  363;  Newry  and  En- 
niskillen  R.  Co.  v.  Edmunds,  2  Ex. 
R.  118;  Spangler  v.  Indiana,  &c.  R. 
Co.  21  111.   276;    Pittsburgh,  &c.  R. 
Co.  v.  Clarke,  29  Pa.  St.  146.    The 
term   may   also    refer   to   a   notice 
given  of  such  resolution,  or  to  the 
time  which  it  names  as  the  time  of 
payment.    Ambergate,  &c.  R.  Co.  v. 
Mitchell,  4  Ex.  540. 

9  Northwestern,  &c.  R.  Co.  v.  Mc- 
Michael,  6  Ex.  273;  Birkenhead,  &c. 
R.  Co.  v.  Webster,  6  Ex.  277;  Hays 
v.  Pittsburgh,  &c.  R.  Co.  38  Pa.  St. 
81;    Rutland,  &c.  R.  Co.  v.  Thrall, 
35  Vt.  536;  Haun  v.  Mulberry,  &c. 
Road,  33  Ind.  103.  But  it  is  said  that 
debt  will  not  lie  for  one  of  such  in- 
stalments until  all  are  due  and  pay- 
able.    Birkenhead,    &c.    R.    Co.    v. 
Webster,  6  Ex.  277. 


10  Fox  v.  Allensville,  &c.  R.  Co.  46 
Ind.  31;  Haun  v.  Mulberry,  &c.  R. 
Co.  33  Ind.  103. 

"Spangler  v.  Indiana,  &c.  R.  Co. 
21  111.  276;  Ross  v.  Lafayette,  &c.  R. 
Co.  6  Ind.  297. 

12  Philadelphia,  &c.  R.  Co.  v.  Hick- 
man,  28  Pa.  St.  318;-  Southampton 
Dock  Co.  v.  Richards,  2  Eng.  Railw. 
&  Canal  Cas.  215,  234.  Irregularities 
may  be  waived.  Hays  v.  Pittsburgh, 
&c.  R.  Co.  38  Pa.  St.  81;  Macon,  &c. 
R.  Co.  v.  Vason,  57  Ga.  314.  But  see 
Grosse  Isle  Hotel  Co.  v.  I'Anson,  43 
N.  J.  L.  442. 

13Budd  v.  Multnomah  St.  R.  Co. 
15  Ore.  413,  15  Pac.  659,  3  Am.  St. 
169. 

"An  entry  in  the  minutes  of  the 
corporation  is  sufficient  proof.  Fox 
v.  Allensville,  &c.  Turnp.  Co.  46  Ind. 
31.  The  passage  of  the  resolution 
may  be  proven,  though  no  entry  was 
made  in  the  minutes.  Hays  v.  Pitts- 
burgh, &c.  R.  Co.  38  Pa.  St.  81.  See 
Bavington  v.  Pittsburgh,  &c.  R.  Co. 
34  Pa.  St.  358. 

15  Andrew  v.  Ohio,  &c.  R.  Co.  14 
Ind.  169;  Great  North,  &c.  R.  Co.  v. 
Biddulph,  7  M.  &  W.  243;  Marsh  v. 
Burroughs,  1  Woods  (U.  S.)  463; 
Rutland,  &c.  R.  Co.  v.  Thrall,  35  Vt. 
536. 


§    135]  CALLS   AND   ASSESSMENTS.  220 

be  left  to  be  fixed  by  the  administrative  officers  of  the  corporation.16 
It  is  perfectly  competent  for  the  directors  to  determine  these  matters 
at  the  same  or  a  subsequent  meeting.  And  it  has  been  held  that  they 
may  order  that  at  a  certain  future  time  a  call  payable  at  a  later  date 
shall  be  made.17  Where  no  place  is  designated,  the  resolution  requir- 
ing payment  will  import  a  requirement  that  the  payments  should  be 
made  to  the  treasurer  of  the  corporation  at  his  office.18 

§135.  Directors  may  make  calls — Delegation  and  ratification. — 
In  general,  the  directors  are  the  proper  authorities  to  make  calls,19  in 
the  absence  of  any  other  provision  in  the  charter,  or  in  any  statute  or 
by-law.  Where  this  power  is  not  given  to  the  directors,  it  is  usually 
lodged  with  the  stockholders  at  large,20  in  which  case  it  has  been  held 
they  may  delegate  the  power  to  the  directors  ;21  and  it  has  been  held  in 
such  a  case  that  even  without  such  a  delegation  of  power,  the  directors 
may  still  make  calls,  if  not  expressly  prohibited.22  But  the  directors 
cannot  delegate  such  a  special  authority  entrusted  to  them,23  though 
they  may  ratify  a  call  made  by  one  to  whom  they  have  attempted  to 
delegate  it,  and  so  render  such  call  valid.24  And  they  may,  it  seems, 
authorize  another  to  determine  the  amount  of  some  of  the  instalments 
and  to  designate  the  times  of  payment.25  Thus  it  is  said  that  they 
may  make  a  general  declaration  that  the  stock  is  payable,  and  give  a 
general  authority  to  the  treasurer  to  require  the  payment  of  the  stock, 

16  They  should  be  'fixed  by  the  no-  20  Cook    Stock    and    Stockholders, 

tice.    Andrew  v.  Ohio,  &c.  R.  Co.  14  §  109. 

Ind.    169;    Cook    Stock    and    Stock-  a  Rives  v.  Montgomery,  &c.  R.  Co. 

holders,  §  115.    And  should  be  rea-  30    Ala.    92.      Contra,    Winsor,    Ex 

sonable.    Fairfield,  &c.  Co.  v.  Thorp,  parte,  3  Story  C.  C.  411. 

13  Conn.  173.  sBudd  v.  Multnomah  St.  R.   Co. 

"Sheffield,    &c.    R.   Co.   v.   Wood-  15  Ore.  413,  15  Pac.  659,  3  Am.  St. 

cock,  7  Mees.  &  W.  574.    See,  also,  169.     But  see  Marlborough,  &c.  Co. 

Penobscot   R.    Co.    v.    Dummer,    40  v.  Smith,  2  Conn.  579. 

Me.  172,  63  Am.  Dec.  654;   Heaston  a  Rutland,  &c.  R.  Co.  v.  Thrall,  35 

v.  Cincinnati,  &c.  R.  Co.  16  Ind.  275,  Vt.  536;   Silver  Hook  R.  v.  Greene, 

79  Am.  Dec.  430.  12  R.  I.  164;  Pike  v.  Bangor,  &c.  R. 

18  Danbury,  &c.  R.  Co.  v.  Wilson,  Co.  68  Me.  445 ;  Banet  v.  Alton,  &c. 
22  Conn.  435.  R.  Co.  13  111.  504. 

19  Budd  v.  Multnomah  St.  R.  Co.  21  Rutland,  &c.  R.  Co.  v.  Thrall,  35 
15  Ore.  413,  15  Pac.  659,  3  Am.  St.  Vt.  536;  Read  v.  Memphis,  &c.  Co.  9 
169,  172;  Ambergate,  &c.  R.  Co.  v.  Heisk.  (Tenn.)  545. 

Mitchell,  4  Ex.  540.  »  Banet  v.  Alton,  &c.  R.  Co.  13  I1L 

404. 


821 


UNITED  ACTION DE  FACTO  BOARD ILLEGAL  CALLS.   [§  136 


and  calls  made  by  him  will  be  valid,  even  though  the  resolutions  do 
not  specify  the  amount  of  each  instalment  to  be  called  for.26 

§  136.  Directors  must  act  as  a  body — De  facto  board — Illegal  calls. 
— A  valid  call  cannot  be  made  by  a  portion  of  the  board  of  directors 
in  the  absence  of  a  quorum  for  the  transaction  of  business.27  But  that 
a  de  facto  board  was  illegally  elected  cannot  be  set  up  as  a  defense  to 
a  call  regularly  made  by  them.28  If  the  corporation  is  unauthorized 
and  illegal,  calls  made  by  it  cannot,  it  seems,  be  enforced.29  But  it  is 
generally  held  that  the  implied  promise  to  pay  upon  call  contained  in 
a  subscription  to  the  capital  stock  of  a  legally  incorporated  company  is 
sufficient  to  support  an  action,  and  of  course  an  action  may  be  main- 
tained on  an  express  promise  to  pay  for  such  stock. 

§  137.  Discretion  of  board  in  making  calls. — The  corporate  au- 
thorities who  are  empowered  to  make  calls  are  the  sole  judges  as  to  the 
advisability  of  making  them,30  subject,  perhaps,  to  the  condition  that 
the  power  must  be  exercised  in  good  faith  for  the  purpose  of  raising 
money  for  the  use  of  the  corporation.31  And  where  no  limitations  are 


24  Hays  v.  Pittsburg,  &c.  R.  Co. 
38  Pa.  St.  81.  But  see  Silver  Hook 
Road  v.  Green,  12  R.  I.  164. 

"Price  v.  Grand  Rapids,  &c.  R. 
Co.  13  Ind.  58;  Bottomley's  Case,  L. 
R.  16  Ch.  Div.  681.  Possibly  such 
an  act  could  be  confirmed  by  the 
majority.  Phosphate  of  Lime  Co., 
Re,  24  L.  T.  932. 

^Eakright  v.  Logansport,  &c.  R. 
Co.  13  Ind.  404;  Steinmetz  v.  Ver- 
sailles, &c.  R.  Co.  57  Ind.  457;  Fair- 
field,  &c.  Turnp.  Co.  v.  Thorp,  13 
Conn.  173;  Macon,  &c.  R.  Co.  v. 
Vason,  57  Ga.  314;  Ohio,  &c.  R.  Co. 
v.  McPherson,  35  Mo.  13,  86  Am. 
Dec.  128.  Contra,  Howbeach,  &c. 
Co.  v.  Teague,  5  H.  &  N.  151.  And 
see  People's  Mut.  Ins.  Co.  v.  West- 
cott,  14  Gray  (Mass.)  440,  where 
a  call  by  directors  elected  at  a  meet- 
ing without  notice  was  held  invalid. 
Moses  v.  Tompkins,  84  Ala.  613,  4 
So.  763.  The  rule  in  England  seems 
to  be  opposed  to  the  doctrine  stated 


in  the  text.  Swansea  Dock  Co.  v. 
Levien,  20  L.  J.  (Ex.)  447.  See, 
also,  Moses  v.  Tompkins,  84  Ala. 
613,  4  So.  763. 

"•Gillespie  v.  Fjb.  Wayne,  &c.  R. 
Co.  17  Ind.  243. 

30Judah  v.  American,  &c.  Co.  4 
Ind.  333;  Budd  v.  Multnomah  St. 
R.  Co.  15  Ore.  413,  15  Pac.  659, 
3  Am.  St.  169;  Chouteau  Ins.  Co.  v. 
Floyd,  74  Mo.  286;  Oglesby  v.  At- 
trill,  105  U.  S.  605;  Visalia,  &c.  R. 
Co.  v.  Hyde,  110  Cal.  632,  43  Pac.  10, 
52  Am.  St.  136;  Anglo-American 
Land  Co.  v.  Dyer,  181  Mass.  593,  64 
N.  E.  416,  92  Am.  St.  437;  American 
Alkali  Co.  v.  Campbell,  113  Fed. 
398. 

^arbershon's  Case,  L.  R.  5  Eq. 
286.  But  where  the  money  is  raised 
for  the  use  of  the  company,  equity 
will  not  inquire  whether  such  use 
is  essential  to  its  best  interests. 
Bailey  v.  Birkenhead,  &c.  R.  Co.  12 
Beav.  433;  Yetts  v.  Norfolk,  &c.  R. 


§    138]  CALLS   AND   ASSESSMENTS. 

placed  upon  their  discretion,  they  may  require  the  whole  subscription] 
to  be  paid,  either  at  one  time  or  in  instalments.32 

§  138.  Charter  and  statutory  limitations  upon  discretion — Peri- 
odical instalments. — The  assessments  are  frequently  required  by  char- 
ter or  by  statute33  to  be  limited  to  not  more  than  a  certain  per  centum 
of  the  subscription  within  a  given  time.  And  where  the  charter  pro- 
vides that  after  the  payment  of  a  certain  per  cent.,  no  further  assess- 
ment shall  be  made  "unless  with  the  assent  of  three-fourths  of  the 
stockholders/'  a  shareholder  cannot  be  made  to  pay  the  balance  by  the 
directors,  without  a  three-fourths  vote  of  the  stockholders.34  It  has 
also  been  held  that  subscriptions  to  stock  which  is  to  be  called  for  in 
proportions  can  only  be  recovered  where  the  instalments  were  called 
for  periodically,  and  that  an  attempt  to  make  all  the  assessments  at 
one  time,  without  having  given  any  notice  to  the  subscriber  that  pre- 
vious assessments  were  payable  is  invalid.35  But  where  the  subscrip- 
tion was  made  upon  condition  that  not  more  than  five  per  cent,  should 
be  assessed  at  any  one  time,  it  was  held  that  an  assessment  of  more 
than  that  sum,  payable  in  instalments  of  not  more  than  five  per  cent 
each,  must  be  levied  by  a  single  vote  of  the  directors.36  The  corpora- 
tion cannot,  however,  by  contract,  agree  to  postpone  a  call  for  an  in- 
definite time.37 

§  139.     Call  should  affect  all  alike — Motive  and  expediency. — A 

call  in  order  to  be  valid  must  ordinarily  affect  all  similar  stock  of  the 
corporation  alike.38  But  the  fact  that  wrong  motives  induced  the 
directors  to  make  the  call  does  not  constitute  a  valid  objection  to  it,39 
where  the  assessment  is  equal  and  the  money  is  raised  ostensibly  for 
corporate  uses.  Thus,  in  the  case  cited,  it  was  held  that,  although  the 

Co.   3  DeG.  &  Sm.  293.     See,  also,  Me.  172,  63  Am.  Dec.  654;  Penobscot 

Oglesby  v.  Attrill,  105  U.  S.  605.  R.  Co.  v.  Dunn,  39  Me.  587. 

32Haun  v.  Mulberry,  &c.  Grav.  R.  S7McComb  v.  Credit  Mobilier,  &c. 

Co.  32  Ind.  103.  13  Phil.  468;  Van  Allen  v.  111.  Cen- 

33Stimson      Am.      Stat.       (1892),  tral  R.  Co.  7  Bosw.  (N.  Y.)  515. 

§  8601.  3sPike   v.   Bangor,  &c.   R.   Co.   68 

34  Louisiana  Paper  Co.  v.  Waples,  Me.  445 ;   Great  Western,  &c.  Co.  v. 

3  Woods  (U.  S.)  34.  Burnham,  79  Wis.  47,  47  N.  W.  373. 

85  Spangler  v.  Indiana,  &c.  R.  Co.  See,   also,   North  Milwaukee   Town- 

21  111.  276.    But  see  Heaston  v.  Gin-  site  v.  Bishop,  103  Wis.  492,  79  N. 

cinnati,  &c.  R.  Co.  16  Ind.  275,  79  W.  785,  45  L.  R.  A.  174,  24  Am.  St. 

Am.  Dec.  430.  698. 

46  Penobscot  R.  Co.  v.  Dummer,  40  S8  Oglesby  v.  Attrill,  105  U.  S.  605. 


223 


SUBSCRIPTION   PAYABLE    UPON   DEMAND. 


[§  140 


declaration  alleged  that  the  assessment  was  unnecessary  and  was  made 
in  pursuance  of  a  scheme  to  embarrass  the  plaintiff  and  get  possession 
of  his  stock  at  a  nominal  price,  as  it  did  not  appear  to  be  in  excess  of 
the  power  of  the  directors  nor  for  an  object  foreign  to  the  purposes  of 
the  corporation,  the  court  would  not  inquire  into  the  motives  which 
prompted  it  or  the  expediency  of  making  it. 

§  140.  Subscription  payable  upon  demand — Notice. — The  better 
rule  seems  to  be  that  a  subscription  payable  at  such  times  and  places 
as  shall  be  directed  by  the  directors  of  the  company  is  payable  upon 
demand,40  that  a  suit  to  collect  the  installment  called  for  is  a  sufficient 
demand,41  and  that  no  notice  of  such  a  call  need  be  given  before  suit,42 
unless  it  is  required  by  the  charter  or  by-laws,  or  by  statute.43  In  ac- 


40  Ross  v.  Lafayette,  &c.  R.  Co.  6 
Ind.  297;  New  Albany,  &c.  R.  Co. 
v.  McCormick,  10  Ind.  499,  71  Am. 
Dec.  337,  and  note;  Gray  v.  Monon- 
gahela,  &c.  Co.  2  Watts  &  S.  (Pa.) 
156,  37  Am.  Dec.  500,  and  note.  But 
see  2  Thomp.  Corp.  §§  1750,  1751, 
and  English  authorities  there  cited. 
The  statutes  of  nearly  all  the  states 
make  the  capital  stock  payable  in 
such  instalments,  and  at  such  times 
and  places  as  the  directors  pre- 
scribe. Stimson  Am.  Stat.  (1892), 
§§  8112,  8601.  But  subject,  in  some 
states,  to  a  restriction  as  to  how 
much  of  the  capital  stock  may  be 
called  for  within  a  given  time. 
Stimson's  Am.  Stat.  (1892),  §§  8112, 
8601,  citing  laws  of  Indiana,  Ne- 
vada, Utah,  New  Mexico,  Arizona, 
Pennsylvania,  Montana.  A  call  for 
the  payment  of  a  subscription  is  a 
sufficient  acceptance  of  the  sub- 
scriber as  a  stockholder.  Danbury, 
&c.  R.  Co.  v.  Wilson,  22  Conn.  435; 
Wight  v.  Shelby  R.  Co.  16  B.  Mon. 
(Ky.)  4,  63  Am.  Dec.  522;  Buffalo, 
&c.  R.  Co.  v.  Dudley,  14  N.  Y.  336. 

"•  Smith  v.  Indiana,  &c.  R.  Co.  12 
Ind.  61. 

42  Wilson  v.  Wills  Valley  R.  Co.  33 
Ga.  466;  Grubbs  v.  Vicksburg,  &c. 


R.  Co.  50  Ala.  398;  Eppes  v.  Missis- 
sippi, &c.  R.  Co.  35  Ala.  33;  Hill  v. 
Nisbet,  100  Ind.  341;  Grubb  v.  Ma- 
honing  Nav.  Co.  14  Pa.  St.  302 ;  Lake- 
Ontario,  &c.  R.  Co.  v.  Mason,  16  N. 
Y.  451,  464;  Peake  v.  Wabash  R.  Co. 
18  111.  88. 

43  Notice  is  required  by  statute  in 
several  states.  Stimson's  Am.  Stat. 
(1892),  §  8112.  Such  a  statute  is 
generally  held  to  be  mandatory. 
Mississippi,  &c.  R.  Co.  v.  Gaster,  20 
Ark.  455;  Macon,  &c.  R.  Co.  v.  Va- 
son,  57  Ga.  314;  note  in  93  Am.  St. 
384,  385.  The  Pennsylvania  R.  R. 
act  requires  notice  of  calls  to  be 
given.  McCarty  v.  Selinsgrove,  &c. 
R.  Co.  35  Leg.  Intel.  410.  See,  also, 
Scarlett  v.  Academy,  43  Md.  203; 
Muskingum  Valley,  &c.  Co.  v.  Ward, 
13  Ohio  120,  42  Am.  Dec.  191,  2 
Thomp.  Corp.  §  1756  (notice  by  pub- 
lication). When  the  trustees  of  a 
corporation,  suing  on  a  subscription 
to  its  capital  stock,  show  that  they 
have  taken  steps,  which  the  law 
authorized  them  to  take,  the  pre- 
sumption is  that  they  have  taken 
them  regularly;  and,  if  there  is  any 
by-law  which  renders  their  action 
irregular,  it  is  matter  of  defense 
and  should  be  so  pleaded.  Puget 


CALLS   AND   ASSESSMENTS. 


224 


cordance  with  this  doctrine,  where  no  such  requirement  is  found  in 
the  charter  or  general  laws,  a  judgment  for  an  instalment  on  a  sub- 
scription will  be  sustained  even  though  it  does  not  appear  that  the 
defendant  had  any  notice  whatever  of  a  call  for  such  instalment.44 
But  respectable  authority  holds  that  notice  of  calls  must  be  given  be- 
fore suit  is  brought  to  collect  them,45  since  all  stockholders  cannot 
reasonably  be  presumed  to  know  what  the  directors  do  without  notice 
of  that  fact,46  which  is  peculiarly  within  the  knowledge  of  the  cor- 
porate authorities  seeking  to  enforce  the  subscription  liability.47 

§  141.  Requisites  of  notice. — Where  notice  is  required,  it  must  be 
such  a  notice  as  will  give  the  shareholder  to  understand  that  a  call  has 
been  made,  and  that  he  is  required  to  pay  the  amount  on  a  named 
day,48  and  some  authorities  hold  that  it  must  designate  the  place  of 
payment.49  It  must  be  given  the  full  number  of  days  prescribed  before 
the  call  is  made  payable  or  before  suit  is  brought,50  but  where  actual 
personal  notice  is  given  this  has  been  held  effectual,  although  the  char- 
ter, statute  or  by-laws  provide  for  some  other  form  of  notice.51  Actual 


Sound,    &c.    R.    Co.    v.    Ouillette,    7 
Wash.  265,  34  Pac.  929. 

*•  Wilson  v.  Mills  Valley  R.  Co.  33 
Ga.  466. 

45  Wear  v.  Jacksonville,  &c.  R.  Co. 
24  111.  594;    Rutland,  &c.  R.  Co.  v. 
Thrall,  35  Vt.  536;   Edinburgh,  &c. 
R.   Co.  v.  Hebblewhite,  6  M.  &  W. 
707;    Miles  v."  Bough,   3  Ad.   &  El. 
(N.  S.)  845;  Lindley  Comp.  L.  (5th 
ed.)  417. 

46  Hughes  v.  Antietam  Mfg.  Co.  34 
Md.  316. 

"  This  rule  is  commended  by  Cook 
in  his  work  on  Stock  and  Stockhold- 
ers, §  118.  See,  also,  note  in  73  Am. 
St.  385,  386,  where  it  is  stated  that 
the  weight  of  authority  is  that  no- 
tice is  unnecessary,  but  authorities 
on  both  sides  are  cited. 

48  Shackleford  v.  Dangerfield,  L. 
R.  3  C.  P.  407. 

"Dexter,  &c.  R.  Co.  v.  Millerd,  3 
Mich.  91,  holding  that  a  notice  to 
pay  to  the  treasurer  does  not  suffi- 
cently  indicate  the  place  of  pay- 


ment. But  see  Muskingum  Valley 
Turnp.  Co.  v.  Ward,  13  Ohio  120, 
42  Am.  Dec.  191,  holding  that  it 
does.  And  see  Danbury,  &c.  R.  Co. 
v.  Wilson,  22  Conn.  435,  where  it  is 
held  that  a  call  is  impliedly  pay- 
able to  the  treasurer  at  his  office 
unless  otherwise  provided  in  the 
resolution. 

60  Mississippi,  &c.  R.  Co.  v.  Gaster, 
20  Ark.  455.  Fifty-nine  days  is  in- 
sufficient where  the  statute  pre- 
scribes sixty  days.  Macon,  &c.  R. 
Co.  v.  Vason,  57  Ga.  314.  See,  also, 
Cole  v.  Joliet  Opera  House  Co.  79 
111.  96. 

51  Mississippi,  &c.  R.  Co.  v.  Gaster, 
20  Ark.  455,  where  the  statute  pro- 
vided for  sixty  days'  notice  by  pub- 
lication. Schenectady,  &c.  R.  Co.  v. 
Thatcher,  11  N.  Y.  102,  where  the 
defendant  aided  in  sending  out  by 
mail  notices  required  by  charter. 
See,  also,  Lexington,  &c.  R.  Co.  v. 
Chandler,  13  Mete.  (Mass.)  311; 
McCarty  v.  Selinsgrove  R.  Co.  87 


225  CONSTRUCTIVE  NOTICE.  [§  142 

notice  will  be  presumed  where  the  subscriber  expressly  promises  to  pay 
a  call  which  has  already  been  made.02  Notice  by  mail  has  been  held  to 
be  effective  only  if  actually  received,  in  the  absence  of  special  provision 
for  notice  of  this  kind,53  and  it  is  for  the  jury  to  decide  whether  it  was 
so  received.54 

§  142.  Constructive  notice. — Where  constructive  notice  is  relied 
upon  proof  must  be  made  of  a  strict  compliance  with  the  provisions  of 
the  statute,  charter,  or  by-law  conferring  authority  to  give  notice  by 
publication  or  otherwise.55  Publication  must  be  made  the  full  number 
of  days  required  before  the  call  is  payable,56  but  one  publication  has 
been  held  sufficient  unless  more  are  expressly  required.57  It  has  been 
held  that  this  mode  of  giving  notice  of  matters  in  which  many  persons 
are  interested,  such  as  a  call  by  the  directors  of  a  corporation,  has  so 
long  been  an  universal  usage,  and  of  a  notoriety  equal  to  that  of  the 
publication  of  newspapers  themselves,  that  the  custom  of  doing  so  has 
become  a  part  of  the  law  of  the  land,58  and  that  such  a  notice  is  suffi- 
cient where  the  mode  of  notice  is  left  undetermined  by  express  pro- 
vision of  law.59  But  the  better  authority  seems  to  hold  that  such  a 
notice  would  bind  only  those  who  could  be  proven  to  have  actually 

Pa.    St.    332.      Contra,    Tomlin    v.  publication.    Tomlin  v.  Tonica,  &c. 

Tonica,  &c.  R.  Co,  23  111.  429  (374).  R.  Co.  23  111.  429.  The  printed  notice 

"Miles  v.  Bough,  3  Ad.  &  El.  (N.  must  be  put  in  evidence.    Rutland, 

S.)  845;  Fairfield  Co.  Turnp.  Co.  v.  &c.  R.  Co.  v.  Thrall,  35  Vt.  536.   But 

Thorp,  13  Conn.  173.  may  be  supplemented  by  the  testi- 

53  Hughes  v.  Anteitam,  &c.  Co.  34  mony  of  the  publisher  as  to  subse- 

Md.  316;  Lake  Ontario,  &c.  R.  Co.  v.  quent  insertions.   Unthank  v.  Henry 

Mason,  16  N.  Y.  451.   But  see  Brad-  Co.  Turnp.  Co.  6  Ind.  125;  Andrews 

dock  v.  Philadelphia,  &c.  R.  Co.  45  v.  Ohio,  &c.  R.  Co.  14  Ind.  169. 

N.  J.  L.  363.  w  Muskingum  Val.   Turnp.  Co.  v. 

"Braddock  v.  Philadelphia,  &c.  R.  Ward,  13  Ohio  120,  42  Am.  Dec.  191; 

Co.  45  N.  J.  L.  363.   Only  the  person  Fox  v.  Allensville,  &c.  Turnp.  Co.  46 

actually  mailing  the  notice  can  tes-  Ind.    31;    Marsh    v.    Burroughs,    1 

tify  that  it  was  sent.    Jones  v.  Sis-  Woods  (U.  S.)  463. 

son,  6  Gray  (Mass.)  288.  B  Hall  v.  United  States  Ins.  Co.  5 

MMacon,  &c.  R.  Co.  v.  Vason,  57  Gill  (Md.)  484. 

Ga.  314;   Cole  v.  Juliet,  &c.  Co.  79  M  Louisville,  &c.  Co.  v.  Meriwether, 

111.  96;  Louisville,  &c.  Turnpike  Co.  5  B.  Monr.  (Ky.)  13;  Danbury,  &c. 

v.  Meriwether,  5  B.  Mon.   (Ky.)   13.  R.    Co.    v.    Wilson,    22    Conn.    435; 

"•Macon,  &c.  R.  Co.  v.  Vason,  57  Grubbs  v.  Vicksburg,  &c.  R.  Co.  50 

Ga.  314.  The  certificate  of  the  secre-  Ala.  398.   See,  also,  Fisher  v.  Evans- 

tary  is  not  admissible  to  prove  such  ville,  &c.  R.  Co.  7  Ind.  407. 
ELL.  RAILROADS — 15 


CALLS   AXD   ASSESSMENTS. 


226 


read  it  ;60  and  that,  in  general,  showing  that  notice  was  given  to  others 
even  of  the  immediate  neighborhood  will  not  be  sufficient  to  charge  a 
subscriber,61  where  constructive  notice  is  not  expressly  provided  for 
and  such  provisions  carefully  and  exactly  complied  with. 

§  143.  Waiver  by  stockholder  of  notice  and  formalities  of  call — 
Estoppel. — The  subscriber  may  waive  notice,  or  he  may  waive  the  for- 
malities which  give  validity  to  the  call,62  and  may  even  waive  the  call 
itself.68  Such  a  waiver  may  be  by  acts  as  well  as  by  express  agree- 
ment.64 It  is  held  that  a  director  participating  in  a  call  cannot  ques- 
tion its  validity.65  And  a  subscriber  who,  on  receiving  notice  of  a  call, 
refuses  to  pay  it  and  denies  his  liability  as  a  stockholder,  waives  any 
further  notice  of  future  calls.66  But  voluntary  payment  of  part  of  a 
subscription  is  not  necessarily  a  waiver  of  the  right  to  have  calls  made 
for  the  balance  before  payment.67  And  the  payment  of  one  illegal  as- 
sessment does  not  estop  the  subscriber  from  setting  up  illegality  as  a 
defense  to  a  second.68 


§  144.  Demand  and  suit  for  assessment. — After  a  call  is  rendered 
payable  by  resolution  and  due  notice,  suit  may  be  brought  to  collect  it 
without  further  demand.69  Where  several  instalments  are  in  default, 
it  has  been  held  that  one  suit  may  be  brought  for  all.70  The  complaint 


60  Alabama,  &c.  R.  Co.  v.  Rowley, 
9  Fla.  508;  Lake  Ontario,  &c.  R.  Co. 
v.  Mason,  16  N.  Y.  451.  And  see 
Lincoln  v.  Wright,  23  Pa.  St.  76; 
Tomlin  v.  Tonica,  &c.  R.  Co.  23  111. 
429,  62  Am.  Dec.  316  n. 

"New  Jersey  Midland  R.  Co.  v. 
Strait,  35  N.  J.  L.  322. 

MThe  vote  of  a  city  to  pay  a  call 
is  no  waiver  of  its  invalidity.  Pike 
v.  Bangor,  &c.  R.  Co.  68  Me.  445.  A 
waiver  must  be  clearly  proved.  Rut- 
land, &c.  R.  Co.  v.  Thrall,  35  Vt.  536. 

63  Such  a  waiver  is  frequently 
made  by  an  agreement  to  pay  the 
subscription  on  a  day  certain.  New 
Albany,  &c.  R.  Co.  v.  Pickens,  5  Ind. 
247;  Waukon,  &c.  R.  Co.  v.  Dwyer, 
49  Iowa  121. 

"Macon,  &c.  R.  Co.  v.  Vason,  57 
Ga.  314. 


"York  Tramways  Co.  v.  Willows, 
L.  R.  8  Q.  B.  D.  685.  But  the  fact 
that  a  director  voted  for  a  call  and 
made  a  part  payment  of  it,  will  not 
estop  him  to  question  his  liability 
as  a  stockholder. 

MCass  v.  Pittsburg,  &c.  R.  Co.  80 
Pa.  St.  31. 

"Grosse  Isle  Hotel  Co.  v.  Panson, 
43  N.  J.  L.  442. 

88  Somerset,  &c.  R.  Co.  v.  Cushing, 
45  Me.  524.  Nor,  on  the  other  hand, 
does  the  illegality  of  one  assessment 
vitiate  a  subsequent  legal  assess- 
ment. European,  &c.  R.  Co.  v.  Mc- 
Leod,  3  Pugsley  (16  N.  B.)  3,  39. 

"Winter  v.  Muscogee,  &c.  R.  Co. 
11  Ga.  438 ;  Penobscot  R.  Co.  v.  Dum- 
mer,  40  Me.  172,  63  Am.  Dec.  654. 

TOSpangler  T.  Indiana,  &c.  R.  Co. 
21  111.  276. 


227 


ASSIGNMENT  OF  RIGHT  TO   COLLECT. 


[ 


in  such  a  case  must  aver  that  all  the  several  instalments  are  due  and 
payable.71  Interest  may  be  collected  from  the  time  the  instalments 
become  due,  in  case  they  are  not  promptly  paid.72 

§  145.  Assignment  of  right  to  collect  subscription  or  assessment. — 
The  claim  arising  from  an  unpaid  call  may  be  assigned  like  any  other 
debt,73  as  may  subscription  contracts  payable  upon  a  day  certain.74 
But  subscriptions  made  subject  to  call  cannot  be  mortgaged  or  sold 
before  payment  has  been  called  for,75  since  the  discretion  to  make  calls 
vested  in  the  directors  is  not  the  subject  of  transfer,76  and,  generally, 
the  power  to  enforce  calls  can  only  be  exercised  by  the  company  to 
whose  stock  the  subscription  was  made,  unless  there  has  been  a  con- 
solidation or  transfer  of  the  franchises  to  another  company  in  pursu- 
ance of  full  statutory  authority.77 

§  146.  When  courts  may  compel  call  and  payment. — In  case  of 
corporate  insolvency,  a  court  of  equity  may  compel  the  directors  to 
make  a  call  for  the  purpose  of  raising  funds  with  which  to  pay  the 
debts  of  the  corporation.78  Or  it  may  dispense  with  a  call  and  order 
that  the  unpaid  subscriptions,  or  such  a  part  of  them  as  may  be  neces- 


71  Bethel,  &c.  Tump.  Co.  v.  Bean, 
58  Me.  89. 

72  Gould  v.  Oneonta,  71  N.  Y.  298; 
Casey  v.  Galli,  94  U.  S.  673;  Rikhoff 
v.  Brown's  &c.  Co.  68  Ind.  388.  This, 
however,  is  a  matter  frequently  reg- 
ulated by  statute.    Thus,  under  the 
Virginia  statute,  it  has  been  held  in- 
terest may   be   collected   from   the 
date  of  the  call.   Hawkins  v.  Glenn, 
131  U.  S.  319,  9  Sup.  Ct.  739. 

"Miller  v.  Malony,  3  B.  Mon. 
(Ky.)  105;  Wells  v.  Rodgers,  50 
Mich.  294,  15  N.  W.  462;  Downie  v. 
Hoover,  12  Wis.  174,  78  Am.  Dec. 
730;  Morris  v.  Cheney,  51  111.  451. 

74  See   Smith   v.    Hollett,   34    Ind. 
519;  Hays  v.  Branham,  36  Ind.  219. 

75  Stanley,  Ex  parte,  33  L.  J.  (Ch.) 
535;  N.  J.  Midland  R.  Co.  v.  Strait, 
35  N.  J.  L.  322;   Wells  v.  Rodgers, 
50  Mich.  294,  15  N.  W.  462;  Rodgers 
v.  Wells,  44  Mich.  411,  6  N.  W.  860. 


74  A  mortgage  on  all  the  land, 
property  and  effects  of  the  corpora- 
tion does  not  cover  unpaid  subscrip- 
tions. Pickering  v.  Ilfracombe  R. 
Co.  37  L.  J.  (C.  P.)  118. 

"Thrasher  v.  Pike  County  R.  Co. 
25  111.  393. 

78  Germantown  Pass.  R.  Co.  v.  Fit- 
ler,  60  Pa.  St.  124,  100  Am.  Dec. 
546  n;  Sanger  v.  Upton,  91  U.  S.  56; 
Chandler  v.  Siddle,  3  Dill.  (U.  S.) 
477.  See,  also,  Efird  v.  Piedmont 
Land,  &c.  Co.  55  S.  Car.  78,  32  S.  E. 
758,  896;  Glenn  v.  Saxton,  68  Cal, 
353,  9  Pac.  420.  But  this  remedy  has 
been  disapproved.  Dalton,  &c.  R.  Co. 
v.  McDaniel,  56  Ga.  191;  Hatch  v. 
pana,  101  U.  S.  205;  Ward  v.  Gris- 
woldville,  &c.  Co.  16  Conn.  593. 
Compare  Glenn  v.  Howard,  81  Ga. 
383,  8  S.  E.  636,  12  Am.  St.  318.  See, 
also,  Great  Western  Tel.  Co.  v. 
Purdy,  162  U.  S.  329,  16  Sup.  Ct.  810. 


§  147] 


CALLS   AND   ASSESSMENTS. 


228 


sary  to  pay  the  corporate  debts,70  be  paid  to  a  receiver  for  the  benefit  of 
the  corporate  creditors.80  The  right  of  the  court  to  do  this  is  upheld 
even  where  the  statute  provides  that  calls  shall  be  made  only  by  the 
directors.81 

§147.  Extent  of  stockholder's  liability  for  assessments — Agree- 
ments as  affecting  liability. — The  principle  of  law  is  now  well  settled 
that  a  stockholder  is  not  liable  for  assessments  beyond  the  par  value  of 
his  stock,82  unless  made  so  liable  by  provisions  of  the  corporate  charter 
or  by  a  constitutional  statute.83  Liability  to  such  an  assessment  cannot 
be  created  by  a  by-law  adopted  by  a  majority  vote  of  the  directors  or  of 
the  stockholders.84  It  has  been  held,  however,  that  an  agreement  en- 
tered into  by  all  the  stockholders  and  printed  upon  the  certificates, 
may  make  not  only  the  stockholders  but  their  assignees  liable  to  fur- 
ther assessments.85  And  if  the  stockholders,  by  agreement  among  them- 
selves, voluntarily  contribute  to  the  corporate  treasury  in  proportion 


79  Citizens',  &c.  Co.  v.  Gillespie,  115 
Pa.  St.  564,  9  Atl.  73.  See,  also, 
Bank  v.  Butchers',  &c.  Bank,  107  Mo. 
133,  17  S.  W.  644,  28  Am.  St.  405; 
McKay  v.  Elwood,  12  Wash.  579,  41 
Pac.  919;  Henry  v.  Vermillion,  &c. 
R.  Co.  17  Ohio  187. 

""Scovill  v.  Thayer,  105  U.  S.  143; 
Hatch  v.  Dana,  101  U.  S.  205;  Marsh 
v.  Burroughs,  1  Woods  (U.  S.)  463; 
Henry  v.  Vermillion,  &c.  R.  Co.  17 
Ohio  187;  Glenn  v.  Sample,  80  Ala. 
159,  60  Am.  R.  92;  Chandler  v. 
Keith,  42  Iowa  99;  Shockley  v.  Fish- 
er, 75  Mo.  498;  Adler  v.  Milwaukee, 
&c.  Co.  13  Wis.  57;  Glenn  v.  Saxton, 
68  Cal.  353,  9  Pac.  420;  Sagory  v. 
Dubois,  3  Sandf.  Ch.  466;  Elderkin 
v.  Peterson,  8  Wash.  674,  36  Pac. 
1089. 

81  Glenn  v.  Saxton,  68  Cal.  353,  9 
Pac.  420;  Crawford  v.  Rohrer,  59 
Md.  599.  But  see  Trustees,  &c.  v. 
Waples,  3  Woods  (U.  S.)  34,  holding 
that  the  court  cannot  make  a  call 
where  the  charter  provides  for  a  call 
only  upon  a  three-fourths  vote  of 
the  stockholders. 

82Lewey's  Island  R.  Co.  v.  Bolton, 


48  Me.  451,  77  Am.  Dec.  236;  Great 
Falls,  &c.  R.  Co.  v.  Copp,  38  N.  H. 
124;  Smith  v.  Huckabee,  53  Ala. 
191;  Chase  v.  Lord,  77  N.  Y.  1; 
Coffin  v.  Rich,  45  Me.  507,  71  Am. 
Dec.  559.  Inhabitants  of  Norton  v. 
Hodges,  100  Mass.  241;  Carr  v.  Igle- 
hart,  3  Ohio  St.  457;  Redkey  Citi- 
zens', &c.  Gas  Co.  v.  Orr,  27  Ind. 
App.  1,  60  N.  E.  716;  Enterprise 
Ditch  Co.  v.  Moffitt,  58  Neb.  642,  79 
N.  W.  560,  45  L.  R.  A.  647  n,  76  Am. 
St.  122. 

83  Santa  Cruz  R.  Co.  v.  Spreckles, 
65  Cal.  193,  3  Pac.  661,  802.  See  post 
Chapter  IX,  Stockholders. 

84Kennebec,  &c.  R.  Co.  v.  Kendall, 
31  Me.  470;  Trustees  of  Free  Schools 
v.  Flint,  13  Mete.  (Mass.)  539;  Flint 
v.  Pierce,  99  Mass.  68;  Enterprise 
Ditch  Co.  v.  Moffitt,  58  Neb.  642,  79 
N.  W.  560,  76  Am.  St.  122,  45  L.  R. 
A.  647  n,  96  Am.  Dec.  691.  But  see 
Hume  v.  Winyah  Canal  Co.  1  Caro- 
lina L.  J.  217,  cited  in  Cook  Stock, 
&c.  §  242. 

85  Weeks  v.  Silver,  &c.  Co.  23  J. 
and  S.  (N.  Y.  Sup.  Ct.)  1. 


229  CHARTER  PROVISIONS  REGARDING  ASSESSMENTS.          [§   148 

to  the  value  of  their  shares  to  meet  the  needs  of  the  corporation,  such 
advances  do  not  create  corporate  debts  and  cannot  be  recovered  back.86 

§  148.  Construction  of  charter  and  statutory  provisions  regarding 
assessments. — Statutes  and  charter  provisions  authorizing  such  assess- 
ments will  be  strictly  construed.87  Where  the  charter  provided  "that 
the  shares  in  said  capital  stock  shall  not  be  liable  to  assessment  after 
the  capital  stock  so  fixed  in  amount  has  been  paid  in,  except  in  equal 
proportions,  and  by  the  consent  of  the  stockholders  owning  at  least 
three-fourths  of  the  shares  of  the  capital  stock  of  the  corporation,"  it 
was  held  that  paid-up  stock  was  not  liable  to  assessment  in  any  event 
until  the  full  amount  of  the  capital  stock  as  fixed  by  the  charter  had 
bean  subscribed  for  and  actually  paid  in.88  So,  where  the  charter  pro- 
vided that  "if  at  any  time  the  stock  paid  into  said  corporation  shall  be 
impaired  by  loss  or  otherwise,  the  directors  shall  forthwith  repair  the 
same  by  assessment,"  this  authority  was  held  to  be  conferred  only  for 
the  purpose  of  providing  capital  with  which  to  continue  business,  and 
a  receiver  was  not  allowed  to  make  an  assessment  with  which  to  pay 
debts.89 

§  149.  Kemedies  where  stockholder  fails  to  pay  subscription  or 
assessment — Forfeiture. — A  subscriber  may  ordinarily  be  sued  for  any 
unpaid  instalment  due  on  his  stock,  as  for  the  breach  of  any  other 
contract  to  pay  money,90  his  subscription  to  the  capital  stock  being 

88  Bidwell  v.  Pittsburgh,  &c.  R.  Co.  ^  The  corporation  may  levy  execu- 

114  Pa.  535,  6  Atl.  729.  tion  on  the  stock  and  sell  it  to  sat- 

OTLibby  v.  Tobey,  82  Me.  397,  19  isfy  a  judgment  obtained  in  such 

Atl.  904;  Lewey's  Island  R.  Co.  v.  suit.  Chase  v.  East  Tenn.,  &c.  R.  Co. 

Bolton,  48  Me.  451,  77  Am.  Dec.  236;  5  Lea  (Tenn.)  415.  In  most  of  the 

Henderson  v.  Turngrew,  9  Utah  432,  New  England  States,  however,  the 

35  Pac.  495;  O'Reilly  v.  Bard,  105  rule  is  that  the  only  remedy  open 

Pa.  St.  569.  to  a  corporation  in  case  of  the  non- 

88  Atlantic  De  Laine  Co.  v.  Mason,  payment  of  stock  subscribed  is  by 

5  R.  I.  463.  forfeiture  of  the  shares,  unless  the 

S9Dewey  v.  St.  Albans  Trust  Co.  subscriber  expressly  promised  to 

57  Vt.  332.  But  a  similar  statute  in  pay,  or  the  charter  expressly  bound 

California  (Civ.  Code,  §§  331,  332)  him  to  do  so.  Katama  Land  Co.  v. 

is  construed  to  permit  assessments  Jernegan,  126  Mass.  155;  Piscataqua 

to  any  extent  "for  the  purpose  of  Ferry  Co.  v.  Jones,  39  N.  H.  491;  New 

paying  expenses,  conducting  busi-  Hampshire,  &c.  R.  Co.  v.  Johnson,  30 

ness  or  paying  debts."  Santa  Cruz  N.  H.  390,  64  Am.  Dec.  300;  Belfast, 

R.  Co.  v.  Spreckles,  65  Cal.  193,  3  &c.  R.  Co.  v.  Cottrell,  66  Me.  185 ;  Con- 

Pac.  661,  802.  necticut,  &c.  R.  Co.  v.  Bailey,  24  Vt 


§  149] 


CALLS   AND  ASSESSMENTS. 


230 


construed  as  a  promise  to  pay  the  face  value  of  the  shares  subscribed 
for.91  But  the  corporation  is  also,  in  many  of  the  states,  authorized  by 
statute  to  declare  a  forfeiture  of  its  stock  for  non-payment  of  calls  ;92 
while  others  authorize  a  sale  of  the  stock  and  an  application  of  the 
proceeds  to  the  payment  of  the  instalment,  for  which  a  call  has  been 
issued  and  to  which  the  owner  does  not  respond,  after  due  notice.93 
This  remedy  cannot  be  pursued  except  when  it  is  given  by  charter  or 


465,  58  Am.  Dec.  181.  Contra,  Wind- 
sor Electric  Light  Co.  v.  Tandy,  66 
Vt.  248,  29  Atl.  248,  44  Am.  St.  838. 
Cook  Stock  and  Stockholders,  §  71, 
and  numerous  authorities  cited.  But 
in  Connecticut  it  is  held  that  the 
signing  of  a  subscription  paper  and 
agreeing  to  "take"  certain  shares 
amounts  to  a  promise  to  pay  their 
face  value.  Hartford,  &c.  R.  Co.  v. 
Kennedy,  12  Conn.  499.  And  this  is 
the  general  rule  throughout  the 
United  States  and  is  the  rule  en- 
forced in  the  federal  court.  Upton 
v.  Tribilcock,  91  U.  S.  45;  Sanger  v. 
Upton,  91  U.  S.  56,  and  cases  cited  in 
next  note  infra.  A  provision  in  the 
charter  that  the  subscription  may 
be  enforced  by  suit  or  by  forfeiture 
will  fix  a  personal  liability  upon  the 
subscriber  without  an  express  prom- 
ise to  pay.  Kennebec,  &c.  R.  Co.  v. 
Kendall,  31  Me.  470;  Connecticut, 
&c.  R.  Co.  v.  Bailey,  24  Vt.  465, 
58  Am.  Dec.  181.  See  Fry  v.  Lex- 
ington, &c.  R.  Co.  2  Met.  (Ky.) 
314.  Pennsylvania,  Nebraska,  Mary- 
land, Michigan,  Wisconsin,  Alabama, 
New  Mexico  and  Arizona  have  gen- 
eral statutes  providing  that  a  rail- 
road corporation  may  sue  for  unpaid 
installments.  Stimson's  Am.  Stat. 
(1892),  §  8602.  Similar  provision  is 
made  by  statute  in  the  following 
states:  Ohio  R.  S.,  1890,  §  3253; 
Minn.  Gen.  Stat.  1891,  §  3131;'  W. 
Va.  Code,  1887,  Ch.  53,  §  28;  Ark. 
Dig.,  1884,  §  970;  Colo.  Gen.  Stat, 
1883,  §  241.  An  agreement  to  take 


and  fill  certain  shares  has  been  con- 
strued to  be  an  agreement  to  pay 
for  them.  Buckfield  Branch  R.  Co. 
v.  Irish,  39  Me.  44.  See,  also,  Penob- 
scot,  &c.  R.  Co.  v.  Bartlett,  12  Gray 
(Mass.)  244. 

91  Northern   R.    Co.   v.    Miller,   10 
Barb.  (N.  Y.)  260;  Kirksey  v.  Flor- 
ida,   &c.    Plank    R.    Co.  7    Fla.    23, 
68  Am.  Dec.  426;  Instone  v.  Frank- 
fort Bridge  Co.  2  Bibb.   (Ky.)   576, 
5  Am.  Dec.  638;  Hartford,  &c.  R.  Co. 
v.  Kennedy,  12  Conn.  499;   Hughes 
v.    Antietam    M.    Co.    34    Md.    316; 
Selma  R.  Co.  v.  Tipton,  5  Ala.  787, 
39  Am.  Dec.  344;  Western  R.  Co.  v. 
Avery,  64  N.  C.  491;  Klein  v.  Alton, 
&c.    R.   Co.    13    111.    514;    N.    E.   R. 
Co.  v.  Rodriguez,  10  Rich.  L.  (S.  C.) 
278;   Stokes  v.  Lebanon,  &c.  Turnp. 
Co.   6   Humph.    (Tenn.)   241;   Free- 
man   v.    Winchester,    10    S.    &    M. 
(Miss.)    577;    Delaware,   &c.   Canal 
Nav.  v.  Sansom,  1  Binn.   (Pa.)   70; 
Windsor  El.  Light  Co.  v.  Tandy,  66 
Vt.  248,  29  Atl.  248,  44  Am.  St.  838. 
But  an   action   on   a  stock   assess- 
ment against   one   party   on   stock 
which   is  in  the  name  of  another 
party  on  the  books  of  the  corpora- 
tion   cannot    ordinarily    be    main- 
tained   by    the    corporation.    Vale 
Mills  v.  Spalding,  62  N.  H.  605. 

92  Stimson's     Am.     Stat.      (1892), 
§  8113. 

93  Stimson's     Am.     Stat.      (1892), 
§  8113.   But  see  where  sale  was  held 
void  and  issue  of  new  stock  in  its 
place  compelled,   when  stockholder 


231 


CUMULATIVE    REMEDIES £LECTIOX. 


[§  150 


by  statute,94  or  is  created  by  consent  of  all  the  stockholders  which  is 
usually  indorsed  on  the  certificates.95 

§  150.  Cumtilative  remedies — Election. — Statutory  permission  to 
declare  a  forfeiture  does  not  destroy  the  corporate  right  to  collect  the 
money  due  upon  the  subscription  by  other  means,  where  such  right  is 
given  by  law  or  by  contract,90  and  the  corporation  may,  in  a  proper 


duly  tendered  amount  due,  Wilson 
T.  Duplin,  &c.  Co.  139  N.  Car.  395,  52 
S.  E.  62. 

**Westcott  v.  Minnesota,  &c.  Co. 
23  Mich.  145;  Budd  v.  Multnomah 
St.  R.  Co.  15  Oreg.  413,  15  Pac.  659, 
3  Am.  St.  169;  Budd  v.  Multno- 
mah, 15  Oreg.  404,  15  Pac.  654,  40 
Am.  &  Eng.  R.  Cas.  551;  Barton's 
Case,  4  DeG.  &  J.  46;  Perrin  v. 
Granger,  30  Vt.  595;  Minnehaha,  &c. 
Ass'n  v.  Legg,  50  Minn.  333,  52  N. 
W.  898. 

"Weeks  v.  Silver,  &c.  Co.  23  J.  & 
S.  (N.  Y.)  1;  Lesseps  v.  Architects 
Co.  4  La.  Ann.  316.  It  cannot  be 
created  by  a  by-law,  except  where 
authority  to  make  such  by-law  is 
conferred  by  statute,  and  a  sale  un- 
der an  attempted  forfeiture  without 
such  authority  conveys  no  title. 
Long  Island  R.  Co.,  Matter  of,  19 
Wend.  (N.  Y.)  37,  32  Am.  Dec.  429. 
See  Kirk  v.  Nowill,  1  Term  R.  118; 
Kennebec,  &c.  R.  Co.  v.  Kendall,  31 
Me.  470.  And  compare  Detweiler  v. 
Breckenkamp,  83  Mo.  45;  Lesseps  v. 
Architects  Co.  4  La.  Ann.  316. 

"Atlantic  Dynamite  Co.  v.  An- 
drews, 97  Mich.  466,  56  N.  W.  858; 
Puget  Sound,  &c.  R.  Co.  v.  Ouellette, 
7  Wash.  265,  34  Pac.  929;  Ogdens- 
burg,  &c.  R.  Co.  v.  Frost,  21  Barb. 
(N.  Y.)  541;  Rensselaer,  &c.  R.  Co. 
v.  Wetsel,  21  Barb.  (N.  Y.)  56;  Del- 
aware, &c.  Co.  v.  Sansom,  1  Binn. 
(Pa.)  70;  Hartford,  &c.  R.  Co.  v. 
Kennedy,  12  Conn.  499;  Rutland,  &c. 
R.  Co.  v.  Thrall,  35  Vt.  536;  White 


Mountain  R.  Co:  v.  Eastman,  34  N. 
H.  124;  Hightower  v.  Thornton,  8 
Ga.  486,  502,  52  Am.  Dec.  412; 
Selma,  &c.  R.  Co.  v.  Tipton,  5  Ala. 
787,  39  Am.  Dec.  344;  Gratz  v.  Redd, 
4  B.  Mon.  (Ky.)  178;  Boston,  &c.  R. 
Co.  v.  Wellington,  113  Mass.  79; 
New  Orleans,  &c.  Co.  v.  Briggs,  27 
La.  Ann.  318;  Peoria,  &c.  R.  Co.  v. 
Elting,  17  111.  429;  Greenville,  &c.  R. 
Co.  v.  Cathcart,  4  Rich  L.  (S.  C.) 
89;  Stokes  v.  Lebanon,  &c.  Co.  6 
Humph.  (Tenn.)  241;  Kirksey  v. 
Florida,  &c.  Co.  7  Fla.  23,  68  Am. 
Dec.  426 ;  Tar  River,  &c.  Co.  v.  Neal, 
3  Hawks.  (N.  C.)  520;  South  Bay, 
&c.  Co.  v.  Gray,  30  Me.  547.  The  lia- 
bility of  a  stockholder  in  a  for- 
eign corporation  is  generally  de- 
termined by  the  law  of  the  state 
which  created  it,  but  it  may  be 
enforced  by  the  courts  of  other 
jurisdictions,  and  "the  general  rule 
in  the  states  of  this  country  is, 
where  a  corporation  has  a  right  un- 
der the  statute  creating  it,  to  declare 
a  forfeiture  of  shares  for  non-pay- 
ment of  calls,  it  may  exercise  its 
option  to  forfeit  the  stock  or  bring 
its  action  to  collect  the  amount  of 
the  calls,  but  cannot  forfeit  the 
stock  and  afterwards  sue  at  law,  as 
the  exercise  of  the  first  option  would 
(end  the  relation  of  the  parties  and 
exclude  a  resort  to  the  other."  Man- 
del  v.  Swan  Land,  &c.  Co.  154  111. 
177,  40  N.  E.  462,  27  L.  R.  A.  313,  45 
Am.  St.  124,  citing  Small  v.  Herki- 
mer,  &c.  Co.  2  N.  Y.  330;  Buffalo,  &c. 


150] 


CALLS   AND   ASSESSMENTS. 


232 


case,  elect  which  remedy  it  will  pursue.07  It  has  been  held  that  the 
remedy  for  forfeiture  and  sale  could  be  pursued,  and  that  the  share- 
holder could  then  be  sued  for  any  unpaid  balance  not  discharged  by 
the  proceeds  arising  from  a  sale  of  the  stock,  as  in  a  foreclosure  of  a 
mortgage,  where  the  mortgaged  property  does  not  sell  for  enough  to 
pay  the  debt.08  It  is  argued  that  where  provision  is  made  for  the  pay- 
ment to  the  subscriber  of  any  surplus  arising  from  a  sale,  after  paying 
the  delinquent  assessment,"  the  contention  that  the  forfeiture  destroys 
the  contract  relation  between  him  and  the  corporation  cannot  be  up- 
held, but  he  will  be  impliedly  liable  for  any  deficiency  in  the  sum 
necessary  to  discharge  such  assessment.100  And  it  has  been  held  that 
the  company  may  declare  a  forfeiture  after  suit  brought  to  recover  un- 
paid calls,  and  that  such  a  forfeiture  cannot  be  pleaded  in  bar  of  the 
further  maintenance  of  the  suit  where  the  value  of  the  stock  forfeited 
is  not  equal  to  the  money  due  the  company,101  although  the  stock- 
holder may  insist,  in  diminution  of  damages,  that  such  value  shall  be 
subtracted  from  the  sum  for  which  the  corporation  would  otherwise 
have  judgment.102  But  it  is  generally  held  that  while  the  corporation 
may  proceed  either  by  suit  or  by  forfeiture,  the  adoption  of  the  statu- 
tory remedy  by  forfeiture  or  sale  excludes  the  other,103  except  where 


R.  Co.  v.  Dudley,  14  N.  Y.  336;  Rut- 
land, &c.  R.  Co.  v.  Thrall,  35  Vt.  536. 

97 1  Cook  Stock  and  Stockholders, 
§  124. 

88  Carson  v.  Arctic  Min.  Co.  5 
Mich.  288.  But  see  Mandel  v.  Swan, 
&c.  Co.  154  111.  177,  40  N.  E.  462,  27 
L.  R.  A.  313,  45  Am.  St.  124.  For 
other  cases  in  which  legislative  pro- 
vision is  made  by  charter  or  other- 
wise, for  such  procedure  see  Brock- 
enbrough  v.  James  River,  &c.  Co.  1 
Patton  &  H.  (Va.)  94;  Mann  v. 
Cooke,  20  Conn.  178;  Danbury,  &c. 
R.  Co.  v.  Wilson,  22  Conn.  435.  One 
who  acquired  his  shares  by  transfer 
is  held  liable  under  this  rule  equally 
with  an  original  subscriber.  Merri- 
mac  Min.  Co.  v.  Bagley,  14  Mich.  501, 
and  cases  cited  supra. 

99  Provision  that  the  shareholder 
shall  have  the  surplus  or  be  liable 
for  any  deficiency  is  found  in  the 
general  statutes  of  Massachusetts, 


Vermont,  Maryland  and  Wisconsin. 
Stimson's  Am.  Stat.  (1892),  §  8602. 

100  Carson    v.    Arctic    Min.    Co.    5 
Mich.  288.  See,  also,  Great  Northern 
R.    Co.    v.    Kennedy,    4    Exch.    417; 
Hartford,  &c.  R.  Co.  v.  Kennedy,  12 
Conn.  499. 

101  Herkimer  Mfg.  Co.  v.  Small,  21 
Wend.    (N.  Y.)   273,  reversed,  how- 
ever, in  2  N.  Y.  330. 

102  Herkimer  Mfg.  Co.  v.  Small,  21 
Wend.   (N.  Y.)   273,  reversed,  how- 
ever, in  2  N.  Y.  330. 

103  Ogdensburg,  &c.  R.  Co.  v.  Frost, 
21  Barb.  (N.  Y.)  541;  Mills  v.  Stew- 
art, 41  N.  Y.  384;Athol,  &c.  R.  Co.  v. 
Inhabitants   of   Prescott,   110   Mass. 
213;  Mechanics',  &c.  Co.  v.  Hall,  121 
Mass.  272;  Allen  v.  Montgomery,  &c. 
Co.,  11  Ala.  437;  Macauly  v.  Robin- 
son, 18  La.  Ann.  619;   Rutland,  &c. 
R.  Co.  v.  Thrall,  35  Vt.  536;  Macon, 
&c.   R.    Co.    v.   Vason,   57   Ga.   314; 
Ashton  v.  Burbank,  2  Dill.   (U.  S.) 


233 


EFFECT  OF  FOEFEITURE. 


'[§    151 


the  statute  gives  an  action  for  the  balance  of  the  subscription  not  can- 
celed by  the  proceeds  of  the  sale.104  Where  such  an  action  was  given  by 
statute  in  Massachusetts  it  was  held  that  a  personal  action  could  not 
be  maintained  until  there  had  been  a  formal  declaration  of  forfeiture 
and  a  sale  based  upon  such  forfeiture.105  But  a  mere  threat  to  enforce 
a  forfeiture,  or  an  unsuccessful  attempt  to  sell  the  shares,  will  not  bar 
a  suit  to  enforce  the  subscription  contract.106  Notice  that  a  forfeiture 
will  be  enforced  in  the  future  unless  payment  is  made  is  not  a  for- 
feiture,107 nor  is  a  threat  of  forfeiture  for  non-payment.108  And  a 
stockholder's  obligation  to  pay  continues  so  long  as  his  right  to  the 
shares,  with  the  privileges  and  emoluments  attached  to  them,  re- 
mains.109 It  has  also  been  held  that  an  action  to  collect  a  subscription, 
when  prosecuted  to  judgment,  will  preclude  the  enforcement  of  a  for- 
feiture.110 The  remedy  in  such  a  case  would  seem  to  be  by  execution 
levied  upon  the  stock.111 

§  151.  Effect  of  forfeiture. — Except  where  the  statute  makes  pro- 
vision for  the  payment  to  the  shareholder  of  the  surplus  arising  from 
a  sale  of  the  forfeited  shares  after  payment  of  the  instalments 


435;  King's  Case,  L.  R.  2  Ch.  714; 
Mandel  v.  Swan,  &c.  Co.  154  111.  177, 
40  N.  E.  462,  27  L.  R.  A.  313,  and 
note,  45  Am.  St.  124. 

104  Such  a  provision  is  frequently 
found  in  special  charters  granted  to 
corporations.    See  New  Hampshire 
Cent.  R.  Co.  v.  Johnson,  30  N.  H. 
390,  64  Am.  Dec.  300;  Danbury,  &c. 
R.  Co.  v.  Wilson,  22  Conn.  435 ;  Great 
Northern  R.  Co.  v.  Kennedy,  4  Exch. 
417,  425.   It  is  also  given  by  general 
statute  in  Massachusetts,  Vermont, 
Maryland  and  Wisconsin.   Stimson's 
Am.   Stat    (1892),   §   8602.    And  in 
West  Virginia  and  Arkansas,  R.  S. 
W.  Va.    (1887)    Ch.  53,  §  27,  R.  S. 
Ark.  (1884),  §  970. 

105  Athol,  &c.  R.  Co.  v.  Prescott,  110 
Mass.   213.    But  the  holding  would 
probably  be  different  in  those  states 
where  a  personal  action  is  given  in 
the  first  instance  by  the  common 
law,  as  construed  by  their  courts. 


10*Macon,  &c.  R.  Co.  v.  Vason,  57 
Ga.  314;  Instone  v.  Frankfort 
Bridge  Co.  2  Bibb.  (Ky.)  576,  5  Am. 
Dec.  638.  See  Water  Valley  M.  Co. 
v.  Seaman,  53  Miss.  655;  Cockerell 
v.  Van  Diemen's  Land  Co.  26  L.  J. 
(C.  P.)  203. 

1OTMacon,  &c.  R.  Co.  v.  Vason,  57 
Ga.  314;  Bigg's  Case,  L.  R.  1  Eq. 
309 ;  Hays  v.  Franklin  County  Lum- 
ber Co.  35  Neb.  511,  53  N.  W.  381. 
See,  aljO,  Johnson  v.  Albany,  &c.  R. 
Co.  40  How.  Pr.  (N.  Y.)  193. 

108  Water  Valley  M.  Co.  v.  Seaman, 
53  Miss.  655. 

109  Instone  v.  Frankfort  Bridge  Co. 
2  Bibb.   (Ky.)   576,  581,  5  Am.  Dec. 
638;   Buffalo,  &c.  R.  Co.  v.  Dudley, 
l^  N.  Y.  336,  347. 

110  Giles  v.  Hutt,  3  Ex.  18. 

111  For  an  instance  of  the  sale  of 
stock    on    such    an    execution,    see 
Chase  v.  East  Tenn.,  &c.  R.  Co.  5 
Lea  (Tenn.)  415. 


152] 


CALLS   AXD   ASSESSMENTS. 


234 


due,112  it  is  held  that  such  surplus  belongs  to  the  corporation.113 
After  forfeiture,  the  stockholder  can.  claim  none  of  the  rights  of  an 
owner  of  stock,114  nor  can  he  be  charged  as  a  stockholder,  with  the 
corporate  liabilities  at  the  suit  of  the  corporate  creditors,115  even  for 
debts  contracted  before  the  forfeiture.116  But  to  have  this  effect,  the 
forfeiture  must  be  enforced  in  good  faith. ^  A  forfeiture  of  shares  by 
collusion  of  the  shareholder  and  the  directors  will  be  set  aside  for 
fraud  by  a  court  of  equity  at  the  suit  of  the  creditors  of  an  insolvent 
corporation,117  and  the  shareholder  will  be  held. liable  to  the  same  ex- 
tent as  if  no  forfeiture  had  been  attempted.:|3^ 

§  152.    Statutory  method   of  forfeiture~~nmst  be  pursued. — The 

method  of  forfeiture  prescribed  by  the  statute  authorizing  this  remedy 
must  be  strictly  pursued,  and  all  the  prescribed  formalities  complied 
with,119  in  order  to  divest  the  stockholder's  title.  Where,  as  is  true 


112  The  statutes  of  Massachusetts, 
Vermont,  Maryland  and  Wisconsin 
make  such  provision.  Stimson's  Am. 
Stat.  (1892),  §  8602. 

113  Small  v.  Herkimer,  &c.  Co.  2  N. 
Y.  330.  See  Freeman  v.  Harwood,  49 
Me.    195;    Cook    Stock    and    Stock- 
holders, §  133.   But  compare  Henkel 
v.  Pioneer  Sav.  &c.  Co.  61  Minn.  35, 
63  N.  W.  243. 

U4St.  Louis,  &c.  Co.  v.  Sandoval, 
&c.  Co.  116  111.  170,  5  N.  E.  370. 

115  Allen  v.  Montgomery  R.  Co.  11 
Ala.  437,  450;  Macauley  v.  Robin- 
son, 18  La.  Ann.  619;  Snell's  Case, 
L.  R.  5  Chan.  22. 

110  Mills  v.  Stewart,  41  N.  Y.  384 
(unless  it  is  collusive  and  fraudu- 
lent). 

117  Germantown,  &c.  R.  Co.  v.  Fit- 
ler,   60  Pa.  St.  124,  100  Am.  Dec. 
546  n. 

118  Burke  v.   Smith,  16  Wall.    (U. 
S.)    390;    Slee  v.  Bloom,  19  Johns. 
(N.  Y.)  456,  10  Am.  Dec.  273;  Gow- 
er's  Case,  L.  R.    6    Eq.    77;    Stan- 
hope's Case,  L.  R.  1  Ch.  161.   Aban- 
donment of  the  shares  by  the  stock- 
holder, without  a  declaration  of  for- 
feiture by  the  corporation  will  not 


release  the  subscriber  from  liability 
on  his  subscription.  Rockville,  &c. 
Turnp.  Co.  v.  Maxwell,  2  Cranch  C. 
C.  (U.  S.)  451. 

U9  Germantown,  &c.  R.  Co.  v.  Fit- 
ler,  60  Pa.  St.  124,  100  Am.  Dec.  546 
n;  Portland,  &c.  R.  Co.  v.  Graham, 
11  Mete.  (Mass.)  1;  York,  &c.  R. 
Co.  v.  Ritchie,  40  Me.  425;  Lewey's 
Island  R.  Co.  v.  Bolton,  48  Me.  451, 
77  Am.  Dec.  236;  Eastern,  &c.  P. 
R.  Co.  v.  Vaughan,  20  Barb.  (N. 
Y.)  155;  Johnson  v.  Albany,  &c. 
R.  Co.  40  How.  Pr.  (N.  Y.)  193; 
Downing  v.  Potts,  23  N.  J.  L.  66; 
Occidental,  &c.  Assoc.  v.  Sullivan,  62 
Cal.  394;  London,  &c.  R.  Co.  v.  Fair- 
clough,  2  Mann.  &  G.  674.  Garden 
Gulley,  &c.  Co.  v.  McLister,  L.  R.  1 
App.  Cas.  39 ;  Moses  v.  Tompkins,  84 
Ala.  613,  4  So.  763;  Alabama,  &c.  R. 
Co.  v.  Rowley,  9  Fla.  508;  Morris  v. 
Metalline  Land  Co.  164  Pa.  St.  326, 
30  Atl.  240,  27  L.  R.  A.  305,  and  note, 
44  Am.  St.  614.  See  Rutland,  &c. 
R.  Co.  v.  Thrall,  35  Vt.  536.  Some 
of  the  old  cases  hold  that  a  substan- 
tial compliance  with  the  require- 
ments is  sufficient,  but  the  modern 
rule  is  as  stated  in  the  text.  Cook 


235     STATUTORY   METHOD  OF  FORFEITURE  MUST  BE  PURSUED.    [§'  152 


in  many  of  the  states,120  the  statute  authorizes  a  sale  of  the  forfeited 
shares  at  public  auction,  they  cannot  legally  be  sold  at  private  sale.121 
And  a  sale  for  the  payment  of  several  assessments,  including  one 
•which  was  illegal  or  unauthorized,  may  be  avoided.122  It  has  been 
held  that  only  a  properly  constituted  board  of  directors  has  authority 
to  declare  a  forfeiture,123  and  the  stockholder  may  enjoin  an  at- 
tempted forfeiture  of  his  shares  by  a  board  that  has  not  been  legally 
chosen.124  The  company  may  defer  the  exercise  of  its  power  of  for- 
feiture until  all  of  the  instalments  become  due,125  but  if  it  elects  to 
sell  slock  that  is  only  partially  paid  for  by  payment  of  the  delinquent 
assessment,  the  purchaser  at  the  forfeiture  sale  must  assume  the  pay- 
ment of  the  instalments  to  become  due  in  the  future ;  and  if  he  fails 
to  pay  them  the  stock  must  be  sold  again.126  And  where  the  statute 
is  silent  as  to  details,  the  procedure  must  be  just  and  reasonable.127 


Stock  and  Stockholders,  §  129.  But 
neglect  to  comply  strictly  with  a 
matter  of  mere  form  rather  than 
validate  a  forfeiture.  North  Hollen- 
beagle  Min.  Co.,  In  re  Knight's  Case, 
L.  R.  2  Chan.  321,  15  L.  T.  (N.  S.) 
546. 

^Stimson's  Am.  Stat.  (1892), 
§  8113.  Several  of  these  states  per- 
mit other  modes  of  sale  to  be  pre- 
scribed by  by-laws.  Stimson's  Am. 
Stat.  (1892),  §  8113.  . 

121  Lewey's  Island  R.  Co.  v.  Bolton, 
48  Me.  451,  77  Am.  Dec.  236.  See 
Birmingham,  &c.  R.  Co.  v.  Locke,  1 
Q.  B.  256;  Catchpole  v.  Ambergate, 
&c.  R.  Co.  1  Ellis  &  B.  Ill,  as  to 
•what  is  a  sufficient  compliance  with 
prescribed  formalities. 

122Stoneham,  &c.  R.  Co.  v.  Gould, 
2  Gray  (Mass.)  277;  Lewey's  Island 
R.  Co.  v.  Bolton,  48  Me.  451,  77 
Am.  Dec.  236. 

^Garden  Gully,  &c.  Co.  v.  McLis- 
ter,  L.  R.  1  App.  Cas.  39,  55.  See, 
also,  Ormsby  v.  Vermont,  &c.  Co.  56 
N.  Y.  623;  Bottomley's  Case,  L.  R. 
16  Ch.  Div.  681. 

"*  Moses  v.  Tompkins,  84  Ala.  613, 
4  So.  763. 


125  Brockenbrough  v.  James  River, 
&c.  Co.  1  Patton  &  H.  (Va.)  94. 

128Sturges  v.  Stetson,  1  Biss.  (U. 
S.)  246,  251. 

127  Rutland,  &c.  R.  Co.  v.  Thrall,  35 
Vt.  536,  holding  that  a  resolution  of 
the  board  of  directors  that  all  stock 
remaining  unpaid  at  a  day  named 
in  the  future  shall  be  sold  to  satisfy 
the  assessment  levied,  is  reasonable. 
But  see  Johnson  v.  Albany,  &c.  R. 
Co.  40  How.  Prac.  (N.  Y.)  193,  to 
the  effect  that  a  general  resolution 
to  forfeit  all  stock  remaining  un- 
paid at  a  certain  day  in  the  future 
is  insufficient  to  effect  a  forfeiture 
without  further  action  by  the  cor- 
poration. But  where  the  stockholder 
is  shown  to  have  received  notice  of 
such  determination,  it  is  held  that 
the  court  will  presume  that  the 
necessary  steps  were  taken  to  per- 
fect the  forfeiture.  Knight's  Case, 
L.  R.  2  Ch.  321,  15  L.  T.  (N.  S.) 
546.  A  thirty  days'  notice  is  reason- 
able and  sufficient.  Rutland,  &c.  R. 
Co.  v.  Thrall,  35  Vt.  536.  But  a  three 
days'  notice  is  not;  at  least,  where 
the  owner  lives  at  a  distance  in  an- 
other state.  Lexington,  &c.  R.  Co.  v. 
Staples,  5  Gray  (Mass.)  520. 


153] 


CALLS  AND  ASSESSMENTS. 


236 


§  153.  Notice  of  forfeiture. — Notice  to  the  delinquent  subscriber 
that  his  shares  will  be  forfeited  unless  calls  are  paid  within  a  certain 
time  is  generally  required  to  precede  the  enforcement  of  the  for- 
feiture,128 and  this  requirement  must  be  strictly  complied  with.12* 
While  the  manner  of  giving  notice  is  usually  prescribed  by  the  statute 
authorizing  a  forfeiture,  personal  notice  is  said  to  be  sufficient.18* 
And  it  is  intimated  that  one  having  actual  notice  cannot  object  to  the 
mode  by  which  it  is  given.131  But  a  notice  which  did  not  purport  to 
be  given  by  the  proper  officer  of  the  company  has  been  held  insufficient, 
and  the  sale  based  thereon  was  held  voidable.132  The  notice  must  be 
certain  and  unequivocal  as  to  the  time  of  the  forfeiture,133  and  time 
and  place  of  sale.134 


128  For    the    general    statutes    of 
thirty  of  the  states  containing  this 
requirement,     see     Stimson's     Am. 
Stat.  (1892),  §  8113.  But,  under  the 
Indiana  statute,  after  notice  of  the 
call  is  given,  one  who  fails  to  pay 
cannot  insist  that  an  additional  no- 
tice of  forfeiture  should  be  given. 
Hill  v.  Nisbet,  100  Ind.  341. 

129  Lewey's  Island  R.  Co.  v.  Bolton, 
48  Me.  451,  77  Am.  Dec.  236;  Lake 
Ontario,  &c.  R.  Co.  v.  Mason,  16  N. 
Y.  451;  Morris  v.  Metalline,  &c.  Co. 
164  Pa.  St.  326,  31  Atl.  114,  27  L.  R. 
A.  305  n,  44  Am.  St.  614;  Rutland, 
&c.  R.  Co.  v.  Thrall,  35  Vt.  536,  546; 
Hughes  v.  Antietam,  &c.  R.  Co.  34 
Md.  316;  Heaston  v.  Cincinnati,  &c. 
R.    Co.    16    Ind.    275,    79    Am.    Dec. 
430  n.  See,  also,  Eppes  v.  Mississippi, 
&c.  R.  Co.  35  Ala.  33;   Cockrell  v. 
Van  Dieman's  Land  Co.  26  L.  J.  (C. 
P.)    203;    Lexington,  &c.   R.   Co.  v. 
Chandler,    13    Mete.     (Mass.)     311, 
where  a  notice  required  by  a  by-law 
was    held    merely    directory.     See, 
also,  Mississippi,  &c.  R.  Co.  v.  Gas- 
ter,  20  Ark.  455.    Knight's  Case,  L. 
R.  2  Ch.  321,  15  L.  T.   (N.  S.)   546. 
But  a  notice  after   forfeiture  was 
presumed  to  have  been  given,  when 
the   substantial   requirements   were 
complied  with.   Where  notice  of  an 


assessment  must  be  given  thirty 
days  before  the  order  of  the  direc- 
tors to  sell  the  shares,  it  is  not  suf- 
ficient to  give  the  notice  thirty  days 
before  the  sale.  Lewey's  Island  R. 
Co.  v.  Bolton,  48  Me.  451,  77  Am. 
Dec.  236.  See  Louisville,  &c.  Turnp. 
Co.  v.  Meriwether,  5  B.  Mon.  (Ky.) 
13. 

130  Mississippi,  &c.  R.  Co.  v.  Gaster, 
20  Ark.  455 ;  Lexington,  &c.  R.  Co.  v. 
Chandler,  13  Mete.  (Mass.)  311.  See 
Knight's  Case,  L.  R.  2  Chan.  321,  15 
L.  T.  R.  546;  Birmingham,  &c.  R.  Co. 
v.  Locke,  1  Q.  B.  256;   South  Staf- 
fordshire R.  Co.  v.  Burnside,  5  Exch. 
129.   But  see  Lewey's  Island  R.  Co. 
v.  Bolton,  48  Me.  451,  77  Am.  Dec. 
236. 

131  Mississippi,  &c.  R.  Co.  v.  Gaster, 
20  Ark.  455;  Lexington,  &c.  R.  Co.  v. 
Chandler,  13  Mete.  (Mass.)  311. 

132  Portland,  &c.  R.  Co.  v.  Graham, 
11  Met.  1.   See,  also,  Lewey's  Island 
R.  Co.  v.  Bolton,  48  Me.  441,  77  Am. 
Dec.    236.    It    should    usually    be 
served  upon  the  person  who  is  reg- 
istered as  owner.    Graham  v.  Van 
Diemen's  Land  Co.  1  Hurlst.  &  N. 
541,  26  L.  J.  Ech.  73. 

133  Watson  v.  Bales,  23  Beav.  294. 
184  Lexington,  &c.  R.  Co.  v.  Staples, 

5  Gray  (Mass.)  520. 


237 


DEFEATING   AND   ANNULLING   FORFEITURE — ESTOPPEL.    [§    154 


§  154.  Defeating  and  annulling  forfeiture — Estoppel. — The  for- 
feiture can  be  defeated  by  a  tender  of  the  full  amount  due  on  the  sub- 
scription to  the  proper  officer  of  the  corporation  at  any  time  before 
a  sale  actually  takes  place.135  An  irregular  or  defective  forfeiture  is 
voidable  only,  and  not  void,  and  long  acquiescence138  may  estop  both 
the  shareholder  and  the  company  from  denying  its  validity.137  But 
ih'e  shareowner138  may,  in  a  proper  case,  by  calling  upon  a  court  of 


135  Mitchell  v.  Vermont,  &c.  Co.  67 
N.  Y.  280.  This  is  true  though  the 
tender  be  accompanied  by  a  protest. 
Sweny  v.  Smith,  L.  R.  7  Eq.  324. 
And,  it  would  seem,  even  though  a 
declaration  of  strict  forfeiture  had 
been  entered  on  the  books  of  the 
company.  Walker  v.  Ogden,  1  Biss. 
(U.  S.  C.  C.)  287.  See,  also,  Iron  R. 
Co.  v.  Fink,  41  Ohio  St.  321,  52  Am. 
R.  84.  The  owner  has  been  allowed 
to  redeem  in  several  cases  involving 
peculiar  circumstances.  See,  Stubbs 
v.  Lister,  1  Younge  &  C.  Ch.  Cas.  81; 
Walker  v.  Ogden,  1  Biss.  (U.  S.)  287. 

^Phosphate,  &c.  Co.  v.  Green,  L. 
H.  7  C.  P.  43.  By  statute  in  Cali- 
fornia application  for  relief  from  an 
irregular  forfeiture  must  be  made 
within  six  months.  Civ.  Code  Cal., 
$  347. 

137  Knight's  Case,  L.  R.  2  Ch.  321; 
Austin's  Case,  24  L.  T.  (N.  S.)  932; 
Woollaston's  Case,  4  DeG.  &  J.  437; 
Lesseps  v.  Architects  Co.  4  La.  Ann. 
316;   Evans  v.  Smallcombe,  L.  R.  3 
H.  of  L.  249 ;  Prendergast  v.  Turton, 
1  Younge  &  C.  Ch.  Cas.  98,  5  Jur. 
1102 ;  Sayre  v.  Citizens'  Gas,  &c.  Co., 
69  Cal.  207,  7  Pac.  437,  10  Pac.  408. 
But,  see,  Garden  Gully,  &c.  Co.  v. 
McLister,  L.  R.  1  App.  Cas.  39,  55, 
holding  that  mere  laches  will  not 
bar  the  shareholder  from  equitable 
relief  against  an  invalid  declaration 
of  forfeiture.    See,  also,  Ormsby  v. 
Vermont,  &c.  Co.,  56  N.  Y.  623. 

138  Mitchell  v.  Vermont,  &c.  Co.  67 
IN.  Y.  280;  Sweny  v.  Smith,  L.  R.  7 


Eq.  324.  An  unauthorized  forfeiture 
may  be  enjoined.  Moore  v.  New  Jer- 
sey, &c.  Co.  5  N.  Y.  S.  192;  Green 
v.  Abietine,  &c.  Co.  96  Cal.  322,  31 
Pac.  100.  But  an  injunction  to  re- 
strain the  sale  of  shares  for  assess- 
ments will  not  be  granted  where  the 
plaintiff  does  not  offer  to  pay  the 
calls.  Burnham  v.  San  Francisco, 
&c.  Co.  76  Cal.  24,  17  Pac.  939. 
Where  the  forfeiture  is  legal  equity 
will  seldom  interfere  because  of 
hardship  or  the  like.  Sparks  v.  Liv- 
erpool Water-Works,  13  Ves.  428; 
Taylor  v.  North  Star,  &c.  Co.  79  Cal. 
285,  21  Pac.  753;  Clark  v.  Barnard, 
108  U.  S.  436,  456,  2  Sup.  Ct.  878; 
Vatable  v.  New  York,  &c.  R.  Co.  96 
N.  Y.  49;  Marshall  v.  Golden  Fleece, 
&c.  Co.  16  Nev.  156.  But  see  Glass 
v.  Hope,  16  Grant  (Upper  Can.)  Ch. 
420;  Iron  R.  Co.  v.  Fink,*  41  Ohio  St. 
321,  22  Am.  &  Eng.  R.  Cas.  20,  52 
Am.  R.  84.  Mandamus  will  not  lie  to 
compel  a  foreign  corporation  to  an- 
nul a  forfeiture.  North  State,  &c. 
Co.  v.  Field,  64  Md.  151,  20  Atl.  1039. 
Damages  may  also  be  recovered 
where  stock  is  wrongfully  forfeited 
and  sold.  Allen  v.  American,  &c. 
Ass'n,  49  Minn.  544,  52  N.  W.  144; 
32  Am.  St.  581;  Budd  v.  Multnomah 
•St.  R.  Co.  15  Oreg.  413,  15  Pac.  659, 
'3  Am.  St.  169;  Ormsby  v.  Vermont, 
&c.  Co.  56  N.  Y.  623;  New  Chile,  &c. 
Co.,  Re,  63  L.  T.  R.  344;  Catchpolev. 
Ambergate,  &c.  R.  Co.  1  El.  &  Bl. 
Ill,  22  L.  J.  Q.  B.  35. 


§'  154]  CALLS  AND   ASSESSMENTS.  238 

chancery,  obtain  a  decree  annulling  such  a  forfeiture ;  and  so,  too,  may 
corporate  creditors  whose  interests  are  injured  thereby.139  It  was 
held,  however,  in  one  of  the  cases  to  which  we  have  referred  in  support 
of  our  last  proposition,  that  where  a  corporation  had  made  an  as- 
signment for  the  benefit  of  creditors,  and  the  directors  afterwards 
made  a  call  and  forfeited  the  plaintiff's  stock  for  non-payment, 
without  any  express  objection  or  assent  on  the  part  of  the  assignee, 
the  plaintiff  could  not,  without  tendering  the  amount  due  or  taking 
any  steps  to  prevent  the  forfeiture,  maintain  a  suit  to  annul  the  for- 
feiture and  restore  to  him  his  rights  as  a  stockholder.140 

139  Germantown,  &c.  R.  Co.  v.  Fit-  the  forfeiture  aside  for  irregularity 
ler,  60  Pa.  St.  124,  100  Am.  Dec.  546 ;  in  the  notice,  and  hold  the  sub- 
Grand  Rapids  Savings  Bank  v.  War-  scriber  liable  as  a  stockholder.  Aus- 
ren,  52  Mich.  557,  18  N.  W.  356.  It  tin's  Case,  24  L.  T.  (N.  S.)  932. 
seems  that  the  corporation  itself  "°  Germantown,  &c.  R.  Co.  v.  Fit- 
cannot,  after  forfeiting  shares,  set  ler,  60  Pa.  St.  124,  100  Am.  Dec.  546. 


CHAPTEE  IX. 


STOCKHOLDERS. 


Sec.  Sec. 

155.  When   one    becomes   a   stock-    175. 

holder. 

156.  Rights  of  stockholders— Right    176. 

to  vote. 

157.  Who  has  right  to  vote— How    177. 

determined. 

158.  Right  of  trustees  and  receivers    178. 

to  vote. 

159.  Right  of  corporations  and  vot-    179. 

ing  trusts  to  vote. 

160.  Number    of    votes    to    which 

stockholder      is      entitled — 
Cumulative  voting.  180. 

161.  Quorum  must  be  present. 

162.  Voting  by  proxy. 

163.  Other  powers  of  stockholders    181. 

—Rights  of  minority.  182. 

164.  Stockholders'  meetings. 

165.  Remedies  of  stockholders.  183. 

166.  Unregistered     assignees     and    184. 

third  persons  cannot  sue. 

167.  When    stockholders   may   sue    185. 

or  become  parties. 

168.  Right  to  recover  insurance.        186. 

169.  Other  rights  and  remedies  of 

stockholders.  187. 

170.  Stockholders  as  agents  of  the 

corporation.  188. 

171.  Notice  to  stockholders. 

172.  Stockholders'  right  to  inspect 

books. 

173.  Stockholder  is  disqualified  to  ,189. 

serve  as  judge  or  juror  where 
corporation  is  interested.          190. 

174.  Unlawful     combinations     and 

conspiracies  to  vote  or  pre- 
vent voting — Injunction. 

239 


Liability  of  stockholders  for 
unpaid  subscriptions. 

Release  of  stockholders — With- 
drawal. 

Compromises  with  stock- 
holders. 

Liability  where  stock  is 
transferred. 

When  creditors  may  enforce 
unpaid  subscriptions — Judg- 
ment and  execution  against 
corporation. 

Effect,  as  against  stockholder, 
of  judgment  against  the  cor- 
poration. 

Stockholder's  defense. 

Methods  of  enforcing  stock- 
holder's liability. 

Contribution. 

Suits  by  assignees  and  re- 
ceivers. 

Statutory  liability  of  stock- 
holders. 

Defenses  to  actions  to  enforce 
statutory  liability. 

Who  may  institute  action  to 
enforce  statutory  liability. 

How  statutory  liability  is  en- 
forced— Judgment  and  exe- 
cution against  the  corpora- 
tion. 

Priority  among  creditors  — 
Forum — Contribution. 

When  stockholders  are  liable 
as  partners. 


§  155] 


STOCKHOLDERS. 


240 


§  155.  When  one  becomes  a  stockholder. — It  is  sometimes  said 
that  one  who  has  subscribed  for  stock  in  an  incorporated  company 
does  not  become  a  stockholder  until  he  has  paid  for  such  stock,1  and, 
on  the  other  hand,  it  is  said  that  he  does  become  a  stockholder  as 
soon  as  he  subscribes  to  an  unconditional  agreement  to  take  a  certain 
number  of  shares.2  It  seems  to  us  that  it  will  not  do  to  affirm  as  a 
general  rule  that  payment  of  a  subscription  is  essential  to  constitute 
the  subscriber  a  stockholder,  although  this  may  doubtless  be  made 
essential  by  charter,  statute,  or  authorized  by-law;3  nor  will  it  do  to 
say  that  a  mere  subscription,  without  anything  more,  will  always  be 
sufficient,  but  a  complete  and  valid  subscription  is  undoubtedly  suffi- 
cient, as  a  general  rule,  where  the  subscriber  is  accepted  by  the  cor- 
poration as  a  stockholder.4  So,  even  where  the  subscription  is  ir- 
regular, or  incomplete,  or  conditional,  the  subscriber  may  become  a 


1  Baltimore,  &c.  R.  Co.  v.  Ham- 
bleton,  77  Md.  341,  26  Atl.  279; 
Busey  v.  Hooper,  35  Md.  15;  Bates 
v.  Great  Western  Tel.  Co.  134  111. 
546,  25  N.  E.  521;  St.  Paul,  &c.  R. 
Co.  v.  Robbins,  23  Minn.  439;  Min- 
neapolis Harvester  Works  v.  Libby, 
24  Minn.  327. 

21  Thompson  Corp.  §  1138,  citing 
Hartford  &c.  R.  Co.  v.  Kennedy,  12 
Conn.  499;  Sagory  v.  Dubois,  3 
Sandf.  Ch.  (N.  Y.)  466;  Union  Turn- 
pike Co.  v.  Jenkins,  1  Caines  (N.  Y.) 
381;  Spear  v.  Crawford,  14  Wend. 
(N.  Y.)  20,  28  Am.  Dec.  513;  Burr 
v.  Wilcox,  22  N.  Y.  551;  Upton  v. 
Tribilcock,  91  U.  S.  45;  Brigham  v. 
Mead,  10  Allen  (Mass.)  245;  Hart- 
ford, &c.  R.  Co.  v.  Croswell,  5  Hill 
(N.  Y.)  383;  Kennebec,  &c.  R.  Co. 
v.  Palmer,  34  Me.  366,  and  others. 
See,  also,  Waukon,  &c.  R.  Co.  v. 
Dwyer,  49  Iowa  121;  Harrison  v. 
Remington,  &c.  Co.  140  Fed.  385. 

3  And  where  the  contract  is  not  a 
subscription,  but  a  purchase  of  new 
shares,  payment  may  be  required,  as 
the  delivery  of  a  certificate  and  pay- 
ment may  be  intended  to  be  concur- 
rent acts.  1  Morawetz  Priv.  Corp. 
§  61,  citing  Clark  v.  Continental 


Imp.  Co.  57  Ind.  135;  Weiss  v. 
Mauch  Chunk  Co.  58  Pa.  St.  295; 
Quick  v.  Lemon,  105  111.  578.  A 
mere  pledgee  is  not,  ordinarily,  a 
stockholder.  Becher  v.  Wells,  &c. 
Co.  1  McCrary  (U.  S.)  62;  Baker  v. 
Woolston,  27  Kans.  185,  although  he 
may  become  such  to  most  intents 
and  purposes  by  being  registered  as 
owner  upon  the  books  of  the  com- 
pany. 2  Beach  Priv.  Corp.  §§  640, 
641,  642;  Purdy's  Beach  Priv.  Corp. 
688;  note  to  Argus  Printing  Co.,  In 
re,  12  L.  R.  A.  781. 

*  Authorities  cited  in  next  to  last 
note,  supra.  See,  also,  1  Cook  Stock 
and  Stockholders,  §  10;  Wheeler  v. 
Millar,  90  N.  Y.  355;  State  v.  Harris, 
3  Ark.  570,  36  Am.  Dec.  460;  Hen- 
derson v.  Hogan,  7  Ohio  Dec.  (Re- 
print) 173.  In  Dunn  v.  Howe,  107 
Fed.  849,  850,  47  C.  C.  A.  13,  it  is 
said  that,  notwithstanding  expres- 
sions in  many  cases  and  books  to 
the  effect  that  the  record  is  conclu- 
sive evidence,  one  who  never  ac- 
cepts but  refuses  to  accept  stock  is 
not  a  stockholder  even  though  the 
secretary  enters  his  name  on  the 
books  as  such.  See,  generally.  3 
Elliott  Ev.  §  1946. 


241  EIGHTS   OF   STOCKHOLDERS — EIGHT  TO   VOTE.  [§    156 

stockholder  by  acting  as  such  and  being  treated  as  such  by  the  cor- 
poration. And  one  may  also  become  a  stockholder  by  purchasing  stock 
and  having  it  transferred  to  him  upon  the  books  of  the  company.  But 
where  stock  is  issued  in  excess  of  the  amount  authorized  by  the  char- 
ter or  governing  law,  a  purchaser  of  certificates  for  shares  so  issued 
cannot  compel  the  corporation  to  accept  him  as  a  stockholder,  although 
he  may  have  an  action  for  damages,  and,  as  he  does  not  obtain  the 
rights  of  a  stockholder  he  cannot  be  held  liable  as  a  stockholder.5  On 
the  other  hand,  however,  "if  a  corporation  is  authorized  by  law  to  in- 
crease its  capital  stock  upon  complying  with  certain  prescribed  forms 
or  conditions,  and  the  corporation  or  its  agents  appear  to  have  en- 
deavored to  comply  with  the  prescribed  forms  or  conditions,  and  have 
in  fact  increased  the  company's  capital  stock  by  issuing  new  shares, 
on  the  assumption  that  the  legal  right  to  increase  the  capital  stock 
had  been  acquired,  and  if  the  holder  of  such  new  shares  has  acted  as 
a  shareholder  and  enjoyed  the  rights  of  a  shareholder,  then  the  cre- 
ation of  such  new  shares  will  be  recognized  by  the  courts  and  given 
effect  according  to  the  intention  of  the  parties,  although  the  statutory 
forms  or  conditions  were  not  complied  with,  and  no  legal  right  to  cre- 
ate the  new  shares  was  in  fact  obtained."6 

§  156.  Eights  of  stockholders — Right  to  vote. — A  stockholder  can- 
not, ordinarily,  be  deprived  of  the  property  rights  which  attach  to  his 
membership,  including  his  right  to  participate  in  the  management  of 
the  company's  business,7  except  by  a  regularly  enforced  forfeiture  of 
his  stock  under  charter  or  statutory  authority.8  The  most  important 
of  these  rights  are  those  of  sharing  in  the  profits  earned  by  the  cor- 

"Morawetz     Priv.     Corp.     §§762,  per,  73  Ala.  325;  Veeder  v.  Mudgett, 

763;    Scovill   v.   Thayer,   105   U.    S.  95  N.  Y.  295,  310. 
143.     See,  also,  McCord  v.  Ohio,  &c.        7  Long   Island    R.   Co.,    In   re,   19 

R.  Co.   13   Ind.  220;    Oler  v.   Balti-  Wend.    (N.  Y.)    37;    Hill  v.  Nisbet, 

more,  &c.  R.  Co.  41  Md.  583;  Laredo  100  Ind.  341;  Perrin  v.  Granger,  30 

Imp.  Co.  v.  Stevenson,  66  Fed.  633;  Vt.    595;    Kennebec,    &c.   R.    Co.   v. 

Rood    v.    Whorton,    67    Fed.    434;  Kendall,  31  Me.  470. 
Green  v.  Signa  Iron  Co.  76  Fed.  947,        8  If    one    has    title    to    corporate 

22  C.  C.  A.  636;  Wheeler  v.  Thayer,  stpck,   it  cannot  be   defeated   by  a 

121  Ind.  64,  22  N.  E.  972.  subsequent  resolution  of  the  direct- 

"  2    Morawetz    Priv.    Corp.    §  763 ;  ors  of  the  corporation.     Gurney  v. 

2  Beach  Priv.  Corp.  §  485;  Chubb  v.  Union  Transfer  &c.  Co'.  25  Jones  & 

Upton,  95  U.   S.   665;    Kansas  City  S.  (57  Super.  Ct.)  444,  29  N.  Y.  St. 

Hotel    Co.    v.    Hunt,    57    Mo.    126;  274,  8  N.  Y.  549. 
Grangers'  Life,  &c.  Ins.  Co.  v.  Kam- 
ELL.  RAILROADS — 16 


§  157] 


STOCKHOLDERS. 


poration,9  and  in  the  property  remaining  for  distribution  upon  a  dis- 
solution of  the  corporation;10  of  helping  to  select  the  persons  to 
manage  the  affairs  of  the  corporation;  and  of  aiding  to  shape  its 
policy  and  control  its  action,  or,  in  other  words,  of  voting  at  stock- 
holders' meetings.  The  right  to  vote  usually  belongs  to  the  person 
in  whose  name  the  stock  is  registered,11  or  in  case  of  his  decease  to 
his  legally  qualified  administrator  or  executor,12  although  it  has  been 
held  competent  for  a  railroad  company,  in  issuing  certificates  of  pre- 
ferred stock,  to  stipulate  that  the  holders  shall  not  have  or  exercise  the 
right  to  vote  at  stockholders'  meetings  and  persons  accepting  such 
shares  will  be  bound  thereby.13  But,  ordinarily,  the  right  to  vote  is 
an  incident  to  the  ownership  of  shares  of  stock,14  and  the  corporation 
cannot  by  by-laws  restrict15  nor  enlarge16  the  right  to  vote  as  fixed 
by  the  charter  or  by  general  statute.17 

§  157.  Who  has  right  to  vote — How  determined. — The  books  and 
records  of  a  corporation  determine  who  are  its  stockholders  for  the 
time  being,  and  who  have  a  right  to  vote,  although  the  stock  may  have 
been  sold  or  pledged  as  collateral  security,18  and  the  inspectors  and 


8  See,  generally,  Dividends,  Ch. 
XV. 

10  See,  generally,  Insolvency  and 
Dissolution,  Ch.  XXIV. 

"Long  Island  R.  Co.,  In  re,  19 
Wend.  (N.  Y.)  37;  Beckett  v.  Hous- 
ton, 32  Ind.  393;  Monsseaux  v. 
Urquhart,  19  La.  Ann.  482;  Vowell 
v.  Thompson,  3  Cranch  (U.  S.)  428; 
Northrop  v.  Newton,  &c.  Turnpike 
Co.  3  Conn.  544.  See,  also,  Lucas  v. 
Milliken,  139  Fed.  816. 

12  North  Shore,  &c.  Ferry  Co.,  Mat- 
ter of,  63  Barb.  (N.  Y.)  556;  Cape 
May,  &c.  Co.,  Matter  of,  51  N.  J.  L. 
78,  16  Atl.  191.  Stock  sold  by  three 
executors  of  the  deceased  owner  can 
not  be  voted  unless  they  agree  upon 
the  vote  to  be  cast.  Tunis  v.  Heston- 
ville,  &c.  R.  Co.  149  Pa.  St.  70,  24 
Atl.  88,  15  L.  R.  A.  665.  See,  also, 
Pioneer  Paper  Co.,  Re,  36  How.  Pr. 
(N.  Y.)  111.  As  to  right  of  partner 
to  vote,  see  Allen  v.  Hill,  16  Gal. 
113-;  Kenton  Furnace,  &c.  Co.  v.  Me- 
Alpin,  5  Fed.  737. 


13  Miller  v.  Ratterman,  47  Ohio  St. 
141,  26  N.  E.  496,  43  Am.  &  Eng.  R. 
Cas.  339. 

"1  Beach  Priv.  Corp.  §  274;  Pur- 
dy's  Beach  Priv.  Corp.  §  688;  Krei- 
ger  v.  Shelby  R.  Co.  84  Ky.  66. 

"Beckett  v.  Houston,  32  Ind.  393; 
Rex  v.  Spencer,  3  Burr.  1827. 

"Taylor  v.  Griswold,  14  N.  J.  L. 
222,  holding  that  a  by-law  of  the 
Hackensack  Bridge  Co.  could  not 
confer  upon  stockholders  the  right 
to  one  vote  for  each  share  they 
owned,  where  the  number  of  votes 
was  limited  by  the  charter. 

17  But  some  of  the  states  have  stat- 
utes authorizing  the  corporations  to 
make  by-laws  regulating  the  num- 
ber of  shares  that  shall  entitle  the 
members    to    one    or    more    votes. 
Stimson    Am.    Stat.    Law     (1892), 
§  8071. 

18  Parker,  C.  J.,  in  State  v.  Ferris, 
42  Conn.  560;   Brewster  v.  Hartley, 
37  Cal.  15,  99  Am.  Dec.  237;   Will- 
cocks,  Ex  parte,  7  Cow.  (N.  Y.)  402, 


243 


WHO  HAS   EIGHT  TO  VOTE — HOW  DETERMINED. 


[§  157 


tellers  cannot,  as  a  rule,  assume  to  go  into  a  hearing  and  decision  of 
the  question  as  to  who  is  in  fact  the  owner  of  the  stock  sought  to  be 
voted.19  The  registry  on  the  transfer  books  of  the  corporation  is,  as  a 
general  rule,  prima  facie,  if  not  conclusive,  evidence  of  the  holder's 
right  to  vote  the  shares  so  registered  in  his  name.20  It  is  generally  im- 


17  Am.  Dec.  525,  where  the  stock 
was  pledged;  Scholfield  v.  Union 
Bank,  2  Cranch  (U.  S.)  115;  Vow- 
ell  v.  Thompson,  3  Cranch  (U.  S.) 
428,  where  it  was  mortgaged.  If 
mortgaged  stock  is  transferred  to 
the  mortgagee,  upon  the  books  of 
the  corporation,  he  and  not  the 
mortgagor  will  be  entitled  to  vote 
it.  So,  generally,  where  the  stock 
has  been  duly  transferred  upon  the 
books  of  the  company,  and  regis- 
tered in  the  name  of  the  pledgee,  he 
is  entitled  to  vote.  2  Beach  Priv. 
Corp.  §  642;  Purdy's  Beach  Priv. 
Corp.  §  691;  Argus  Printing  Co.,  Re, 
1  N.  Dak.  434,  12  L.  R.  A.  781;  Hop- 
pin  v.  Buffum,  9  R.  I.  513,  11  Am. 
R.  291.  Compare  State  v.  Smith,  15 
Oreg.  98,  14  Pac.  814,  15  Pac.  137, 
386.  These  cases  state,  however, 
that  a  court  of  equity  may  compel 
the  pledgee  to  give  the  pledger  a 
proxy  in  a  proper  case.  1  Rorer 
Railroads  195,  and  authorities  cited. 
In  order  that  a  stockholder  may 
vote  at  a  corporation  election,  it  is 
not  necessary  that  he  be  the  sole  or 
only  owner.  A  creditor  holding 
stock  as  collateral  security  may 
agree  with  the  debtor  owning  the 
stock  as  to  which  shall  vote  at  a 
corporate  election,  and  they  may 
appoint  a  third  person  to  hold  the 
stock  and  vote  for  them.  Ervin  v. 
Philadelphia,  &c.  R.  Co.  (C.  P.  Phila. 
Pa.)  7  R.  &  Corp.  L.  J.  87. 

19 1  Thomp.  Corp.  §  748.  Held 
contra,  under  New  York  statute,  in 
Strong  v.  Smith,  15  Hun  (N.  Y.) 
222. 

20  Long  Island  R.  Co.,  In  matter  of, 


19  Wend.  (N.  Y.)  37,  44;  Turnbull 
v.  Payson,  95  U.  S.  418;  State  v. 
Ferris,  42  Conn.  560,  568  (where  a 
bankrupt  was  permitted  to  vote) ; 
Morrill  v.  Little  Falls,  &c.  Co.  53 
Minn.  371,  55  N.  W.  547,  21  L.  R.  A. 
174;  Semple  v.  Glenn,  91  Ala.  245,  6 
So.  46,  9  So.  265,  24  Am.  St.  894; 
and  authorities  cited  in  23  Am.  & 
Eng.  Ency.  of  Law  782,  note  1.  But 
one  railroad  corporation,  having  ac- 
quired a  majority  of  the  stock  of 
another  railroad  corporation,  unless 
expressly  authorized  by  statute,  will 
not  be  allowed  to  vote  such  stock  in 
the  corporation  elections  or  in  mat- 
ters concerning  the  management  or 
control  of  the  latter  company;  at 
least  where  the  two  roads  are  rivals 
in  the  same  field  of  operation,  and  a 
conflict  of  interest  may  arise  in  the 
matter  of  expenditure,  or  in  divi- 
sion of  patronage  or  of  earnings,  or 
where  the  profits  of  one  company 
may  be  increased  by  a  diminution 
of  those  of  the  other.  Memphis,  &c. 
R.  Co.  v.  Woods,  88  Ala.  630,  7  So. 
108,  7  L.  R.  A.  605.  See,  also,  O'Con- 
nor v.  International,  &c.  Co.  68  N.  J. 
Eq.  67,  680,  62  Atl.  408.  Where  the 
contract  for  the  present  sale  of 
shares  of  stock  had  been  entered 
into  and  the  stock  delivered  to  a 
third  person  in  escrow,  to  be  deliv- 
ered to  the  purchaser  only  on  ful- 
fillment of  the  terms  of  the  sale, 
and  by  the  terms  of  the  contract  the 
purchaser  was  to  have  the  right  to 
vote  the  stock,  while  the  sale  re- 
mained executory,  it  was  held  that 
the  seller  had  no  right  to  vote,  al- 
though the  statute  made  the  certifi- 


STOCKHOLDERS. 


244 


material  that  he  has  no  certificates  of  stock,21  or  has  sold  and  trans- 
ferred his  certificates,22  or  that  he  owes  the  subscription  price,28  or 
that  he  is  a  mere  nominal  holder  of  stock  belonging  to  another,24 
which  has  been  registered  newly  for  the  purpose  of  voting.25  But 
where  the  owner  of  the  stock  is  not  entitled  to  vote,  as  in  a  case  where 
stock  is  owned  by  a  non-resident  under  a  charter  which  provides  that 
only  resident  stockholders  may  vote,  it  has  been  held  that  a  resident 
of  the  state  who  receives  a  colorable  transfer  of  the  stock,  for  the  pur- 
pose of  voting  it,  does  not  thereby  become  a  legal  voter.26  Al- 
though the  corporate  books  are  the  proper  evidence  of  the  right  of  an 
owner  of  shares  to  exercise  a  stockholder's  rights  and  privileges,  he 
is  entitled  to  have  a  certificate  issued  to  him  as  a  voucher  for  his  title, 
and  to  enable  him  the  more  readily  to  put  his  shares  upon  the  market,27 
and  where  the  books  do  not  show  who  is  the  owner,  the  certificate  is 
prima  facie  evidence  of  ownership.28  Where  his  subscription  is  made 


cates  of  stock  and  the  transfer 
books  of  the  corporation  prima  facie 
evidence  of  the  right  to  vote  the 
stock.  Commonwealth  v.  Patterson, 
158  Pa.  St.  476,  27  Atl.  998.  Held 
not  to  be  conclusive  in  Mudgett  v. 
Horrell,  33  Cal.  25;  Stephens  v.  Fol- 
lett,  43  Fed.  842,  31  Am.  &  Eng. 
Corp.  Cas.  466;  Waterford,  &c.  R. 
Co.  v.  Pidcock,  8  Exch.  279;  Chaffin 
v.  Cummings,  37  Me.  76;  Smith  v. 
San  Francisco,  &c.  Co.  115  Cal.  584, 
47  Pac.  582,  35  L.  R.  A.  309,  56  Am. 
St.  119.  In  Archer  v.  American,  &c. 
Co.  50  N.  J.  Eq.  33,  24  Atl.  508,  the 
books  are  held  conclusive  evidence 
so  far  as  the  election  officers  are 
concerned,  but  only  prima  facie  evi- 
dence when  the  right  to  vote  is  the 
subject  of  judicial  investigation. 

21  Beckett  v.  Houston,  32  Ind.  393; 
Mitchell  v.  Beckman,  64  Cal.  117, 
28  Pac.  110,  1  Am.  &  Eng.  Corp. 
Cas.  40;  Hawley  v.  Upton,  102  U.  S. 
314;  New  Hampshire  Cent.  R.  Co. 
v.  Johnson,  30  N.  H.  390,  64  Am. 
Dec.  300;  Crumlish  v.  Shenandoah 
Valley  R.  Co.  40  W.  Va.  627,  22  S.  E. 
90,  and  authorities  cited  in  23  Am.  & 
Eng.  Ency.  of  Law  783,  note  1. 


22  People  v.  Robinson,  64  Cal.  373, 
1  Pac.  156;  State  v.  Ferris,  42  Conn. 
560;  Bailey  v.  Railroad  Co.  22  Wall. 
(U.  S.)  604,  637. 

23  Birmingham,     &c.     R.     Co.     v. 
Locke,    1    Q.    B.    256;    Downing   v. 
Potts,  23  N.  J.  L.  66,  where  nothing 
had  been  paid;  Savage  v.  Ball,  17  N. 
J.    Eq.    142,    where,  the    stock    was 
issued  in  payment  for  work  which 
had  not  been  performed. 

24  State    of   Nevada   v.    Leete,    16 
Nev.  242. 

25  The  corporation  eannot  require 
him   to  take   oath   as  to  the   real 
ownership  of  the  stock.    People  v. 
Kip,    4    Cowen    (N.    Y.)    382,   note. 
And  it  may  be  compelled  to  register 
a  transfer  made  for  the  purpose  of 
qualifying   the    transferee   to  vote. 
Moffatt  v.  Farquhar,  L.  R.  7  Ch.  D. 
591.  But  see  post,  §  174. 

28  State  v.  Hunton,  28  Vt.  594.  See, 
also,  Barker,  Re,  6  Wend.  (N.  Y.) 
509. 

27  Johnson  v.  Albany,  &c.  R.  Co.  40 
How.  Pr.   (N.  Y.)  193. 

28  Broadway  Bank  v.  McElrath,  13 
N.  J.  Eq.  24;  ante,  §  78. 


245 


EIGHT  OF  TRUSTEES  AND  RECEIVERS   TO   VOTE. 


I§  158 


upon  a  condition  not  yet  performed,  if  the  stockholder  has  been  regis- 
tered, he  may  vote  upon  the  question  whether  such  condition  shall  or 
shall  not  be  performed.29  The  holder  of  shares  issued  as  a  stock  divi- 
dend may  vote  upon  such  stock  after  registry,  the  same  as  upon  any 
other,30  and  a  transferee  usually  receives  this  right  with  the  stock 
transferred.31  It  is  frequently  provided,  however,  that  no  stockholder 
can  vote  on  stock,  unless  it  has  been  standing  in  his  name  on  the  books 
of  the  corporation  at  least  a  certain  number  of  days  prior  to  the  elec- 
tion or  meeting.32 

§158.  Right  of  trustees  and  receivers  to  vote. — If  the  stock  be 
registered  in  the  name  of  the  holder  as  trustee,  he  may  yet  vote  it,33 
unless  he  be  a  trustee  for  the  corporation  itself,  in  which  case  the 
officers  are  chargeable  with  notice  of  the  title  which  he  holds,  and  his 
holding  is  subject  to  the  rule  that  stock  owned  by  the  corporation  can- 
not be  voted.34  The  fact  that  the  holder  of  shares  is  designated  as 
"cashier"  or  "president"  on  the  company's  books  will  not  influence  his 
right  to  vote,  as  such  words  are  merely  descriptive.  And  it  has  been 
held  that  a  person  who  succeeds  him  in  that  position  has  no  right  to 
vote  the  shares  so  held  unless  they  are  regularly  transferred  to  him 
by  name.35  The  right  of  a  receiver  of  stock  to  vote  seems  generally 


a  Greenville,  &c.  R.  Co.  v.  Cole- 
man,  5  Rich.  Law  (S.  C.)  118. 

*°  Bailey  v.  Railroad  Co.  22  Wall. 
(U.  S.)  604,  637.  But  the  rule  is 
different  as  to  scrip  dividends,  con- 
vertible into  stock.  Bailey  v.  Rail- 
road Co.  22  Wall.  (U.  S.)  604,  637. 

31  See  Commonwealth  v.   Stevens, 
168  Pa.  582,  32  Atl.  111. 

32  Stimson's  Am.  Stat  Law  (1892), 
§  8054. 

83  Barker,  Matter  of,  6  Wend.  (N. 
Y.)  509;  Hoppin  v.  Buffum,  9  R.  I. 
513;  Commonwealth  v.  Dalzell,  152 
Pa.  St.  217,  25  Atl.  535,  34  Am.  St 
640.  Executor  allowed  to  vote  in 
Schmidt  v.  Mitchell,  101  Ky.  570,  41 
S.  W.  929,  72  Am.  St.  427. 

"Holmes,  Ex  parte,  5  Cow.  (N. 
Y.)  426;  American  Railway  Frog 
Co.  v.  Haven,  101  Mass.  398,  3  Am. 


R.  377;  Brewster  v.  Hartley,  37  Cal. 
15,  99  Am.  Dec.  237.  See,  also,  Mc- 
Neely  v.  Woodruff,  13  N.  J.  L.  352; 
Union,  &c.  Ass'n  v.  Seligman,  92  Mo. 
635,  15  S.  W.  630,  1  Am.  St.  776  n; 
O'Connor  v.  International,  &c.  Co. 
68  N.  J.  Eq.  67,  680,  59  Atl.  321; 
Warren  v.  Pirn  (N.  J.  L.),  59  Atl. 
773,  775;  Parsons  v.  Tacoma  Co.  25 
Wash.  492,  65  Pac.  765. 

35  Mohawk,  &c.  R.  Co.,  Ex  parte,  19 
Wend.  (N.  Y.)  135.  A  contrary  rule 
is  upheld  as  more  reasonable  and 
just  in  Farmers',  &c.  Co.  v.  Chicago, 
&c.  R.  Co.  27  Fed.  146,  156.  See, 
also,  Mousseaux  v.  Urquhart,  19  La. 
Ann.  482.  But  it  would  seem  that  a 
transfer  on  the  corporate  book  is  a 
reasonable  means  of  proving  that 
such  successor  has  been  selected  to 
fill  the  former  officer's  place. 


§   159]  STOCKHOLDERS.  246 

to  have  been  conceded  without  question,36  and  it  has  been  held  that 
the  court  appointing  him  may  direct  him  how  to  vote.37 

§  159.  Eight  of  corporations  and  voting  trusts  to  vote. — Corpora- 
tions authorized  to  hold  stock  in  another  corporation  are  usually  en- 
titled to  vote  it.38  And  this  they  may  do  by  an  agent.39  But  one  cor- 
poration cannot,  ordinarily,  acquire  and  vote  stock  in  another  without 
statutory  authority,40  and  a  rival  company  which  has  acquired  a 
majority  of  the  stock  in  a  corporation,  without  statutory  authority, 
may  be  enjoined  from  voting  it.41  And  so  may  a  trust  company  which 
is  a  stockholder  of  a  corporate  stock  pledged  as  collateral  for  bonds 
of  another  corporation  and  which  is  also  a  trustee  of  the  indebtedness 
of  the  corporation  and  an  agent  for  its  creditors,  or  a  voting  trust 
which  holds  a  majority  of  the  stock  of  a  railroad  company  to  be  voted 
in  the  interest  of  another  corporation.42  The  subject  of  voting  trusts 
as  illegal  combinations  or  monopolies  under  the  act  of  congress  will 

36  Cook    Stock   and    Stockholders,        «*  Clarke  v.  Central  R.  &c.  Co.  50 
§  612.  Fed.  338,  15  L.  R.  A.  683,  and  note. 

37  American   Inv.   Co.   v.  Yost,   25  But  see  1  Beach  Priv.  Corp.  §  304- 
Abb.  N.  C.  (N.  Y.)  274,  note.  306;     Purdy's     Beach    Priv.     Corp. 

38  Davis  v.  U.  S.  &c.  Co.  77  Md.  35,  §  691.    The  federal  courts  have  re- 
25  Atl.  982;  Rogers  v.  Nashville,  &c.  cently   held   that   the   purchase   of 
Co.  91  Fed.  299,  33  C.  C.  A.  517.  stock    in    sugar    refineries    for    the 

39  State  v.  Rohlffs  (N.  J.),  19  Atl.  purpose  of  acquiring  control  of  the 
1099.  business    of    refining    and    selling 

40  Brice   Ultra   Vires,    95 ;    Woods  sugar  in  the  United  States  is  not 
v.  Memphis,  &c.  R.  Co.  5  R.  &  Corp.  in  violation  of  the  act  of  congress 
L.    J.    372;    State   v.    McDaniel,    22  of   July   2,  1890,   and   does   not  in- 
Ohio  St.  354;  Valley  R.  Co.  v.  Lak$  volve   a  monopoly   or   restraint   of 
Erie,  &c.  Co.  46  Ohio  St.  44,  18  N.  E.  interstate     commerce     within     the 
486,  1  L.  R.  A.  412;  Central  R.  Co.  meaning  of  that  act.   United  States 
v.   Collins,  40  Ga.  582;    McGinness,  v.  E.  C.  Knight  Co.  60  Fed.  934,  af-- 
&c.  Co.  v.  Boston,  &c.  Co.  29  Mont,  firmed  in  156  U.  S.  1,  15  Sup.  Ct. 
428,  75  Pac.  89;  Parsons  v.  Tacoma  249;    Greene,    In    re,    52    Fed.    104. 
Co.  25  Wash.  495,  65  Pac.  765.  The  authorities  are  reviewed  in  the 

41  Memphis,  &c.  R.  Co.  v.  Woods,  opinion  of  the  court  and  in  the  dis- 
88  Ala.  630,  7  So.  108,  7  L.  R.  A.  senting  opinion  in  the  case  in  the 
605, and  note;  Mack  v.DeBardeleben,  United  States  Supreme  Court  cited 
&c.  Co.  90  Ala.  396,  8  So.  150,  9  L.  R.  supra.  See,  also,  Harvey  v.  Linville, 
A.  650  n;   Milbank  v.  N.  Y.  &c.  R.  &c.   Co.   118  N.  Car.   693,   24   S.   E. 
Co.  64  How.  Pr.   (N.  Y.)    20.    See,  489.    But   see   Northern    Securities 
also,  Buckeye,  &c.  Co.  v.  Harvey,  92  Co.  v.  United  States,  193  U.  S.  197, 
Tenn.   115,   20   S.  W.   427.    Contra,  24  Sup.  Ct.  436. 

Camden,    &c.   R.   Co.   v.   Elkins,   37 
N.  J.  Eq.  273. 


247 


.VOTES CUMULATIVE  VOTIXG. 


[§  160 


be  hereafter  considered,  but  it  may  be  said  in  this  connection  that 
while  fair  agreements  among  stockholders  to  vote  as  a  unit  as  the  ma- 
jority may  determine  have  been  upheld,43  yet  an  unfair  agreement 
among  the  officers  for  their  own  benefit  or  between  two  corporations 
having  common  directors,44  or  an  irrevocable  voting  trust  or  holding 
company  creating  a  monopoly  has  recently  been  held  illegal  as  against 
public  policy  or  the  statute.45 

§  160.  Number  of  votes  to  which  stockholder  is  entitled — Cumu- 
lative voting. — It  seems  under  the  common  law,  in  the  absence  of  any 
statute  on  the  subject,  that  each  stockholder  is  entitled  to  but  one 
vote.46  But  this  is  not  the  natural  and  reasonable  rule  in  corpora- 
tions whose  capital  represents  a  money  investment,  and  it  is  generally 
provided  in  the  laws  for  the  creation  of  railroad  corporations,  that  the 
stockholders  shall  have  one  vote  for  each  share  of  stock  which  they 
own,47  although  the  total  number  of  votes  that  may  be  cast  by  one 
stockholder  is  sometimes  limited.  It  is  also  provided  by  constitution 
or  statute  in  several  of  the  states  that,  in  voting  for  directors,  each 
shareholder  shall  be  entitled  to  as  many  votes  as  will  equal  the  number 
of  his  shares,  multiplied  by  the  number  of  directors  to  be  elected.48 


46 1  Cook  Stock  and  Stockholders, 
§  608. 

4THays  v.  Commonwealth,  82  Pa. 
St.  518.  Such  provision  is  made  by 
general  statute  in  most  of  the 
states.  Stimson  Am.  Stat.  Law 
(1892),  §  8054,  citing  the  laws  of 
New  Hampshire,  Vermont,  Connecti- 
cut, New  York,  New  Jersey,  Indiana, 
Wisconsin,  Maryland,  Delaware,  Vir- 
ginia, Tennessee,  Arkansas,  Oregon, 
Colorado,  Washington,  Dakota,  Ida- 
ho, Wyoming,  Utah,  South  Carolina, 
Alabama,  New  Mexico,  District  of 
Columbia,  Oklahoma. 

48  4  Am.  &  Eng.  Ency.  of  Law, 
956 ;  1  Cook  Stock  and  Stockholders, 
§  609,  a;  Wright  v.  Central,  &c.  Co. 
67  Cal.  532,  13  Am.  &  Eng.  Corp. 
Gas.  89,  in  which  the  system  is  fully 
explained.  See,  also,  3  Cyclopedia  of 
Political  Science,  526;  2  Purdy 
Beach  Corp.  §  702. 


v.  Lake,  &c.  R.,  69  Fed. 
176;  Chapman  v.  Bates,  61  N.  J.  Eq. 
658,  47  Atl.  638,  88  Am.  St.  459; 
Brightman  v.  Bates,  175  Mass.  105, 
55  N.  E.  809;  Smith,  v.  San  Fran- 
cisco, &c.  R.  Co.  115  Cal.  584,  47  Pac. 
582,  35  L.  R.  A.  309,  56  Am.  St.  119; 
Mobile,  &c.  R.  Co.  v.  Nicholas,  98 
Ala.  98,  12  So.  723. 

"Withers  v.  Edmonds,  26  Tex. 
Civ.  App.  189,  62  S.  W.  795;  Good- 
ell  v.  Verdugo,  &c.  Co.  138  Cal.  308, 
71  Pac.  354. 

^Northern  Securities  Co.  v.  Unit- 
ed States,  193  U.  S.  197,  24  Sup.  Ct 
436;  Warren  v.  Pirn  (N.  J.  L.), 
59  Atl.  773.  See,  also,  Shepang  Vot- 
ing Trust  Cases,  60  Conn.  576,  24 
Atl.  34;  Harvey  v.  Linville,  &c. 
Co.  118  N.  Car.  693,  24  S.  E.  489,  54 
Am.  St.  749;  Fisher  v.  Bush,  35 
Hun  (N.  Y.)  641;  article  in  35  Am. 
Law  Reg.  (N.  S.)  50. 


§' 


STOCKHOLDERS. 


248 


This  system  of  cumulative  voting  is  intended  to  enable  the  minority  to 
obtain  a  representation  upon  the  board.  Such  a  provision,  however, 
would  be  unconstitutional  so  far  as  it  applied  to  corporations  previ- 
ously chartered,49  unless,  perhaps,  where  the  power  to  amend  or  re- 
peal remains  in  the  legislature.6" 


50 


§  161.  Quorum  must  be  present. — Before  votes  may  be  cast  at  a 
meeting,  it  is  necessary  that  a  certain  number  of  stockholders  or  the 
holders  of  a  certain  number  of  shares51  (called  a  quorum)  shall  be 
present.  This  number  is  frequently  fixed  by  the  by-laws,62  and  is  gen- 
erally a  majority  of  the  stock  entitled  to  vote.53  But  if  the  body 
consists  of  an  indefinite  number  and  no  provision  is  made  upon  the 
subject,  those  who  actually  assemble  at  a  regularly  called  meeting 
may  constitute  a  quorum.54  And  if  the  required  number,  or  a  quorum, 
be  present,  a  majority  of  the  votes  actually  cast  at  the  meeting  will 
generally  control  in  the  absence  of  any  special  provisions  as  to  the 
number  of  votes  necessary  to  bind  the  corporation,55  although  it  is 


49  Hays  v.  Commonwealth,  82  Pa. 
St.  518;  Baker's  Appeal,  109  Pa.  St. 
461;  Commonwealth  v.  Butterworth, 
160  Pa.  St.  55,  28  Atl.  507;  State  v. 
Greer,   78   Mo.   188,   8   Am.   &  Eng. 
Corp.  Cas.  328.    Such  a  statute  is 
not  retroactive.   Loewenthal  v.  Rub- 
ber, &c.  Co.  52  N.  J.  Eq.  440,  28  Atl. 
454;  Looker  v.  Maynard,  179  U.  S.. 
46,  21  Sup.  Ct.  21;  Smith  v.  Atchi- 
son,  &c.  R.  64  Fed.  272. 

50  Cross  v.  West  Va.  &c.  R.  35  W. 
Va.  174, 12  S.  E.  1071. 

"Tennessee,  &c.  R.  Co.  v.  East 
Alabama  R.  Co.  73  Ala.  426. 

B2Stimson  Am.  Stat.  Law  (1892), 
§  8071. 

63 1  Beach  Priv.  Corp.  §  276; 
Purdy's  Beach  Priv.  Corp.  §  152; 
Stimson  Am.  Stat.  Law  (1892), 
§  8056. 

"Merrill  v.  Little  Falls,  &c.  Co. 
53  Minn.  371,  21  L.  R.  A.  174;  Craig 
v.  First  Presbyterian  Church,  88  Pa. 
St.  42;  Columbia,  &c.  Co.  v.  Meier, 
39  Mo.  53;  Brown  v.  Pac.  Mail,  &c. 
Co.  5  Blatchf.  (U.  S.)  525;  Field  v. 


Field,  9  Wend.  (N.  Y.)  394;  Rex  v. 
Bellringer,  4  Term  810;  1  Thomp. 
Corp.  §  725. 

65  State  v.  Green,  37  Ohio  St.  227; 
Gowen's  Appeal,  10  Week.  N.  Cas. 
85.  See,  also,  Gifford  v.  New  Jersey 
R.  Co.  10  N.  J.  Eq.  171;  New  Or- 
leans, &c.  R.  Co.  v.  Harris,  27  Miss. 
517,  537;  Durfee  v.  Old  Colony,  &c. 
R.  Co.  5  Allen  (Mass.)  230,  242; 
Stevens  v.  Rutland,  &c.  R.  Co.  29 
Vt.  545.  "If  a  quorum  is  present 
and  a  majority  of  the  quorum  vote 
in  favor  of  a  measure,  it  will  pre- 
vail, although  an  equal  number 
should  refrain  from  voting.  A 
majority  of  the  number  of  members 
required  to  constitute  a  quorum  is 
sufficient."  Rushville  Gas  Co.  v. 
Rushville,  121  Ind.  206,  23  N.  E. 
72,  6  L.  R.  A.  315;  followed  in 
State  v.  Dillon,  125  Ind.  65,  25 
N.  E.  136.  In  such  a  case,  "silence 
is  acquiescence  rather  than  opposi- 
tion." Cases  just  cited.  See,  also, 
Willcock  Munic.  Corp.  §  546;  How 
&  Bemis  Munic.  Police  Ord.  42; 


249 


VOTING  BY   PROXY. 


[§  162 


frequently  said  or  intimated  that  it  requires  a  majority  of  those 
present.56  It  is  held  that  a  single  shareholder,  even  though  he  owns. 
a  majority  of  the  stock,  cannot  hold  a  corporate  meeting  alone.  There 
must  generally  be  at  least  two  to  constitute  a  meeting.57  But  the- 
holding  would  probably  be  different  where  a  single  individual  is 
allowed  to  form  a  corporation,58  as  is  the  case  in  Iowa,59  if  the  meet- 
ing was  regular  in  other  respects. 

§  162.  Voting  by  proxy. — At  common  law  the  stockholder  must 
cast  his  vote  in  person.60  But  authority  to  vote  by  proxy  upon  cer- 
tain conditions  and  under  certain  restrictions  is  given  by  general 
statute  in  many  of  the  states,61  and  it  may  be  and  very  often  is  con- 
ferred by  a  by-law.62  And  the  suggestion  has  been  made  that  the 


Launtz  v.  People,  113  111.  137; 
County  of  Cass  v.  Johnston,  95  U. 
S.  360,  369;  State  v.  Chute,  34 
Minn.  135,  24  N.  W.  353;  Atty .-Gen- 
eral v.  Shepard,  62  N.  H.  383,  13 
Am.  St.  576;  Oldknow  v.  Wain- 
right,  2  Burr.  1017;  2  Purdy  Beach 
Priv.  Corp.  §  698.  Contra,  Common- 
wealth v.  Wickersham,  66  Pa.  St. 
134;  Lawrence  v.  Ingersoll,  88  Tenn. 
52,  12  S.  W.  422,  6  L.  R.  A.  308,  17 
Am.  St.  870. 

56 1  Thomp.  Corp.  §§  723,  728; 
Lawrence  v.  Ingersoll,  88  Tenn.  52, 
12  S.  W.  422,  6  L.  R.  A.  308,  17  Am. 
St.  870.'  See,  also,  State  v.  Fagan, 
42  Conn.  32  (under  a  statute),  with 
which  compare  State  v.  Chapman, 
44  Conn.  595. 

"England  v.  Dearborn,  141  Mass. 
590,  6  N.  E.  837;  Hopkins  v.  Rose- 
clare  Lead  Co.  72  111.  373;  Sharpe 
v.  Dawes,  46  L.  J.  Q.  B.  104. 

68  See  Swift  v.  Smith,  65  Md.  428, 
5  Atl.  534,  57  Am.  R.  336;  where 
one  stockholder  owned  all  the  stock 
and  was  held  to  be,  in  effect,  the 
corporation  itself. 

68 Revised  Code  of  Iowa  (1888), 
§§  1058,  1088;  McClain's  Ann.  Code 
Iowa,  §  1638. 

*1  Cook  Stock  and  Stockholders, 


§  610;  Philips  v.  Wickham,  1  Paige 
(N.  Y.)  590;  McKee  v.  Home,  &c. 
Co.  122  Iowa  731,  98  N.  W.  609; 
Commonwealth  v.  Bringhurst,  103 
Pa.  St.  134,  49  Am.  R.  119;  1 
Thomp.  Corp.  §  736  et  seq.;  2 
Purdy's  Beach  Priv.  Corp.  §  701. 

"Stimson  Am.  Stat.  Law  (1892), 
§  8057.  Where  a  statute  provided 
that  any  stockholder  might  select 
his  own  proxy  to  represent  him  and 
vote  at  any  election,  it  was  held 
that  a  by-law,  providing  that  no 
proxy  could  be  voted  except  by  a 
stockholder,  was  invalid.  People's 
Home  Sav.  Bank  v.  Superior  Court, 
104  Cal.  649,  38  Pac.  533,  43  Am.  St. 
147;  Lighthall  Mfg.  Co.,  Matter  of, 
47  Hun  (N.  Y.)  258. 

82  State  v.  Tudor,  5  Day  (Conn.) 
329,  5  Am.  Dec.  162;  People  y. 
Crossley,  69  111.  195;  Commonwealth 
v.  Detwiller,  131  Pa.  St.  614,  18  Atl. 
990,  7  L.  R.  A.  357.  Many  of  the 
states  give  statutory  authority  for 
the  making  of  by-laws  to  regulate 
this  matter.  Stimson  Am.  Stat. 
Law  (1892),  §  8071;  People  v.  Cross- 
ley,  69  111.  195.  But  the  existence 
of  such  authority  at  common  law  is 
doubted  in  Philips  v.  Wickham,  1 
Paige  (N.  Y.)  590,  and  is  denied  in 


162] 


STOCKHOLDERS. 


250 


modern  custom  of  voting  by  proxy  in  moneyed  corporations,  without 
any  regard  to  any  express  authority,  which  prevails  in  the  United 
States,  may  have  modified  the  common  law  so  far  as  to  permit  evidence 
of  such  a  usage  to  establish  the  right  where  it  is  not  expressly  con- 
ferred by  charter  or  by  statute.63  A  proxy  should  be  in  writing,  and 
should  be  in  such  form  and  so  executed  as  to  bear  reasonable  evidence 
of  being  genuine  and  valid.64  And  the  corporate  officers  may  insist 
upon  reasonable  evidence  of  that  fact  before  allowing  it  to  be  voted,65 
but  it  has  been  held  that  they  cannot  require  sworn  proof  that  the 
person  executing  the  proxy  is  the  owner  of  the  stock  it  represents.66 
A  proxy  only  confers  the  right  to  vote  upon  the  measures  contem- 
plated by  the  person  giving  it,67  and  ordinarily  only  gives  authority 
to  vote  for  officers.68  One  who  holds  stock  of  a  railroad  company  in 
trust  for  corporations  owning  competing  lines,  and  is  forbidden  by  law 
to  hold  such  stock,  and  who  is  largely  interested  in  such  competing 
lines,  does  not,  by  a  relinquishment  of  such  stock  made  by  such  corn- 


Taylor  v.  Griswold,  14  N.  J.  Law 
222,  27  Am.  Dec.  33. 

^Rorer    Railroads,    193;    Woods' 
Railway  Law,  150. 

64  But  the  mere  omission  of  a  date 
will  not  justify     its  rejection.    St. 
Lawrence  Steamboat  Co.,  Matter  of 
Election  of,  44  N.   J.   L.   529.    The 
by-laws  may  require  proxies  to  be 
witnessed.   Harben  v.  Phillips,  L.  R. 
23  Ch.  D.  14,  22.    One  to  whom  a 
testator   has    by    will    directed    his 
executors  to  give  a  proxy  to  cast  the 
vote  for  stock  held  by  the  testator 
cannot  vote  when  the  executors  re- 
fuse the  proxy,  because  of  inability 
to  agree  as  to  how  the  vote  shall  be 
cast.    Tunis  v.   Hestonville,   &c.   R. 
Co.  149  Pa.  St.  70,  24  Atl.  88,  15  L. 
R.  A.  665. 

65  St.    Lawrence    Steamboat    Co., 
Matter  of  Election  of,  44  N.  J.  L. 
529.   But  it  has  every  appearance  of 
genuineness  and  is  regular  in  form, 
the  officers  cannot  refuse  it.    Cecil, 
Matter  of,  36  How.  Pr.  (N.  Y.)  477. 


68  People  v.  Tibbets,  4  Cowen  (N. 
Y.)  358. 

67  A  proxy  to  vote  is  not  a  proxy 
to  demand  a  poll.  Haven,  &c.  Co., 
In  re,  L.  R.  20  Ch.  D.  151;  Reg.  v. 
Gov.  Stock  Co.  L.  R.  3  Q.  B.  D.  442. 
The  appointment  of  a  proxy  with- 
out limitation,  gives  him  authority 
to  bind  his  principal  by  a  vote 
against  his  interest  as  well  as  for 
it,  to  the  same  extent  as«if  the  vote 
were  cast  in  person.  Mobile,  &c.  R. 
Co.  v.  Nicholas,  98  Ala.  92,  12  So. 
723. 

68 1  Cook  Stock  and  Stockholders, 
§  610.  He  cannot  vote  to  dissolve  the 
corporation  or  to  sell  the  entire  cor- 
porate property  and  business.  1  Cook 
Stock  and  Stockholders,  §  610.  A 
proxy  at  a  stockholders'  meeting  to 
elect  directors  may  vote  on  motions 
to  take  a  ballot  and  to  adjourn  the 
same-as  a  stockholder.  Forsyth.  v. 
Brown,  13  Pa.  Co.  Ct.  576. 


251 


OTHER  POWERS — RIGHTS   OP  MINORITY. 


[§  163 


peting  corporations  in  his  favor,  acquire  any  right  to  vote  the  same.69 
A  naked  proxy  is  revocable.70 

§  163.  Other  powers  of  stockholders — Rights  of  minority. — Be- 
sides electing  officers,  the  corporate  shareholders  in  meeting  assem- 
bled usually  have  power  to  make  the  by-laws  of  the  corporation,71 
to  increase  or  decrease  the  capital  stock  under  authority  of  the  legis- 
lature,72 to  accept  or  authorize  amendments  of  a  certain  kind  to  the 
charter,73  to  dissolve  the  corporation  for  an  authorized  cause,74  and 
the  like.75  The  right  to  vote  includes  the  right  to  a  voice  in  the  set- 


69  Clarke  v.  Central  R.  &c.  Co.  50 
Fed.  338.     A  railroad  which  owns 
stock  of  a  competing  line  may  be 
enjoined  from  voting  the  same  at 
the  suit  of  stockholders  of  the  com- 
petitor, who  have  acquiesced  in  its 
ownership  of  such  stock  and  control 
of  such  line  for  more  than  six  years. 
George  v.  Central  R.  &c.  Co.  101  Ala. 
607,  14  So.  752. 

70  Woodruff  v.  Dubuque,  &c.  R.  Co. 
30  Fed.  91;  Vanderbilt  v.  Bennett,  2 
R.   and   Corp.   L.   J.   409;    Reed  v. 
Bank,   6   Paige    (N.  Y.)    337.     See, 
also,  Cone  v.  Russell,  48  N.  J.  Eq. 
208,  21  Atl.   847.     And  this  is  the 
general  rule  in  regard  to  proxies. 
1    Cook    Stock    and    Stockholders, 
§  610. 

71 2  Cook  Stock  and  Stockholders 
(2d  ed.),  §  700,  a;  Angell  &  Ames 
Corp.  (8th  ed.)  §  327;  Morton,  &c. 
Co.  v.  Wysong,  51  Ind.  4.  But  it  is 
frequently  provided  by  charter  or 
otherwise  that  the  by-laws  shall  be 
made  by  the  directors.  Angell  & 
Ames  (8th  ed.),  §  327;  Stimson  Am. 
Stat.  Law  (1892),  §§'8070,  8071, 
8537. 

72  Percy  v.  Millaudon,  3  La.  568, 
585;  Crandall  v.  Lincoln,  52  Conn. 
73,  99,  52  Am.  R.  560;  Eidman  v. 
Bowman,  58  111.  444,  11  Am.  R.  90; 
Railway  Co.  v.  Allerton,  18  Wall. 
(U.  S.)  233;  Finley,  &c.  Co.  v.  Kurtz, 
34  Mich.  89. 


73  Marlborough  Mfg.  Co.  v.  Smith, 
2  Conn.  579;   Peoria,  &c.  R.  Co.  v. 
Preston,   35   Iowa  115;    Taggart  v. 
Western  R.  Co.  24  Md.  563,  89  Am. 
Dec.   760   n;    Brown  v.   Fairmount 
Mine  Co.  10  Phil.  (Pa.)  32.    A  ma- 
terial  or   fundamental   amendment 
must  be  accepted  by  a  unanimous 
vote  of  the  stockholders.    Marietta, 
&c.  R.  Co.  v.  Elliott,  10  Ohio  St.  57; 
New  Orleans,  &c.  R.  Co.  v.  Harris, 
27   Miss.   517.     A  dissenting  stock- 
holder will  not  be  bound  thereby. 
Snook  v.  Georgia  Improvement  Co. 
83  Ga.  61,  9  S.  E.  1104.    Where  the 
amendment  does  not  work  any  ma- 
terial change  in  the  corporation,  the 
will  of  the  majority  should  govern. 
Sprague  v.  Illinois  River  R.  Co.  19 
111.   174.     But  the  right  to  amend 
without  any  acceptance  by  the  stock- 
holders is  generally  reserved  by  the 
legislature. 

74  Mobile,  &c.  R.  Co.  v.  State,  29 
Ala.  573,  586;  Chesapeake,  &c.  Co.  v. 
Baltimore,  &c.  Co.  4  Gill  &  J.  (Md.) 
1,    121;    LaGrange,    &c.    R.    Co.    v. 
Rainey,    7     Coldw.     (Tenn.)     420; 
Denike  v.  New  York,  &c.  Co.  80  N. 
Y.  599,  606;   Mclntyre  Poor  School 
v.  Zanesville  Canal,  &c.  Co.  9  Ohio 
203,  34  Am.  Dec.  436;   Houston  v. 
Jefferson  College,  63  Pa.  St.  428. 

75  Eidman  v.  Bowman,  58  111.  444, 
11  Am.  R.  90;  Metropolitan,  &c.  R. 


§  164] 


STOCKHOLDERS. 


253 


tlement  of  these  various  questions.  But  the  rights  of  the  minority 
must  be  respected,  and  a  single  stockholder  has  been  held  to  be  able, 
by  refusing  his  assent,  to  prevent  a  material  amendment  to  the  char- 
ter,76 as  he  may  a  dissolution,77  where  it  is  not  authorized  or  not  made 
with  a  bona  fide  intention  to  pay  the  corporate  debts  and  discontinue 
the  business. 

§  164.  Stockholders'  meetings. — In  matters  which  must  be  settled 
by  the  body  of  the  stockholders,  the  assent  of  a  majority  of  them, 
expressed  elsewhere  than  at  a  meeting — as,  where  the  assent  of  each 
is  given  separately  and  at  different  times  to  a  person  who  goes  to  them 
privately — is  not  binding  upon  the  company.78  But  provision  is 
sometimes  made  by  statute  for  the  stockholders  to  perform  certain 
acts,  such  as  the  adoption  of  by-laws,  by  giving  a  written  consent 
thereto,  without  the  formality  of  a  meeting.79  Stockholders'  meetings 
should  be  held  within  the  state  by  which  the  corporation  is  created.80 
It  is  sometimes  said  that  acts  performed  at  a  meeting  in  a  foreign 
jurisdiction  are  void,81  but  the  better  rule  would  seem  to  be  that,  in 


Co.  v.  Manhattan,  &c.  R.  Co.  11  Daly 
(N.  Y.)  367. 

76  Fry's  Ex'rs  v.  Lexington,  &c.  R. 
Co.  2  Mete.  (Ky.)  314;  Delaware,  &c. 
R.  Co.  v.  Irick,  23  N.  J.  L.  321; 
Pearce  v.  Madison,  &c.  R.  Co.  21 
How.  (U.  S.)  441;  Tuttle  v.  Mich. 
Air  Line  Co.,  35  Mich.  247;  Marietta, 
&c.  R.  Co.  v.  Elliott,  10  Ohio  St.  57; 
New  Orleans,  &c.  R.  Co.  v.  Harris, 
27  Miss.  517.  Ante,  §  45. 

"Ervin  v.  Oregon  R.  &c.  Co.  27 
Fed.  625 ;  Black  v.  Delaware,  &c.  Ca- 
nal Co.  22  N.  J.  Eq.  130,  where  the 
object  was  to  continue  business  un- 
der a  new  organization;  Kean  v. 
Johnson,  9  N.  J.  Eq.  401;  Von 
Schmidt  v.  Huntington,  1  Cal.  55; 
Barton  v.  Enterprise,  &c.  Ass'n,  114 
Ind.  226,  5  Am.  St.  608,  where  the 
corporation  charter  had  not  expired; 
Angell  &  Ames  (llth  ed.),  §  772. 

78  Duke  v.  Markham,  105  N.  C.  131, 
18  Am.  St.  889;  Commonwealth  v. 
Cullen,  13  Pa.  St.  133,  53  Am.  Dec. 
450;  Dennis  v.  Joslin,  &c.  Co.  19 


R.  I.  666,  36  Atl.  129,  61  Am.  St.  805. 
But  it  is  held  that  a  certificate 
signed  by  the  president  of  a  corpora- 
tion, who  holds  nearly  all  of  its 
stock,  stating  that  a.  majority  of  the 
stockholders  has  assented  thereto, 
implies  that  he  has  assented,  and 
such  certificate  is  sufficient  assent  of 
the  majority  of  the  stockholders,  un- 
less the  statute  provides  some  par- 
ticular form  or  place  for  such  as- 
sent. Humphreys  v.  St.  Louis,  &c. 
R.  Co.  37  Fed.  307. 

79  The  written  assent  of  two-thirds 
of  the  stock  is  sometimes  made  suffi- 
cient  to   adopt   by-laws   without   a 
meeting.     Stimson   Am.   Stat.   Law 
(1892),  §  8872. 

80  Jones  v.  Pearl  Min.  Co.  20  Colo. 
417,  38  Pac.  700;  Harding  v.  Ameri- 
can, &c.  Co.  182  111.  551,  55  N.  E.  577, 
74  Am.  St.  189;  Bank  of  Augusta  v. 
Earle,  13  Pet.  (U.  S.)  519. 

"Miller  v.  Ewer,  27  Me.  509,  46 
Am.  Dec.  619;  Aspinwall  v.  Ohio, 
&c;  R.  Co.  20  Ind.  492,  83  Am.  Dec. 


253 


STOCKHOLDERS'  MEETIXGS. 


'[§  164 


the  absence  of  any  provision  to  the  contrary,  the  acts  of  the  stockhold- 
ers at  such  a  meeting  are  voidable  rather  than  void,  and  may  be  valid 
where  all  the  stockholders  give  their  consent.82  In  other  words,  the 
corporation  and  the  stockholders  in  such  a  case  are  estopped  from 
questioning  upon  this  ground  the  validity  of  the  meeting  and  proceed- 
ings, to  which  they  consented  and  in  which  they  participated.  If  the 
corporation  is  consolidated  or  incorporated  in  two  or  more  states,  so  as 
to  be  a  citizen  of  each,  the  stockholders  may  lawfully  meet  in  either 
state.83  Where  the  officers  of  a  corporation  neglect  and  refuse  to  call 
a  meeting  which  it  is  their  duty  to  call,  they  may  be  compelled  to  do 
so,  in  a  proper  case,  by  mandamus  at  the  suit  of  a  stockholder.84  In 
order  to  bind  absent  and  dissenting  stockholders,  the  meeting  must  be 
duly  assembled.85  Members  are  bound  to  take  notice  of  regular  stated 
meetings  fixed  by  the  charter  or  by-laws;86  but  they  should  be  duly 
netified  of  special  or  called  meetings,87  and  the  statute  or  by-laws 


329.  See,  also,  Hilles  v.  Parrish,  14 
N.  J.  Eq.  380;  Franco-Texan  Land 
Co.  v.  Laigle,  59  Tex.  339;  Hodgson 
v.  Duluth,  &c.  R.  Co.  46  Minn.  454, 
49  N.  W.  197;  Ormsby  v.  Vermont, 
&c.  Co.  56  N.  Y.  623;  Craig  Silver 
Co.  v.  Smith,  163  Mass.  262,  39  N.  E. 
1116;  Duke  v.  Taylor,  37  Fla.  64,  19 
So.  172,  31  L.  R.  A.  484,  53  Am.  St. 
332;  1  Beach  Priv.  Corp.  §  285.  See, 
also,  Mack  v.  De  Bardeleben,  &c.  Co. 
90  Ala.  396,  8  So.  150. 

82  Missouri  Lead,  &c.  Co.  v.  Rein- 
hard,  114  Mo.  218,  21  S.  W.  488,  35 
Am.  St.  746;  Heath  v.  Silverthorn, 
Ac.  Co.  39  Wis.  146;  Handley  v. 
Stutz,  139  U.  S.  417,  11  Sup.  Ct.  530, 
appeal  from  Stutz  v.  Handley,  41 
Fed.  531;  1  Morawetz  Priv.  Corp. 
§  488;  Taylor  Corp.  §  382;  1  Cook 
Stock  and  Stockholders,  §  589.  See, 
also,  Wright  v.  Lee,  2  S.  Dak.  596, 
51  N.  W.  706 ;  Graham  v.  Boston,  &c. 
R.  118  U.  S.  161,  6  Sup.  Ct.  1009. 
There  is  more  reason,  perhaps,  for 
holding  that  meetings  for  the  pur- 
pose of  accepting  the  charter  and 
organizing  should  be  held  within 
the  state.  Smith  v.  Silver  Valley, 
&c.  Co.  64  Me.  85,  54  Am.  R.  760; 


Freeman  v.  Machias,  &c.  Co.  38  Me. 
343;  1  Beach  Priv.  Corp.  §  286;  Pur- 
dy's  Beach  Priv.  Corp.  §  672;  ante, 
§  17. 

""Covington,  &c.  Bridge  Co.  v. 
Mayer,  31  Ohio  St.  317;  Graham  v. 
Boston,  &c.  R.  Co.  118  U.  S.  161,  6 
Sup.  Ct.  1009;  ante,  §  28.  But  see 
Aspinwall  v.  Ohio,  &c.  R.  Co.  20  Ind. 
492,  83  Am.  Dec.  329. 

84  People  v.   Cummings,   72   N.  Y. 
433;  McNeely  v.  Woodruff,  13  N.  J. 
L.    352;    State  v.   Wright,   10   Nev. 
167.     See,  also,  American  R.  Frog. 
Co.  v.  Haven,  101  Mass.  398,  3  Am. 
377. 

85  It  should  be  called  by  the  au- 
thorized   officers    or    persons.      See 
Reilly   v.   Oglebay,   25  W.   Va.    36; 
Cassell  v.  Lexington,  &c.  Co.  (Ky.), 
9   S.  W.  502;   Evans  v.  Osgood,  18 
Me.  213;  Johnston  v.  Jones,  23  N.  J. 
Eq.  216. 

88  Warner  v.  Mower,  11  Vt.  385; 
State  v.  Bonnell,  35  Ohio  St.  10; 
People  v.  Batchelor,  22  N.  Y.  128. 

87  Commonwealth  v.  Cullen,  13  Pa. 
St.  133,  53  Am.  Dec.  450;  Farwell 
v.  Houghton  Copper  Works,  8  Fed. 
66;  Kynaston  v.  Mayor,  2  Strange 


164] 


STOCKHOLDERS. 


254 


may,  of  course,  provide  for  notice  of  all  meetings.  The  provisions 
of  the  charter  or  by-laws  in  regard  to  the  time  and  manner  of  calling 
meetings  and  the  nature  of  the  notice  should  be  followed  ;88  but  a  by- 
law providing  that  notice  may  be  given  in  a  certain  way  is  not  neces- 
sarily exclusive.89  In  the  absence  of  any  express  provision,  personal 
notice,  if  not  absolutely  essential,  is  certainly  the  safest.90  The  essen- 
tial elements  of  the  notice  are  the  time  of  the  meeting,91  the  place  of 
the  meeting,92  and  the  business  to  be  transacted,93  unless  the  stock- 
holders, by  reason  of  some  provision  in  the  charter  or  by-laws,  are  al- 
ready chargeable  with  knowledge  of  one  or  more  of  these  things.  An 
appearance  at  the  meeting  without  objection  will  usually  operate  as 


1051;  Rex  v.  Hill,  4  Barn.  &  Cress. 
426;  Angell  &  Ames  Corp.  (llth 
ed.)  §  492;  1  Beach.  Priv.  Corp. 
§  279;  Purdy's  Beach  Priv.  Corp. 
§  664;  Stow  v.  Wyse,  7  Conn.  214; 
13  Am.  Dec.  99,  and  note. 

88  Stockholders  of  Shelby  R.  Co.  v. 
Louisville,  &c.  R.  Co.  12  Bush  (Ky.) 
62;  Hunt  v.  School  Dist.  14  Vt.  300, 
39  Am.  Dec.  225;  Tuttle  v.  Michigan 
Air  Line  R.  Co.  35  Mich.  247. 

89  Citizens'  Mut.  Ins.  Co.  v.  Sort- 
well,  8  Allen  (Mass.)  217. 

90  Stow  v.  Wyse,  7  Conn.  214,  18 
Am.  Dec.  99.     See,  also,  Wiggin  v. 
Freewill    Baptist    Church,    8    Mete. 
(Mass.)     301;    Harding    v.    Vande- 
water,  40  Cal.  77. 

91  It  has  been  held  that  the  hour, 
as  well  as  the  day,  must  be  stated. 
San  Buenaventura,  &c.  Co.  v.  Vas- 
sault,    50    Cal.    534,   537.     The   fact 
that  there  is  some  delay  in  calling 
the  meeting  to  order  will  not,  as  a 
rule,    invalidate   it,   but   holding   it 
before  the  time  designated  may  op- 
erate as  a  surprise  upon  some  of  the 
stockholders  and  give  those  who  do 
not   participate   just  cause   for   at- 
tacking its  validity  as  to  them.  Peo- 
ple v.  Albany,  &c.  R.  Co.  55  Barb. 
(N.  Y.)  344.    The  notice  should  also 
be  served  a  reasonable  time  before 
the  meeting,  although  this  is  usual- 


ly fixed  by  the  statute  or  by-laws. 
Long  Island  R.  Co.,  In  re,  19  Wend. 
(N.  Y.)  37,  32  Am.  Dec.  429;  Brown 
v.  Republican,  &c.  Mines,  55  Fed.  7; 
Covert  v.  Rogers,  38  Mich.  363,  31 
Am.  R.  319. 

82  Angell  &  Ames  Corp.  (llth  ed.) 
§  496;  Jones  v.  Milton  Turnp.  Co.  7 
Ind.  547;  United  States  v.  McKelden, 
8  Reporter  778. 

93  Notice  of  the  ordinary  business 
to  be  transacted  at  a  general  stated 
meeting  is  usually  unnecessary.  Chi- 
cago, &c.  R.  Co.  v.  Union  Pac.  R.  Co. 
47  Fed.  15 ;  Warner  v.  Mower,  11  Vt. 
385;  Sampson  v.  Bowdoinham,  &c. 
R.  Co.  36  Me.  78;  Merritt  v.  Ferris, 
22  111.  303.  But  notice  of  the  busi- 
ness to  be  transacted  at  a  special 
meeting  is  generally  essential,  and 
no  other  business  can  be  regularly 
transacted  than  that  specified  in  the 
notice.  Atlantic  Delaine  Co.  v.  Ma- 
son, 5  R.  I.  463;  People's  Mut.  Ins. 
Co.  v.  Westcott,  14  Gray  (Mass.) 
440 ;  Rex  v.  Mayor,  &c.  of  Doncaster, 
2  Burr  738.  See,  also,  Bridport  Old 
Brewery  Co.  L.  R.  2  Ch.  191;  Lon- 
don, &c.  Co.,  In  re,  L.  R.  31  Ch.  D. 
223;  Tuttle  v.  Michigan  Air  Line 
R.  Co.  35  Mich.  247;  1  Beach  Priv. 
Corp.  §  279;  Purdy's  Beach  Priv. 
Corp.  §  664. 


255 


REMEDIES    OF    STOCKHOLDERS. 


[§'   165 


a  waiver  of  objections  to  the  notice.94  And  where  a  meeting  is  duly 
called  and  held,  the  corporation  may  adjourn  and  transact  any  busi- 
ness at  the  adjourned  meeting  which  they  could  have  transacted  at  the 
original  meeting,  without  giving  any  additional  notice  other  than 
that  implied  in  the  adjournment.95  It  will  be  presumed,  in  the  ab- 
sence of  anything  to  the  contrary,  that  a  meeting  attended  by  a  quorum 
was  duly  called.96 

§'165.  Remedies  of  stockholders. — A  stockholder  has  the  further 
right  to  bring  an  action  to  obtain  redress  for  wrongs  done  to  the  cor- 
porate rights  or  to  restrain  ultra  vires  acts  done  in  the  name  of  the 
corporation  in  cases  where  the  corporation,  upon  request,  refuses  to 
bring  the  suit,97  and  where  the  persons  who  are  despoiling  the  cor- 


"Stutz  v.  Handley,  41  Fed.  531; 
rfandley  v.  Stutz,  on  appeal,  139  U. 
S.  417,  11  Sup.  Ct.  530;  Union  Pac. 
R.  Co.  v.  Chicago,  &c.  R.  Co.  51  Fed. 
309;  Jones  v.  Milton  Turnp.  Co.  7 
Ind.  547;  People  v.  Peck,  11  Wend. 
(N.  Y.)  604,  27  Am.  Dec.  104;  Ken- 
ton  Furnace  Co.  v.  McAlpin,  5  Fed. 
737;  Campbell  v.  Argenta,  &c.  Co. 
51  Fed.  1;  Wood  v.  Corry,  &c.  Co. 
44  Fed.  146;  Nelson  v.  Hubbard,  96 
Ala.  238,  11  So.  428,  17  L.  R.  A.  375; 
Bucksport,  &c.  R.  Co.  v.  Buck,  68 
Me.  81. 

95  Warner  v.  Mower,  11  Vt.   385; 
Smith  v.  Law,  21  N.  Y.  296;   Gran- 
ger v.   Grubb,   7   Phila.    (Pa.)    350; 
Rex  v.   Carmarthen,  1  Maule  &  S. 
697;    Scadding  v.   Lorant,   3   H.   L. 
Gas.  418.     But  see,  where  there  is 
bad  faith  and  stockholders  are  taken 
advantage  of,  State  v.  Bonnell,  35 
Ohio  St.  10;   New  York,  &c.  Co.  v. 
Parrott,  36  Fed.  462;   also  State  v. 
Phillips,   79   Me.    506,   10   Atl.    447; 
Reg.  v.  Grimshaw,   L.  R.   10  Q.   B. 
747  (new  and  different  business  can 
not  be  transacted). 

96  Sargent   v.    Webster,    13    Mete. 
(Mass.)   497,  46  Am.  Dec.  743;   Mc- 
Daniels  v.  Flower  Brook,  &c.  Co.  22 
Vt.  274;   Beardsley  v.  Johnson,  121 


N.  Y.  224;  Wells  v.  Rodgers,  60 
Mich.  525,  27  N.  W.  671;  Lane  v. 
Brainerd,  30  Conn.  565. 

OTTeachout  v.  Des  Moines,  &c.  St. 
R.  Co.  75  Iowa  722;  Foster  v.  Mans- 
field, &c.  R.  Co.  36  Fed.  627;  Mem- 
phis, &c.  R.  Co.  v.  Woods,  88  Ala. 
630,  7  So.  108,  7  L.  R.  A.  605  n,  16 
Am.  St.  81;  Wilkie  v.  Rochester,  &c. 
R.  Co.  12  Hun  (N.  Y.)  242;  Stevens 
v.  Rutland,  &c.  R.  Co.  29  Vt.  545; 
Putnam  v.  Ruch,  56  Fed.  416;  Tay- 
lor v.  Holmes,  127  U.  S.  489,  8  Sup. 
Ct.  1192;  Hawes  v.  Oakland,  104  U. 
S.  450;  Mack  v.  DeBardeleben,  &c. 
Co.  90  Ala.  396,  8  So.  150,  9  L.  R. 
A.  650,  and  note;  Atwood  v.  Merry- 
weather,  L.  R.  5  Eq.  464,  note.  A 
request  and  refusal  of  the  corpora- 
tion to  sue  must  generally  be  shown 
or  a  sufficient  excuse  for  failure-  to 
make  the  request.  Atchison,  &c.  R. 
Co.  v.  Board,  51  Kan.  617,  33  Pac. 
312;  Latimer  v.  Richmond,  &c.  R. 
Co.  39  S.  C.  44,  17  S.  E.  258;  Whit- 
.ney  v.  Fairbanks,  54  Fed.  985;  Weid- 
infelder  v.  Allegheny,  &c.  R.  Co.  47 
Fed.  11;  Beshoar  v.  Chappell 
(Colo.),  40  Pac.  244;  Johns  v.  Mc- 
Lester,  137  Ala.  283,  34  So.  174,  97 
Am.  St.  27,  and  note;  Macon,  &c.  R. 
Co.  v.  Shailer,  141  Fed.  585.  Where 


165] 


STOCKHOLDERS. 


256 


poration  or  who  have  caused  it  to  exceed  its  powers,  are  in  control 
of  it.08  Thus  a  suit  brought  by  a  stockholder  on  behalf  of  his  cor- 
poration against  the  directors  and  others,  has  been  sustained,  where 
he  sought  redress  for  frauds,  wrongs,  and  breaches  of  trust,  and  to  re- 
cover from  them  money  of  which  the  corporation  had  been  defrauded." 


a  corporation  expired  by  limitation 
in  its  charter,  but  its  existence  was 
continued  thereafter  by  statute  for 
the  purpose  of  winding  up  its  busi- 
ness, such  limitation  in  its  charter 
is  not  sufficient  ground  for  bring- 
ing a  suit  in  the  name  of  some  of 
the  stockholders  in  behalf  of  the 
corporation,  to  recover  its  property, 
where  no  application  has  been  made 
to  the  directors.  Taylor  v.  Holmes, 
127  U.  S.  489,  8  Sup.  Ct.  1192. 

98  Heath  v.  Erie  R.  Co.  8  Blatchf. 
(U.  S.)  347;  Doud  v.  Wisconsin,  &c. 
R.  Co.  65  Wis.  108,  25  N.  W.  533,  56 
Am.  R.  620;  Parrott  v.  Byers,  40 
Cal.  614;  Board,  &c.  v.  Lafayette, 
&c.  R.  Co.  50  Ind.  85;  Currier  v.  New 
York,  &c.  R.  Co.  35  Hun  (N.  Y.) 
355;  Oshkosh,  &c.  Co.,  Re,  77  Wis. 
366,  46  N.  W.  441,  9  L.  R.  A.  273, 
and  note;  Miner  v.  Belle  Isle  Ice 
Co.  93  Mich.  97,  53  N.  W.  218,  17  L. 
R.  A.  412.  See,  also,  Jones  v.  Mis- 
souri, &c.  Co.  144  Fed.  765.  The 
minority  stockholders  can  not  en- 
join acts  of  the  majority  stockhold- 
ers or  directors  of  a  corporation  in 
relation  to  its  internal  management, 
such  as  executing  a  perpetual  lease 
of  its  railroad  and  franchises,  where 
the  acts  complained  of  are  neither 
fraudulent  nor  illegal.  And  the 
mere  fact  that  defendants  are  also 
the  majority  stockholders  and  of- 
ficers of  the  corporation  to  which 
the  proposed  lease  is  to  be  made  is 
not  sufficient  to  establish  fraud. 
Shaw  v.  Davis,  78  Md.  308,  28  Atl. 
619,  23  L.  R.  A.  294.  Where  the 
suit  is  against  those  in  control  of 


the  corporation,  no  request  that  they 
shall  bring  the  suit  is  necessary. 
George  v.  Central  R.,  &c.  Co.  101  Ala. 
607,  14  So.  752;  Sage  v.  Culver,  71 
Hun  (N.  Y.)  42,  24  N.  Y.  S.  514; 
Smith  v.  Dorn,  96  Cal.  73,  30  Pac. 
1024;  Landis  v.  Sea  Isle,  &c.  Co.  53 
N.  J.  654,  31  Atl.  755.  See,  also, 
Higgins  v.  Lansingh,  154  111.  301,  40  - 
N.  E.  362,  and  note  in  97  Am.  St. 
34.  Where  a  majority  stockholder 
of  a  railroad  company  elects  and 
controls  its  board  of  directors,  and 
obtains  a  lease  of  its  railroad  at  a 
nominal  rental,  any  minority  stock- 
holder may  sue  in  his  own  name  for 
the  fraud  committed  on  the  com- 
pany. Pondir  v.  New  York,  &c.  R. 
Co.  72  Hun  (N.  Y.)  384,  25  N.  Y.  S. 
560;  Earle  v.  Seattle,  &c.  R.  Co.  56 
Fed.  909.  Where  it  is  merely  a 
question  of  corporate  policy,  and  no 
question  of  fraud  or  illegality  of 
the  proposed  action  of  the  corpora- 
tion is  raised,  equity  will  not  in- 
terpose to  control  the  action  of  di- 
rectors to  whom  the  charter  con- 
fides the  management  of  corporate 
affairs.  Ellerman  v.  Chicago  Junct. 
R.,  &c.  Co.  49  N.  J.  Eq.  217,  23  Atl. 
287;  Wheeler  v.  Pullman,  &c.  Co.  143 
111.  197,  32  N.  E.  420,  17  L.  R.  A. 
818;  Manufacturers,  &c.  Co.  v. 
Cleary  (Ky.),  89  S.  W.  248. 

98  Beach  v.  Cooper,  72  Cal.  99,  13 
Pac.  161;  Putnam  v.  Ruch,  54  Fed. 
216.  A  stockholder  may  bring  an  ac- 
tion to  enjoin  the  directors  from  un- 
lawfully transferring  the  stock  to  a 
consolidated  corporation,  and  he 
need  not  consult  with  the  directors 


257    SUIT   BY   UNREGISTERED   ASSIGNEES   AND   THIRD   PERSONS.     [§    166 


In  such  a  suit,  the  corporation  should  be  joined  as  a  defendant,100  as 
the  court  cannot  pass  upon  its  rights  unless  it  is  brought  into  court. 
It  has  also  been  held  that  a  stockholder  may  enjoin  the  performance 
of  an  ultra  vires  contract  to  which  all  the  other  stockholders  have  con- 
sented although  he  is  not  specially  injured  thereby.101 

§  166.    Unregistered  assignees  and  third  persons  cannot  sue. — An 

assignee  of  railroad  stock,  who  has  not  registered  his  stock,  nor  ob- 
tained recognition  as  a  stockholder,  cannot  bring  suit  in  behalf  of 
himself  and  other  stockholders  to  restrain  the  officers  of  the  corpora- 
tion from  ultra  vires  and  illegal  acts.102  Parties  who  never  paid,  or 
agreed  to  pay,  anything  for  corporate  stock  issued  to  them,  are  not, 


'with  reference  thereto.  Botts  v. 
Simpsonville,  &c.  Tpk.  Co.  88  Ky. 
54,  10  S.  W.  134,  2  L.  R.  A.  594. 

100Kennebec,  &c.  R.  Co.  v.  Port- 
land, &c.  R.  Co.  54  Me.  173,  181; 
Bagshaw  v.  Eastern  R.  Co.  7  Hare 
114;  Heath  v.  Erie,  &c.  Co.  8  Blatchf. 
(U.  S.)  347,  394;  Curran  v.  Ar- 
kansas, 15  How.  (U.  S.)  304;  Brewer 
v.  Boston  Theater,  104  Mass.  378; 
Cook  Stock  and  Stockholders,  §  738, 
and  numerous  authorities  cited. 
The  general  rule  is  that  the  corpora- 
tion is  a  necessary  party,  either  as 
a  plaintiff  or  defendant.  Zinn  v. 
Mendel,  9  W.  Va.  580;  Greaves  v. 
Gouge,  69  N.  Y.  154,  52  How.  Pr. 
(N.  Y.)  58;  Western  R.  Co.  v.  No- 
lan, 48  N.  Y.  513;  Hersey  v.  Veazie, 
24  Me.  9,  41  Am.  Dec.  364;  Daven- 
port v.  Dows,  18  Wall.  (U.  S.)  626; 
Beach  v.  Cooper,  72  Cal.  99,  13  Pac. 
161;  Wilson  v.  American  Palace  Car 
Co.  64  N.  J.  534,  54  Atl.  415;  note 
in  97  Am.  St.  45,  46. 

101  Byrne  v.   Schuyler,  &c.   Co.   65 
Conn.  336,  31  Atl.  833,  28  L.  R.  A. 
304,  and  cases  cited.    See,  also,  Cen- 
tral R.  Co.  v.  Collins,  40  Ga.  582; 
Davis  v.  Congregation,  40  App.  Div. 
(N.  Y.)  424,  57  N.  Y.  S.  1015. 

102  Brown  v.  Duluth,  &c.  R.  Co.  53 
Fed.  889.     See,  also,  Heath  v.  Erie 

ELL.  RAILKOADS — 17 


R.  Co.  8  Blatchf.  (U.  S.)  347;  Her- 
sey v.  Veazie,  24  Me.  9,  41  Am.  Dec. 
364  n;  Ramsey  v.  Erie  R.  Co.  7  Abb. 
Pr.  N.  S.  (N.  Y.)  156.  But  compare 
Ervin  v.  Oregon,  &c.  Co.  28  Hun 
(N.  Y.)  269;  Parrott  v.  Byers,  40 
Cal.  614;  Bagshaw  v.  Eastern,  &c. 
R.  Co.  7  Hare  114;  Moore  v.  Silver, 
&c.  Co.  104  N.  C.  534,  10  S.  E.  679. 
A  bill  to  enjoin  corporate  acts  which 
does  not  allege  fraud  on  the  part  of 
the  directors,  or  that  they  are 
threatening  to  do  some  act  ultra 
vires  or  for  their  own  interests,  in 
a  manner  injurious  to,  or  destruc- 
tive of,  the  rights  of  other  share- 
holders, but  that  the  plaintiffs  have 
made  an  earnest  effort  to  obtain  re- 
dress within  the  corporation  itself, 
is  insufficient  on  demurrer.  Lati- 
mer  v.  Richmond,  &c.  R.  Co.  39  S.  C. 
44,  17  S.  E.  258;  Atchison,  &c.  R.  Co. 
v.  Board,  &c.  51  Kans.  617,  33  Pac. 
312;  Roman  v.  Woolfolk,  98  Ala.  219, 
13  So.  212.  But  where  the  com- 
plaint shows  that  a  rival  corpora- 
tion has  secured  control  of  the  com- 
pany, and  acts  of  itself  and  its  of- 
ficers amounting  to  fraud  upon  the 
rights  of  plaintiff  are  stated,  the 
complaint  is  sufficient.  Earle  v. 
Seattle,  &c.  R.  Co.  56  Fed.  909. 


167] 


STOCKHOLDERS. 


258 


ordinarily,  shareholders,  and  cannot,  as  a  rule,  maintain  an  action  as 
such.103  The  expectant  owner  of  stock  in  a  corporation,  before  becom- 
ing a  stockholder,  can  neither  be  heard  to  complain  of  acts  of  the 
corporation  which  may  be  ultra  vires,  nor  be  permitted  to  interfere 
in  any  way  in  the  affairs  of  the  company.104  To  enable  one  or  more 
stockholders  to  maintain  in  a  federal  court  of  equity,  a  suit  which 
should  properly  be  brought  by  the  corporation  itself,  they  must  show 
that  they  were  shareholders  at  the  time  of  the  transaction  complained 
of,  or  that  the  shares  have  devolved  on  them  since  by  operation  of 
law.105 

§  167.  When  stockholders  may  sue  or  become  parties. — Stockhold- 
ers have  been  permitted  to  sue  on  behalf  of  the  corporation  to  remove 
a  cloud  from  the  corporate  title  to  real  estate,106  and  to  compel  pay- 
ment of  subscriptions.107  But,  on  the  other  hand,  a  stockholder  has 
been  denied  the  right  to  sue  for  a  trespass  upon  the  company's  prop- 
erty,108«and  he  cannot  take  an  appeal  in  a  suit  which  it  has  lost.109 
In  cases  involving  fraud  and  collusion  he  must  move  promptly  to 


103  Arkansas     River,     &c.     Co.     v. 
Farmers',  &c.  Trust  Co.  13  Colo.  587, 
22  Pac.  954;   Hinchley  v.  Pflster,  83 
Wis.    64,   53   N.   W.    21.     See,   also, 
Busey  v.  Hooper,  35  Md.  15.     Pur- 
chasers of  stock  have  the  right  to 
demand  that  a  contract  of  the  cor- 
poration be  canceled  on  the  ground 
that  it  is  ultra  vires,  and  a  wrongful 
refusal    to    transfer    stock    on    the 
books  of  the  company  can  not  defeat 
that   right.      Carson    v.    Iowa   City 
Gaslight  Co.  80  Iowa  638,  45  N.  W. 
1068. 

104  Mayer  v.  Denver,  &c.  R.  Co.  38 
Fed.  197,  6  R.  &  Corp.  L.  J.  49. 

103  Dimpfell  v.  Ohio,  &c.  R.  Co.  110 
U.  S.  209,  3  Sup.  Ct.  573.  Rule  94, 
U.  S.  Rules  of  Practice  in  Equity 
Cases,  104  U.  S.  IX.  A  suit  removed 
to  the  federal  court  from  a  state 
court  will  not  be  dismissed  for  fail- 
ure to  comply  with  this  rule  since 
it  applies  only  to  suits  originally 
begun  in  the  federal  court.  Barle 
v.  Seattle,  &c.  R.  Co.  56  Fed.  909. 


Where  stock  was  transferred  merely 
by  indorsement  and  not  by  issuing 
certificates,  the  stockholder  must 
show  that  he  purchased  the  stock 
in  good  faith  and  not  for  mere  pur- 
pose of  vexation,  before  he  can  sue 
for  redress  for  fraudulent  transac- 
tion committed  by  officers  or  others 
before  he  became  a  stockholder. 
Moore  v.  Silver  Valley  Min.  Co.  104 
N.  C.  534,  10  S.  E.  679. 

106  Baldwin  v.  Canfield,  26  Minn. 
43,  56,  1  N.  W.  261. 

197Wallworth  v.  Holt,  4  Mylne  & 
Cr.  619.  Other  illustrative  cases  are 
referred  to  in  Hiscock  v.  Lacy,  9 
Misc.  (N.  Y.)  578,  30  N.  Y.  S.  860, 
quoted  in  note  in  97  Am.  St.  41. 

10S  Dale  v.  Grant,  34  L.  J.  142. 

109  Silk  Mfg.  Co.  v.  Campbell,  27  N. 
J.  L.  539.  For  other  illustrative 
cases  see  Van  Kirk  v.  Adler,  111 
Ala.  104,  20  So.  336;  Hendrickson  v. 
Bradley,  85  So.  508;  Flynn  v.  Brook- 
lyn City  R.  Co.  158  N.  Y.  493,  53  N. 
E.  520;  note  in  97  Am.  St.  42,  43. 


259         WHEN   STOCKHOLDERS   MAY    SUE   OK   BECOME   PARTIES.      '[§    167 


assert  his  rights  upon  gaining  knowledge  of  the  wrongful  acts  com- 
plained of,  for  if  he  participates  or  acquiesces  in  unwarrantable  acts 
of  the  officers  or  of  a  majority  of  the  stockholders,  he  will  usually  be 
bound  by  them.110  He  will  not  be  permitted  to  wait  until  he  can  see 
whether  the  unauthorized  act  is  for  the  advantage  of  the  corporation, 
and  in  case  it  proves  disastrous,  sue  to  set  it  aside.111  The  fact  that  the 
plaintiff  bought  his  stock  expressly  to  enable  him  to  bring  the  suit 
is  not  necessarily  a  ground  for  refusing  relief.112  If  it  appears  that 


110  Memphis,  &c.  R.  Co.  v.  Grayson, 
88  Ala.  572,  7  So.  122,  16  Am.  St.  69; 
Burgess  v.  St.  Louis  County  R.  Co. 
99  Mo.  496,  12  S.  W.  1050;  Taylor 
v.  Holmes,  127  U.  S.  489,  8  Sup.  Ct. 
1192;  Alexander  v.  Searcy,  81  Ga. 
536,  8  S.  E.  630,  12  Am.  St.  337.  But 
see  Appleton  v.  American  Malt.  Co. 
65  N.  J.  Eq.  375,  54  Atl.  454;  Fitz- 
gerald v.  Fitzgerald,  41  Neb.  374,  59 
N.  W.  838.  An  act  not  expressly 
prohibited  by  law,  but  unauthorized 
in  the  charter  of  the  corporation, 
which  affects  only  the  interests  of 
the  stockholders,  may  be  made  good 
by  the  assent  of  the  stockholders, 
so  as  to  protect  strangers  dealing 
with  them  in  good  faith.  Hollins  v. 
St.  Paul,  &c.  R.  Co.  (Sup.  Ct),  29 
N.  Y.  S.  208,  8  R.  &  Corp.  L.  J.  117. 
So,  a  purchaser  of  stock  with  notice 
that  it  was  voted  in  favor  of  the 
illegal  act  cannot  complain  of  such 
act.  Brown  v.  Duluth,  &c.  R.  53 
Fed.  889;  Wood  v.  Corry,  &c.  Co. 
44  Fed.  146;  Barr  v.  New  York,  &c. 
R.  125  N.  Y.  263,  26  N.  E.  145;  Syra- 
cuse, &c.  R.,  In  re,  91  N.  Y.  1.  Sev- 
eral of  these  cases  apply  this  doc- 
trine even  to  transferees  without 
notice  of  the  fraud,  but  in  Parsons 
v.  Joseph,  92  Ala.  403,  8  So.  788,  its 
application  to  bona  fide  purchasers 
is  denied. 

ulAtchison,  &c.  R.  Co.  v.  Fletcher, 
35  Kans.  236,  10  Pac.  596;  Burgess 
v.  St.  Louis  County  R.  Co.  99  Mo. 
496,  12  S.  W.  1050.  For  an  instance 
in  which  it  was  held  that  the  stock- 


holder acted  with  sufficient  prompt- 
ness, see  Byrne  v.  Schuyler,  &c.  Co. 
65  Conn.  336,  31  All.  833. 

112  Ramsay  v.  Erie  R.  Co.  8  Abb. 
Pr.  N.  S.  (N.  Y.)  174;  Young  v. 
Drake,  8  Hun  (N.  Y.)  61;  Winsor 
v.  Bailey,  55  N.  H.  218;  Elkins  v. 
Camden,  &c.  R.  Co.  36  N.  J.  Eq.  5; 
Chicago  v.  Cameron,  22  111.  App. 
91,  aff'd  120  111.  447;  Cook  Stock 
and  Stockholders,  §  736.  But  see 
ante,  note  3,  page  241,  and  Alex- 
ander v.  Searcy,  81  Ga.  536,  8  S.  E. 
630,  12  Am.  St.  337.  The  fact  that 
the  certificates  of  stock  were  not  is- 
sued to  him  until  after  a  corpora- 
tion had  accepted  an  unconstitu- 
tional amendment  to  its  charter  will 
not  preclude  one  having  a  vested 
right  to  stock  of  the  corporation  by 
virtue  of  stock  receipts  from  enforc- 
ing his  rights  against  an  attempt  to 
misappropriate  funds  under  such 
amendment.  Hill  v.  Glasgow  R.  Co. 
41  Fed.  610.  The  fact  that  plaintiff 
became  a  stockholder  after  commis- 
sion of  the  acts  complained  of  does 
not  defeat  his  right  to  begin  the 
action,  which  is  brought  directly 
for  the  benefit  of  the  corporation. 
Chicago  v.  Cameron,  22  111.  App. 
91,  aff'd  in  9  West.  R.  507,  120  111. 
'447,  11  N.  E.  899.  But  it  has  been 
held  that  where  the  transfer  is  mere- 
ly nominal  the  transferee  cannot 
maintain  .the  suit.  McDonnell  v. 
Grand  Canal  Co.  3  Ir.  Ch.  R.  578; 
Robson  v.  Dodd,  L.  R.  8  Eq.  301. 


167] 


STOCKHOLDERS. 


260 


the  plaintiff  is  prosecuting  the  suit  at  the  instance  and  for  the  benefit 
of  others  who  are  not  stockholders,  and  who  indemnify  him  against 
the  costs  of  the  suit,  the  court  will  not  interfere  by  interlocutory  in- 
junction.113 Nor  will  it  readily  grant  this  extraordinary  relief  before 
hearing,  where  the  measures  are  of  evident  expediency,  and  have  the 
approbation  of  all  the  other  stockholders,  although  proper  relief  will 
not  be  denied  upon  final  hearing  if  the  acts  complained  of  are  shown 
to  be  ultra  vires.114  The  fact  that  a  rival  company  merely  instigated 
the  suit  is  not  a  reason  for  denying  relief  of  which  the  stockholders 
are  shown  to  be  entitled,115  although  the  court  may  decline  to  entertain 
a  suit  by  shareholders  in  such  a  company  who  have  purchased  shares 
in  the  rival  company  for  purpose  of  litigation.116  And  in  cases  where 
the  corporation  neglects  or  refuses  to  defend  a  suit  because  of  fraud 
and  collusion  on  the  part  of  the  corporate  officers,  a  stockholder  may, 
according  to  some  authorities,  be  admitted  as  a  defendant,  and  allowed 
to  set  up  any  defenses  which  the  corporation  might  have  offered  to 
the  suit.117  But  other  authorities  hold  that  the  proper  means  by  which 
the  stockholders  should  protect  their  rights  is  to  file  an  original  bill 
in  equity  to  have  the  judgment  in  such  a  suit  set  aside  for  fraud.118 


113Filder  v.  London,  &c.  R.  Co.  1 
H.  &  Miller  489;  Forrest  v.  Man- 
chester, &c.  R.  Co.  4  DeG.,  F.  &  J. 
126;  Belmont  v.  Erie  R.  Co.  52  Barb. 
(N.  Y.)  637;  Beshoar  v.  Chappell 
(Colo.),  40  Pac.  244.  But  see  Dins- 
more  v.  Central  R.  Co.  19  Fed.  153; 
Sandford  v.  Railroad,  24  Pa.  St.  378; 
Central  R.  Co.  v.  Collins,  40  Ga.  582. 
He  must  not  act  in  bad  faith  or  the 
court  will  usually  refuse  to  aid  him. 
Beshoar  v.  Chappell,  6  Colo.  App. 
323,  40  Pac.  244;  Tevis  v.  Hammer- 
smith, 161  Ind.  74,  66  N.  E.  79,  67 
N.  E.  672. 

114DuPont  v.  Northern  Pacific  R. 
Co.  18  Fed.  467.  But  not  where  he 
has  knowingly  accepted  and  retained 
the  benefit.  Wormser  v.  Metropoli- 
tan St.  R.  Co.  184  N.  Y.  83,  76  N.  E. 
1036. 

115Colman  v.  Eastern  Counties  R. 
Co.  10  Beav.  1. 

""Ffooks  v.  London,  &c.  R.  Co.  17 
Jur.  365. 


117  Koehler  v.  Black  River,  &c.  Co. 
2  Black  (U.  S.)  715;  Bayliss  v.  La- 
fayette, &c.  R.  Co.  8  Biss.  (U.  S.) 
193;  Mussina  v.  Goldthwaite,  34 
Tex.  125;  Graham  v.  Boston,  &c.  R. 
Co.  118  U.  S.  161,  6  Sup.  Ct.  1009; 
Farmers',  &c.  T.  Co.  v.  Toledo,  &c. 
R.  Co.  67  Fed.  49.  A  stockholder 
cannot  defend  against  a  suit  to  fore- 
close a  mortgage  upon  its  property 
for  default  in  the  payment  of  in- 
terest upon  the  ground  that  the  rail- 
road company  has  misapplied  its 
earnings  in  order  to  bring  about  the 
default,  even  where  the  majority 
stockholder  is  a  heavy  bondholder 
and  desires  the  mortgage  foreclosed. 
Farmers',  &c.  T.  Co.  v.  New  York, 
&c.  R.  Co.  78  Hun  (N.  Y.)  213,  28  N. 
Y.  S.  933;  Oelbermann  v.  New  York, 
&c.  R.  Co.  7  Misc.  (N.  Y.)  352,  27 
N.  Y.  S.  945. 

118Blackman  v.  Central  R.  Co.  58 
Ga.  189;  Forbes  v.  Memphis,  &c.  R. 
Co.  2  Woods  (U.  S.)  323;  Kelley  v. 


261 


RIGHT   TO   RECOVER  INSURANCE. 


[§    168 


§  168.  Eight  to  recover  insurance. — "Where  the  corporation  neg- 
lects properly  to  insure  its  property,  it  is  held  that  a  stockholder  may 
insure  it  in  his  own  name,  and  may,  in  case  of  loss,  recover  upon  such 
a  policy  for  a  sum  which  will  make  up  any  deficiency  in  the  amount 
of  the  company's  insurance  necessary  to  cover  his  interest.119  But  the 
corporation  is  generally  held  to  be  a  legal  entity  separate  and  apart 
from  the  owners  of  its  stock,  even  though  all  the  stock  belong  to  one 
person.120  It  would  seem,  therefore,  that  he  cannot  insure  as  absolute 
owner  of  the  property,121  whatever  may  be  the  rule  as  to  his  qualified 
interest  therein. 


§  169.  Other  rights  and  remedies  of  stockholders. — A  stockholder 
may,  in  general,  contract  with  the  corporation  upon  the  same  terms, 
in  the  same  manner,  and  to  the  same  extent  that  another  person 
may.122  And  it  is  held  that  he  may  be  interested  in  the  construction 
company  to  which  a  corporate  contract  is  given,  even  though  he  owns 
a  majority  of  the  stock  and  thereby  may  have  control.123  But  this 


Mississippi,  &c.  R.  Co.  1  Fed.  564, 
holding  that  at  common  law  a  stock- 
holder can  not  defend,  even  though 
the  corporation  is  in  no  position  to 
do  so. 

119  Warren  v.  Davenport  Fire  Ins. 
Co.  31  Iowa  464;  Riggs  v.  Commer- 
cial Mut.  Ins.  Co.  125  N.  Y.  7,  25  N. 
E.  1058,  10  L.  R.  A.  684,  21  Am.  St. 
716.     See,  also,   Seaman   v.   Enter- 
prise Fire  Ins.  Co.  18  Fed.  250. 

120  Button  v.  Hoffman,  61  Wis.  20, 
20  N.  W.  667,  50  Am.  St.  131.     See 
Hopkins  v.  Roseclare,  &c.  Co.  72  111. 
373;    Newton,  &c.  Co.  v.  White,  42 
Ga.  148.    But  see  Swift  v.  Smith,  65 
Md.  428,  5  Atl.  534,  57  Am.  R.  336, 
where  it  is  held  that  a  person  own- 
ing all  the  stock  may  bind  the  cor- 
poration by  his  individual  acts. 

121  See   Philips  v.   Knox,  &c.   Ins. 
Co.  20  Ohio  174;  Riggs  v.  Commer- 
cial, &c.  Ins.  Co.  19  J.  &  S.  (N.  Y. 
lSuper.  Ct.)  466. 

122  Hartford,  &c.  R.  Co.  v.  Kennedy, 
12  Conn.  499,  509;   Central,  &c.  R. 
Co.  v.  Claghorn,  1  Speers  Eq.  (S.  C.) 


545,  562.  It  is  held  that  stockhold- 
ers of  a  corporation  have  the  same 
right  to  purchase  its  property  and 
take  possession  thereof  that  stran- 
gers would  have  during  the  pend- 
ency of  a  suit  to  forfeit  the  charter. 
Havemeyer  v.  Superior  Ct.  84  Cal. 
327,  24  Pac.  121,  10  L.  R.  A.  627,  18 
Am.  St.  192.  See,  also,  Crymble  v. 
Mulvaney,  21  Colo.  203,  40  Pac.  499; 
Merrick  v.  Peru  Coal  Co.  61  111.  472 ; 
Mickles  v.  Rochester  City  Bank,  11 
Paige  (N.  Y.)  118,  42  Am.  Dec.  103. 
Stockholders  in  a  corporation  may 
purchase  its  mortgage  bonds  and  en- 
force payment  in  the  usual  manner, 
though  the  object  in  purchasing  the 
bonds  was  to  cause  a  foreclosure 
and  to  purchase  the  property  at  the 
sale.  Farmers,  &c.  Co.  v.  New 
York,  &c.  R.  Co.  78  Hun  (N.  Y.)  213, 
28  N.  Y.  S.  933.  See,  also,  Oelber- 
mann  v.  New  York,  &c.  R.  Co.  7 
Misc.  (N.  Y.)  352,  27  N.  Y.  S.  945. 

123  Porter  v.  Pittsburg,  &c.  Co.  120 
U.  S.  649,  670,  7  Sup.  Ct.  741,  hold- 
ing that  the  mere  fact  of  such  own- 


§  169] 


STOCKHOLDERS. 


262 


right  would  seem  to  be  held  subject  to  the  principle  which  is  noT7 
firmly  established,  that  where  a  majority  of  the  stockholders  assume 
control  of  the  corporation,  they  take  upon  themselves  the  trust  relation 
occupied  by  the  corporation  toward  its  stockholders,124  and  are  bound 
to  equity  and  fair  dealing.125  Upon  this  principle  depends  the  well- 
established  right  of  a  minority  stockholder  to  have  set  aside  a  fraudu- 
lent sale  of  the  corporate  property,  by  the  majority  of  the  stockhold- 
ers,126 or  by  the  directors,127  to  themselves,  or  a  fraudulent  sale  of 
property  to  the  corporation  by  them.128  He  may,  in  good  faith,  ob- 
tain security  for  his  debt,129  and  may  sue  or  be  sued  by  the  corporation 


ership  does  not  raise  a  legal  infer- 
ence that  he  dominates  the  board 
of  directors. 

121Ervin  v.  Oregon  R.,  &c.  Co.  27 
Fed.  625,  20  Fed.  577,  (Irvin  v.)  28 
Fed.  833.  See,  also,  Miner  v.  Belle 
Isle  Ice  Co.  93  Mich.  97,  53  N.  W. 
218,  17  L.  R.  A.  412. 

125  And  a  court  of  equity  will  re- 
view their  action  at  the  instance  of 
the  minority.  Menier  v.  Hooper's 
Tel.  Works,  L.  R.  9  Ch.  350;  Meeker 
v.  Winthrop,  &c.  Co.  17  Fed.  48.  See 
Barr  v.  New  York,  &c.  R.  Co.  96  N. 
Y.  444. 

129Reilly  v.  Oglebay,  25  W.  Va.  36; 
Mason  v.  Pewabic  Min.  Co.  25  Fed. 
882.  A  creditor  of  the  old  corpora- 
tion who  is  injured  thereby  may 
have  the  sale  set  aside  for  fraud. 
San  Francisco,  &c.  R.  Co.  v.  Bee,  48 
Cal.  398. 

127  Jones  v.  Arkansas,  &c.  Co.  38 
Ark.  17;  Buell  v.  Buckingham,  16 
Iowa  284,  85  Am.  St.  516;  Hoyle  v. 
Plattsburgh,  &c.  R.  Co.  54  N.  Y.  314, 
13  Am.  R.  595,  setting  aside  a  pur- 
chase by  a  director  at  a  sale  on  exe- 
cution. The  director  can  hold  prop- 
erty of  the  corporation  which  he 
may  purchase  only  as  a  trustee  for 
the  corporation,  and,  on  being  re- 
paid the  purchase  money  he  must 
make  it  over  to  his  cestui  que  trust. 
Harts  v.  Brown,  77  111.  226;  Munson 
v.  Syracuse,  &c.  R.  Co.  103  N.  Y.  58, 


29  Hun  76;  Covington,  &c.  R.  Co.  v. 
Bowler's  Ex'rs,  9  Bush  (Ky.)  468, 
holding  a  purchaser  from  the  di- 
rector with  notice  subject  to  the 
same  liability  as  his  vendor.  But 
a  sale  to  a  syndicate  of  which  a  di- 
rector is  a  member,  if  made  in  good 
faith  and  for  an  adequate  price,  will 
not  be  set  aside.  DuPont  v.  North- 
ern Pac.  R.  Co.  18  Fed.  467;  Hill  v. 
Nisbet^  100  Ind.  341.  See  Ashhurst's 
Appeal,  60  Pa.  St.  209,  where  a  sale 
to  a  director  was  upheld.  But  where 
the  sale  was  made  to  the  directors 
through  "dummies"  the  corporate 
creditors  can  not  have  it  set  aside 
after  the  lapse  of  a  long  time,  even 
though  made  for  an  inadequate 
price.  Graham  v.  Railroad  Co.  102 
U.  S.  148. 

123  Where  a  director  fraudulently 
conveys  land  to  the  corporation,  the 
stockholder  should  not  sue  in  equity 
to  dissolve  the  corporation  on  ac- 
count of  such  sale,  but  his  remedy 
is  in  an  action  by  the  corporation 
through  its  proper  agents,  or,  in 
case  they  refuse  to  sue,  then  by  the 
stockholder  himself,  to  set  aside  the 
fraudulent  sale.  Tutwiler  v.  Tus- 
caloosa  Coal,  &c.  Co.  89  Ala.  391,  7 
So.  398. 

129Reichwald  v.  Commercial  Hotel 
Co.  106  111.  439;  Foster  v.  Belcher's 
Sugar  Refining  Co.  118  Mo.  238,  24 
S.  W.  63. 


263 


STOCKHOLDERS   AS   AGENTS   OF    CORPORATION". 


[§'   170 


both  at  law  and  in  equity.130  And  in  case  of  its  insolvency  he  may  be 
competent  and  qualified  to  act  as  its  receiver  or  assignee.131 

§  170.  Stockholders  as  agents  of  the  corporation. — A  stockholder 
cannot,  as  such,  bind  the  corporation  by  a  contract  made  in  its  name,132 
although,  of  course,  he  may  act  as  its  agent  by  appointment.133  And 
it  is  held  that  all  the  stockholders  in  meetings  assembled  cannot,  ordi- 
narily, make  a  valid  contract,134  but  that  this  power  belongs  to  the  di- 
rectors or  to  agents  acting  under  their  authority.135  Since  he  is  not 
the  corporation  nor  necessarily  its  agent,  a  stockholder's  admissions 
will  not  bind  it,136  and  service  of  process  upon  him  is  not  service 
upon  the  corporation.137 


130  Waring  v.  Catawba  Co.  2  Bay 
(S.  C.)    109;    Booker,  Ex  parte,  18 
Ark.  338;  Sanborn  v.  Lefferts,  58  N. 
Y.  179;   Leonard  v.  Spencer,  108  N. 
Y.  338;  Wausau,  &c.  Co.  v.  Plumer, 
35  Wis.  274.    A  stockholder  may  re- 
cover damages  for  an  injury  caused 
by  the  negligence  or  misconduct  of 
the  corporation.     Morbach  v.  Home 
Min.  Co.  53  Kan.  731,  37  Pac.  122. 

131  Covert  v.  Rogers,  38  Mich.  363, 
31    Am.    R.    319    n;    Bowery   Bank, 
Matter  of,  16  How.  Pr.  56.     But  a 
stockholder     should    be     appointed 
only  with  the  consent  of  the  parties 
having  opposing   interests.     Atkins 
v.  Wabash,  &c.  R.  Co.  29  Fed.  161. 
A  corporate  officer  cannot  be  a  re- 
ceiver in  New  Jersey.     Freeholders 
v.  State  Bank,  28  N.  J.  Eq.  166. 

132Morelock  v.  Westminster  Water 
Co.  (Md.),  4  Atl.  404;  Mays  v.  Fos- 
ter, 13  Ore.  214,  10  Pac.  17;  Alle- 
mong  v.  Simmons,  124  Ind.  199 
(where  a  stockholder  and  director 
owning  most  of  the  stock  in  a  rail- 
road company  made  a  contract  in 
its  name  which  was  held  invalid) ; 
England  v.  Dearborn,  141  Mass.  590, 
6  N.  E.  837;  Central  Trust  Co.  v. 
Bridges,  57  Fed.  753. 

133  Spear  v.  Ladd,  11  Mass.  94.  The 
rule  has  been  held  to  be  the  same 


where  he  owns  all  the  stock.  But- 
ton v.  Hoffman,  61  Wis.  20,  20  N. 
W.  667,  50  Am.  R.  131.  But  the  con-' 
trary  is  held  in  Swift  v.  Smith,  65 
Md.  428,  5  Atl.  534,  57  Am.  R.  336. 

134  Conro  v.  Port  Henry,  &c.  Co.  12 
Barb.    (N.   Y.)    27;    McCullough   v. 
Moss,  5  Denio  -(N.  Y.)    567;    Gash- 
wiler  v.  Willis,  33  Cal.  11,  91  Am. 
Dec.  607;  Gulf,  &c.  R.  Co.  v.  Morris, 
67  Tex.  692,  4  S.  W.  156;  Humphreys 
v.  McKissock,  140  U.  S.  304,  11  Sup. 
Ct.  779.    See  post,  §§  236,  249,  252. 

135  2  Cook  Stock  and  Stockholders, 
§712. 

136  Mitchell  v.  Rome  R.  Co.  17  Ga. 
574,  586;  Soper  v.  Buffalo,  &c.  R.  Co. 
19   Barb.    (N.   Y.)    310;    Morrell   v. 
Dixfield,  30  Me.  157;   Fairfield,  &c. 
Co.  v.  Thorp,  13  Conn.  173;  Magill 
v.  Kauffman,  4  Serg.  &  Rawle  (Pa.) 
317,  321,  8  Am.  Dec.  713  n.  Except- 
ing, of  course,  where  he  is  acting  as 
agent  for  the  corporation  by  its  au- 
thority in  a  matter  which  it  has  en- 
trusted to  him.    Norwich,  &c.  R.  Co. 
v.   Cahill,  18  Conn.  484;    American 
Fur  Co.  v.  United  States,  2  Pet  (U. 
S.)  358. 

13TLillard  v.  Porter,  2  Head 
(Tenn.)  177;  DeWolf  v.  Mallett's 
Adm'r,  3  Dana  (Ky.)  214. 


STOCKHOLDERS. 


264 


§  171.  Notice  to  stockholder. — Xotice  to  an  individual  stockholder 
is  not,  as  a  rule,  notice  to  the  corporation.138  A  stockholder  is  not, 
ordinarily,  chargeable  with  knowledge  of  corporate  contracts,139  or 
entries  in  the  books  of  the  corporation,140  unless  his  relations  are  such 
as  to  render  it  reasonably  probable  that  he  had  actual  knowledge 
thereof.  In  the  latter  case,  of  course,  actual  knowledge  may  be  in- 
ferred.141 It  has  also  been  held  that  a  stockholder  is  not  chargeable 
with  constructive  notice  of  the  corporate  by-laws;142  but  this  is  cer- 
tainly not  the  general  rule. 

§  172.  Stockholders'  right  to  inspect  books. — A  stockholder  is  en- 
titled to  inspect  the  corporate  books  at  reasonable  intervals,  either  in 
person,143  or  by  an  expert  or  an  agent,  when  he  is  too  ignorant  to  do 
it  himself  intelligently.144  The  directors  cannot  exclude  a  member 


133  Union  Canal  Co.  v.  Loyd,  4 
Watts  &.S.  (Pa.)  393;  Racine,  &c. 
Co.  v.  Joliet,  &c.  Co.  27  Fed.  367. 
See,  also,  dissenting  opinion  in  City 
of  Logansport  v.  Justice,  74  Ind.  378, 
39  Am.  R.  79  n,  and  authorities 
there  cited. 

139Tarbox  v.  Gorman,  31  Minn.  62; 
Baker  v.  Woolston,  27  Kans.  185, 
189. 

140  Hill  v.  Manchester,  &c.  Co.  5  B. 
&  Ad.  866;    Rudd  v.  Robinson,  126 
N.  Y.   113,   26   N.  E.   1046,  12  L.  R. 
A.  273  n,  22  Am.  St.  816.     But  see 
Hamilton,  &c.  Co.  v.   Iowa,  &c.  Co. 
88  Iowa  364,  55  N.  W.  496. 

141  See  Bedford  R.  Co.  v.  Bowser, 
48    Pa.    St.    29.      In    Graff  v.    Pitts- 
burg,  &c.  R.  Co.  31  Pa.  St.  489,  495, 
the  court  holds  a  stockholder  bound 
by  an  entry  made  while  he  was  pres- 
ent and   assenting  to   it.     If  he  is 
also  a  director  he  is  as  fully  charge- 
able with   notice  of  entries  in  the 
books  as  a  partner  would  be  with 
entries    in    the    partnership    books. 
Montgomery     v.     Exchange     Bank 
(Pa.),  6  Atl.  133;   First  Nat.  Bank 
v.    Tisdale,    18    Hun    (N.   Y.)    151; 
aff'd  84  N.  Y.  655.     Between  stock- 
holders the  books  of  the  corporation 


control  as  to  what  it  has  done.  Hub- 
bell  v.  Meigs,  50  N.  Y.  480.  A  stock- 
holder is  an  integral  part  of  the  cor- 
poration to  the  extent  that,  in  view 
of  the  law,  he  is  privy  to  the  pro- 
ceedings touching  the  body  of  which 
he  is  a  member.  Hawkins  v.  Glenn, 
131  U.  S.  319,  9  Sup.  Ct.  739;  Lewis 
v.  Glenn,  84  Va.  947,  6  S.  E.  866. 

142Pearsall  v.  Western  U.  Tel.  Co. 
44  Hun  (N.  Y.)  532,  on  appeal,  124 
N.  Y.  256,  26  N.  E.  534,  21  Am.  St. 
662.  But  see  post,  §  192,  contra. 

143  Commonwealth  v.  Philadelphia, 
&c.  R.  Co.  3  Pa.  Dist.  R.  115;  Dead- 
erick  v.  Wilson,  8  Baxt.  (Tenn.) 
108;  Stone  v.  Kellogg,  165  111.  192, 
46  N.  E.  222,  56  Am.  St.  240;  Stein- 
way,  Matter  of,  159  N.  Y.  250,  53  N. 
E.  1103;  Angell  &  Ames  Corp.  (llth 
ed.)  §  681.  The  corporation  cannot 
refuse  stockholders  the  right  to  in- 
spect the  transfer  books  simply  be- 
cause it  would  be  inconvenient  to 
grant  it,  nor  because  a  by-law  re- 
quired the  transfer  books  to  be 
closed  thirty  days  before  an  election. 
State  v.  St.  Louis,  &c.  R.  Co.  29  Mo. 
App.  301.  See  State  v.  Laughlin,  53 
Mo.  App.  542. 

144Phcenix   Iron    Co.   v.   Common- 


265 


DISQUALIFIED  TO  SERVE  AS  JUDGE  OR  JUROR. 


[§  173 


from  this  right  because  his  motives  in  making  the  inspection  are  hos- 
tile to  the  interests  of  the  corporation,145  and  he  may  enforce  the 
right  by  mandamus  if  it  is  wrongfully  denied.146  The  writ  should 
be  directed  to  the  officer  or  person  having  the  custody  of  the  books.147 

§  173.     Stockholder  is  disqualified  to  serve  as  judge  or  juror  where 
corporation  is  interested. — A  stockholder  is  incompetent  to  serve  as 


wealth,  113  Pa.  St.  563,  6  Atl.  75; 
Foster  v.- White,  86  Ala.  467,  6  So. 
88;  Cincinnati,  &c.  Co.  v.  Hoff- 
meister,  62  Ohio  St.  189,  56  N.  E. 
1033,  78  Am.  St.  707;  State  v.  Bien- 
ville,  &c.  Co.  28  La.  Ann.  204;  Ells- 
worth v.  Dorwart,  95  Iowa  108,  63 
N.  W.  588,  58  Am.  St.  247;  People 
v.  Nassau  Ferry  Co.  83  Hun  (N.  Y.) 
128,  33  N.  Y.  S.  244.  Such  a  pro- 
vision is  contained  in  the  statutes  of 
nearly  all  of  the  states.  Stimson 
Am.  Stat.  Law  (1892),  §§  8042,  8539. 
Under  Wis.  Rev.  Stat.  §§  1757, 
which  is  similar  to  the  statutes  of 
most  of  the  other  states,  it  is  held 
that  a  stockholder  has  the  right  to 
examine  not  only  the  books  contain- 
ing the  stock  accounts,  but  those 
containing  the  general  accounts. 
State  v.  Bergenthal,  72  Wis.  314,  39 
N.  W.  566. 

"5  State  v.  Sportsman's,  &c.  Ass'n, 
29  Mo.  App.  326;  People  v.  Throop, 
12  Wend.  (N.  Y.)  183;  Common- 
wealth v.  Phoenix  Iron  Go.  105  Pa. 
St.  Ill,  51  Am.  R.  184;  Weihen- 
mayer  v.  Bitner,  88  Md.  325,  42  Atl. 
245,  45  L.  R.  A.  446  n;  Cobb  v.  La- 
garde,  129  Ala.  488,  30  So.  326; 
Chable  v.  Nicaragua,  &c.  Co.  59  Fed. 
846;  Regina  v.  Wilts,  &c.  Canal 
Navigation  Co.  29  L.  T.  R.  (N.  S.) 
922,  where  the  shareholder  was  an 
attorney,  who  sought  to  make  the 
inspection  in  the  interest  of  his  cli- 
ents, who  were  in  litigation  with 
the  company.  But  see  State  v.  Ein- 


stein, 46  N.  J.  L.  479;  People  v. 
Walker,  9  Mich.  328 ;  Lyon  v.  Amer- 
ican Screw  Co.  16  R.  I.  472,  17  Atl. 
61;  People  v.  Northern  Pac.  Co.  18 
Fed.  471.  Nor  does  the  fact  that 
he  requests  to  see  some  of  the  books 
which  he  is  not  entitled  to  see,  jus- 
tify a  refusal  to  permit  him  to  in- 
spect those  which  he  is  entitled  to 
see.  Ellsworth  v.  Dorwart,  95  Iowa 
108,  63  N.  W.  588,  58  Am.  St.  427.  . 
""People  v.  Lake  Shore,  &c.  R. 
Co.  11  Hun  (N.  Y.)  1;  People  v. 
Pacific,  &c.  Co.  50  Barb.  (N.  Y.) 
280;  Commonwealth  v.  Phoenix  Iron 
Co.  105  Pa.  St.  Ill,  51  Am.  184; 
Cockburn  v.  Union  Bank,  13  La. 
Ann.  289;  Merrill  Mandamus,  §  161. 
A  stockholder  of  a  private  corpora- 
tion, or  his  attorney  in  fact,  has  a 
right  to  inspect  the  books  and  rec- 
ords of  a  corporation  at  any  rea- 
sonable time,  without  giving  a  rea- 
son therefor.  His  remedy  is  man- 
damus. Foster  v.  White,  86  Ala. 
467,  6  So.  88,  6  R.  &  Corp.  L.  J.  88. 
Contra,  Investment  Co.  v.  Eldridge, 
2  Pa.  Dist.  394.  But  the  refusal  of 
such  right  by  the  secretary  is  not 
of  itself  ground  for  damages  against 
the  corporation.  Legendre  v.  New 
Orleans,  &c.  Ass'n,  45  La.  Ann.  669, 
12  So.  837,  40  Am.  St.  243. 
'  "T  People  v.  Throop,  12  Wend.  (N. 
Y.)  183;  State  v.  Bergenthal,  72 
Wis.  314,  39  N.  W.  566;  People  v. 
Mott,  1  How.  Pr.  (N.  Y.)  247. 


STOCKHOLDERS. 


2G6 


a  judge,148  or  juror/49  in  a  case  to  which  the  corporation  is  a  party, 
and,  at  common  law,  is  incompetent  to  testify  as  a  witness  in  such  a, 
case.150  But  many  of  the  states  have  statutes  rendering  interested 
parties  competent  as  witnesses,  and  in  other  states  this  last  rule  may 
usually  be  evaded  by  a  transfer  of  the  shareholder's  stock.151  A  bona 
fide  transfer  of  the  stock  before  the  commencement  of  the  suit  has 
been  held  sufficient,  although  "the  debt  sued  for  existed  at  the  time 
of  the  transfer,  and  continued  to  exist  until  the  suit  was  brought/'162 

§  174.  Unlawful  combinations  and  conspiracies  to  vote  or  prevent 
voting — Injunction. — Where  a  fraudulent  purpose  to  vote  stock  in  a 
particular  way,  and  thereby  to  control  the  election  to  the  irreparable 
and  permanent  injury  of  the  corporation  or  of  other  stockholders  is 
shown,153  or  where  a  conspiracy  to  control  the  election  by  qualifying 
others  to  vote  stock  which  the  owner  is  not  authorized  to  vote;154  or 
by  excluding  the  votes  of  certain  stockholders168  is  shown;  or  where 


148  Dimes  v.  Prop,  of  Grand  Junc- 
tion Canal,  3  H.  of  L.  Gas.  759;  Pen- 
insular R.  Co.  v.  Howard,  20  Mich. 
18;   Cregin  v.  Brooklyn,  &c.  R.  Co. 
19  Hun   (N.  Y.)   349.     But  relation- 
ship to  a  stockholder  does  not  dis- 
qualify.     Searsburgh    Turn.   Co.   v. 
Cutler,  6  Vt.  315;   Butler  v.  Glens, 
&c.  R.  Co.  121  N.  Y.  112,  24  N.  E. 
187. 

149  Page   v.   Contoocook   Valley  R. 
Co.  21  N.  H.  438;  Peninsular  R.  Co. 
v.    Howard,    20    Mich.    18;    Georgia 
Railroad  v.  Hart,  60  Ga.  550,  where 
a  stockholder's  son  was  also   held 
incompetent.     See   2   Elliott's   Gen. 
Pr.  §  518. 

150  Porter  v.  Bank  of  Rutland,  19 
Vt.    410;    Delaware,   &c.   R.    Co.   v. 
Irick,  23  N.  J.  L.  321;  Rapalje  Wit- 
nesses, §  77;  2  Elliott  on  Ev.  §  739. 

151 1  Cook  Stock  and  Stockholders, 
111. 

152  Rapalje  Witnesses,  §  77,  citing 
Smith  v.  Tallahassee,  &c.  Co.  30  Ala. 
650;  Illinois  Mutual  Fire  Ins.  Co. 
v.  Marseilles,  &c.  Co.  6  111.  236; 
Utica  Ins.  Co.  v.  Cadwell,  3  Wend. 


(N.  Y.)   296;  Union  Bank  v.  Owen, 
4  Humph.  (Tenn.)  338. 

153  Reed  v.  Jones,  6  Wis.  680.    Or- 
dinarily,  however,   the   purpose   or 
motive  of  the  shareholder  is  imma- 
terial if  he  does  no  illegal  act. 

154  Webb  v.   Ridgely,   38   Md.   364, 
where  the  charter  permitted  a  sin- 
gle stockholder  to  vote  only  twenty 
shares.      But    though    a    court    of 
equity  may  do  so,  the  corporation 
cannot  question  the  holder's  right  to 
vote  because  the  shares  were  trans- 
ferred to  him  by  one  who  owned  a 
greater  number  of  shares  than  any 
one    person    is    permitted    to   vote, 
Stranton,   &c.-  Co.,  In  re,   L,   R.   16 
Eq.  559;  State  v.  Smith,  48  Vt  266; 
People  v.  Kip,  4  Cowen  (N.  Y.)  382, 
note.     See  ante,  §  157. 

155  Camden,  &c.  R.  Co.  v.  Elkins,  37 
N.  J.  Eq.  273;  People  v.  Albany,  &c. 
R.  Co.  55  Barb.   (N.  Y.)   344,  where 
it  is  held  that  the  inspectors  may 
be     enjoined     from     receiving    the 
votes  of  certain   stockholders  until 
the  votes  of  others  have  been   de- 
posited.   Hafer  v.  New  York,  &c.  R. 
Co.  14  Wkly.  Law  Bui.  68. 


267 


COMBINATIONS  AND  CONSPIRACIES  IN   VOTING. 


a  rival  corporation  has  obtained  control  of  stock  by  ultra  vires  act,  and 
seeks  to  vote  it  to  the  injury  of  the  company's  interests,156  an  injunc- 
tion may  issue  to  restrain  the  holding  of  an  election  until  further 
order  of  the  court,157  or  to  restrain  the  offending  stockholder  or  his 
agents  from  voting  his  stock,158  or  a  particular  portion  of  it,159  either 
altogether,  or  until  the  petitioner's  rights  have  been  protected.160 
But  an  injunction  will  not  issue  to  prevent  stockholders  holding  large 
interests  from  gaining  control  of  the  corporation,  by  legal  means,  be- 
cause they  will  probably  misuse  their  power.161  Nor  can  the  right  to 
vote  be  denied  because  of  the  alleged  wrongful  motives  of  the  holder 
in  buying  his  stock.162  And  it  is  perfectly  competent  for  stockholders 
owning  a  majority  of  the  stock  to  combine  and  elect  a  board  of  di- 
rectors,163 if  the  combination  is  formed  without  fraud.164  Where  the 
application  for  an  injunction  is  not  made  a  sufficient  number  of  days 
before  the  election  to  afford  the  defendants  an  opportunity  to  be  heard, 
it  may,  as  a  rule,  be  summarily  dismissed.165  But  where  the  persons 
sought  to  be  enjoined  can  have  no  legal  right  to  vote  any  stock  they 


""Memphis,  &c.  R.  Co.  v.  Woods, 
88  Ala.  630,  7  So.  108,  7  L.  R.  A.  605, 
16  Am.  St.  81,  where  the  rival  com- 
pany owned  a  majority  of  the  stock 
and  had  elected  its  own  directors  to 
serve  as  directors  of  the  company 
in  which  plaintiffs  were  interested, 
who  used  their  power  against  the 
interests  of  that  road,  the  defend- 
ant company  and  all  persons  rep- 
resenting it  were  enjoined  from  vot- 
ing the  shares  of  stock  which  it 
held.  Ante,  §  159.  See,  also,  Mil- 
bank  v.  New  York,  &c.  R.  Co.  64 
How.  Pr.  (N.  Y.)  20;  George  v.  Cen- 
tral R.  &c.  Co.  101  Ala.  607,  14  So. 
752. 

157  People  v.  Albany,  &c.  R.  Co.  55 
Barb.   (N.  Y.)   344.     But  an  injunc- 
tion  forbidding  the  holding  of  an 
election  at  all  is  void. 

158  Memphis,  &c.  R.  Co.  v.  Woods, 
88  Ala.   630,  7  So.  108,  7  L.  R.  A. 
605,  16  Am.  St.  81. 

159  Reed  v.  Jones,  6  Wis.  680;  Webb 
v.  Ridgely,  38  Md.  364. 

160  Brown  v.   Pacific  Mail,  &c.  Co. 


5  Blatchf.  (U.  S.)  525,  where  the  de- 
fendants were  enjoined  from  par- 
ticipating in  any  election  unless 
plaintiff's  votes  were  received  at 
the  election. 

161  Camden,  &c.  R.  Co.  v.  Elkins,  37 
N.  J.  Bq.  273.     One  stockholder  can 
do  nothing  to  control  or  direct  the 
vote  of  another  stockholder.    Ryder 
v.  Alton,  &c.  R.  Co.  13  111.  516. 

162  Fender  v.  Lushington,  L.  R.  6 
Ch.  D.  70.     Parties  who  are  inter- 
ested in  opposition  to  a  corporation 
have  the  right  to  purchase  its  stock 
in  order  to  defeat  a  contract  which 
it  is  about  to  make.    Carson  v.  Iowa 
City  Gaslight  Co.   80   Iowa  638,  45 
N.  W.  1068. 

163  Havemeyer  v.  Havemeyer,  86  N. 
Y.  618,  aff'g  43  N.  Y.  Super.  Ct.  506; 
Faulds  v.  Yates,  57  111.  416,  11  Am. 
Rt  24. 

164  People  v.  Albany,  &c.  R.  Co.  55 
Barb.  (N.  Y.)   344. 

165Hilles  v.  Parrish,  14  N.  J.  Eq. 
380.  See,  also,  Lucas  v.  Milliken, 
139  Fed.  816. 


175] 


STOCKHOLDERS. 


268 


own,  or  in  the  case  of  a  railroad  owning  stock  in  a  rival  corporation, 
there  may  be  reason  for  issuing  an  injunction  restraining  them.169 
And,  in  a  proper  case,  the  court  may  order  that  an  election  shall  be 
temporarily  postponed,167  though  an  order  that  it  should  never  be 
held  would  be  erroneous.168  An  injunction  directed  against  the  vot- 
ing of  particular  stock  may  cause  what  would  otherwise  be  the  minor- 
ity to  become  the  majority,  and  so  change  the  result,  but  it  will  not 
prevent  the  holding  of  the  election.169  A  stockholder  may  also  en- 
join the  directors  from  interfering  with  and  postponing  an  annual 
election  and  thereby  extending  their  term.170  Further  than  the  right 
to  vote  in  the  management  of  corporate  affairs,  the  stockholder  has 
not,  during  the  continuance  of  the  corporation,  any  direct  legal  inter- 
est in  its  property.171 

§  175.  Liability  of  stockholders  for  unpaid  subscription. — A  stock- 
holder is,  of  course,  liable  to  the  corporation  for  any  unpaid  balance 
due  on  the  shares  for  which  he  has  subscribed,  and  this  liability  may 
be  enforced  in  a  proper  case  by  suit  in  the  name  of  the  corporation,  or 
in  equity  at  the  suit  of  any  corporate  creditor  who  is  injured  by  its 
non-payment,  upon  the  insolvency  and  winding  up  of  the  corpora- 
tion.172 And  one  who  subscribes  or  takes  part  as  a  stockholder  after 


166  Memphis,  &c.  R.  Co.  v.  Woods, 
88  Ala.   630,  7   So.   108,  7  L.  R.  A. 
605,  16  Am.  St.  81. 

167  People  v.  Albany,  &c.  R.  Co.  55 
Barb.     (N.    Y.)     344;     Scholfield    v. 
Union   Bank,   2   Cr.    C.   C.    (U.    S.) 
115. 

188  People  v.  Albany,  &c.  R.  Co.  55 
Barb.   (N.  Y.)  344. 

169  Brown  v.  Pacific  Mail,  &c.  Co.  5 
Blatchf.  (U.  S.)  525. 

170  Elkins  v.  Camden,  &c.  R.  Co.  36 
N.  J.  Eq.  467. 

171  Jones  v.  Terre  Haute,  &c.  R.  Co. 
57  N.  Y.  196;  Granger  v.  Bassett,  98 
Mass.   462;    Goodwin   v.   Hardy,   57 
Me.  143,  99  Am.  Dec.  758  n;    Bur- 
roughs v.  North  Carolina  R.  Co.  67 
N.  C.  376,  12  Am.  R.  611;   Curry  v. 
Woodward,   44  Ala.  305;    Phelps  v. 
Farmers',  &c.  Bank,  26  Conn.  269; 
Lockhart  v.  Van  Alstyne,  31  Mich. 
76,  78,  18  Am.  R.  156;   Humphreys 


v.  McKessock,  140  U.  S.  304,  11  Sup. 
Ct.  779. 

172  The  courts  of  America  general- 
ly hold  that  the  capital  stock  of  a 
corporation,  upon  insolvency,  and 
especially  the  unpaid  subscriptions, 
constitute  a  trust  fund  for  the  bene- 
fit of  the  creditors  of  the  corpora- 
tion. Note  to  Thompson  v.  Reno 
Sav.  Bank,  19  Nev.  103,  7  Pac.  68. 
3  Am.  St.  797,  808,  et  seq.;  Cook 
Stock  and  Stockholders,  §  199. 
Ante,  §§  90,  110.  Where  a  consoli- 
dation between  two  corporations  is 
effected  under  a  law  providing  that 
all  the  property,  rights  of  action 
and  other  interests  of  the. consoli- 
dating companies  shall  rest  in  and 
become  the  property  of  the  consoli- 
dated corporation,  and  provides 
that  stock  of  the  new  corporation 
shall  be  issued  in  exchange  for  the 
stock  of  the  corporations  merged,  a 


269  LIABIUTT  OF   STOCKHOLDERS   FOE  UNPAID  SUBSCRIPTION.   [§    175 


the  corporation  is  formed  is  estopped  to  deny  that  it  is  legally  in- 
corporated, although  some  of  the  statutory  formalities  may  not  have 
been  complied  with.173  But  one  who  merely  subscribes  to  a  preliminary 
agreement  to  take  stock  after  the  corporation  is  formed  is  usually  en- 
titled to  insist  upon  the  regular  organization  of  a  legal  corporation, 
and  if  he  does  not  by  subsequent  acts  acquiesce  in  the  mode  of  in- 
corporation, recognize  it  as  a  legal  corporation  or  in  any  way  act  as 
a  stockholder,  he  is  not  estopped  to  deny  his  liability  as  such,  where 
the  incorporation  is  defective  and  invalid.174  Ordinarily,  subscrip- 
tions are  required  to  be  paid  in  money;  but  where  the  state  law  al- 
lows subscriptions  to  be  paid  in  property,  the  transfer  of  property  in 
payment  of  shares  made  in  good  faith  at  an  honest  valuation  entitles 
the  owner  to  hold  his  shares  as  fully  paid  up  even  against  creditors 
of  the  corporation  in  the  event  of  its  insolvency.175  So,  it  is  held  that 
a  bona  fide  purchaser  of  stock  in  open  market,  where  the  certificate, 
on  its  face,  purports  to  be  fully  paid  up  and  non-assessable,  is  not 
liable  for  assessments,  although,  in  fact,  it  was  not  fully  paid.176 


subscription  to  the  stock  of  one  of 
the  old  corporations. becomes  assets 
for  the  payment  of  the  debts  of  the 
new  corporation.  Hamilton  v.  Clar- 
ion, &c.  R.  Co.  144  Pa.  St.  34,  23  Atl. 
53,  13  L.  R.  A.  779  n. 

173  Thompson  v.  Reno  Sav.  Bank, 
19  Nev.  103,  7  Pac.  68,  3  Am.  St.  797, 
and  note;  Cravens  v.  Eagle  Cotton 
Mills,  120  Ind.  6,  21  N.  E.  981,  16 
Am.  St.  298;  Dutchess,  &c.  Co.  v. 
Davis,  14  Johns.  (N.  Y.)  238,  7  Am. 
Dec.  459;  Hickling  v.  Wilson,  104 
111.  54;  Casey  v.  Galli,  94  U.  S.  673; 
Clarke  v.  Thomas,  34  Ohio  St.  46; 
Hamilton  v.  Clarion,  &c.  Co.  144  Pa. 
St.  34,  23  Atl.  53,  13  L.  R.  A.  779  n; 
Upton  v.  Hansbrough,  3  Biss.  (U. 
S.)  417;  Anderson  v.  Newcastle,  &c. 
R.  Co.  12  Ind.  376,  74  Am.  Dec.  218; 
Slocum  v.  Warren,  10  R.  I.  112  and 
116;  Chubb  v.  Upton,  95  U.  S.  665; 
1  Cook  Stock  and  Stockholders, 
§§  184,  185;  Taylor  Priv.  Corp.  §  738. 

1T4Dorris  v.  Sweeney,  60  N.  Y. 
463;  Reed  v.  Richmond  St.  R.  Co. 
50  Ind.  342;  Indianapolis,  &c.  Co.  v. 
Herkimer,  46  Ind.  142;  Capps  &  Mc- 


Capps  v.  Hastings,  &c.  Co.  40  Neb. 
470,  58  N.  W.  956,  24  L.  R.  A.  259, 
42  Am.  St.  677;  Fairview,  &c.  Co.  v. 
Spillman,  23  Ore.  587,  32  Pac.  688; 
Richmond  Factory  Ass'n  v.  Clarke, 
61  Me.  351;  Taggart  v.  Western  Md: 
R.  Co.  24  Md.  563,  89  Am.  Dec. 
760  n;  note  to  Parker  v.  Thomas,  81 
Am.  Dec.  392;  1  Morawetz  Priv. 
Corp.  §  49. 

175  Grant  v.  East.  &  West.  R.  Co. 
&c.  54  Fed.  569.  Ante,  §  91.  Where 
the  property  was  transferred  to  the 
corporation  at  an  overvaluation  and 
accepted  by  a  board  of  directors 
chosen  by  the  votes  of  the  subscrib- 
ers, it  was  held  that  the  pretended 
payment  for  the  stock  subscribed 
was  fraudulent,  and  that  the  sub- 
scriber could  be  compelled  to  pay 
the  difference  between  the  actual 
va^ue  of  the  property  and  the  par 
value  of  the  stock.  Lloyd  v.  Pres- 
ton, 146  U.  S.  630,  13  Sup.  Ct.  131. 
See,  also,  Boulton  Carbon  Co.  v. 
Mills,  78  Iowa  460,  5  L.  R.  A.  649. 

178  Rood  v.  Whorton,  67  Fed.  434, 
and  authorities  there  cited;  Hand- 


176] 


STOCKHOLDERS. 


270 


An  unpaid  subscription  may  be  collected  in  payment  of  damages  for  a 
tort  the  same  as  for  a  contract  debt.177 


§  176.  Release  of  stockholder — Withdrawal. — This  liability  is  one 
from  which  the  stockholder  cannot  ordinarily  claim  release  after  the 
corporation  has  become  insolvent,  in  cases  where  such  release  was  not 
legally  ascertained  and  established  before  such  insolvency.178  And  he 
can  only  be  released  from  liability  not  induced  by  fraud  on  the  part  of 
the  corporation  by  the  unanimous  consent,  express  or  implied/79  of 
all  the  other  stockholders.180  Even  a  majority  of  the  stockholders  can- 
not withdraw  and  refuse  to  proceed.181  A  cancellation  of  the  sub- 


ley  v.  Stutz,  139  U.  S.  417,  11  Sup. 
Ct.  530;  Young  v.  Erie  Iron  Co.  65 
Mich.  Ill,  31  N.  W.  814.  See,  also, 
Hospes  v.  Northwestern,  &c.  Co.  48 
Minn.  174,  50  N.  W.  1117,  15  L.  R. 
A.  470,  31  Am.  St.  637;  First  Nat. 
Bank  v.  Gustin,  &c.  Co.  42  Minn. 
327,  44  N.  W.  198,  6  L.  R.  A.  676,  18 
Am.  St.  510;  Hess  v.  Trumbo,  27  Ky. 
L.  320,  84  S.  W.  1153;  Eaton  Nat. 
Bank  v.  American,  &c.  Co.  (N.  J. 
Eq.)  60  Atl.  54.  But  compare  Howe 
v.  Illinois,  &c.  Works,  46  111.  App.  85. 

177  Powell    v.    Oregonian    Railway, 
36  Fed.  726,  38  Fed.  187;  Grindle  v. 
Stone,  78  Me.  176,  3  Atl.  183. 

178  He  cannot  then  rescind  his  con- 
tract of   subscription   for   fraud  of 
the   company's  agents  in  obtaining 
it.     Kent  v.  Freehold,  &c.  Co.  L.  R. 
3  Ch.  App.  493 ;  Turner  v.  Grangers', 
&c.  Ins.  Co.  65  Ga.  649,  38  Am.  R. 
801;   Ruggles  v.  Brock,  6  Hun    (N. 
Y.)  164;  Saffold  v.  Barnes,  39  Miss. 
399;  Duffield  v.  Barnum,  &c.  Works, 
64  Mich.  293,  31  N.  W.  310;   Chubb 
v.   Upton,  95   U.   S.   665;    Farrar  v. 
Walker,    13    Nat.    Bankr.    Reg.    82. 
And  the  company  cannot  agree  to 
a  rescission  to  the  detriment  of  the 
creditors'  interests.    Vick  v.  La  Ro- 
chelle,  57  Miss.  602;  Gill  v.  Balis,  72 
Mo.  424;  Zirkel  v.  Joliet,  &c.  Co.  79 
111.  334;   Burke  v.  Smith,  16  Wall. 


(U.  S.)  390.  See,  also,  Anglo-Amer- 
ican, &c.  Co.  v.  Lombard,  132  Fed. 
721;  Knickerbocker,  &c.  Co.  v.  My- 
ers, 133  Fed.  764. 

179  Knowledge     and     acquiescence 
for   years   will   bind   a  stockholder 
who  did  not  know  of  the  release  be- 
fore   it    was    effected.      Evans    v. 
Smallcombe,    L.    R.    3    H.    L.    249; 
Stuart  v.   Valley   R.   Co.   32    Gratt. 
(Va.)     146.      Retaining    and    using 
benefits  arising  from  a  cancellation 
of  the  subscription  will  prevent  the 
corporation    and    the    stockholders 
from  objecting  to  the  release.  Miller 
v.  Second,  &c.  Ass'n,  50  Pa.  St.  32. 

180  Lake  Ontario,  &c.  R.  Co.  v.  Ma- 
son, 16  N.  Y.  451,  463;   Gulf  Coast, 
&c.   R.   Co.  v.   Neely,   64   Tex.   344; 
Selma,  &c.  R.  Co.  v.  Tipton,  5  Ala. 
787,   39   Am.   Dec.    344;    Garrett  v. 
Dillsburg,  &c.  R.  Co.  78  Pa.  St.  465; 
Miller   v.    Hanover,   &c.   R.    Co.    87 
Pa.  St.  95,  30  Am.  R.  349;  Johnson 
v.  Wabash,  &c.  R.  Co.  16  Ind.  389; 
Pacific  Fruit  Co.  v.  Coon,  107  Cal. 
447,  40  Pac.  542. 

181Busey  v.  Hooper,  35  Md.  15,  6 
Am.  R.  350.  A  tender  of  payment 
for  stock  and  refusal  on  the  part 
of  the  corporate  officers  to  accept 
the  same  is  no  defense  in  an  action 
by  corporate  creditors  for  the  un- 
paid balance  due  on  such  stock, 


271 


RELEASE   OF   STOCKHOLDER WITHDRAWAL. 


scription,  even  where  made  with  the  unanimous  consent  of  the  other 
stockholders,  may  be  impeached  and  set  aside,  in  a  proper  case,  by 
any  corporate  creditor  injured  thereby.182  Any  attempt  on  the  part 
of  the  corporation  to  release  a  subscriber  from  liability  will  be  sub- 
jected to  rigid  scrutiny  by  a  court  of  equity,  at  the  instance  of  cor- 
porate creditors,183  and  will  only  be  upheld  where  the  release  is  fairly 
and  honestly  made  for  a  valuable  consideration.184  Neither  the  board 
of  directors  of  the  corporation,185  nor  any  officer,186  has  power  to  agree 
with  a  subscriber  that  his  subscription  shall  be  canceled,  unless  such 
power  is  given  by  charter  or  statute,  or  by  the  by-laws  of  the  com- 
pany; and  entries  caused  by  them  to  be  made  in  the  books  of  the 
company  showing  a  release  will  be  disregarded.187  The  money  re- 


after  the  corporation  has  become  in- 
solvent, where  the  subscriber  con- 
tinued an  active  member  of  the  cor- 
poration after  such  tender  and  re- 
fusal. Potts  v.  Wallace,  146  U.  S. 
689,  13  Sup.  Ct.  196. 

^Vick  v.  La  Rochelle,  57  Miss. 
602;  Farnsworth  v.  Robbins,  36 
Minn.  369,  31  N.  W.  349;  Appeal 
of  Miller,  1  Penny.  (Pa.)  120;  2 
Thomp.  Corp.  §§  15,  17.  But  in 
England  it  is  held  the  creditor  can 
obtain  nothing  but  what  the  com- 
pany is  entitled  to  get  from  the 
shareholders.  Dronfleld,  &c.  Co.,  In 
re,  L.  R.  17  Ch.  Div.  76. 

^Sawyer  v.  Hoag,  17  Wall.  (U. 
S.)  610;  Morgan  v.  Allen,  103  U.  S. 
498;  Putnam  v.  New  Albany,  4  Biss. 
(U.  S.)  365;  Upton  v.  Hansbrough, 
3  Biss.  (U.  S.)  417,  425;  South 
Mountain,  &c.  Mining  Co.,  In  re,  7 
Sawyer  (U.  S.)  30;  Union  Ins.  Co.  v. 
Frear,  &c.  Co.  97  111.  537,  37  Am.  R. 
129;  Thompson  v.  Meisser,  108  111. 
359;  Chisholm  v.  Foray,  65  Iowa 
333,  21  N.  W.  664;  Goodwin  v.  Mc- 
Gehee,  15  Ala.  232;  Gill  v.  Balis,  72 
Mo.  424. 

184  This  is  the  rule  in  the  federal 
courts.  New  Albany  v.  Burke,  11 
Wall.  (U.  S.)  96;  Burke  v.  Smith, 
16  Wall.  (U.  S.)  390;  Potts  v.  Wal- 


lace, 146  U.  S.  689,  13  Sup.  Ct.  196. 
And  is  followed  in  the  Illinois 
courts.  Zirkel  v.  Joliet,  &c.  Co.  79 
111.  334. 

135  Bedford  R.  Co.  v.  Bowser,  48 
Pa.  St.  29;  Ryder  v.  Alton,  &c.  Co. 
13  111.  516;  Jewett  v.  Valley  R.  Co. 
34  Ohio  St.  601;  White  Mts.  R.  Co. 
v.  Eastman,  34  N.  H.  124;  Tucker- 
man  v.  Brown,  33  N.  Y.  297,  88  Am. 
Dec.  386;  Rider  v.  Morrison,  54  Md. 
429;  Lafayette,  &c.  Corp.  v.  Ryland, 
80  Wis.  29,  49  N.  W.  157;  London, 
&c.  Co.,  In  re,  L.  R.  5  Ch.  Div.  525; 
Thomas'  Case,  L.  R.  13  Eq.  437. 

188  Cartmell's  Case,  L.  R.  9  Ch.  691. 

18T  The  general  manager  of  a  cor- 
poration, who  is  also  its  largest 
stockholder,  secretary  and  treasurer, 
can  not  release  a  stockholder  from 
his  contract  by  charging  off  balance 
due  on  the  books  for  unpaid  calls 
and  crediting  sums  already  paid, 
where  no  attempt  is  made  to  trans- 
fer the  shares,  although  the  man- 
ager secures  new  subscriptions  as 
substitutes  therefor,  and  both  par- 
ties at  the  time  believe  that  he  has 
authority  to  release  old  contracts 
and  substitute  new  ones;  and  the 
fact  that  an  over-issue  of  stock  will 
result  on  account  of  the  new  sub- 
scriptions unless  there  is  a  cancel- 


177] 


STOCKHOLDERS. 


272 


funded  for  calls  paid  before  such  an  attempted  release  may  be  recov- 
ered at  the  suit  of  any  stockholder,  by  a  bill  in  equity,  and  the  sub- 
scriber's liability  upon  his  canceled  subscription  may  be  established.188 
If  loss  accrues  to  the  corporation  by  reason  of  the  improper  cancella- 
tion of  a  subscription  by  the  directors,  they  may  be  held  personally 
liable  for  such  loss.189 

§  177.  Compromises  with  stockholder. — But  the  corporate  author- 
ities may  compromise  a  subscription  debt,  as  they  may  other  debts, 
if  there  be  a  reasonable  doubt  as  to  the  liability  of  the  subscriber,190 
or  if  he  be  insolvent,191  where  it  is  done  in  good  faith.  If  there  be 
no  real  controversy,  the  compromise  will  not  be  binding.192  It  has 
been  held,  however,  that  where  a  subscriber  fails  to  pay  his  subscrip- 
tion or  to  act  as  a  stockholder,  the  corporation  may  treat  his  sub- 
scription as  abandoned  and  permit  others  to  fill  it.193  It  has  also 
been  held  that  one  subscription  may  be  substituted  for  another  upon 
request  of  the  parties  where  a  regular  transfer  of  shares  is  not  yet 
possible.194 


lation  of  earlier  subscriptions,  will 
not  justify  such  invalid  cancella- 
tion. Cartwright  v.  Dickinson,  88 
Tenn.  476,  12  S.  W.  1030,  7  L.  R.  A. 
706,  17  Am.  St.  910. 

183  Melvin  v.  Lamar  Ins.  Co.  80  111. 
446;  22  Am.  R.  199;  South  Bend  Toy, 
&c.  Co.  v.  Pierre,  &c.  Ins.  Co.  4  S. 
Dak.  173,  56  N.  W.  98.  A  secret 
agreement  by  which  the  officers  of 
the  corporation  agree  that  the  sub- 
scriber shall  not  be  compelled  to 
pay  for  his  subscription,  but  shall 
be  permitted  to  withdraw  when  he 
chooses,  is  invalid  and  does  not  af- 
fect the  subscription  nor  the  sub- 
scriber's liability.  Great  Western 
Tel.  Co.  v.  Haight,  49  111.  App.  633. 

1S9  Bank  of  St.  Mary's  v.  St.  John, 
25  Ala.  566;  Hodgkinson  v.  National 
&c.  Co.  26  Beav.  473.  It  seems  that 
the  subscriber  may  set  up  this  fact 
as  a  defense.  Southern  Hotel  Co.  v. 
Newman,  30  Mo.  118. 

190  Bath's  Case  L.  R.  8  Ch.  Div. 
334;  Lord  Belhaven's  Case,  3  DeG., 
J.  &  S.  41.  See  Whitaker  v.  Grum- 


mond,  68  Mich.  249,  36  N.  W.  62; 
New  Albany  v.  Burke,  11  Wall.  (U. 
S.)  96. 

191  Philadelphia,  &c.  R.  Co.  v.  Hick- 
man,  28  Pa.  St.  318.  A  receiver  can- 
not  be   empowered    by    a   court   of 
equity    to    compromise    a    subscrip- 
tion, unless  all  the  subscribers  are 
parties    to    the   suit    in    connection 
with  which  he  is  appointed.    Chan- 
dler v.  Brown,  77  111.  333. 

192  Phosphate,  &c.  Co.  v.  Green,  L. 
R.  7  C.  P.  43;   Spackman  v.  Evans, 
L.  R.  3  H.  L.  171,  188,  231;  Living- 
stone v.  Temperance,  &c.  Society,  17 
Ont.  App.  379,  31  Am.  &  Eng.  Corp. 
Cas.  541. 

193  Perkins    v.    Union,    &c.    Co.    12 
Allen     (Mass.)     273.     See,    also,    2 
Thomp.  Corp.  §§  1530,  1535. 

194  To   make   a  valid   substitution, 
the  signature  of  the  first  subscriber 
must  be  erased  and  that  of  his  sub- 
stitute inserted.  Ryder  v.  Alton,  &c. 
R.  Co.  13  111.  516.    See,  also,  1,  Cook 
Stock  and   Stockholders,   §   62,  and 
compare  Cartwright  v.  Dickinson,  88 


273 


LIABILITY   WHERE   STOCK   IS    TRANSFERRED. 


[§  178 


§178.  Liability  where  stock  is  transferred. — An  original  sub- 
scriber cannot,  however,  by  a  transfer  of  his  stock,  discharge  himself 
from  liability  for  unpaid  instalments  without  the  consent  of  the  cor- 
poration; and  where  he  does  transfer  on  the  books  of  the  company 
as  required  by  its  by-laws,  a  receiver  of  the  company,  or  assignee  in 
bankruptcy,  on  its  becoming  insolvent,  may  recover  from  him  the 
unpaid  instalments  already  due.195  But,  as  a  general  rule,  in  most 
jurisdictions,  upon  a  valid  transfer,  duly  registered,  the  transferee 
succeeds  to  all  the  rights  and  liabilities  of  the  transferor,  and  becomes 
liable  in  his  place  for  future  calls  and  indebtedness.196  If  the  transfer 
is  not  registered,  the  transferor  will  usually  continue  liable,  both  to 
the  corporation  and  to  its  creditors.197 

§  179.  When  creditors  may  enforce  unpaid  subscriptions — Judg- 
ment and  execution  against  corporation. — Subscriptions  to  the  capi- 
tal stock  of  railroad  corporations  are  most  commonly  disputed  when 
an  attempt  is  made  to  call  them  in  to  liquidate  claims  after  corporate 
insolvency  has  occurred.198  Under  such  circumstances,  it  is  the  prac- 
tice of  the  courts  to  rigidly  enforce  the  payment  of  the  unpaid  sub- 


Tenn.  476,  12  S.  W.  1030,  17  Am.  St. 
910;  Hawkins  v.  Mansfield,  &c.  Co. 
52  Cal.  513;  Coleman  v.  Spencer,  5 
Blackf.  (Ind.)  197. 

183  Hood  v.  McNaughton,  54  N.  J. 
Law  425;  Upton  v.  Tribilcock,  91  U. 
S.  45;  American  Alkali  Co.  v.  Camp- 
bell, 113  Fed.  398.  Some  cases  hold 
that  a  stockholder  cannot  by  trans- 
ferring his  stock  relieve  himself 
from  liability  for  debts  already  ac- 
crued. Voight  v.  Dregge,  97  Mich. 
322,  56  N.  W.  557;  Glenn  v.  Hunt, 
120  Mo.  330,  25  S.  W.  181;  Nenney 
v.  Waddill,  6  Tex.  Civ.  App.  244,  25 
S.  W.  308;  Commercial  Nat.  Bk.  v. 
Gibson,  37  Neb.  750.  Others  hold 
that  he  is  relieved  of  such  liability 
unless  the  transfer  was  fraudulent- 
ly made  to  an  insolvent  purchaser 
for  the  purpose  of  escaping  liability. 
Van  Demark  v.  Barons,  52  Kans. 
779,  35  Pac.  798;  Close  v.  Brady,  4 
Misc.  (N.  Y.)  474,  24  N.  Y.  S.  567. 
ELL.  RAILROADS — 18 


198  Webster  v.  Upton,  91  U.  S.  65, 
70;  Hartford,  &c.  R.  Co.  v.  Boorman, 
12  Conn.  530;  Tucker  v.  Oilman,  121 
N.  Y.  189;  Angell  &  Ames  on  Corp. 
(llth  ed.)  §  534;  Taylor  Priv.  Corp. 
§§  586,  587,  747;  1  Beach  Priv.  Corp. 
§  126.  See,  generally,  notes  in  6  Am. 
St.  838,  and  3  Am.  St.  806,  and  93 
Am.  St.  388. 

197  Richmond  v.  Irons,  121  U.  s'.  27, 
7  Sup.  Ct.  788;  Dane  v.  Young,  61 
Me.  160;  Shellington  v.  Rowland,  53 
N.  Y.  371;  Plumb  v.  Bank,  48  Kan. 
484;  Kellogg  v.  Stockwell,  75  111.  68; 
Bell's  Appeal,  115  Pa.  St.  88,  8  Atl. 
177,  2  Am.  St.  532.  See,  also,  Knick- 
erbocker, &c.  Co.  v.  Meyers,  133  Fed. 
764;  Russell  v.  Easterbrook,  71 
Cqnn.  50,  40  Atl.  905 ;  and  see  Amer- 
ican Alkali  Co.  v.  Kurtz,  134  Fed. 
663,.  665,  as  to  liability  where  stock 
is  in  the  name  of  a  dummy. 

198 1  Cook  Stock  and  Stockholders, 
§  166. 


§  179] 


STOCKHOLDERS. 


274 


scriptions  for  the  accumulation  of  a  fund  with  which  to  pay  corporate 
debts.  But  these  unpaid  subscription  balances  are  not  the  primary 
fund  for  the  payment  of  corporate  liabilities.199  The  corporate  prop- 
erty must  first  be  exhausted,  or  it  must  be  made  to  appear  that  such 
property  is  so  inadequate  for  the  payment  of  corporate  debts  as  to 
establish  insolvency,200  before  a  creditor  is  permitted  to  resort  to  them. 
The  general  rule  in  most  jurisdictions  is  that  a  creditor's  suit  to 
enforce  payment  of  unpaid  subscriptions  can  be  maintained  only  after 
a  judgment  at  law  has  been  obtained  against  the  corporation  and  an 
execution  issued  thereon  has  been  returned  unsatisfied.201  This  rem- 


199 1  Cook  Stock  and  Stockholders, 
§  200.  A  stockholder  cannot  set  off 
his  claim  as  a  creditor  against  his 
liability  as  a  stockholder,  but  must 
share  with  the  other  creditors,  as  he 
is  not  ordinarily  liable  in  excess  of 
his  obligation  to  pay  in  full  for  his 
stock.  Boulton  Carbon  Co.  v.  Mills, 
78  Iowa  460,  43  N.  W.  290,  6  R.  & 
Corp.  L.  J.  417;  Tama  Water  Power 
Co.  v.  Hopkins,  79  Iowa  653,  44  N. 
W.  797.  The  liability  of  a  stockhold- 
er should  not  be  enforced  on  a  judg- 
ment against  a  corporation,  where 
there  are  other  judgment  debtors 
whose  property  subject  to  execution 
could  satisfy  the  judgment.  Burch 
v.  Taylor,  1  Wash.  245,  24  Pac.  438. 
An  attachment  against  a  corpora- 
tion cannot  be  levied  on  the  individ- 
ual property  of  natural  persons  com- 
posing it.  State  v.  Marshall,  69  Miss. 
486,  13  So.  668. 

200  Terry  v.  Tubman,  92  U.  S.  156; 
Hedges  v.  Silver  Hill,  &c.  Co.,  9  Ore. 
200;  Stiles  v.  Samainego,  3  Ariz.  48, 
20  Pac.  607;  First  Nat.  Bank  v. 
Greene,  64  Iowa  445,  17  N.  W.  86,  20 
N.  W.  754;  Cleveland  v.  Marine 
Bank,  17  Wis.  545.  Corporate  bank- 
ruptcy has  been  held  sufficient  evi- 
dence of  the  inability  of  the  corpora- 
tion to  pay  a  corporate  debt  to  jus- 
tify an  action  by  creditors  to  enforce 
subscriptions.  State  Savings  Assn. 
v.  Kellogg,  52  Mo.  583;  Shellington 


y.  Rowland,  53  N.  Y.  371;  Terry  v. 
Anderson,  95  U.  S.  628,  636. 

201  Terry  v.  Anderson,  95  U.  S.  628, 
636;  Swan  Land,  &c.  Co.  v.  Frank, 
148  U.  S.  603,  13  Sup.  Ct.  691;  Wal- 
ser  v.  Seligman,  21  Blatch.  (U.  S.) 
130;  Bank,  &c.  v.  Dallam,  4  Dana 
(Ky.)  574;  Wetherbee  v.  Baker,  35 
N.  J.  Eq.  501;  Cutright  v.  Stanford, 
81  111.  240;  Freeland  v.  McCullough, 
1  Denio  (N.  Y.)  414,  43  Am.  Dec. 
685  n;  Cleveland  v.  Burnham,  55  Wis. 
598,  13  N.  W.  677;  Baxter  v.  Moses, 
77  Me.  465,  1  Atl.  350,  52  Am.  R.  783; 
note  to  Thompson  v.  Reno  Sav. 
Bank,  3  Am.  St.  797,  814;  and  nu- 
merous authorities  cited  in  26  Am. 
&  Eng.  Ency.  of  Law  (2d  ed.)  1045. 
But  see  Williams  v.  Chamberlain 
(Ky.),  94  S.  W.  29.  This  should  be 
a  personal  judgment  pronounced  by 
the  courts  of  state  in  which  the  cor- 
poration exists.  Patterson  v.  Lynde, 
112  111.  196;  Bayliss  v.  Swift,  40 
Iowa  648;  Rocky  Mt.  &c.  Bank  v. 
Bliss,  89  N.  Y.  338;  Murray  v.  Van- 
derbilt,  39  Bart).  (N.  Y.)  140,  147; 
Barclay  v.  Talman,  4  Edw.  Chan. 
(N.  Y.)  123;  Bank,  &c.  v.  Adams,  1 
Pars.  Eq.  (Pa.)  534.  Some  states  by 
statute  require  the  remedy  against 
the  corporation  to  be  exhausted  be- 
fore resort  is  had  to  the  property  of 
the  stockholders.  Stimson  Am.  Stat. 
Law  (1892)  §  8143,  citing  statutes 
of  Maine,  Pennsylvania,  Iowa,  Min- 


275 


EFFECT   OF   JUDGMENT   AGAINST    CORPORATION. 


[§'  180 


edy,  however,  need  not  be  pursued  where  the  corporation  has  formally 
dissolved,202  and  has  no  funds  with  which  to  pay  the  corporate  debts.203 
And  the  unpaid  subscription  in  such  a  case  may  be  reached  by  the 
general  creditors,  although  the  corporate  property,  rights,  privileges 
and  franchises  are -covered  by  mortgage  to  secure  another  creditor.204 

§  180.  Effect  as  against  stockholder  of  judgment  against  the  cor- 
poration.— Such  a  judgment,  where  the  court  has  jurisdiction,  is 
generally  held  conclusive  against  the  stockholders  as  to  the  validity 
and  amount  of  the  creditor's  claim,  unless  impeached  for  fraud  or 
collusion.205  And  it  was  held  in  a  recent  case,  where  the  plaintiff 


nesota,  Kansas,  Maryland,  Missouri, 
Texas,  Florida.  Only  a  judgment  and 
an  unsatisfied  execution  exhausts 
the  legal  remedy.  Rocky  Mountain 
Nat.  Bk.  v.  Bliss,  89  N.  Y.  338;  Brice 
v.  Munro,  5  Can.  L.  T.  (Ont.)  130. 
See,  also,  Priest  v.  Essex,  &c.  Co.  115 
Mass.  380;  Shellington  v.  Rowland, 
53  N.  Y.  371;  Dauchy  v.  Brown,  24 
Vt.  197;  Wehrman  v.  Reakirt,  1  Cin. 
Super.  Ct.  230;  Thornton  v.  Lane,  11 
Ga.  459;  New  England,  &c.  Bank  v. 
Newport  Steam  Factory,  6  R.  I.  154, 
75  Am.  Dec.  688.  Contra,  in  Marion, 
&c.  Co.  v.  Norris,  37  Ind.  424;  Shafer 
v.  Moriarity,  46  Ind.  9;  Sleeper  v. 
Goodwin,  67  Wis.  577;  Bird  v.  Cal- 
vert,  22  S.  Car.  292. 

^Kincaid  v.  Dwindle,  59  N.  Y. 
548.  See  Remington  v.  Samana  Bay 
Co.,  140  Mass.  494,  to  the  effect  that 
a  judgment  against  a  corporation, 
recovered  after  the  corporation  has 
been  dissolved,  is  void;  and  see  au- 
thorities cited  in  26  Am.  &  Eng. 
Ency.  of  Law  (2d  ed.)  1046. 

203  Creditors  will  not  be  required  to 
await  the  collection  of  doubtful 
claims  or  claims  in  litigation.  The 
stockholders  must  pay  promptly,  and 
take  upon  themselves  the  onus  of  de- 
lay and  risk  as  to  all  such  cases. 
Moses  v.  Ocoee  Bank,  1  Lea  (Tenn.) 
398,  413;  Stark  v.  Burke,  9  La.  Ann. 
341,  343.  But  see  Younglove  v.  Kel- 


ly, &c.  Co.  49  Ohio  St.  663,  33  N.  E. 
234. 

204  Dean  v.  Biggs,  25  Hun  (N.  Y.) 
122. 

205  Powell  v.  Oregonian  R.  Co.,  36 
Fed.   726;    American   Nat.    Bank   v. 
Supple,  115  Fed.  657,  52  C.  C.  A.  293; 
Wilson  v.  Pittsburgh,  &c.  Coal  Co., 
43  Pa.  St.  424 ;  Henry  v.  Vermillion, 
&c.  R.  Co.,  17  Ohio  187;  Milliken  v. 
Whitehouse,  49  Me.  527;  Hampson  v. 
Weare,  4  Iowa  13,  66  Am.  Dec.  116  n; 
Grund  v.  Tucker,  5  Kans.  70;  Hinck- 
ley  v.  Kettle  River  R.  Co.  80  Minn. 
32,  82  N.  W.  1088;  Hawes  v.  Anglo- 
Saxon  Petroleum  Co.  101  Mass.  385; 
Marsh  v.  Burroughs,  1  Woods    (U. 
S.)    463;    Bissit  v.  Kentucky  River 
Nav.  Co.  15  Fed.  353,  and  note  360. 
See,  also,  Hawkins  v.  Glenn,  131  U. 
S.  319,  9  Sup.  Ct.  739;  Glenn  v.  Lig- 
gett, 135  U.  S.  533,  10  Sup.  Ct.  867; 
Scofield  v.  Excelsior,  &c.  Co.  27  Ohio 
Cir.  Ct.  347;    Childs  v.  Blethen,  40 
Wash.  340,  82  Pac.  405;   Conklin  v. 
Furman,  8  Abb.  Pr.  N.  S.    (N.  Y.) 
161;    Slee  v.  Bloom,  20  Johns.    (N. 
Y.)   669;    Stephens  v.  Fox,  83  N.  Y. 
3,13.   The  last  of  the  cases  hold  that 
it  is  sufficient  evidence  of  these  facts 
where  not  disproved.    This  doctrine 
has  been  denied  in  New  York.    Slee 
v.  Bloom,  5  Johns.  Ch.  (N.  Y.)   366, 
reversed  in  Slee  v.  Bloom,  20  Johns. 
669.   Moss  v.  McCullough,  5  Hill  (N. 


181] 


STOCKHOLDERS. 


276 


had  recovered  a  judgment  against  the  corporation  in  an  action  for 
damages  for  waste,  that  a  judgment  against  a  corporation  for  the 
recovery  of  money  is  conclusive  evidence,  in  a  suit  against  a  stock- 
holder for  the  collection  of  said  judgment,  of  the  existence  of  the 
corporation  and  its  liability  to  plaintiff  therein  as  thereby  determined ; 
and  such  judgment,  whether  given  in  an  action  ex  contractu  or  ex 
delicto,  is  an  indebtedness  of  the  corporation,  for  which  a  stockholder 
is  liable  to  the  amount  due  on  his  stock.206  But  in  some  jurisdictions 
the  stockholder  is  permitted  to  disprove  the  claim  when  a  judgment 
is  sought  to  be  enforced  against  him,207  and  the  judgment  amounts 
only  to  prima  facie  evidence,208  of  the  creditor's  right  to  money  due 
the  corporation  for  subscriptions.  It  has  also  been  held  that  a  judg- 
ment against  a  corporation  is  merely  a  step  to  fix  the  liability  of  stock- 
holders, and  does  not  merge  it  or  stand  in  the  way  of  any  discovery 
or  relief  which  would  otherwise  be  proper  to  enforce  that  liability.208 

§  181.     Stockholder's  defense. — The  stockholders  may  be  admitted 
to  defend  a  suit  brought  against  the  corporation  for  the  purpose  of 


Y.)  131,  reversed  7  Barb.  (N.  Y.) 
279;  Strong  v.  Wheaton,  38  Barb. 
(N.  Y.)  616;  Miller  v.  White,  50  N. 
Y.  137;  McMahon  v.  Macy,  51  N.  Y. 
155.  But  this  point  did  not  properly 
arise  in  the  last  two  cases,  and 
Strong  v.  Wheaton  professes  to  be 
based  on  the  authority  of  Moss  v. 
McCullough,  5  Hill  (N.  Y.)  131. 

208  Powell  v.  Oregonian  R.  Co.,  6  R. 
&  Corp.  L.  J.  28,  38  Fed.  187.  A  judg- 
ment on  a  claim  for  damages  for 
waste  becomes  an  indebtedness  of 
the  corporation,  whether  the  claim 
for  damages  was  an  "indebtedness" 
under  the  Oregon  constitution  or 
not;  and  the  stockholder  is  liable 
for  such  debt  to  the  extent  of  the 
amount  unpaid  on  his  stock.  Powell 
v.  Oregonian  R.  Co.,  36  Fed.  726,  3 
L.  R.  A.  201. 

207  Quick  v.  Lemon,  105  111.  578; 
Hawes  v.  Anglo-Saxon,  &c.  Co.  101 
Mass.  385;  Merchants'  Bank  v. 
Chandler,  19  Wis.  434;  Grund  v. 
Tucker,  5  Kans.  70;  Grand  Rapids 


Sav.  Bank  v.  Warren,  52  Mich.  557; 
Neilson  v.  Crawford,  52  Cal.  248. 
See,  also,  Rood  v.  Whorton,  67  Fed. 
434.  And  see,  where  judgment  is  on 
an  ultra  vires  contract,  Ward  v.  Jos- 
lin,  186  U.  S.  142,  22  Sup.  Ct.  807. 

208  It  has  been  held  that  the  stock- 
holder may  set  up  any  defense  that 
was  open  to  the  corporation  and  put 
the  creditor  to  strict  proof  of  his 
claim  a  second  time.    Moss  v.  Mc- 
Cullough, 5   Hill    (N.  Y.)    131,  and 
cases  following;  Chase  v.  Curtis,  113 
U.  S.  452,  5  Sup.  Ct.  554;  Chestnut 
v.  Pennell,  92  111.  55.    Cases  of  this 
kind  may  be  found  depending  upon 
the    peculiar'  language    of    statutes 
holding   the    corporation    liable   for 
debts   in   the   first   instance,   if  not 
promptly  paid.   Trippe  v.  Hancheon, 
82  Ind.  307;   Southmayd  v.  Russ,  3 
Conn.  52;  Bailey  v.  Bancker,  3  Hill 
(N.  Y.)  188,  38  Am.  Dec.  625. 

209  Newberry  v.  Robinson,  41  Fed. 
458,  7  R.  &  Corp.  L.  J.  396. 


277 


METHODS   OP   ENFORCING    STOCKHOLDER'S   LIABILITY.      [§    182 


charging  them  on  their  individual  liability,  and  the  court  will,  in  a 
proper  case,  relieve  the  corporation  from  a  default  and  permit  them 
to  carry  on  the  litigation.210  Of  course,  the  judgment  does  not  even 
tend  to  prove  that  the  person  sued  as  a  subscriber  or  stockholder  is 
liable  as  such,  and  he  may  offer,  with  some  exceptions,  the  same  de- 
fenses that  he  could  offer  to  suit  by  the  corporation  itself.211  But  it 
is  generally  held  that  any  fraud  on  the  part  of  the  corporation212  or 
its  officers213  is  not  available  as  a  defense  to  the  claims  of  a  corporate 
creditor  who  gave  credit  on  the  faith  of  the  subscription  and  who  was 
not  a  party  to  such  fraud  and  had  no  knowledge  of  it.  And  secret 
agreements  by  which  the  corporation  contracted  that  the  defendant 
should  not  be  liable  'for  the  unpaid  balance  of  his  subscription  cannot 
be  pleaded  as  such  defense.214  The  statute  of  limitations  may,  how- 
ever, be  a  good  defense  in  a  proper  case.215 

§182.     Methods   of  enforcing  stockholder's  liability. — The  sub- 
scriber is  liable  to  garnishment,  in  common  with  any  other  corporate 


210  Peck  v.  New  York,  &c.  S.  S.  Co. 
3  Bosw.  (N.  Y.)  622. 

211 1  Cook  Stock  and  Stockholders, 
§  210.  In  a  suit  by  the  assignee  of 
a  judgment  against  a  corporation 
brought  against  the  stockholders, 
the  assignee  must  show  that  he  paid 
a  valuable  consideration  for  the 
judgment  assigned.  Wilson  v.  St. 
Louis,  &c.  R.  Co.  120  Mo.  45,  25  S. 
W.  527,  759. 

212  Howard   v.   Glenn,   85    Ga.   238, 
11  S.  E.  610,  21  Am.  St.  156;  Turner 
v.    Grangers',   &c.    Ins.    Co.    65    Ga. 
649,    38    Am.    R.    801;    Tennent    v. 
Glasgow  Bank,   L.   R.   4   App.   Cas. 
615;   Stone  v.  City,  &c.  Bank,  L.  R. 
3  C.  P.  Div.  282;  Oakes  v.  Turquand, 
L.  R.  2  H.  L.  325;  Ruggles  v.  Brock, 
6    Hun     (N.    Y.)     164;     Saffold    v. 
Barnes,    39    Miss.    399;     Chubb    v. 
Upton,  95  U.  S.  665,  667.    See,  also, 
note  in  93  Am.  St.  393.  But  see  Sav- 
age v.  Bartlett,  78  Md.  561,  28  Atl. 
414. 

213  Republic  Ins.  Co.,  In  re,  3  Biss. 
(U.  S.)  452. 


214  Such  an  agreement  is  held  to  be 
fraud    at    law    upon    the    corporate 
creditors.    Scovill  v.  Thayer,  105  U. 
S.  143;    Sagory  v.  Dubois,  3  Sandf. 
Ch.  R.    (N.  Y.)    466,  499;    Upton  v. 
Tribilcock,  91  U.  S.  45;  Chubb  v.  Up- 
ton, 95  U.  S.  665;  Flinn  v.  Bagley,  7 
Fed.   785;    Hickling  v.  Wilson,   104 
111.    54;    Northrop   v.    Bushnell,    38 
Conn.  498;  Eyerman  v.  Krieckhaus, 
7  Mo.  App.  455.    See,  also,  Wilson  v. 
Hundley,  96  Va.  96,  30  S.  E.  492,  70 
Am.  St.  837.    An  agreement  operat- 
ing among  and  against  stockholders 
only  for  an  apportionment  of  their 
several  stock  liabilities  is  good  and 
is  contrary  neither  to  law  or  public 
policy.    Winston  v.  Dorsett  Pipe  & 
P.  Co.  27  111.  App.  546. 

215  As  to  the  statute  of  limitations 
as  a  defense  and  when  it  begins  to 
run,  see  note  in  93  Am.  St.  390  et 
seq.;  and  Boyd  v.  Mutual  L.  Ass'n, 
116  Wis.  155,  90  N.  W.  1086,  94  N. 
W.  171,  61  L.  R.  A.  918,  96  Am.  St. 
948  and  extended  note. 


182] 


STOCKHOLDERS. 


278 


debtor,  for  unpaid  calls  that  have  been  made  by  the  company.216  And 
it  has  been  held  that  he  may  be  sued  at  law  by  a  corporate  creditor 
for  unpaid  calls,  and  that  he  is  liable  to  a  judgment  for  the  full 
amount  due  on  such  calls.217  But  the  remedy  most  commonly  resorted 
to  and  the  one  most  favored  by  the  courts,  is  by  bill  in  equity.218  And 
it  has  been  said  that  no  one  creditor  can  assume  that  he  alone  is  enti- 
tled to  what  any  stockholder  owes,  and  sue  at  law  so  as  to  appropriate  it 
exclusively  to  himself.219  Such  a  bill  should  be  filed  by  so  many  credit- 


216  Simpson   v.    Reynolds,    71    Mo. 
594;    Curry  v.   Woodward,    53   Ala. 
371;   Hays  v.  Lycoming,  &c.  Co.  99 
Pa.  St.  621;  Rand  v.  White  Mts.  R. 
Co.  40  N.  H.  79;  Brown  v.  Union  Ins. 
Co.  3  La.  Ann.  177;  Faull  v.  Alaska, 
&c.  Min.  Co.  8  Sawyer  (U.  S.)   420; 
note    to    Thompson    v.    Reno    Sav. 
Bank,  3  Am.  St.  797,  806.   But    un- 
paid subscriptions  for  which  no  calls 
have  been  issued  cannot  be  reached 
in  this  way.  Bingham  v.  Rushing,  5 
Ala.  403;  Bunn's  Appeal,  105  Pa.  St. 
49,  51  Am.  R.  116;  Brown  v.  Union 
Ins.  Co.  3  La.  Ann.  177;   McKelvey 
v.  Crockett,  18  Nev.  238;  Meints  v. 
East  St.  Louis.  &c.  Co.  89  111.  48; 
Hughes  v.  Oregonian  R.  Co.  11  Oreg. 
158. 

217  Allen  v.  Montgomery  R.  Co.  11 
Ala.  437;  Freeman  v.  Winchester,  18 
Miss.  577;    Bank,  &c.  v.   Dallam,  4 
Dana  (Ky.)  574;  McCarthy  v.  Lavas- 
che,   89   111.   270,   31  Am.  R.  83  n; 
Faull  v.  Alaska,  &c.  Min.  Co.  8  Saw- 
yer (U.  S.)  420. 

as  Christensen  v.  Eno,  106  N.  Y. 
97,  100,  12  N.  E.  648;  Shickle  v. 
Watts,  94  Mo.  410,  7  S.  W.  274;  Ward 
v.  Griswoldville,  &c.  Co.  16  Conn. 
593;  Dalton,  &c.  R.  Co.  v.  McDaniel, 
56  Ga.  191;  Germantown,  &c.  R.  Co. 
v.  Fitler,  60  Pa.  St.  124, 100  Am.  Dec. 
546  n;  Allen  v.  Montgomery,  &c.  R. 
Co.  11  Ala.  437;  Henry  v.  Vermillion, 
&c.  Turnp.  Co.  17  Ohio  187;  Craw- 
ford v.  Rohrer,  59  Md.  599;  Adler  v. 
Milwaukee,  &c.  Co.  13  Wis.  57;  Hick- 


ling  v.  Wilson,  104  111.  54;  Harmon 
v.  Page,  62  Cal.  448;  Ogilvie  v.  Knox 
Ins.  Co.  22  How.  (F.  S.)  380;  Hatch 
v.  Dana,  101  U.  S.  205;  Holmes  v. 
Sherwood,  16  Fed.  725;  Louisiana 
Paper  Co.  v.  Waples,  3  Woods  (U. 
S.)  34;  Faull  v.  Alaska,  &c.  Min.  Co. 
8  Sawyer  (U.  S.)  420.  A  creditor's 
bill  is  a  proper  remedy  for  enforcing 
personal  liability  of  stockholders. 
Stutz  v.  Handley,  7  Ryi  &  Corp.  L. 
J.  407,  41  Fed.  531.  Such  a  bill  can- 
not be  maintained  to  enforce  a  stale 
claim.  Wilson  v.  St.  Louis,  &c.  R. 
Co.  120  Mo.  45,  894,  25  S.  W.  527,  759. 
219  Patterson  v.  Lynde,  106  U..  S. 
519,  1  Sup.  Ct.  432.  It  seems  to  be  a 
settled  rule  in  the  United  States 
Courts  that  unpaid  subscriptions 
can  be  reached  by  a  corporate  cred- 
itor in  a  court  of  equity  only.  Brown 
v.  Fisk,  23  Fed.  228.  Some  states 
provide  by  statute  that  the  only 
remedy  to  enforce  the  payment  of  a 
debt  of  a  corporation  against  the  in- 
dividual stockholders  thereof  shall 
be  by  bill  in  chancery.  Stimson  Am. 
Stat.  Law  (1892),  §  8143,  citing  the 
laws  of  New  Hampshire,  Pennsyl- 
vania and  Maryland.  Many  of  the 
courts  hold  a  bill  in  equity  to  be  the 
creditor's  only  means  of  reaching 
unpaid  subscriptions.  Jones  v.  Jar- 
man,  34  Ark.  323;  Erickson  v.  Ne- 
smith,  15  Gray  (Mass.)  221;  Smith 
v.  Huckabee,  53  Ala,  191;  Umsted  v. 
Buskirk,  17  Ohio  St.  113;  Hodges  v. 
Silver  Hill  Min.  Co.  9  Oreg.  200. 


279 


METHODS   OF   ENFORCING   STOCKHOLDER'S   LIABILITY.      [§'   182 


ors  as  may  wish  to  bring  suit,220  in  favor  of  any  or  all  creditors  that 
may  choose  to  come  in  and  establish  their  claims,221  and  should  be 
directed  against  the  corporation  itself,222  and  all  solvent  subscribers 
within  the  jurisdiction  of  the  court  whose  subscriptions  are  not  fully 
paid,  excepting  such  as  are  unknown.223 


Even  where  the  general  equitable 
remedy  by  creditor's  bill  has  been 
abolished  by  statute,  the  right  to 
proceed  herein  by  suit  in  equity  has 
been  held  to  exist.  Adler  v.  Milwau- 
kee, &c.  Co.  13  Wis.  57.  An  action  at 
law  cannot  be  maintained  by  a  cred- 
itor of  a  corporation,  under  Wash. 
Code,  §  2434,  against  a  stock  sub- 
scriber, for  the  unpaid  portion  of  his 
subscription.  Burch  v.  Taylor,  1 
Wash.  245,  24  Pac.  438. 

^Crease  v.  Babcock,  10  Mete. 
(Mass.)  525;  Patterson  v.  Lynde, 
106  U.  S.  519,  1  Sup.  Ct.  432.  Several 
creditors  cannot  bring  separate  suits 
but  the  first  properly  framed  bill 
takes  precedence,  and  another  cred- 
itor's suit  may  be  enjoined.  Pierce 
v.  Milwaukee  Construction  Co.  38 
Wis.  253. 

221  Morgan  v.  New  York,  &c.  R.  Co. 
10  Paige  (N.  Y.)  290,  40  Am.  Dec. 
244  n;  Umsted  v.  Buskirk,  17  Ohio 
St.  113;  Crease  v.  Babcock,  10  Mete. 
(Mass.)  525;  Wetherbee  v.  Baker, 
35  N.  J.  Eq.  501;  Coleman  v.  White, 
14  Wis.  700,  80  Am.  Dec.  797;  Terry 
v.  Little,  101  U.  S.  216.  Even  if  the 
bill  was  not  filed  for  the  benefit  of 
all  creditors  choosing  to  come  in  and 
share  the  expense,  any  creditor  has 
a  right  to  establish  his  claim  under 
it  and  share  pro  rata  in  the  distribu- 
tion of  the  assets.  Turnbull  v.  Pren- 
tiss  Lumber  Co.  55  Mich.  387;  Walk- 
er v.  Crain,  17  Barb.  (N.  Y.)  119. 
See,  also.,  Wright  v.  McCormack,  17 
Ohio  St.  86;  Adler  v.  Milwaukee,  &c. 
Co.  13  Wis.  57. 

^Walser  v.  Memphis,  &c.  R.  Co. 
19  Fed.  152;  Mann  v.  Pentz,  3  N.  Y. 


415;  Wetherbee  v.  Baker,  35  N.  J. 
Eq.  501.  Where  the  corporation  is 
beyond  the  jurisdiction  or  is  de- 
funct it  need  not  be  made  a  party. 
Walser  v.  Seligman,  21  Blatch.  (U. 
S.)  130;  Wellman  v.  Rowland,  &c. 
Works,  19  Fed  51. 

223  Walser  v.  Memphis,  &c.  R.  Co. 
19  Fed.  152;  Vick  v.  Lane,  56  Miss. 
681;  Erickson  v.  Nesmith,  46  N.  H. 
371;  Ulmsted  v.  Buskirk,  17  Ohio  St. 
113;  Pierce  v.  Milwaukee,  &c.  Co.  38 
Wis.  253.  All  need  not  be  originally 
made  parties,  according  to  the  au- 
thority of  some  cases,  but  the  stock- 
holders against  whom  the  suit  is  di- 
rected may  bring  in  those  not  made 
parties  by  cross-bill  and  thus  en- 
force contribution.  Hatch  v.  Dana, 
101  U.  S.  205.  See,  also,  Ogilvie  v. 
Knox  Ins.  Co.  22  How.  (U.  S.)  380; 
Glenn  v.  Williams,  60  Md.  93;  Grif- 
fith v.  Mangam,  73  N.  Y.  611;  Brun- 
dage  v.  Monumental,  &c.  Co.  12  Oreg. 
322;  Lamar  Ins.  Co.  v.  Gulick,  102 
111.  41;  Von  Schmidt  v.  Huntington, 
1  Cal.  55.  Some  cases  hold  that 
judgment  cannot  be  rendered 
against  part  of  the  delinquent  sub- 
scribers unless  it  affirmatively  ap- 
pear that  the  others  are  insolvent 
or  beyond  the  jurisdiction  of  the 
court.  Wood  v.  Dummer,  3  Mason 
(U.  S).  308;  Bonewitz  v.  Van  Wert 
Co.  Bank,  41  Ohio  St.  78;  Marsh  v. 
Burroughs,  1  Woods  (U.  S.)  463. 
See  Erickson  v.  Nesmith,  46  N.  H. 
371;  Beach  Priv.  Corp.  §  700.  But 
this  rule  may  well  be  doubted.  See 
Hatch  v.  Dana,  101  U.  S.  205.  Cook 
Stock  and  Stockholders  (2d  ed.), 
§  206. 


183] 


STOCKHOLDERS. 


280 


§  183.  Contribution. — The  creditors  are  under  no  obligation  to  see 
that  the  payments  made  by  the  subscribers  are  proportionally  equal, 
but  a  court  of  chancery  will  compel  payment  of  so  much  of  the  unpaid 
subscriptions  of  the  stockholders  that  are  before  it  as  may  be  necessary 
to  pay  the  corporate  debts.224  The  stockholder  may,  however,  in  gen- 
eral, have  the  other  stockholders  within  the  jurisdiction  joined  as  de- 
fendants,225 in  which  case  contribution  may  be  enforced  in  the  original 
suit.226  Or,  if  he  is  compelled  to  pay  more  than  his  proportion  of  the 
debts  of  the  company,  he  may  maintain  a  suit  against  his  co-stock- 
holders for  contribution.227  The  fact  that  the  creditor  is  himself  a 
stockholder  and  delinquent  in  making  payments  on  his  stock  does  not 
prevent  him  from  recovering  against  other  delinquent  subscribers  in 
a  suit  to  enforce  payment  of  a  judgment  obtained  by  him  against  the 


224Pentz  v.  Hawley,  1  Barb.  Ch. 
(N.  Y.)  122;  Marsh  v.  Burroughs,  1 
Woods  (U.  S.)  463;  Evans  v.  Coven- 
try, 25  L.  J.  Chan.  489.  But  actual 
subscribers  are  not  liable  for  that 
part  of  the  capital  stock  which  was 
never  subscribed.  Evans  v.  Coven- 
try, 25  L.  J.  Chan.  489. 

225  Hatch  v.  Dana,  101  U.  S.  205. 
The  fact  that  creditors  of  a  corpora- 
tion have  released  one  stockholder 
from  his  liability  is  of  no  concern 
to  another  stockholder  unless  his  lia- 
bility has  been  thereby  increased, 
and  he  is  still  liable  on  his  sub- 
scription to  the  capital  stock.  How- 
ard v.  Glenn,  85  Ga.  238,  11  S.  E. 
610.  A  creditor  of  a  corporation 
may  bring  individual  action  at  law 
against  one  of  the  stockholders  to 
recover  to  the  amount  of  his  entire 
pro  rata  liability,  notwithstanding 
that  he  has  compromised  with  other 
stockholders,  especially  where  the 
offer  to  compromise  was  made  to 
all  with  notice  that  if  not  accepted 
the  creditor  would  claim  his  full 
legal  rights.  Hall  v.  Klinck,  25  S. 
C.  348,  60  Am.  R.  505.  A  compromise 
decree  making  an  offer  of  terms  of 
settlement  to  all  alike  who  are  liable 
on  stock  of  an  insolvent  corporation 


does  not  release  those  who  do  not 
accept  it  from  their  liability  on  the 
stock.  Hambleton  v.  Glenn,  72  Md. 
351,  20  Atl.  115. 

226  Holmes  v.  Sherwood,  3  McCrary 
(U.  S.)  405;  Umsted  v.  Buskirk,  17 
Ohio  St.  113;  Hodges  v.  Silver  Hill 
Min.  Co.  9  Oreg.  200;  Masters  v.  Ros- 
sie,  &c.  Co.  2  Sandf.  Ch.  301;  N.  Y. 
Code  of  Civil  Procedure,  §§  1791- 
1794. 

227Millaudon  v.  New  Orleans,  &c. 
R.  Co.  3  Rob.  (La.)  488;  Matthews 
v.  Albert,  24  Md.  527;  Wincock  v. 
Turpin,  96  111.  135;  Stewart  v.  Lay, 
45  Iowa  604;  Hadley  v.  Russell,  40 
N.  H.  109;  Stover  v.  Flack,  30  N.  Y. 
64;  Umsted  v.  Buskirk,  17  Ohio  St. 
113;  Farrow  v.  Bivings,  13  Rich.  Eq. 
(S.  Car.)  25;  Gray  v.  Coffin,  9  Cush. 
(Mass.)  192;  Marsh  v.  Burroughs, 
1  Woods  (U.  S.)  463;  Holmes  v. 
Sherwood,  3  McCrary  (U.  S.)  405; 
Button's  Case,  3  DeG.  &  Sm.  262. 
See,  also,  Putnam  v.  Misochi,  189 
Mass.  421,  75  N.  E.  956;  Lee  v.  Hep- 
penheimer  (N.  J.),  61  Atl.  843; 
Brinham  v.  Wellersburg  Coal  Co.  47 
Pa.  St.  43,  where  it  is  said  that  the 
right  to  contribution  in  Pennsyl- 
vania is  purely  statutory. 


281 


SUITS   BY   ASSIGNEES   AXD   RECEIVERS. 


[ 


corporation.  But  he  must  contribute  ratably  with  the  other  stock- 
holders to  the  payment  of  the  amount  due  him.228  It  is  held  that  a 
part  of  the  stockholders  may,  in  a  proper  case,  file  a  bill  in  equity 
upon  their  own  account,  making  the  corporation  a  party,  to  enforce 
the  payment  of  unpaid  balances  of  subscriptions,  for  the  payment  of 
corporate  indebtedness,  and  for  contribution,  even  before  a  creditor's 
bill  has  been  filed.229 


§  184.  Suits  by  assignees  and  receivers. — In  case  the  corporation 
has  passed  into  the  hands  of  a  receiver  or  an  assignee  it  is  the  duty 
of  such  receiver230  or  assignee231  to  collect  the  unpaid  subscriptions 
necessary  for  the  payment  of  the  debts  of  the  corporation,  and  the 
creditor's  right  to  proceed  directly  against  the  delinquent  shareholders 
is  usually  suspended  during  the  time  it  remains  in  his  hands.232  A 
receiver  represents  the  creditors  as  well  as  the  shareholders  and  cor- 
poration, and  may,  as  such  representative  and  as  an  officer  of  the  court, 
disaffirm  illegal  and  fraudulent  transfers  of  corporate  property  and 
recover  its  misapplied  funds  and  securities,233  although  he  cannot, 


228  Wilson  v.  Kiesel,  9  Utah  397,  35 
Pac.   488.     See,   also,   Thompson   v. 
Reno  Sav.  Bank,  19  Nev.  103,  7  Pac. 
68,  3  Am.  St.  797. 

229  Fiery  v.  Emmert,  36  Md.  464. 

230  Andrews  v.  Bacon,  38  Fed.  777; 
Dayton    v.    Borst,    31    N.    Y.    435; 
Frank    v.    Morrison,    58    Md.    423; 
Mean's  Appeal,  85  Pa.  St.  75;  Chand- 
ler v.  Brown,  77  111.  333;    State  v. 
Union  Stock  Yards  State  Bank,  103 
Iowa  549,  70  N.  W.  752,  72   N.  W. 
1076;    note  to  Germantown,  &c.   R. 
Co.  v.  Fitler,  100  Am.  Dec.  551.   Un- 
der the  English  Railway  Companies 
Act  of  1867,  a  receiver  has  no  such 
power.     Birmingham,  &c.  R.  Co.,  In 
re,  L.  R.  18  Ch.  Div.  155.     See,  also, 
Hancock    Nat.    Bank   v.    Ellis,    172 
Mass.  39,  51  N.  E.  207,  42  L.  R.  A. 
396,  70  Am.  St.  232. 

^Tobey  v.  Russell,  9  R.  I.  58; 
Clarke  v.  Thomas,  34  Ohio  St.  46; 
Stewart  v.  Lay,  45  Iowa  604;  Phoe- 
nix, &c.  Co.  v.  Badger,  67  N.  Y.  294; 
Shockley  v.  Fisher,  75  Mo.  498;  Van- 


derwerken  v.  Glenn,  85  Va.  9,  6  S. 
E.  806;  Chamberlain  v.  Bromberg, 
83  Ala.  576,  3  So.  434;  note  to  Ger- 
mantown, &c.  R.  v.  Fitler,  100  Am. 
Dec.  551,  556.  An  assignee  in  bank- 
ruptcy may  sue  by  bill  in  equity  to 
recover  unpaid  subscriptions.  Saw- 
yer v.  Hoag,  17  Wall.  (U.  S.)  610, 
621;  Chubb  v.  Upton,  95  U.  S.  665; 
Payson  v.  Stoever,  2  Dill  (U.  S.) 
427.  See,  also,  Potts  v.  Wallace,  146 
U.  S.  689,  13  Sup.  Ct.  196. 

232  See  Franklin  v.  Menown,  10  Mo. 
App.    570.     But  the   creditors   may 
compel  the  receiver  to  act  for  them 
in   collecting   unpaid    subscriptions. 
Stark   v.    Burke,    9   La.    Ann.    341; 
Rankine  v.  Elliott,  16  N.  Y.  377;  At- 
wood  v.  Rhode  Island,  &c.  Bank,  1 
R.  I.  376. 

233  Attorney-General    v.    Guardian, 
&c.  Co.  77  N.  Y.  272;  Davis  v.  Gray, 
16  Wall.   (U.  S.)   203,  218;   Graham 
Button  Co.  v.   Spielmann,  50  N.  J. 
Eq.  120,  24  Atl.  571;  Voorhees  v.  In- 
dianapolis, &c.  Co.  140  Ind.  220,  39 


185] 


STOCKHOLDERS. 


282 


ordinarily,  enforce  a  subscription  which  the  corporation  could  not 
have  enforced  at  the  time  of  his  appointment.234 

§  185.  Statutory  liability  of  stockholders. — In  several  of  the  states 
a  corporation  creditor  may,  upon  the  dissolution  of  a  railroad  corpora- 
tion without  payment  of  his  debt,  sue  the  stockholders  individually 
and  recover  the  whole  debt,  leaving  the  stockholder  paying  it  to  his 
action  against  the  other  stockholders  for  contribution.235  Other  states 
provide  by  statute  that  each  stockholder  shall  be  liable  for  the  debts 
of  the  corporation  to  the  amount  unpaid  of  the  stock  held  or  sub- 
scribed for  by  him  until  all  the  stock  is  paid  in,236  while  some  of  the 
states  add  a  personal  liability  on  the  part  of  the  stockholders  for  the 
wages  of  certain  of  their  employes,  regardless  of  the  fact  that  their 
stock  may  or  may  not  be  paid  in  full.237  And  similar  provisions  are 
frequently  found  in  special  charters.238  The  individual  liability  of 


N.  E.  738;  1  Elliott's  Gen.  Pr.  §  393; 
2  Beach  Eq.  §  905;  High  Receivers 
(3d  ed.),  §§  314,  315,  317. 

^Cutting  v.  Damerel,  88  N.  Y. 
410;  Taylor  Priv.  Corp.  §  542. 

235  Stimson's  Am.  Stat.  (1892) 
§  8354.  This  provision  is  very 
commonly  found  as  to  other  corpo- 
rations, but  not  often  as  to  rail- 
roads. 1  Cook  Stock  and  Stockhold- 
ers, §212.  Under  the  Kansas  law 
governing  private  corporations 
stockholders  are  severally  and  not 
jointly  liable  to  the  corporation 
creditors,  and  each  must  be  sued 
separately.  Abbey  v.  W.  B.  Grimes 
Dry  Goods  Co.  44  Kans.  415,  24  Pac. 
426,  8  R.  &  Corp.  L.  J.  207.  Where 
the  directors  of  a  corporation,  act- 
ing in  good  faith,  have  borrowed 
money  for  the  purposes  of  the  cor- 
poration, the  indebtedness  against 
the  corporation  is  created,  the  stock- 
holders become  personally  liable  to 
the  lender  of  the  money  or  the  sure- 
ties who  pay  it,  and  it  is  not  neces- 
sary to  show  that  all  the  money  was 
actually  appropriated  to  the  legiti- 
mate uses  of  the  corporation.  Bor- 
land v.  Haven,  37  Fed.  394. 


230Stimson  Am.  Stat.  Law  (1892), 
§§  8140,  8630.  South  Carolina  cre- 
ates a  liability  to  the  value  of  the 
shares  when  the  debt  was  created 
and  five  per  cent  of  the  par  value 
thereof  additional.  Laws  S.  C.  1885, 
Ch.  96,  §  7.  In  Ohio  the  stock- 
holder is  made  liable  to  the  amount 
of  stock  owned  by  him,  in  addition 
to  the  amount  unpaid  thereon.  R.  S. 
Ohio,  1890,  §  3259.  The  liability 
created  by  a  statute  similar  to  the 
present  one  in  South  Carolina,  was 
held  to  be  enforceable  by  an  action 
at  law  against  one  stockholder  indi- 
vidually. Hall  v.  Klinck,  25  S.  C. 
348,  60  Am.  505. 

^Stimson  Am.  Stat.  Law  (1892), 
§§  8142,  8553.  Holders  of  preferred 
stock  in  an  insolvent  corporation 
are  subject  to  the  statutory  liability 
for  its  debts,  equally  with  the  com- 
mon stockholders.  Railroad  Co.  v. 
Smith,  48  Ohio  St.  219,  31  N.  E.  743. 

238  A  provision  in  an  act  of  incor- 
poration, that  stockholders  shall  be 
individually  liable  "to  the  extent  of 
double  the  amount  of  the  stock  sub- 
scribed for  or  held  by  them,"  ren- 
ders them  liable  to  double  the 


283        DEFENSES   TO   ENFORCEMENT   OF   STATUTORY   LIABILITY.    [§    186 


members  for  the  debt  of  a  corporation  is  a  departure  from  the  estao- 
lished  rules  of  law,  and  is  founded  solely  upon  grounds  of  public 
policy,  depending  entirely  upon  express  provisions  of  the  statute 
law ;  and  such  liability  is  to  be  construed  reasonably  but  strictly,  rather 
than  liberally,  and  not  extended  beyond  the  limits  to  which  it  is  plainly 
carried  by  such  provisions  of  the  statute.239  Accordingly  it  is  held  that 
such  liability  for  debts  cannot  be  enforced  to  pay  damages  recovered 
against  the  corporation  in  an  action  in  tort.240 

§  186.  Defenses  to  actions  to  enforce  statutory  liability. — In  suits 
to  enforce  such  liability,  certain  defenses  are  open  to  the  stockholder 
that  would  not  be  allowed  him  in  an  equitable  suit  to  enforce  payment 
of  his  subscription  to  the  corporation.  Thus  he  may  show  that  the 
debt  for  which  the  suit  is  brought  does  not  belong  to  the  particular 


amount  of  their  stock,  whether  paid 
up  or  not.  Dreisbach  v.  Price,  133 
Pa.  560,  19  Atl.  569,  26  Wkly.  Notes 
Cas.  61.  And  it  is  held  that  the 
individual  liability  of  a  stockholder 
under  the  terms  of  a  charter  is  not 
extinguished  by  the  expiration  of 
the  charter.  Wheatley  v.  Glover, 
125  Ga.  710,  54  S.  E.  626. 

^Libby  v.  Toby,  82  Me.  397,  19 
Atl.  904,  where  the  plaintiff  sought 
to  enforce  against  a  stockholder,  a 
judgment  recovered  against  the  cor- 
poration under  the  Maine  statute. 
O'Reilly  v.  Bard,  105  Pa.  St.  569; 
Chase  v.  Lord,  77  N.  Y.  1;  Chamber- 
lin  v.  Huguenot,  &c.  Co.  118  Mass. 
532;  Windham,  &c.  Inst.  v.  Sprague, 
43  Vt.  502;  Salt  Lake  City  Nat. 
Bank  v.  Hendrickson,  40  N.  J.  L. 
52;  note  to  Thompson  v.  Reno  Sav. 
Bank,  3  Am.  St.  797,  834,  24  Am.  & 
Eng.  Cyc.  of  Law  869.  "The  indi- 
vidual liability  of  stockholders  in  a 
corporation  for  the  payment  of  its 
debts  is  always  a  creation  of  statute. 
At  common  law  it  does  not  exist. 
The  statute  which  creates  it  may 
also  declare  the  purpose  of  its  crea- 
tion and  provide  for  the  manner  of 
its  enforcement."  Pollard  v.  Bailey, 


20  Wallace  (U.  S.)  520;  Terry  v. 
Little,  101  U.  S.  216;  Russell  v.  Pa- 
cific Co.  113  Cal.  258,  45  Pac.  323,  34 
L.  R.  A.  747  n.  It  is  held  that  a 
statute  attempting  to  repeal  and 
take  away  this  statutory  liability 
and  right  is  unconstitutional  if 
retroactive  and  applied  as  against 
creditors  who  made  their  contracts 
and  acquired  their  rights,  while  the 
defendant  was  a  stockholder,  before 
the  passage  of  the  repealing  statute. 
Harrison  v.  Remington,  &c.  Co.  140 
Fed.  385. 

240  Heacock  v.  Sherman,  14  Wend. 
(N.  Y.)  58;  Stanton  v.  Wilkeson,  8 
Ben.  <U.  S.)  357;  Chase  v.  Curtis, 
113  U.  S.  452,  5  Sup.  Ct.  554;  Ca- 
ble v.  McCune,  26  Mo.  371;  72  Am. 
Dec.  214;  Bohn  v.  Brown,  33  Mich. 
257,  263 ;  Zimmer  v.  Schleehauf ,  115 
Mass.  52.  Note  to  Prince  v.  Lynch, 
99  Am.  Dec.  427,  435.  A  stockholder 
of  a  railroad  company  is  not  person- 
ally liable  for  the  negligence  of  the 
officers,  agents,  or  employes  of  the 
company  in  the  operation  of  its 
road.  Atchison,  &c.  R.  Co.  v.  Coch- 
ran,  43  Kans.  225,  23  Pac.  151,  7  L. 
R.  A.  414,  19  Am.  St.  129,  41  Am.  & 
Eng.  R.  Cas.  48. 


§    186]  STOCKHOLDERS.  284 

class  for  which  the  stockholders  are  made  liable,241  and  it  is  held, 
in  general,  that  statutes  fixing  a  personal  liability  upon  the  stock- 
holders for  debts  due  to  servants  or  laborers  are  enacted  for  the  benefit 
of  that  "class  whose  members  usually  look  to  the  reward  of  a  day's 
labor  or  service  for  immediate  or  present  support,  from  whom  the 
company  does  not  expect  credit,  and  to  whom  its  future  ability  to  pay 
is  of  no  consequence."242  Consequently,  a  civil  engineer,243  or  his 
assistant,244  or  a  superintendent,245  or  a  general  manager,248  will  not 
be  entitled  to  enforce  such  liability  for  his  own  benefit,  where  it  is 
confined  to  debts  due  "laborers  and  servants."  But  a  master  me- 
chanic and  superintendent  of  works  has  been  held  to  be  a  "servant  and 
laborer"  under  a  similar  statute  applying  to  manufacturing  com- 
panies.247 And  a  superintendent  of  construction,  who  acted  as  fore- 
man of  a  gang  of  one  hundred  and  fifty  men  engaged  in  digging 
trenches  and  laying  gaspipes,  and  whose  duties  required  him  to  be 
with  the  men  while  at  work  and  occasionally  to  do  some  physical 
labor  because  of  a  scarcity  of  hands,  was  held  a  "laborer"  within  the 
meaning  of  a  mechanic's  lien  law.248  The  stockholder  may  also  show 
in  defense  to  such  a  suit  that  the  corporate  creditor  by  express  con- 
tract made  at  the  time  the  debt  was  incurred  waived  his  right  to  re- 
sort to  the  stockholders  for  payment  in  whole  or  in  part,  and  it  is 
settled  in  England  that  he  may  show  that  the  contract  contained  a 
stipulation  by  the  corporation  for  the  exemption  of  its  members  from 
the  liability  imposed  upon  them  by  statute  in  the  event  of  corporate 

241  Wilson  v.  Stockholders,  43  Pa.  (N.  Y.)  390.    Contra,  Conant  v.  Van- 

St.    424;    Conant   v.    Van    Schaick,  Schaick,  24  Barb.   (N.  Y.)   87;  Wil- 

24   Barb.    (N.   Y.)    87;    Larrabee  v.  liamson  v.  Wadsworth,  49  Barb.  (N. 

Baldwin,  35  Cal.  155.    One  who  be-  Y.)  294. 

came  a  stockholder  after  the   debt  2M  Brockway  v.  Innes,  39  Mich.  47, 

was  incurred  by  the  corporation  is  33  Am.  R.  348. 

liable   under   the   statute    like   any  "5  Kincaid   v.   Dwindle,  59  N.   Y. 

other   stockholder.   Railroad   Co.   v.  548.     And  see   Gurney  v.   Atlantic, 

Smith,  48  Ohio  St.  219.  &c.  R.  Co.  58  N.  Y.  358;  Gordon  v. 

212  Wakefield   v.    Fargo,   90   N.    Y.  Jennings,  L.  R.  9  Q.  B.  Div.  45.    But 

213,  217,  overruling  several  earlier  compare  Sleeper  v.  Goodwin,  67  Wis. 

cases;    Adams  v.   Goodrich,   55   Ga.  577. 

233.    And  see  Harrod  v.  Hamer,  32  248  Wakefield   v.   Fargo,   90   N.   Y. 

Wis.  162;  note  to  Thompson  v.  Reno  213;  Hill  v.  Spencer,  61  N.  Y.  274. 

Sav.  Bank,  3  Am.  St.  797,  842.  *"  Sleeper  v.  Goodwin,  67  Wis.  577, 

243  Pennsylvania,     &c.    R.     Co.     v.  31  N.  W.  335. 

Lueffer,  84  Pa.  St.  168,  24  Am.  R.  24a  Pendergast  v.  Yandes,  124  Ind. 

189;    Ericsson   v.   Brown,   38   Barb.  159,  24  N.  E.  724,  8  L.  R.  A.  849. 


285        DEFENSES   TO   ENFORCEMENT   OF   STATUTORY   LIABILITY.    [§    186 


insolvency.249  So  he  may  show  that  he  has  been  separately  released 
from  the  statutory  liability,250  or  that  he  has  voluntarily  paid  cor- 
porate debts  to  the  full  amount  of  such  liability.251  He  may  also,  in 
some  jurisdictions,  set  off  a  debt  or  judgment  due  him  from  the  cor- 
poration against  a  personal  action  brought  by  an  individual  creditor, 
where  the  statute  provides  for  such  suits,252  although,  as  we  have  seen, 
a  different  rule  applies  in  case  of  an  ordinary  suit  to  reach  unpaid 


249  Such  a  contract  is  valid.    Rob- 
inson v.  Bidwell,  22  Cal.  379;   Bas- 
shor  v.  Forbes,  36  Md.  154;  Brown 
v.  Eastern  State  Co.  134  Mass.  590, 
where  the  waiver  was  oral;  Hess  v. 
Werts,  4  Serg.  &  R.  (Pa.)  356;  State 
Fire  Ins.  Co.,  In  re,  1  Hem.  &  M. 
457,  1  DeG.,  F.  &  J.  634.    But  the  ex- 
emption   must    be    clearly    proved. 
Skinner  v.  Dayton,  19  John.  (N.  Y.) 
513,    537,   10   Am.   Dec.   286;    Athe- 
naeum, &c.  Society,  Re,  3  DeG.  &  J. 
660.     A  stipulation  against  holding 
stockholders  liable  has  been  held  to 
refer  to  the  statutory  liability  and 
not    to    the    subscription    liability. 
Preston  v.  Cincinnati,  &c.  R.  Co.  36 
Fed.  54. 

250  Where  the  stockholders  are  held 
to  be  severally  and  not  jointly  lia- 
ble under  the  statute,  one  may  be 
released  without  releasing  the  oth- 
ers.    Bank,  &c.  v.   Ibbotson,  5  Hill 
(N.  Y.)    461.     See,  also,  Herries  v. 
Platt,  21  Hun   (N.  Y.)   132;   Prince 
v.  Lynch,  38  Cal.  528,  99  Am.  Dec. 
427  n;   Borland  v.  Haven,  37  Fed. 
394. 

^Mathez  v.  Neidig,  72  N.  Y.  100; 
Boyd  v.  Hall,  56  Ga.  563;  San  Jose 
Sav.  Bank  v.  Pharis,  58  Cal.  380. 
The  payments  must  be  bona  fide. 
Thebus  v.  Smiley,  110  111.  316;  Man- 
ville  v.  Karst,  16  Fed.  173.  And 
must  be  made  before  the  suit  in 
which  they  are  relied  upon  as  a 
defense  was  commenced.  Jones  v. 
"Wiltberger,  42  Ga.  575.  But  see 
Richards  v.  Brice,  15  Daly  (N.  Y.) 


144,  3  N.  Y.  S.  41.  And  his  exemp- 
tion from  liability  will  be  measured 
by  the  sum  actually  paid  on  corpo- 
rate debts  and  judgments,  and  not 
by  the  face  of  the  claims  paid  off  or 
purchased  by  him.  Kunkelman  v. 
Rentchler,  15  Brad.  (111.)  271; 
Bulkley  v.  Whitcomb,  49  Hun  (N. 
Y.)  290,  1  N.  Y.  S.  748;  Holland  v. 
Heyman,  60  Ga.  174.  The  fact  that 
suits  brought  by  other  stockholders 
are  pending  is  no  defense,  so  long 
as  they  have  not  been  brought  to 
judgment.  Ingalls  v.  Cole,  47  Me. 
530,  541;  Grose  v.  Hilt,  36  Me.  22, 
denies  the  doctrine  of  the  text. 

252  Wheeler  v.  Millar,  90  N.  Y.  353, 
362;  Christensen  v.  Colby,  43  Hun 
(N.  Y.)  362;  Boyd  v.  Hall,  56  Ga. 
563;  Jerman's  Adm'r  v.  Benton,  79 
Mo.  148.  The  rule  is  different  when 
the  suit  is  on  behalf  of  the  corpora- 
tion to  reach  unpaid  subscriptions. 
Thompson  v.  Reno  Sav.  Bank,  19 
Nev.  103,  3  Am.  St.  797,  and  note 
826.  Judgments  purchased  by  him 
can  only  be  set  off  to  the  extent  of 
the  amount  that  was  actually  paid 
for  them.  Bulkley  v.  Whitcomb,  49 
Hun  (N.  Y.)  290,  1  N.  Y.  S.  748.  In 
action  by  corporate  creditors  to' 
enforce  the  statutory  liability  of  a 
stockholder,  the  stockholder  must 
have  held  his  claim  against  the  cor- 
poration at  the  time  the  execution 
against  the  corporation  was  re- 
turned nulla  bona,  in  order  to  use 
it  as  a  defense.  Coquard  v.  Pren- 
dergast,  35  Mo.  App.  237. 


187] 


STOCKHOLDERS. 


286 


subscriptions  for  the  creditors.  Of  course  he  may  set  up  in  defense 
any  proper  matters  tending  to  show  that  he  is  not  a  stockholder  and 
that  a  stockholder's  liabilities  do  not  attach  to  him.253  But  it  is  no 
defense  that  the  creditor  purchased  his  claim  against  the  corporation 
at  a  discount  after  its  insolvency.254 

§  187.    Who  may  institute  action  to  enforce  statutory  liability. — 

An  action  to  enforce  the  statutory  liability  can  only  be  maintained  by 
the  creditors  themselves  for  their  own  benefit.255  Neither  the  corpora- 
tion itself,256  nor  its  assignee,257  nor  a  receiver  can  enforce  it.258 
Herein  lies  another  distinction  between  the  statutory  liability  of  a 
stockholder  and  his  ordinary  liability  for  unpaid  subscriptions. 

§  188.  How  statutory  liability  is  enforced — Judgment  and  execu- 
tion against  the  corporation. — In  most  of  the  states,  special  provision 
is  made  for  enforcing  this  liability,259  but  it  is  the  rule  in  many  juris- 
dictions that,  even  where  not  expressly  required  by  statute,  an  action 


253 1  Cook  Stock  and  Stockhold- 
ers (2ded.),  §  225. 

254  Coquard  v.  Prendergast,  35  Mo. 
App.   237.     An  assignee  of  a  judg- 
ment against  a  corporation,  in  order 
to     maintain    an     action     upon     it 
against  the  individual  stockholders, 
must  show  that  he  paid  a  valuable 
consideration  for  it.     Wilson  v.  St. 
Louis,  &c.  R.  Co.  120  Mo.  45,  25  S. 
W.  527,  759. 

255  Farnsworth  v.  Wood,  91  N.  Y. 
308;  note  to  Thompson  v.  Reno  Sav. 
Bank,  3  Am.  St.  797,  847;   Hicks  v. 
Burns,  38  N.  H.  141. 

256Umsted  v.  Buskirk,  17  Ohio  St. 
113;  Liberty,  &c.  Ass'n  v.  Watkins, 
70  Mo.  13. 

257  Wright  v.  McCormack,  17  Ohio 
St.  86,  95;   Dutcher  v.  Marine  Nat. 
Bank,  12  Blatch.  (TJ.  S.)   435;  Run- 
ner v.  Dwiggins,  147  Ind.  238,  46  N. 
E.  580,  36  L.  R.  A.  645. 

258  Billings  v.  Robinson,  94  N.  Y. 
415;   Arenz  v.  Weir,  89  111.  25;   Ja- 
cobson  v.  Allen,  20  Blatch.    (U.  S.) 
525,  12  Fed.  454.    Unless,  of  course, 


the  receiver  is  vested  with  that 
right  by  statute.  Walker  v.  Crain, 
17  Barb.  (N.  Y.)  119;  Richmond 
v.  Irons,  121  U.  S.  27,  7  Supt.  Ct. 
788;  Kirtley  v.  Holmes,  107  Fed. 
1,  46  C.  C.  A.  102,  52  L.  R.  A.  738, 
holding  that  a  receiver  might  en- 
force the  statutory  liability. 

25SStimson  v.  Am.  Stat.  Law 
(1892),  §  8143;  note  to  Thompson 
v.  Reno  Sav.  Bank,  3  Am.  St.  797, 
854.  If  no  remedy  is  provided  and 
the  statute  simply  affirms  the  lia- 
bility of  stockholders  for  unpaid 
subscriptions,  the  usual  remedy  in 
equity  is  the  proper  one.  But  if  a 
new  liability  is  imposed  upon  the 
stockholders  severally,  the  creditor's 
remedy  may  be  either  at  law  or  in 
equity,  according  to  the  circum- 
stances of  the  case,  and  the  nature 
of  the  relief  that  should  be  granted. 
For  authorities  upon  these  propo- 
sitions, and  upon  the  subject  of  par- 
ties in  such  cases,  see  the  exhaustive 
note  to  Thompson  v.  Reno  Sav. 
Bank,  3  Am.  St.  797,  855,  858. 


287       PRIORITY   AMONG   CREDITORS FORUM CONTRIBUTION.       [§    189 


for  this  cause  must  be  preceded  by  a  judgment  and  an  execution  re- 
turned unsatisfied.260  In  other  jurisdictions,  however,  it  is  held  that 
the  statutory  liability  of  stockholders  is  primary  and  may  be  enforced, 
without  first  obtaining  a  judgment  against  the  corporation.261  Such  a 
judgment  is  generally  held  conclusive  as  to  the  amount  and  validity 
of  the  creditor's  claim  in  the  same  manner  as  when  the  suit  is  to 
enforce  payment  of  balances  due  on  subscriptions.262 

§  189.  Priority  among  creditors — Forum — Contribution. — A  judg- 
ment creditor  of  an  insolvent  corporation  who  first  moves  to  charge 
a  stockholder  on  his  liability  under  the  statute,  acquires  the  priority 
of  right  to  recover  against  such  stockholder,  with  which  a  creditor 
subsequently  moving  cannot  rightfully  interfere.263  The  courts  of 
another  state  in  which  a  part  of  the  stockholders  may  reside,  will  gen- 
erally enforce  a  liability  imposed  by  statute  or  charter,  for  contract 
debts  of  the  company,264  though  they  will  not  enforce  penalties  pre- 


260  Mean's  Appeal,  85  Pa.  St.  75; 
Bayliss  v.  Swift,  40  Iowa  648;  Lane 
v.  Harris,  16  Ga.  217;  Drinkwater 
v.  Portland,  &c.  R.  Co.  18  Me.  35; 
Wright  v.  McCormack,  17  Ohio  St. 
86;  note  to  Prince  v.  Lynch,  99  Am. 
Dec.  427,  434;  2  Morawetz  Corp. 
§  883;  Cook  Stock  and  Stockhold- 
ers, §  221.  See,  also,  Globe  Pub.  Co. 
v.  State  Bank,  41  Neb.  175,  59  N.  W. 
683,  27  L.  R.  A.  854,  10  Lewis  Am. 
R.  &  Corp.  589;  Swan  Land,  &c.  Co. 
v.  Frank,  148  U.  S.  603,  13  Sup.  Ct. 
691. 

261Spence  v.  Shapard,  57  Ala.  598; 
Davidson  v.  Rankin,  34  Cal.  503; 
Queenan  v.  Palmer,  117  111.  619,  629; 
Todhunter  v.  Randall,  29  Ind.  275; 
McMahon  v.  Macy,  51  N.  Y.  155,  160; 
Sleeper  v.  Goodwin,  67  Wis.  577,  586. 
Compare  Marshall  v.  Harris,  55 
Iowa  182,  with  the  Iowa  case  cited 
in  last  note,  and  Harper  v.  Union, 
&c.  Co.  100  111.  225,  with  Illinois  case 
herein  cited.  See,  also,  26  Am.  & 
Eng.  Ency.  of  Law  (2d  ed.)  1047. 
See,  also,  as  to  when  prior  proceed- 
ings against  the  corporation  are  ex- 


cused as  useless.  Paine  v.  Stewart, 
33  Conn.  516;  Hodges  v.  Silver,  &c. 
Co.  9  Ore.  200;  Fourth  Nat.  Bank 
v.  Francklyn,  120  U.  S.  747,  7  Sup. 
Ct.  757,  30  L.  Ed.  825;  Shellington 
v.  Howland,  53  N.  Y.  371;  State 
Sav.  Assn.  v.  Kellogg,  52  Mo.  583. 

282  See  note  to  Thompson  v.  Reno 
Sav.  Bank,  3  Am.  St.  797,  858.     In 
Ohio,  suits  against  the  stockholder 
directly    are    permitted,    and    it    is 
held  that  he  can  interpose  only  such 
defenses  to  them  as  are  available  to 
the    corporation.      Railroad    Co.    v. 
Smith,  48  Ohio  St.  219. 

283  Wells  v.  Robb,  43  Kans.  201,  23 
Pac.  148;  Cole  v.  Butler,  43  Me.  401; 
Lowry  v.  Parsons,  52  Ga.  356;  The- 
bus  v.  Smiley,  110  111.  316.   But  see 
Chicago  v.  Hall,  103  111.  342;   State 
Sav.  Assn.  v.  Kellogg,  63  Mo.  540. 

264  Corning  v.  McCullough,  1  N.  Y. 
'47;  Lowry  v.  Inman,  46  N.  Y.  119, 
127;  Woods  v.  Wicks,  7  Lea  (Tenn.) 
40;  Aultman's  Appeal,  98  Pa.  St. 
505;  Queenan  v.  Palmer,  117  111. 
619;  Manville  v.  Edgar,  8  Mo.  App. 
324;  Sackett's  Harbor  Bank  v. 


190] 


STOCKHOLDERS. 


288 


scribed  for  failures  to  obey  state  regulations.265  This  liability  may  be 
enforced  against  the  estate  of  a  deceased  shareholder.260  Stockholders 
are  usually  entitled,  in  equity,  to  contribution  from  other  shareholders, 
as  in  the  case  of  suits  for  unpaid  subscriptions.267 

§  190.  When  stockholders  are  liable  as  partners. — Stockholders 
may  generally  be  held  liable  as  partners  for  the  payment  of  debts  in- 
curred by  the  company,  if  it  has  proceeded  to  do  business  without 
taking  the  requisite  steps  to  become  legally  incorporated.268  And 
where  no  such  business  undertaken  is  authorized  by  the  act  under 
which  incorporation  is  attempted,  a  partnership  liability  will  be  in- 
curred by  all  who  become  members,269  as  it  also  is,  according  to  some 


Blake,  3  Rich.  Eq.  (S.  C.)  225; 
Flash  v.  Conn,  16  Fla.  428,  26  Am. 
R.  721,  109  U.  S.  371,  3  Sup.  Ct.  263; 
Howell  v.  Manglesdorf,  33  Kans. 
194,  199;  Aldrich  v.  Anchor  Coal, 
&c.  Co.  24  Oreg.  32,  32  Pac.  756,  41 
Am.  St.  831.  But  see,  where  special 
remedy  is  provided,  Fowler  v.  Lam- 
son,  146  111.  472,  34  N.  E.  932,  37  Am. 
St.  163,  and  note. 

285  Derrickson  v.  Smith,  27  N.  J. 
Law  166;  Lowry  v.  Inman,  46  N.  Y. 
119;  Sayles  v.  Brown,  40  Fed.  8.  See, 
generally,  as  to  enforcement  of  stat- 
utory liability,  conflict  of  laws  and 
what  law  governs  in  such  cases,  note 
in  37  Am.  St.  168-174;  and  note  in 
93  Am.  St.  393,  394;  also  Blair  v. 
Newbegin,  65  Ohio  St.  425,  62  N.  E. 
1040, -58  L.  R.  A.  644,  and  note. 

266  Richmond  v.  Irons,  121  U.  S. 
27,  7  Sup.  Ct.  788;  Chase  v.  Lord,  77 
N.  Y.  1;  Manville  v.  Edgar,  8  Mo. 
App.  324. 

207 1  Cook  Stock  and  Stockholders, 
§  227;  note  to  Thompson  v.  Reno 
Sav.  Bank,  3  Am.  St.  797,  870;  Tay- 
lor Priv.  Corp.  §  783. 

208  Kaiser  v.  Lawrence  Sav.  Bank, 
56  Iowa  104,  8  N.  W.  772,  41  Am.  R. 
85;  Wechselberg  v.  Flour  City  Nat. 
Bank,  64  Fed.  90;  Hurt  v.  Salisbury, 
55  Mo.  310;  Pettis  v.  Atkins,  60  111. 
454;  Fuller  v.  Rowe,  57  N.  Y.  23; 


Walton  v.  Oliver,  49  Kans.  107,  30 
Pac.  172,  33  Am.  St.  355;  Unity  Ins. 
Co.  v.  Cram,  43  N.  H.  636;  Smith  v. 
Colorado,  &c.  Co.  14  Fed.  399;  Har- 
ris v.  McGregor,  29  Cal.  124;  Midill 
v.  Collier,  16  Ohio  St.  599,  613,  47 
Am.  Dec.  387;  Coleman  v.  Coleman, 
78  Ind.  344;  Martin  v.  Fewell,  79 
Mo.  401;  Western,  &c.  T.  Co.  v. 
Union  Pacific  R.  Co.  3  Fed.  721; 
Field  v.  Cooks,  16  La.  Ann.  153; 
Bigelow  v.  Gregory,  73  111.  197 ;  Gar- 
nett  v.  Richardson,  35  Ark.  144.  But, 
see  Humphrey  v.  Mooney,  5  Colo. 
282;  Planters',  &c.  Bank  v.  Padgett, 
69  Ga.  159;  Merriman  v.  Magiveny, 
12  Heisk.  (Tenn.)  494;  Merchants', 
&c.  Bank  v.  Stone,  38  Mich.  779; 
Whitney  v.  Hyman,  101  U.  S.  392. 

209 1  Cook  Stock  and  Stockholders, 
§  236;  Vredenburg  v.  Behan,  33  La. 
Ann.  627.  But  see  Mandeville  v. 
Courtwright,  126  Fed.  1007.  So 
where  the  law  under  which  incor- 
poration is  attempted  is  unconstitu- 
tional. Eaton  v.  Walker,  76  Mich. 
579,  43  N.  W.  638,  6  L.  R.  A.  102. 
See,  also,  Chenango  Bridge  Co.  v. 
Paige,  83  N.  Y.  178,  190,  38  Am.  R. 
407;  Williams  v.  Bank,  7  Wend.  (N. 
Y.)  541;  Kennedy  v.  McLellan,  76 
Mich.  598,  43  N.  W.  638;  Heaston  v. 
Cincinnati,  &c.  R.  Co.  16  Ind.  275, 
278,  79  Am.  Dec.  430. 


289 


WHEN   STOCKHOLDERS   ARE   LIABLE   AS   PARTNERS. 


[§  190 


authorities,  where  a  corporation  is  formed  to  do  business  only  outside 
of  the  state  creating  it,  the  formation  of  such  a  corporation  being  held 
to  be  a  fraud  upon  the  law.270  But  the  weight  of  authority  seems  to 
be  opposed  to  this  latter  rule.271  What  omissions  in  the  articles  will 
render  the  incorporation  so  incomplete  as  to  fix  a  partnership  liability 
upon  the  members  may  depend  largely  upon  the  language  of  the 
statute  under  which  incorporation  is  attempted ;  for  where  there  is  a 
valid  law  authorizing  the  incorporation  a  failure  to  observe  imma- 
terial provisions,272  or  to  perform  acts  required  after  the  incorpora- 
tion is  effected  will  not,  as  a  rule,  vitiate  the  organization,273  and 


'""Land  Grant  R.  &c.  Co.  v.  Coffey 
Co.  6  Kans.  245,  and  Opinion  of 
Atty.  Gen.  of  Texas  (1887),  2  R.  & 
Corp.  L.  J.  433,  where  the  compa- 
nies were  only  authorized  to  trans- 
act business  outside  the  sovereignty 
creating  them.  Hill  v.  Beach,  12  N. 
J.  Eq.  31;  Kruse  v.  Dusenbury,  19 
Wkly.  Dig.  (N.  Y.  C.  P.)  201;  Mont- 
gomery v.  Forbes,  148  Mass.  249,  19 
N.  E.  342,  where  regularly  organized 
corporations  had  places  of  business 
only  outside  of  the  states  by  which 
they  were  created.  See,  also,  Won- 
derly  v.  Booth,  36  N.  J.  L.  250;  Coler 
v.  Tacoma,  64  N.  J.  117,  53  Atl.  680; 
State  v.  Park,  &c.  Co.  58  Minn.  330, 
59  N.  W.  1048,  49  Am.  St.  516;  Duke 
v.  Taylor,  37  Fla.  64,  19  So.  172,  31 
L.  R.  A.  484,  53  Am.  St.  232;  Mont- 
gomery v.  Forbes,  148  Mass.  249,  19 
N.  E.  342. 

271  Canada  Southern  R.  Co.  v.  Geb- 
Tiard,  109  U.  S.  527,  3  Sup.  Ct.  363; 
Oregonian  R.  Co.  v.  Oregon  R.  &c. 
Co.  23  Fed.  232;  New  York,  &c.  R. 
Co.,  In  re,  35  Hun  (N.  Y.)  220;  Dem- 
arest  v.  Flack,  128  N.  Y.  205,  28  N. 
E.  645,  13  L.  R.  A.  854;  Pennsyl- 
vania Co.  v.  Sloan,  1  Bradw.  (111.) 
364;  Empire  Mills  v.  Aston  (Tex. 
Civ.  App.),  15  S.  W.  200,  12  L.  R. 
A.  366,  and  note.  But  see  Northern 
Securities  Co.  v.  United  States,  193 
TJ.  S.  197,  24  Sup.  Ct.  436;  Second 
Nat.  Bank  v.  Hall,  35  Ohio  St.  158, 
ELL.  RAILROADS — 19 


where  the  stockholders  escaped  a 
personal  liability  by  organizing  un- 
der the  laws  of  an  adjoining  state. 
Bateman  v.  Service,  L.  R.  6  App. 
Cases  386.  As  to  tramp  corpora- 
tions, generally,  see  2  Purdy's  Beach 
Priv.  Corp.  §§  598,  788. 

^McClinch  v.  Sturgis,  72  Me.  288, 
where  notice  of  the  meeting  to  or- 
ganize was  not  sent  to  all  the  mem- 
bers. Judah  v.  American,  &c.  Co.  4 
Ind.  333,  where  the  subscriptions 
were  taken  and  notice  of  the  stock- 
holders' meeting  given  in  a  different 
manner  from  that  provided  in  the 
act.  Stout  v.  Zulick,  46  N.  J.  L.  599, 
7  Atl.  362,  where  an  immaterial  part 
of  the  certificate  of  acknowledgment 
was  omitted.  Russell  v.  McLellan, 
14  Pick.  (Mass.)  63;  Holmes  v.  Gil- 
liland,  41  Barb.  (N.  Y.)  568,  where 
no  notice  was  given  to  the  com- 
munity by  publication.  Granby,  &c. 
Co.  v.  Richards,  95  Mo.  106,  8  S.  W. 
246,  where  the  articles  were  not 
filed  with  the  county  clerk.  See, 
generally,  2  Purdy's  Beach  Priv. 
Corp.  §  598.  For  omissions  held  ma- 
terial, see  note  268,  supra. 

273  Trowbridge  v.  Scudder,  11 
Cush.  (Mass.)  83,  where  the  princi- 
pal business  for  which  the  corpora- 
tion was  organized  was  never  be- 
gun. Langan  v.  Iowa,  &c.  Construc- 
tion Co.  49  Iowa  317,  where  the  com- 
pany had  been  guilty  of  ultra  vires 


190] 


STOCKHOLDERS. 


290 


different  preliminary  acts  are  made  essential  in  different  statutes.274 
Xor  is  it  true  in  every  case  that  the  failure  to  fully  comply  with  the 
statute  will  make  the  stockholders  liable  as  partners.  The  doctrine  of 
estoppel  should  not  be  overlooked.  In  accordance  with  that  doctrine 
it  is  fairly  well  settled  that  where  there  is  a  valid  law  providing  for 
incorporation  and  an  attempt  has  been  made  in  good  faith  to  incorpo- 
rate under,  such  law  for  the  purposes  therein  specified,  and  to  carry 
on  the  authorized  business  as  a  corporation,  one  who  deals  with  it  as 
such  is  estopped  from  questioning  the  corporate  existence  and  cannot 
hold  the  incorporators  liable  as  partners,  notwithstanding  the  fact 
that  the  statutory  formalities  may  not  have  been  fully  complied  with.275 
A  stockholder,  if  held  to  the  liability  of  a  partner,  will,  ordinarily, 
be  bound  only  as  a  partner  for  the  debts  contracted  while  he  was  a 
member  of  the  company.276  A  stockholder  does  not  become  liable  as 


and  fraudulent  acts.  First  Nat. 
Bank  v.  Davies,  43  Iowa  424,  where 
the  articles  were  to  be  filed  within 
ninety  days.  But  in  the  recent  case 
of  Cincinnati  Cooperage  Co.  v.  Bate, 
96  Ky.  356,  26  S.  W.  538,  49  Am.  St. 
300,  10  Lewis'  Am.  R.  &  Corp.  653, 
it  is  held  that  changing  the  name  of 
a  corporation  without  complying 
with  the  statute  is  to  destroy  the 
identity  of  the  corporation  and 
amounts  to  a  virtual  abandonment 
of  it,  so  as  to  render  the  stockholder 
liable  as  partner.  The  soundness  of 
this  decision,  however,  seems  to  us 
to  be  doubtful,  and  such,  we  under- 
stand, is  the  opinion  of  Mr.  Lewis 
as  indicated  in  the  note  in  10  Lew- 
is' Am.  R.  &  Corp.  665  et  seq. 

274  Stimson  Am.  Stat.  Law,  §§  8022- 
8024,  8522,  8523. 

275  Vanneman  v.  Young,  52  N.  J.  L. 
403,  20  Atl.  53,  3  Lewis'  Am.  R.  & 
Corp.  660,  and  note;   Gartside  Coal 
Co.  v.  Maxwell,  22  Fed.  197;    Alle- 
gheny Nat.  Bank  v.  Bailey,  147  Pa. 
St.  Ill,  23  Atl.  439;  American  Salt 
Co.   v.   Heidenheimer,   80   Tex.   344, 
15  S.  W.  1038,  26  Am.  St.  743;  Bush- 
nell  v.  Consolidated,  &c.  Co.  138  111. 
67,  27  N.  E.  596;  Lamed  v.  Beal,  65 


N.  H.  184,  23  Atl.  149;  Walton  v. 
Riley,  85  Ky.  413;  Whitney  v.  Wy- 
man,  101  U.  S.  392;  Baker  v.  Neff, 
73  Ind.  68;  Williamson  v.  Kokomo, 
&c.  Co.  89  Ind.  389;  Crowder  v. 
Sullivan,  128  Ind.  486,  28  N.  E. 
94;  Snyder  v.  Studebaker,  19  Ind. 
462,  81  Am.  Dec.  415;  Snider's  Sons 
Co.  v.  Troy,  91  Ala.  224,  8  So.  754, 
11  L.  R.  A.  515,  24  Am.  St.  887; 
Rutherford  v.  Hill,  22  Oreg.  218,  29 
Pac.  546,  17  L.  R.  A.  549  n,  29  Am. 
St.  596  n;  Humphreys  v.  Mooney,  5 
Colo.  282;  Second  Nat.  Bank  v.  Hall, 
35  Ohio  St.  158;  First  Nat.  Bank  v. 
Almy,  117  Mass.  476;  Laflin,  &c.  Co. 
v.  Sinsheimer,  46  Md.  315,  24  Am. 
R.  522;  Finnegan  v.  Noerenberg,  52 
Minn.  239,  53  N.  W.  1150,  18  L.  R.  A. 
778,  38  Am.  St.  552;  Globe  Pub.  Co. 
v.  State  Bank,  41  Neb.  175,  59  N.  W. 
683,  27  L.  R.  A.  854;  Duke  v.  Taylor, 
(Fla.)  19  So.  172,  175,  10  Lewis' 
Am.  R.  &  Corp.  589. 

276  Fuller  v.  Rowe,  57  N.  Y.  23.  But 
where  he  becomes  a  member  by 
transfer  of  another's  interest,  he 
may  be  held  to  have  assumed  his 
grantor's  liability  for  precedent 
debts.  Taylor  v.  Ifill,  1  N.  R.  566,  8 
L.  T.  R.  (N.  S.)  148.  It  has  been 


291  WHEX   STOCKHOLDERS   ARE   LIABLE   AS   PARTNERS.         [§    190 

a  partner  because  he  falsely  represents  that  the  corporation  is  solv- 
ent,277 and  his  promise  to  pay  the  corporate  debts  is  a  promise  to  an- 
swer for  the  debts  of  another  within  the  statute  of  frauds.278  Where 
persons  purchase  a  railroad  at  execution  sale,  it  has  been  held  that 
they  acquire  none  of  the  special  privileges  of  individual  stockholders 
in  the  old  corporation,  and,  in  such  a  case,  if  they  continue  to  operate 
it  without  forming  a  new  corporation,  they  will  incur  partnership 
liabilities  on  account  thereof.279 

held,  however,  that  one  who  becomes  175.     But   he   may   render   himself 

a  member  after  the   attempted   or-  liable   in   damages   for   false   repre- 

ganization,  and  takes  no  part  in  the  sentations. 

management  of  the  company  is  not  as  Trustees,  &c.  v.  Flint,  13  Mete, 

liable  for  its  debts  because  of  im-  (Mass.)  539. 

perfect  incorporation.    Stafford  Nat.  ^  Chaffe  v.  Ludeling,  27  La.  Ann. 

Bank  v.  Palmer,  47  Conn.  443.  607. 
277  Searight  v.  Payne,  2  Tenn.  Ch. 


CHAPTER  X. 


BY-LAWS,   RULES  AND  REGULATIONS. 


Sec. 

191.  Power  to  make  by-laws. 

192.  Who  are  affected  by  corporate 

by-laws. 

193.  Limits  of  power  to  make  by- 

1  a  w  s  —  Reasonableness      a 
question  for  the  court. 

194.  Power  to  make  by-laws  resides 

in    stockholders — When    di- 
rectors may  make. 

195.  Formalities     of     enactment — 

Proof. 

196.  Amendment  and  repeal. 

197.  Enforcement  of  by-laws. 

198.  Rules  and  regulations  in  Eng- 

land. 

199.  Distinction     between     by-laws 

and  rules  and  regulations — 


Sec. 

Right  of  railroad  company 
to  make  rules  and  regula- 
tions. 

200.  Examples  of  rules  and  regula- 

tions which  railroad  com- 
panies may  make — Rules  af- 
fecting passengers. 

200a.  Rules  affecting  shippers  and 
freight. 

200b.  Rules  affecting  employes. 

201.  Enforcement  of  rules — Penal- 

ties. 

202.  Reasonableness    of    rules  — 

When  a  question  of  fact  and' 
when  a  question  of  law. 
202a.  Failure   to   enforce   rules — 
Waiver  or  abrogation. 


§  191.  Power  to  make  by-laws. — The  law  implies  from  the  act  of 
creating  a  corporation  a  grant  of  power  to  make  all  necessary  by-laws, 
or  private  statutes  for  the  government  of  itself  and  its  members, 
officers  and  agents.1  This  power  is,  however,  in  most  cases,  specially 
granted  to  railroad  companies  and  other  corporations  either  by  a  pro- 
vision of  the  company's  charter  or  by  general  statute.2  In  many 
cases  the  power  is  granted  to  make  by-laws  for  certain  specified  pur- 
poses,3 and  where  this  is  so,  legislation  upon  other  subjects  is  usually 
considered  as  prohibited  by  implication.4  The  corporation  cannot  pass 


1  Drake  v.   Hudson  River  R.   Co. 
7  Barb.   (N.  Y.)  508;  State  v.  Over- 
ton,   24   N.  J.  L.   435,   61  Am.   Dec. 
671;  Martin  v.  Nashville,  &c.  Ass'n, 
2  Cold.  (Tenn.)  418. 

2  They  may  make  all  by-laws  and 
regulations   for   their    own   govern- 
ment necessary  and  consistent  with 
the    constitution    and    laws    of    the 


state  and  with  their  own  charters. 
Stimson's  Am.  Stat.  (1892)  §§  8070, 
8537;  Angell  &  Ames  Corp.  (llth 
ed.)  §  325. 

8Stimson  Am.  Stat.  (1892),  §  8071. 

4  Child  v.  Hudson  Bay  Co.  2 
Peere  Wms.  207;  State  v.  Ferguson, 
33  N.  H.  424,  430;  Redfleld  Railways 
(6th  ed.)  83;  Angell  &  Ames  Corp. 


292 


293 


WHO  ARE  AFFECTED  BY  CORPORATE  BY-LAWS. 


[§  192 


any  by-law  inconsistent  with  its  charter,5  nor,  as  a  rule,  any  relating 
to  matters  outside  the  objects  for  which  it  was  incorporated,  unless 
power  to  do  so  is  expressly  conferred.6  The  usual  subjects  with  refer- 
ence to  which  corporations  ordinarily  have  power  to  make  by-laws  are 
such  as  relate  to  the  time  and  manner  of  calling  and  conducting  meet- 
ings of  the  stockholders,  or  of  the  directors,  the  number  of  each  re- 
quired to  form  a  quorum,  the  method  of  voting  proxies,  the  number 
of  shares  entitling  a  member  to  one  or  more  votes,  the  mode  of  enforc- 
ing forfeitures  of  stock  (where  no  mode  is  prescribed  by  statute),  the 
number  of  directors  and  other  officers,  and  the  mode  of  choosing  and 
compensating  them,  the  transfer  of  stock,  and  the  management  and 
disposition  of  the  corporate  property.7 

§  192.  Who  are  affected  by  corporate  by-laws. — Such  by-laws  are 
obligatory  only  upon  the  corporate  body,  its  members  and  agents,  and 
do  not,  as  a  rule,  affect  the  general  public.8  Herein,  as  we  shall  here- 


(llth  ed.)  §  325.  See,  also,  Taylor 
v.  Griswold,  14  N.  J.  L.  222,  27  Am. 
Dec.  33  n;  McCullough  v.  Annapolis 
R.  Co.  4  Gill  (Md.)  58;  Rex  v. 
Spencer,  3  Burr.  1827;  State  v. 
Mayor,  &c.  33  N.  J.  L.  57;  Ireland 
v.  Globe  Milling,  &c.  Co.  19  R.  I. 
180,  61  Am.  St.  756. 

B  Kennebec,  &c.  R.  Co.  v.  Kendall, 
31  Me.  470,  where  it  was  undertaken 
to  impose  a  personal  liability  for 
calls  not  imposed  by  the  charter. 
Carr  v.  St.  Louis,  9  Mo.  191,  where 
the  corporation  undertook  to  in- 
crease the  salaries  of  the  officers  be- 
yond what  the  charter  allowed.  Mc- 
Cullough v.  Annapolis  R.  Co.  4  Gill 
(Md.)  58,  where  the  right  of  an  of- 
ficer to  vote  was  restricted  to  a 
casting  vote  in  case  of  a  tie.  See, 
also,  1  Thomp.  Corp.  §  1011;  Amer- 
ican Legion  of  Honor  v.  Perry,  140 
Mass.  580,  5  N.  E.  634;  Kearney  v. 
Andrews,  10  N.  J.  Eq.  70;  Presby- 
terian, &c.  Fund  v.  Allen,  106  Ind. 
593,  7  N.  E.  317;  Durkee  v.  People, 
155  111.  354,  46  Am.  St.  340,  40  N.  E. 
626;  People  y.  Chicago,  &c.  Ex- 


change, 170  111.  556,  39  L.  R.  A.  373, 
62  Am.  St.  404,  48  N.  E.  1062; 
Steiner  v.  Steiner,  &c.  Co.  120  Ala. 
128,  26  So.  494. 

"Angell  &  Ames  Corp.  (llth  ed.) 
§  326. 

7Stimson's  Am.  Stat.  (1892) 
§  8071. 

8  Bank  of  Holly  Springs  v.  Pinson, 
58  Miss.  421,  38  Am.  R.  330;  Wait 
v.  Smith,  92  111.  385;  Walker  v.  Wil- 
mington, &c.  R.  Co.  26  S.  Car.  80, 
1  S.  E.  366;  Samuel  v.  Holladay,  1 
Woolw.  (U.  S.)  400.  They  bind 
only  members  and  officers  or  agents. 
Worcester  v.  Essex  Bridge  Co.  7 
Gray  (Mass.)  457;  Susquehanna 
Ins.  Co.  v.  Perrine,  7  Watts  &  S. 
(Pa.)  348;  Mechanics'  Bank  v. 
Smith,  19  Johns.  115;  Rathbun  v. 
Snow,  123  N.  Y.  343,  25  N.  E.  379, 
10  L.  R.  A.  355;  Palmyra  v.  Morton, 
•  25  Mo.  593;  Bank  of  Wilmington  v. 
Wollaston,  3  Harring.  (Del.)  90. 
But  see  Bocock  v.  Alleghany,  &c. 
Co.  82  Va.  913,  1  S.  E.  325,  3  Am.  R. 
128.  See,  also,  Moyei*  v.  East  Shore, 
&c.  Co.  25  L.  R.  A.  48,  and  note. 


BY-LAWS,   RULES   AND   REGULATIONS. 


after  show,  they  differ  from  rules  and  regulations  such  as  those  pro- 
mulgated by  common  carriers  to  govern  their  dealings  with  the  public. 
They  are  not  evidence  for  the  corporation  against  strangers  who  deal 
with  it,  unless  such  by-laws  are  brought  home  to  their  knowledge  and 
assented  to  by  them.9  But  the  members  of  the  company  are  affected 
by  all  binding  statutes  of  the  corporation  from  the  time  of  their  en- 
actment, without  any  formal  notice  of  their  existence.10 

§  193.  Limits  of  power  to  make  by-laws — Reasonableness  a  ques- 
tion for  the  court. — The  power  of  the  corporation  to  make  by-laws  is 
always  limited  by  the  requirement  that  they  must  not  be  inconsistent 
with  the  constitution  and  valid  statutes  of  the  United  States  or  of  the 
state  in  which  it  is  established  nor  with  the  general  policy  and  funda- 
mental principles  of  common  law  as  it  is  therein  accepted.11  Thus, 
it  was  held  in  a  recent  case  that  a  by-law  permitting  bondholders  to 
vote  for  directors  was  in  conflict  with  the  constitution  of. Illinois  and 
the  general  policy  of  the  state  and  therefore  void.12  The  rule  is  often 
stated  to  be  that  by-laws  must  be  reasonable13  and  not  opposed  to 
common  right.14  The  question  as  to  the  reasonableness  of  a  by-law 


"Smith  v.  North  Carolina  R.  Co. 
68  N.  C.  107;  Moyer  v.  East  Shore, 
&c.  Co.  41  S.  Car.  300,  19  S.  E.  651, 
44  Am.  St.  709,  25  L.  R.  A.  48,  and 
note.  See,  also,  1  Thomp.  Corp. 
§  942. 

10Woodfin  v.  Asheville,  &c.  Ins. 
Co.  6  Jones  Law  (N.  Car.)  558; 
Buffalo  v.  Webster,  10  Wend.  (N. 
Y.)  99;  Susquehanna,  &c.  Co.  v. 
Perrine,  7  Watts  &  S.  (Pa.)  348; 
Arapahoe,  &c.  Co.  v.  Stevens,  13 
Colo.  534,  22  Pac.  823;  Bauer  v.  Sam- 
son Lodge,  102  Ind.  262,  1  N.  E.  571; 
Frank  v.  Morrison,  58  Md.  423;  Hun- 
ter v.  Sun  Mutual,  &c.  Co.  26  La. 
Ann.  13. 

"Angell  &  Ames  on  Corp.  (llth 
ed.)  §  332  et  seq.;  Bullard  v.  Bank, 
18  Wall.  (U.  S.)  589;  State  v.  Cin- 
cinnati, 23  Ohio  St.  445;  Illinois 
Cent.  R.  Co.  v.  Bloomington,  76  111. 
447;  People  v.  Chicago,  &c.  Ex- 
change, 170  111.  556,  48  N.  E.  950,  62 
Am.  St.  404;  Kennebec,  &c.  R.  Co. 


v.  Kendall,  31  Me.  470;  State  v. 
Curtis,  9  Nev.  325;  Price  v.  Supreme 
Lodge,  68  Tex.  361,  4  S.  W.  633; 
Sayre  v.  Louisville,  &c.  Ass'n,  1  Duv. 
(Ky.)  143,  85  Am.  Dec.  613  n. 

"Durkee  v.  People,  155  111.  354, 
40  N.  E.  626,  46  Am.  St.  340.  See, 
also,  Brewster  v.  Hartley,  37  Cal.  15, 
99  Am.  Dec.  237. 

"Kent  v.  Quicksilver  Min.  Co.  78 
N.  Y.  159;  Kennebec,  &c.  R.  Co.  v. 
Kendall,  31  Me.  370;  Williams  v. 
Great  Western  R.  Co.  10  Exch.  15; 
Chandler  v.  Northern  Cross  R.  Co. 
18  111.  190;  American  Livestock  Co. 
v.  Chicago,  &c.  Exchange,  143  111. 
210,  32  N.  E.  274,  36  Am.  St.  385. 

"Hayden  v.  Noyes,  5  Conn.  391. 
But  see  Goddard  v.  Merchants'  Ex- 
change, 9  Mo.  App.  290.  By-laws 
which  are  vexatious,  unequal,  op- 
pressive, and  manifestly  detrimental 
to  the  interests  of  the  corporation 
are  void.  Gosling  v.  Veley,  12  Q.  B. 
328;  People  v.  Medical  Society,  24 


295 


POWER   TO    MAKE   BY-LAWS REASONABLENESS. 


[§  193 


is  for  the  court,  and  it  is  held  that  the  jury  cannot  hear  evidence  as 
to  its  effects  offered  in  proof  of  the  claim  that  it  is  unreasonable.15  A 
by-law  can  never  be  valid  where  it  impairs  the  obligation  of  a  con- 
tract/6 nor  where  it  amounts  to  a  retrospective  or  ex  post  facto  rule,17 
nor  where  it  deprives  the  holder  of  any  of  his  property  rights.18  The 
right  given  by  statute  to  vote  by  proxy  is  a  substantial  right  and  cannot 
be  taken  away,  or  even  materially  abridged,  by  any  corporate  by-law.19 
Neither  will  a  by-law  be  sustained  if,  under  the  guise  of  regulating 


Barb.     (N.     Y.)     570;     Chicago    v. 
Rumpff,  45  111.  90,  92  Am.  Dec.  196. 

15  Commonwealth  v.   Worcester,   3 
Pick.    (Mass.)    462;    Morris,   &c.   R. 
Co.  v.  Ayres,  29  N.  J.  L.  393,  80  Am. 
Dec.   215;    Illinois   Cent.   R.   Co.   v. 
Whittemore,  43  111.  420;  Merz  v.  Mis- 
souri Pac.  R.  Co.  14  Mo.  App.  459; 
People  v.  Throop,  12  Wend.  (N.  Y.) 
182;   1  Elliott's  Gen.  Pr.  §  436.     Its 
unreasonableness    must   be    demon- 
strated.    Hibernia,  &c.  Co.  v.   Har- 
rison,   93    Pa.    St.    264;    Paxon    v. 
Sweet,  13  N.  J.  L.    (1  Green)    196. 
But  see  Day  v.  Owen,  5  Mich.  520, 
holding  that  the  reasonableness  of 
a  by-law  should  be-  left  to  the  jury 
under  proper  instructions  from  the 
court.     See,  also,  Pittsburgh,  &c.  R. 
Co.  v.  Lyon,  123  Pa.  St.  140,  16  Atl. 
607,   10   Am.   St.   517.     Post,    §   202. 
See,  generally,  Wuerfler  v.  Trustees, 
&c.   116   Wis.   19,   92   N.  W.  433,   96 
Am.  St.  94;  note  in  43  Am.  St.  147, 
153;   Carney  v.  New  York,  &c.  Ins. 
Co.  162  N.  Y.  453,  57  N.  E.  78,  49  L. 
R.  A.  471,  76  Am.  St.  347.. 

16  Such  a  by-law  would  be  contrary 
to   the   constitution    of   the    United 
States.     U.  S.  Const.  Art.  1,  §  10; 
Stuyvesant  v.  New  York,  7  Cowen 
(N.  Y.)    588;   Kennebec,  &c.  R.  Co. 
v.  Kendall,  31  Me.  470.     See,  also, 
Flint  v.  Pierce,  99  Mass.  68,  96  Am. 
Dec.  685,  691;   note  to  Freeland  v. 
McCullough,  43  Am.  Dec.  694;  Berg- 
man v.  St.  Paul,  &c.  Ass'n,  29  Minn. 
275;    Northford,   &c.   Ass'n   v.   Per- 


kins, 93  Me.  235,  44  Atl.  893,  74  Am. 
St.  342. 

17  U.  S.  Const,  Art.  1,  §  10;  How- 
ard v.  Savannah,  T.  Charlt.  (Ga.) 
173  (holding  a  municipal  by-law 
void  at  common  law  for  this  rea- 
son); People  v.  Fire  Department,  31 
Mich.  458;  Great  Falls  Ins.  Co.  v. 
Harvey,  45  N.  H.  292. 

"Kent  v.  Quicksilver  Min.  Co.  78 
N.  Y.  159,  where  preferred  stock 
had  been  issued.  Taylor  v.  Gris- 
wold,  14  N.  J.  L.  222,  where  an  at- 
tempt was  made  to  give  a  vote  for 
each  share  of  stock,  and  so  deprive 
the  small  stockholders  of  an  equal 
voice  in  the  management  of  its  af- 
fairs. See  Stimson's  Am.  Stat. 
(1886)  §§  91,  92  and  93;  Gray  v. 
Portland  Bank,  3  Mass.  364,  3  Am. 
Dec.  156;  People  v.  Crockett,  9  Gal. 
112;  Budd  v.  Multnomah  St.  R.  Co. 
15  Oreg.  413,  3  Am.  St.  169,  15 
Pac.  659.  Long  Island  R.  Co.,  In  re, 
19  Wend.  (N.  Y.)  37,  32  Am.  Dec. 
429.  The  last  two  cases  hold  a  by- 
law forfeiting  shares  invalid.  See 
Ireland  v.  Globe  Milling  Co.  21  R.  I. 
9,  79  Am.  St.  769;  People's  Home 
Sav.  Bank  v.  Superior  Court,  104 
Cal.  649,  38  Pac.  452,  29  L.  R.  A. 
844  n,  43  Am.  St.  147,  153,  and  note. 
'  19  People's  Home  Sav.  Bank  v.  Su- 
perior Court,  104  Cal.  649,  38  Pac. 
452,  29  L.  R.  A.  844  n,  43  Am.  St. 
147;  Matter  of  Lighthall  Mfg.  Co. 
47  Hun  (N.  Y.)  258. 


194] 


BY-LAWS,   RULES   AND   REGULATIONS. 


296 


the  mode  of  transfer,  it  unreasonably  restricts  the  power  to  transfer 
shares;20  or  if  it  forbids  the  member  to  seek  legal  redress  in  the 
courts;21  for  such  by-laws  would  attack  rights  with  which  the  states 
themselves  are  prohibited  from  interfering,22  and  a  corporation  can- 
not, under  a  grant  of  power  from  a  state,  do  what  the  state  itself  has 
no  power  to  do.  And  so  the  repeal  of  a  by-law  cannot  divest  rights 
acquired  under  it  while  it  continued  in  force.23  If  £he  by-law  be 
separable  in  its  character,  valid  provisions  contained  in  it  may  stand, 
although  it  contains  others  which  are  void.24 

§  194.  Power  to  make  by-laws  resides  in  stockholders — When  di- 
rectors may  make. — The  power  to  make  by-laws  resides  in  the  mem- 
bers of  the  corporation  at  large,  where  there  is  no  law  or  valid  usage 
to  the  contrary.25  But  it  is  frequently  provided  by  charter26  or  by 
general  statute27  that  this  power  shall  be  exercised  by  the  directors; 
and  where  there  is  no  provision  on  the  subject  the  stockholders  may 
delegate  to  the  directors  authority  to  make  all  necessary  by-laws.28 

§  195.  Formalities  of  enactment — Proof. — By-laws  are  not  gener- 
ally required  in  this  country  to  be  enacted  or  promulgated  in  any  par- 
ticular form,  but  only  to  be  enacted  at  a  legal  meeting  of  the  corpora- 
tion.29 And  it  has  been  held  that  the  jury  may  find  a  by-law,  its  terms 


20  Sargent  v.  Franklin  Ins.  Co.  8 
Pick.  (Mass.)  90;  Moore  v.  Bank  of 
Commerce,    52    Mo.    377;    Farmers', 
&c.  Bank  v.  Wasson,  48  Iowa  336,  30 
Am.  R.  398. 

21  Amesbury  v.  Bowditch,  &c.  Co. 
6  Gray  (Mass.)  596;  Bauer  v.  Samp- 
son Lodge,  102  Ind.  262,  1  N.  E.  571, 
and  authorities  there  cited;   Angell 
&  Ames  on  Corp.  (llth  ed.)  §  341. 

22  U.  S.  Const.,  Art.  1,  §  10. 

23  Kent  v.  Quicksilver  Min.  Co.  78 
N.  Y.  159,  182.     See,  also,  Wist  v. 
Grand  Lodge,  22  Oreg.  271,  29  Pac. 
610,  29  Am.  St.  603;  Supreme  Lodge 
K.   P.   v.   Knight,    117    Ind.   489,   20 
N.  E.  479,  3  L.  R.  A.  409  n;   note 
in  43  Am.  St.  157,  158. 

24  Amesbury  v.  Bowditch,  &c.  Ins. 
Co.  6  Gray  (Mass.)  596;  Shelton  v. 
Mayor,    30    Ala.    540,    68    Am.    Dec. 
143;   Rogers  v.  Jones,  1  Wend.   (N. 
Y.)   237,  19  Am.  Dec.  493.     But  not 


if  the  by-law  must  be  taken  as  an 
entirety  so  that  the  invalid  part 
vitiates  the  whole.  State  v.  Curtis, 
9  Nev.  325. 

25  Morton  G.  R.  Co.  v.  Wysong,  51 
Ind.  4,  12;  Martin  v.  Nashville,  &c. 
Ass'n,  2  Coldw.   (Tenn.)   418;   Bank 
of  Holly  Springs  v.  Pinson,  58  Miss. 
421,  38  Am.  R.  330;  Angell  &  Ames 
on  Corp.  (llth  ed.)  §  327. 

26  See  Union  Bank  of  Maryland  v. 
Ridgely,  1  Harris  &  G.   (Md.)    324. 
and  Fairfield  Turnp.  Co.  v.  Thorp, 
13  Conn.  173. 

"Stimson's  Am.  St.  (1892) 
§§  8073,  8537. 

28  State  v.  Overton,  24  N.  J.  L. 
435;  Willcocks,  Ex  parte,  7  Cow.  (N. 
Y.)  402,  17  Am.  Dec.  525;  Cahill  v. 
Kalamazoo  Mut.  Ins.  Co.  2  Doug. 
(Mich.)  124,  43  Am.  Dec.  457. 

29 1  Redfield  on  Railways  (5th. 
ed.),  96.  But  the  written  assent  of 


297  AMENDMENT  AND  EEPEAL.  [§196 

and  adoption,  from  the  usage  of  the  corporation,  in  the  absence  of 
other  evidence,  no  particular  form  of  adoption  being  prescribed,30 
and  it  being  shown  that  no  record  evidence  of  the  adoption  of  such 
by-laws  is  in  existence.  But,  in  general,  it  is  necessary,  in  order  to 
prove  what  they  are,  that  the  by-laws  themselves  shall  be  produced, 
and  where  such  is  the  case  parol  proof  of  their  contents  by  an  officer 
of  the  corporation  is  insufficient.31  Where  the  charter  or  a  general 
statute32  prescribes  .the  mode  in  which  by-laws  shall  be  made  and 
adopted  in  order  that  they  may  be  valid,  that  mode  must  be  pur- 
sued.33 Thus,  .in  England,  by-laws  are  generally  required  to  be  made 
under  corporate  seal,34  and  in  California  and  other  states  which  fol- 
low its  code,  all  by-laws  adopted  must  be  certified  by  a  majority  of 
the  directors  and  by  the  secretary  of  the  corporation,  and  copied  in  a 
legible  hand  in  the  "book  of  by-laws"  to  be  kept  in  the  corporate  office 
for  public  inspection ;  and  no  by-law  shall  take  effect  until  so  copied.35 
When  the  books  of  the  corporation,  in  which  it  is  proved  that  the  by- 
laws of  the  corporation  are  registered,  are  produced,  they  are  held  to 
be  evidence  of  the  existence  and  terms  of  such  by-laws  in  all  courts 
of  justice.36 

§  196.  Amendment  and  repeal. — Of  course,  the  same  body  (whether 
stockholders  or  directors)  that  may  enact  by-laws  may  repeal  them  or 
enact  others  in  their  stead.37  And  it  seems  that  the  repeal  of  a  by-law 

the  holders  of  two-thirds  of  the  capi-  32  See     Stimson     Am.     St.     Law 

tal  stock  is  effectual  to  adopt  a  code  (1892),  §  8072. 

of   by-laws   without   a   meeting   for  38Angell  &  Ames  Corp.  (llth  ed.) 

that  purpose  in  several  of  the  states.  §    328;    Dunston    v.    Imperial    Gas 

Stimson's  Am.  St.  (1892)  §  8072.  Light  Co.  3  Barn.  &  Adol.  125. 

30  Union  Bank  v.  Ridgely,  1  Har-  34Angell  &  Ames  Corp.  (llth  ed.) 

ris  &  G.    (Md.)    324.     So  they  may  §  328. 

find  any  act  of  the  directors  to  have  **  Stimson  Am.  Stat.  §  8072. 
been  duly  performed  if  the  statute  '     36Case  of  Thetford,  1  Salk  192,  12 

does   not  prescribe   the   manner   of  Vin.  Abr.  90.     In  Maryland  a  copy 

its  performance  and  that  record  evi-  of  a  by-law  of  a  corporation  of  that 

dence  of  such  performance  shall  be  state,  under  the  corporate  seal,  and 

preserved.    Langsdale  v.  Bonton,  12  purporting  to  be  signed  by  the  presi- 

Ind.  467;    McCabe  v.  Board,  &c.  46  dent,  secretary,  or  treasurer  of  the 

Ind.    380.      See   Fairfield   T.    Co.   v.  corporation,    is    made    prima    facie 

Thorp,  13  Conn.  173.  evidence  of  its  adoption  and  terms. 

81Lumbard  v.  Aldrich,  8  N.  H.  31.  Pub.   Gen.   Laws  Md.   1888,  Ch.   23, 

See  also  3  Elliott  Evidence,  §  1941,  §  4. 

and  cases  cited  in  note  93.  3T  The  power  to  make  by-laws  gen- 


§    197]  BY-LAWS,   RULES   AND   REGULATIONS.  298 

may  be  proved  by  showing  a  course  of  conduct  inconsistent  therewith 
in  a  manner  similar  to  that  by  which  its  adoption  is  shown  by  usage.38 
So,  of  course,  amendments  may  be  made  in  the  by-laws.39  But  by-laws 
upon  the  faith  of  which  and  under  which  vested  rights  have  been  ac- 
quired by  a  member  cannot  be  so  amended  or  repealed  as  to  impair 
such  rights.40 

§  197.  Enforcement  of  by-laws. — The  power  to  make  by-laws 
necessarily  implies  the  power  to  enforce  them  by  pecuniary  penalties, 
competent  and  proportionable  to  the  offense.41  But  .such  power  is 
often  specially  conferred  by  charter  or  by  statute.42  The  penalty 
must,  however,  be  reasonable  and  certain,43  and  cannot  be  enforced 
by  a  forfeiture  of  shares44  without  statutory  authority. 

§  198.  Rules  and  regulations  in  England. — In  England  rules  for 
the  government  of  the  railroad  employes,  in  their  dealings  with  the 
public,  and  of  the  passengers  and  others  transacting  business  with 
the  company,  are  called  by-laws;45  and  under  many  of  the  special 
charters  granted  in  that  country,  as  well  as  under  the  Companies' 
Clauses  Consolidation  Act  of  1845,  the  railroad  companies  are  author- 
ized to  enact  regulations  which  resemble  the  by-laws  or  ordinances  of 
municipal  corporations.  Their  control  over  persons  coming  upon 

erally  implies  the  power  to  repeal  United    States    Cement    Co.     (Ind. 

them.  King  v.  Ash  well,  12  East.  22;  App.)  73  N.  E.  269. 

Kent  v.  Quicksilver,  &c.  Co.  78  N.  tt  Angell  &  Ames  on  Corp.    (llth 

Y.  159.    But  see  Stevens  v.  Davison,  ed.)  §  360;  1  Purdy's  Beach  on  Priv. 

18   Gratt.    (Va.)    819,   98   Am.   Dec.  Corp.  §  166. 

692.  ^Stimson's     Am.     Stat.      (1892) 

88  Attorney-General  v.  Middleton,  2  §  8071. 

Ves.  Sen.  327.     See,  also,  Henry  v.  *»  Cahill  v.  Kalamazoo,  &c.  Co.  2 

Jackson,  37  Vt.  431.  Doug.  (Mich.)  124,  43  Am.  Dec.  457; 

39  Schrick  v.  St.  Louis,  &c.  Co.  34  Mobile  v.  Yuille,  3  Ala.  137,  36  Am. 

Mo.     423.       See,     generally,     as    to  Dec.  441;  Grant  Corp.  84;  1  Thomp. 

amendment  and  repeal,  note  in  43  Corp.  §  1040. 

Am.  St.  157,  158.  «•  Long  Island  R.  Co.,  Re,  19  Wend. 

40 Kent  v.  Quicksilver,  &c.  Co.  78  (N.  Y.)   37,  32  Am.  Dec.  429;  Budd 

N.  Y.  159.    Compare  East  Tenn.  &c.  v.  Multnomah   St.   R.   Co.  15  Oreg. 

R.  Co.  v.  Gammon,  5  Sneed  (Tenn.)  413,   15    Pac.    659,    3   Am.    St.   169; 

567.     Ordinarily,  however,  minority  Kirk  v.  Nowill,  1  Term  R.  118. 

stockholders  have  no  right,  vested  ^Chilton  v.  The   London,   &c.  R. 

or  otherwise,  which  is  infringed  hy  Co.  16  M.  &  W.  212,  5  Eng.  Railway 

the  majority  amending  the  hy-laws  and  Canal  Gas.  4. 
in  the  manner  provided.     Renn  v. 


299,  RULES   AND  REGULATIONS   IN   ENGLAND.  [§    198 

their  property  and  their  right  to  regulate  such  matters  extend  to  the 
imposition  of  penalties  for  failure  to  observe  such  regulations,  which 
may  even  be  enforced  by  imprisonment.46  Such  rules  or  by-laws 
must  be  made  under  the  common  seal  of  the  corporation,  and,  so  far 
as  they  affect  those  who  are  not  officers  or  servants  of  the  company, 
should  be  approved  by  the  board  of  trade  or  railway  commissioners.47 
A  copy  of  these  by-laws  must  be  furnished  to  every  officer  and  serv- 
ant of  the  company  liable  to  be  affected  thereby.  And  in  many  in- 
stances, power  to  bind  parties  dealing  with  the  company  is  granted 
on  condition  that  the  by-laws  or  regulations  adopted  shall  be  written 
or  printed,  and  copies  of  them  prominently  displayed  at  all  sta- 
tions.48 While  the  rules  are  required  to  be  so  adopted  and  promulgated 
there  is  a  tendency  to  hold  the  corporation  not  liable  for  acts  of  its 
servants  done  in  contravention  of  such  rules.  Thus  it  was  held  that 
the  company  was  not  liable  in  a  case  where  the  station  clerk  informed 
the  plaintiff  that  he  could  use  his  excursion  ticket  for  return  passage 
by  a  certain  train,  which,  however,  did  not  run  clear  through,  and 
the  plaintiff  was  arrested  by  the  superintendent  for  refusing  to  pay 
the  extra  fare  demanded  for  his  passage  on  such  train.49  And  the 
company  was  also  held  not  liable  for  the  arrest  by  its  inspector  of  an 
innocent  man  upon  a  charge  of  having  no  ticket,  refusing  to  pay  fare, 
being  intoxicated,  and  assaulting  the  inspector,  in  violation  of  the 
company's  regulations,  even  though  the  solicitor  of  the  company  at- 
tended to  conduct  the  proceedings  at  the  hearing  before  the  magistrate, 
but  without  knowledge  of  the  facts.50  But  these  cases  would  seem  to 
be  opposed  to  the  rule  which  obtains  generally  throughout  this  coun- 

"Chilton  v.  London,  &c.  R.  Co.  16  all  but  the  first  instance)  forfeiture 

M.  &  W.  212.     See  Hodges,  453,  for  of  the  fare  paid  and  eviction  from 

the  by-laws  most  generally  adopted  the  company's  premises.     And  any 

in  England.  person    wilfully    injuring   the    com- 

47  Hodges  Law  of  Railw.  552,  553.  pany's  carriages  shall  be  liable  to 
In  the  code  of  by-laws  framed  by  the  a  penalty  of  not  more  than  £5,  in 
board  of  trade  and  generally  adopt-  addition     to     the     damage     done, 
ed  in  England,  it  is  provided  that  Hodges  Law  of  Railw.  453. 
every  person  attempting  to  evade  the  **  Great  Western  R.  Co.  v.   Good- 
payment  of  all  or  a  part  of  his  fare,  man,  11  Eng.  L.  &  Eq.  546. 
and  every  person  smoking,  being  in-  **  Roe  v.  Birkenhead,  &c.  R.  7  Eng. 
toxicated,  committing  a  nuisance,  or  L.-  &  Eq.  546,  6  Eng.  Railway  and 
interfering    with    the    comfort    of  Canal  Gas.  795. 

other  passengers,  or  obstructing  the  M  Eastern  Counties  R.  v.  Broom,  2 

company's  servants  in  the  discharge  Eng.  L.  &  Eq.  406;   Roe  v.  Birken- 

of  their  duty,  shall  be  liable  to  a  head  R.  7  Exch.  36. 
penalty  of  forty  shillings,  and   (in 


§  199] 


BY-LAWS,  RULES  AND  REGULATIONS. 


300 


try,  that  it  makes  no  difference,  as  to  binding  the  company,  that  the 
agent  disobeyed  his  superior,  even  though  it  was  willfully  done,61 
so  long  as  he  was  acting  within  the  scope  of  his  employment.52 

§  199,  Distinction  between  by-laws  and  rules  and  regulations — 
Right  of  railroad  company  to  make  rules  and  regulations. — In  this 
country  there  is  a  clearly  recognized  distinction  between,  on  the  one 
hand,  by-laws  for  the  government  of  the  members  and  officers  in  their 
dealings  with  the  corporation,  which  must  be  adopted  by  the  body  of 
stockholders,  or  by  the  directors;  and,  on  the  other  hand,  regulations 
for  the  government  of  the  company's  employes  and  servants  engaged 
in  operating  the  road  and  of  passengers  and  others  of  the  public 
transacting  business  with  the  company  or  dealing  in  any  manner 
with  the  company's  property,53  which  may  usually  be  made  by  any 
officer  or  agent  of  the  corporation  duly  authorized  to  control  the 
business  or  property  to  which  they  relate.54  A  railroad  company  has 
an  implied  authority  (which  is  necessarily  almost  absolute)55  to 
make  and  enforce  all  reasonable  rules  and  regulations  for  the  control 
of  its  trains  and  the  persons  thereon,  of  persons  using  its  stations  and 
grounds,  and  of  those  transacting  business  with  it,  in  order  to  provide 
for  the  safety  of  its  passengers  and  employes,  and  to  protect  itself 
from  imposition  and  wrong.56 


"Weed  v.  Panama  R.  Co.  5  Duer 
(N.  Y.)  193.  Post,  §  213. 

62 Philadelphia,,  &c.  R.  Co.  v.  Der- 
by, 14  How.  (U.  S.)  468,  483;  Hig- 
gins  v.  Watervliet,  &c.  R.  Co.  46  N. 
Y.  23,  7  Am.  R.  293.  Whether  the 
agent  was  acting  within  the  scope 
of  his  authority  is  generally  for  the 
jury  to  determine  from  the  evi- 
dence. McKernan  v.  Manhattan  R. 
Co.  22  Jones  and  S.  (N.  Y.  Super. 
Ct.)  354. 

63  State  v.  Overton,  24  N.  J.  L.  435, 
61  Am.  Dec.  671;  Morris,  &c.  R.  Co. 
v.  Ayres,  29  N.  J.  L.  393;  Common- 
wealth v.  Power,  7  Mete.  (Mass.) 
596,  601,  41  Am.  Dec.  465. 

"Smith  v.  Chamberlain,  38  S.  C. 
529,  17  S.  E.  371,  19  L.  R.  A.  710, 
32  Am.  L.  Reg.  (N.  S.)  747;  Com- 
monwealth v.  Power,  7  Met.  (Mass.) 


596,  41  Am.  Dec.  465,  holding  that 
a  superintendent  of  a  railway  sta- 
tion may  make  reasonable  rules  for 
the  control  of  the  buildings  and 
grounds,  and  for  the  regulation  of 
conduct  of  persons  coming  upon 
such  grounds.  Markham  v.  Brown, 
8  N.  H.  523,  31  Am.  Dec.  209,  to 
the  same  effect.  Vedder  v.  Fellows, 
20  N.  Y.  126,  per  Strong,  J.:  "The 
conductors,  in  the  absence  of  any 
directions  from  their  superior  offi- 
cers, have  a  right,  and,  indeed,  it  is 
obligatory  upon  them,  to  adopt  some 
rule  relative  to  the  surrender  of  the 
tickets  of  the  passengers." 

55  Hibbard  v.  New  York,  &c.  R.  Co. 
15  N.  Y.  455. 

66  Crocker  v.  New  London,  &c.  R. 
Co.  24  Conn.  249;  Pittsburg,  &c.  R. 
Co.  v.  McClurg,  56  Pa,  St.  294; 


301  EXAMPLES   OF   RULES — PASSENGERS.  [§   200 

§  200.  Examples  of  rules  and  regulations  which  railroad  compa- 
nies may  make — Kules  affecting  passengers. — To  this  end  they  may 
regulate  the  purchase  of  tickets,  the  time  and  manner  of  procuring 
and  paying  for  the  same,  and  the  time  and  manner  of  surrendering 
them;  the  manner  and  time  of  entering  and  leaving  the  cars;  and 
the  conduct  of  the  passengers  while  upon  the  cars  or  at  stations 
waiting  for  trains,  as  that  they  shall  not  be  boisterous  or  disorderly, 
shall  do  nothing  to  obstruct  the  conductors  or  other  employes  in  the 
discharge  of  their  duties,  and  shall  be  seated  in  the  cars  while  the 
train  is  in  motion.57  Thus,  where  a  reasonable  opportunity  is  afforded 
for  the  purchase  of  tickets,  they  may  enact  and  enforce  a  rule  requir- 
ing the  payment  of  an  additional  sum  by  those  who  do  not  purchase 
tickets  before  entering  the  car,  and  a  regulation  providing  that  ten 
cents  extra  shall  be  paid  in  such  a  case  over  and  above  the  regular 
ticket  fare,  is  reasonable  and  valid.68  It  has  also  been  held  that  a 
street  railway  company  may  adopt  a  rule  that  no  bank  bill  or  govern- 
ment note  larger  than  two  dollars  need  be  accepted  and  changed  on 
the  car.59  So,  a  railroad  company"  may  require  the  production  of  a 
ticket  and  its  exhibition  to  the  conductor  at  proper  times  as  evidence 
of  the  right  to  passage.60  And  a  rule  requiring  passengers  to  make  a 

Southern    R.    Co.    v.    Kendrick,    40  Co.  132  Mass.  116,  42  Am.  R.  432; 

Miss.  374,  90  Am.  Dec.  332;   Cleve-  Forsee  v.  Alabama,  &c.  R.   Co.   63 

land,  &c.  R.  Co.  v.  Bartram,  11  Ohio  Miss.   67;    State  v.  Hungerford,  39 

St.  457;    Stephen  v.  Smith,  29  Vt.  Minn.  6,  38  N.  W.  628;   Milliard  v. 

160;   Reese  v.  Pennsylvania  R.-Co.  Goold,  34  N.  H.  230,  66  Am.  Dec. 

131  Pa.  St.  422,  19  Atl.  72,  6  L.  R.  765;    State  v.    Goold,    53    Me.    279; 

A.   529,   1   Lewis  Am.   R.  &   Corp.  Pullman  Co.   v.  Reed,  75   IU.   125; 

Cas.   147;    Dickerman   v.    St.    Paul  Stephen  v.  Smith,  29  Vt.  160;  Snell- 

Union  Depot  Co.  44  Minn.  433,  46  baker   v.    Paducah,   &c.    R.    Co.   94 

N.  W.  907,  3  Lewis'    Am.  R.  &  Corp.  Ky.  597,  23  S.  W.  509.     See,  also, 

Cas.  374,  and  note,  46  N.  W.  907.  Manning  v.   Louisville,  &c.   R.   Co. 

See,  also,  Donovan  v.  Pennsylvania  95  Ala.  92,  11  So.  8,  36  Am.  St.  225; 

'Co.  199  U.  S.  279,  26  Sup.  Ct.  91.  Ammons  v.  Southern  R.  Co.  138  N. 

Br  Hibbard  v.  New  York,  &c.  R.  Co.  Car.  555,  51  S.  E.  127. 

15  N.  Y.  455,  and  cases  in  last  note  59  Barker  v.  Central  Park,  &c.  R. 

supra.  Co.  151  N.  Y.  237,  45  N.  E.  550,  35 

58  Reese  v.  Pennsylvania  R.  Co.  131  L.  R.  A.  489,  56  Am.  St.  626. 

Pa.  St.  422,  19  Atl.  72,  17  Am.  St.  '""Van  Dusan  v.  Grand  Trunk  R. 

818,  1  Lewis  Am.  R.  &  Corp.  R.  147;  Co.    97   Mich.    439,   56    N.   W.    848; 

Sage  v.  Evansville,  &c.  R.  Co.  134  Northern  Cent.  R.  Co.  v.  O'Conner, 

Ind.  100,  33  N.  E.  771;   Crocker  v.  76  Md.  207,  24  Atl.  449,  35  Am.  St. 

New  London,  &c.  R.   Co.  24  Conn.  422;  Poole  v.  Northern  Pac.  R.  Co. 

249;    Swan  v.   Manchester,   &c.   R.  16  Oreg.  261,  19  Pac.  107,  8  Am.  St. 


200] 


BY-LAWS,  RULES  AND   REGULATIONS. 


302 


continuous  trip,  unless  they  procure  a  "stop-over" '  ticket  or  check,  is 
reasonable  and  valid.61  A  railroad  company  may  also  make  and  enforce 
a  rule  forbidding  passengers  to  be  carried  on  freight  trains,62  where 
it  sufficiently  provides  for  their  accommodation  on  passenger  trains, 
and,  if  it  permits  passengers  on  freight  trains,  it  may,  after  due 
notice  of  the  rule,  require  such  passengers  to  provide  themselves  with 
a  particular  kind  of  ticket  which  it  has  given  them  a  reasonable  op- 
portunity to  obtain.63  It  is  likewise  held,  in  the  absence  of  any  statu- 
tory provision  to  the  contrary,  that  a  railroad  company  may  adopt 
rules  providing  that  particular  trains  shall  stop  only  at  certain  sta- 
tions, where  it  furnishes  reasonable  means  of  reaching  all  stations 
on  its  road  by  other  trains,  and  that  passengers  are  bound  to  take  no- 
tice of  such  a  rule  as  shown  in  the  time-card  published  by  the  com- 
pany.64 Kules  and  regulations  in  regard  to  separate  cars  for  ladies 


289;  Cresson  v.  Philadelphia,  &c.  R. 
Co.  11  Phila.  (Pa.)  597;  Nye  v.  Ma- 
rysville,  &c.  St.  R.  Co.  97  Cal.  461, 
32  Pac.  530;  Chicago,  &c.  R.  Co.  v. 
Boger,  1  Bradw.  (111.)  472;  Balti- 
more, &c.  R.  Co.  v.  Blocher,  27  Md. 
277;  Frederick  v.  Marquette,  &c.  R. 
Co.  37  Mich.  342,  26  Am.  R.  531; 
Downs  v.  New  York,  &c.  R.  Co.  36 
Conn.  287,  4  Am.  R.  77;  Jerome  v. 
Smith,  48  Vt.  230,  21  Am.  R.  125; 
Crawford  v.  Cincinnati,  &c.  R.  Co. 
26  Ohio  St.  580;  Ripley  v.  New  Jer- 
sey, &c.  Co.  31  N.  J.  L.  388;  Town- 
send  v.  New  York,  &c.  R.  Co.  56  N. 
Y.  295,  15  Am.  R.  419;  Standish  v. 
Narragansett,  &c.  Co.  Ill  Mass.  512, 
15  Am.  R.  66;  Duke  v.  Great  West- 
ern R.  Co.  14  Upper  Can.  Q.  B.  369, 
377.  See  Watkins  v.  Pennsylvania' 
R.  Co.  21  Dist.  of  C.  1,  52  Am.  & 
Eng.  R.  Gas.  159,  and  note. 

61  Cheney  v.  Boston,  &c.  R.  Co.  11 
Met.   (Mass.)   121,  45  Am.  Dec.  190, 
and  note;  Yorton  v.  Milwaukee,  &c. 
R.  Co.   54  Wis.  234,  11  N.  W.  482, 
41  Am.  R.  23;    Beebe  v.  Ayres,   28 
Barb.  (N.  Y.)  275;  Johnson  v.  Con- 
cord R.  46  N.  H.  213,  88  Am.  Dec. 
199. 

62  Chicago,  &c.  R.  Co.  v.  Randolph, 


53  111.  510,  5  Am.  R.  60;  Houston, 
&c.  R.  Co.  v.  Moore,  49  Tex.  31,  30 
Am.  R.  98;  Eaton  v.  Delaware,  &c. 
R.  Co.  57  N.  Y.  382,  15  Am.  R.  513. 

63  Evans  v.  Memphis,  &c.  R.  Co.  56 
Ala.  246,  28  Am.  R.  771;   St.  Louis, 
&c.  R.  Co.  v.   Myrtle,  51   Ind.  566; 
Arnold  v.  Illinois,  &c.  R.  Co.  83  111. 
273,  25  Am.  R.  383;  Law  v.  Illinois, 
&c.  R.  Co.  32  Iowa  534;  Kansas,  &c. 
R.  Co.  v.  Kessler,  18  Kan.  523;  Bur- 
lington, &c.  R.  Co.  v.  Rose,  11  Neb. 
177,  1  Am.  &  Eng.  R.  Cas.  253,  8  N. 
W.  433. 

64  Texas,    &c.    R.    Co.    v.    Ludlam 
(Tex.    Civ.    App.),    26    S.    W.    430; 
Dietrich  v.  Pennsylvania,  &c.  R.  Co. 
71  Pa.  St.  432,  10  Am.  R.  711.     "It 
is  the  duty  of  a  party  going  upon 
a  railroad  train  to  inform  himself 
when,  where  and  how  he  can  go  or 
stop,   according   to  the   regulations 
of  the  railroad  company."    Ohio,  &c. 
Co.  v.  Applewhite,  52  Ind.  540,  546; 
Pittsburgh,   &c.   Co.  v.   Lightcap,   7 
Ind.   App..  249,  253,  34  N.   E.   243; 
Chicago,  &c.  R.  Co.  v.  Randolph,  53 
111.  510,  5  Am.  R.  60;   Gulf,  &c.  R. 
Co.  v.  Henry,  84  Tex.  678,  19  S.  W. 
870,  16  L.  R.  A.  318,  52  Am.  &  Eng. 
R.  Cas.  233;  Jackson  v.  Grand  Ave. 


303 


EXAMPLES   OF  RULES — PASSENGERS. 


[§   200 


;and  their  escorts,65  or  providing  for  the  separation  of  white  from 
colored  passengers,66  have  also  been  upheld  as  reasonable  where  equal 
accommodations  were  offered  to  all.  So  has  a  rule  that  none  but  hold- 
ers of  first-class  tickets  shall  ride  on  sleeping  cars.67  Kailroad  com- 
panies may  also  adopt  and  enforce  rules  prohibiting  passengers  from 
riding  in  the  baggage  or  express  cars  or  on  the  engines,  platforms,  or 
other  improper  places  of  danger,68  and  prohibiting  disorderly  con- 
duct on  the  cars.69  And  they  may  exclude  from  their  carriages  and 
premises  such  persons  as  refuse  to  comply  with  their  reasonable  regu- 
lations.70 


R.  Co.  118  Mo.  199,  24  S.  W.  192; 
Beauchamp  v.  International,  &c. 
R.  Co..  56  Tex.  239. 

65  Peck  v.  New  York,  &c.  R.  Co.  70 
N.  Y.  587;  Marquette  v.  Chicago,  &c. 
R.  Co.  33  Iowa  562;  Bass  v.  Chicago, 
&c.  R.  Co.  36  Wis.  450,  17  Am.  R. 
495;  Memphis,  &c.  R.  Co.  v.  Benson, 
85  Tenn.  627,  4  S.  W.  5,  4  Am.  St. 
776. 

68  West  Chester,  &c.  R.  Co.  v.  Miles, 
55  Pa.  St.  209,  93  Am.  Dec.  744; 
Green  v.  Bridgeton,  9  Cent.  L.  J. 
206;  Plessy,  Ex  parte,  45  La.  Ann. 
80,  11  So.  948,  18  L.  R.  A.  639,  and 
note. 

67  Pullman  Palace  Car  Co.  v.  Lee, 
49    111.   App.   75,   and  'the   company 
may  charge  extra  compensation  for 
u  seat  in  a  chair  car,  even  to  the 
holder   of   a   first-class   ticket.      St. 
Louis,  &c.  R.  Co.  v.  Hardy,  55  Ark. 
134,  17  S.  W.  711,  52  Am.  &  Eng.  R. 
Cas.  224. 

48  Florida  Southern  R.  Co.  v.  Hirst, 
30  Fla.  1,  52  Am.  &  Eng.  R.  Cas. 
409,  11  So.  506,  16  L.  R.  A.  631, 
and  note,  32  Am.  St.  17  n;  Rohertson 
v.  New  York,  &c.  R.  Co.  22  Barb. 
(N.  Y.)  91;  O'Neill  v.  Lynn,  &c.  R. 
Co.  155  Mass.  371,  29  N.  E.  630; 
Pennsylvania  R.  Co.  v.  Langdon,  92 
Pa.  St.  21,  37  Am.  R.  651;  Augusta 
R.  &c.  Co.  v.  Smith,  121  Ga.  29,  48 
S.  E.  681. 

68  See  Pittsburg,  &c..  R.  Co.  v.  Pil- 


low, 76  Pa.  St.  510,  18  Am.  R.  424; 
New  Orleans,  &c.  Co.  v.  Burke,  53 
Miss.  200,  24  Am.  R.  689;  Jencks  v. 
Coleman,  2  Sumn.  (U.  S.)  221. 

70  Murphy  v.  Union  R.  Co.  118 
Mass.  228;  Putnam  v.  Broadway,  &c. 
R.  Co.  55'  N.  Y.  108,  14  Am.  R.  190; 
Townsend  v.  New  York,  &c.  R.  Co. 
56  N.  Y.  295,  15  Am.  R.  419;  Mon- 
nier  v.  New  York,  &c.  R.  Co.  175  N. 
Y.  281,  67  N.  E.  569,  62  L.  R.  A. 
357,  96  Am.  St.  619;  Commonwealth 
v.  Power,  7  Met.  (Mass.)  596;  Louis- 
ville, &c.  R.  Co.  v.  Johnson,  92  Ala. 
204,  9  So.  269;  McKernan  v.  Man- 
hattan R.  Co.  54  N.  Y.  Super.  Ct. 
354;  Louisville,  &c.  R.  Co.  v.  Logan, 
88  Ky.  232,  10  S.  W.  655,  3  L.  R.  A. 
80,  21  Am.  St.  332;  Pittsburg,  &c.  R. 
Co.  v.  Pillow,  76  Pa.  St.  510,  18  Am. 
R.  424.  A  railroad  company  may, 
at  its  option,  exclude  all  persons 
coming  upon  its  premises  for  pur- 
poses other  than  transacting  busi- 
ness with  the  company.  Hotel  run-, 
ners,  Commonwealth  v.  Power,  7 
Met.  (Mass.)  596,  41  Am.  Dec.  465, 
and  note;  Landrigan  v.  State,  31 
Ark.  50,  25  Am.  R.  547;  porters, 
Barney  v.  Oyster  Bay,  &c.  Co.  67 
N.  Y.  301,  23  Am.  R.  115;  D.  R. 
Martin,  The,  .11  Blatch.  (U.  S.) 
233;  omnibus  driver,  Barker  v.  Mid- 
land R.  Co.  18  C.  B.  46 ;  Summitt 
v.  State,  8  Lea  (Tenn.)  413;  Har- 
ris v.  Stevens,  31  Vt.  79.  See  post, 


§  200a] 


BY-LAWS,   RULES   AND  REGULATIONS. 


304 


§  200a.  Bules  affecting  shippers  and  freight. — Like  reasonable 
rules  may  be  made  to  govern  the  receipt,  carriage,  and  delivery  of 
freight  and  baggage,  and  the  shipper  may  be  compelled  to  conform  to 
them  in  transacting  business  with  the  company.71  Thus,  a  railroad 
company  may  require  persons  hauling  freight  from  its  depot  to  take 
it  from  the  platform,  where  it  is  delivered  to  them  by  the  company's 
agents,  and  to  transact  business  over  the  counter,  without  entering 
the  warehouse  to  check  off  the  freight.72  So,  it  is  now  established  in 
most  jurisdictions  by  the  weight  of  authority,  in  accordance  with  the 
better  reason,  that  it  is  competent  for  a  railroad  company  to  adopt 
and  enforce  a  reasonable  regulation,  fixing  the  time  within  which  a 
consignee  shall  unload  his  freight  after  notice  of  its  arrival  and  pro- 
viding a  reasonable  charge  per  day  thereafter  for  car  service  or  by  way 
of  demurrage.78  As  will  hereafter  appear,  however,  a  common  car- 
rier can  make  no  unreasonable  and  unjust  discrimination  between  its 
customers,74  and  some  regulations  that  it  might  otherwise  make  are 
prohibited  by  the  interstate  commerce  law. 


§  1678.  But  passengers  are  not 
always  bound  to  know  rules  for 
employes  and  the  like.  New  York, 
&c.  R.  Co.  v.  Winter's  Adm'r,  143 
U.  S.  60,  70,  12  Sup.  Ct.  356.  Post- 
ing a  rule  in  the  car  is  evidence 
of  notice.  Baltimore,  &c.  Road  v. 
Cason,  72  Md.  377,  20  Atl.  113.  But 
see  Coupland  v.  Housatonic  R.  Co. 
61  Conn.  534,  541,  23  Atl.  870,  15  L. 
R.  A.  534. 

71  Southern  R.  Co.  v.  Kendrick,  40 
Miss.  374,  90  Am.  Dec.  332;  Pitts- 
burgh, &c.  R.  Co.  v.  Lyon,  123  Pa. 
St.  140,  16  Atl.  607,  2  L.  R.  A.  489, 
10  Am.  St.  517;  Morris,  &c.  R.  Co. 
v.  Ayres,  29  N.  J.  L.  393;  Randall 
v.  Richmond,  &c.  R.  Co.  108  N.  Car. 
612,  13  S.  E.  137;  Chicago,  &c.  R. 
Co.  v.  Colby,  69  Neb.  572,  96  N.  W. 
145.  As  to  when  the  customer  is 
not  bound  to  take  notice  of  rules 
see  Central  R.,  &c.  Co.  v.  Skellie,  90 
Ga.  694,  16  S.  E.  657;  Southern  Exp. 
Co.  v.  Crook,  44  Ala.  468,  4  Am.  R. 
140;  Atchison,  &c.  R.  Co.  v.  Miller, 
16  Neb.  661,  21  N.  W.  451. 


"Such  a  regulation  is  reasonable. 
Donovan  v.  Texas,  &c.  R.  Co.  64  Tex. 
519,  29  Am.  &  Eng.  R.  Gas.  320. 

"Norfolk  &  Western  R.  Co.  v. 
Adams,  90  Va.  393,  18  S.  E.  673,  56 
Am.  &  Eng.  R.  Cas.  330;  Miller  v. 
Georgia,  &c.  R.  Co.  88  Ga.  563,  15 
S.  E.  316,  18  L.  R.  A.  323,  30  Am. 
St.  170;  Miller  v.  Mansfield,  112 
Mass.  260;  Kentucky  Wagon,  &c.  Co. 
v.  Louisville,  &c.  Co.  11  Ry.  &  Corp. 
L.  J.  49;  post,  §  1567.  One  dollar 
per  day  for  each  car  was  held  rea- 
sonable in  the  first  two  cases  above 
cited.  But  see  Chicago,  &c.  R.  Co. 
v.  Jenkins,  103  111.  588;  Burlington, 
&c.  R.  Co.  v.  Chicago  Lumber  Co.  15 
Neb.  390,  19  N.  W.  451. 

74  See  Chicago,  &c.  R.  Co.  v.  Peo- 
ple, 56  111.  365,  8  Am.  R.  690;  Hays 
v.  Pennsylvania,  &c.  Co.  12  Fed.  309; 
Logan  v.  Central  R.  Co.  74  Ga.  684; 
Rice  v.  Railroad  Co.  3  Interstate 
Com.  Com.  R.  186;  Cleveland,  &c. 
R.  Co.  v.  Closser,  126  Ind.  348,  26  N. 
E.  159,  9  L.  R.  A.  754  n,  22  Am.  St. 
593,  and  authorities  there  cited; 


305 


RULES   AFFECTING  EMPLOYES. 


[§  200b 


§  200b.  Rules  affecting  employes. — Rules  affecting  passengers  and 
shippers  are  not  the  only  rules  which  a  railroad  company  has  the 
power  to  make.  It  is  not  only  the  right,  but  it  is  also  the  duty  of  rail- 
road companies  to  promulgate  and  enforce  reasonable  and  necessary 
rules  for  the  safety  of  its  employes,  in  the  management  and  operation 
of  its  road.75  It  has  also  been  held  that  the  adoption  of  mere  general 
rules  may  not  relieve  a  company  where  emergencies  demanded  special 
rules.76  This  subject,  however,  will  be  fully  considered  hereafter. 

§  201.  Enforcement  of  rules — Penalties. — Beyond  exclusion  from 
their  premises  and  from  the  privilege  of  transacting  business  with 
them,  railroad  corporations  have  in  this  country  very  little  authority 
to  inflict  penalties  for  disobedience  of  their  rules,  except  so  far  as  such 
penalties  are  prescribed  by  the  statutes  of  the  various  states.  But 
they  are  generally  permitted,  as  we  have  seen,  to  exact  a  higher  fare 
from  passengers  failing  to  procure  tickets  and  seeking  to  pay  their 
fare  after  getting  upon  the  train,77  provided  such  increased  fare  be 
reasonable.  And  the  English  courts  have  adjudged  a  by-law  valid 
which  required  a  passenger,  not  procuring  or  delivering  up  his  ticket, 


Root  v.  Long  Island  R.  Co.  114  N. 
Y.  300,  21  N.  E.  403,  4  L.  R.  A.  331  n, 
11  Am.  St.  643,  and  exhaustive  note. 
Article  in  16  Am.  L.  Rev.  818;  note 
to  Commonwealth  v.  Power,  41  Am. 
Dec.  465,  484. 

75  Lewis  v.  Seifert,  116  Pa.  St.  628, 
11  Atl.  514,  2  Am.  St.  631;  Cor- 
coran v.  Delaware,  &c.  R.  Co.  126 
N.  Y.  673,  27  N.  E.  1022;  Morgan 
v.  Hudson  River,  &c.  Co.  133  N.  Y. 
666,  31  N.  E.  234;  Pittsburgh,  &c. 
R.  Co.  v.  Henderson,  37  Ohio  St. 
549;  Chicago,  &c.  R.  Co.  v.  Moranda, 
93  111.  302,  34  Am.  R.  168;  Ohio,  &c. 
R.  Co.  v.  Collarn,  73  Ind.  261,  38  Am. 
R.  134;  Ford  v.  Fitchburg  R.  Co.  110 
Mass.  240,  14  Am.  R.  598;  Hough  v. 
Railway  Co.  100  U.  S.  213;  post, 
§  1280. 

n  Sprague  v.  New  York,  &c.  R.  Co. 
68  Conn.  345,  36  Atl.  791,  37  L.  R. 
A.  638.  But  see  where  an  employe 
acquiesces  in  the  rules  and  their 
sufficiency.  Berrigan  v.  New  York, 
ELL.  RAILROADS— 20 


&c.  R.  Co.  131  N.  Y.  582,  30  N.  E. 
57;  and  see  post,  §  1280.  See,  also, 
Wolsey  v.  Lake  Shore,  &c.  R.  Co.  33 
Ohio  St.  227.  As  to  notice  to  the 
employe  and  evidence  thereof,  see 
Sprong  v.  Boston,  &c.  R.  Co.  58  N. 
Y.  56,  and  compare  Shenandoah  Val- 
ley R.  Co.  v.  Lucado,  86  Va.  390,  10 
S.  E.  422;  Galveston,  &c.  R.  Co.  v. 
Gormley,  91  Tex.  393,  43  S.  W.  877, 
66  Am.  St.  894. 

77  McGowen  v.  Morgan's  Louisiana, 
&c.  R.  Co.  41  La.  Ann.  732,  17  Am. 
St.  415;  State  v.  Hungerford,  39 
Minn.  6,  38  N.  W.  561;  Reese  v. 
Pennsylvania  R.  Co.  131  Pa.  St.  422, 
19  Atl.  72,  6  L.  R.  A.  529,  17  Am. 
St.  818;  1  Lewis  Am.  R.  &  Corp. 
Gas.  147,  citing  numerous  authori- 
ties and  holding  that  an  additional 
charge  of  ten  cents  is  not  a  "charge 
for  transportation"  within  the  mean- 
ing of  a  statute  limiting  the  rate 
three  and  one-half  cents  per  mile. 
Ante,  §  200. 


§    202]  BY-LAWS,   RULES   AND  REGULATIONS.  306 

to  pay  fare  from  the  place  where  the  train  originally  started.78  Such 
rules  must  be  in  accordance  with  the  charter  and  not,  it  seems,  in 
conflict  with  any  of  the  numerous  regulations  prescribed  by  statute 
in  the  states  through  which  the  road  runs  or  in  which  it  does  busi- 
ness,79 and  must,  moreover,  be  reasonable.80 

/ 

§  202.  Reasonableness  of  rules — When  a  question  of  fact  and 
when  a  question  of  law. — The  reasonableness  of  such  regulations  and 
of  the  manner  of  their  enforcement  in  a  given  case  has  been  held  by 
some  of  the  courts  to  be  a  question  of  fact  for  the  jury.81  But  it 
would  seem  that  this  must  be  a  question  of  law  for  the  court  to  de- 
cide, if  any  fixed  and  permanent  regulations  are  to  be  established, 
and  the  better  authority  holds  it  to  be  such ;  since  one  jury  in  a  given 
case  might  pronounce  the  rule  reasonable,  while  another  jury  in  an- 
other case  might  decide  the  same  rule  to  be  unreasonable.82  Yet,  as  any 
given  case  is  apt  to  depend  in  part  upon  the  facts  and  circumstances 
which  are  themselves  in  dispute,  some  authorities  hold  that  the  ques- 
tion of  the  reasonableness  of  a  rule  as  applied  to  the  case  in  hand 
should  be  submitted  to  the  jury,  under  proper  instructions  from  the 
court,  as  a  mixed  question  of  law  and  fact,83  and  that  it  is  for  the 

78  Chilton  v.  London,  &c.  R.  Co.  16  Chicago,  &c.  R.  Co.  v.  McLallen,  84 
M.   &  W.   212,   5   Eng.   Railw.   and  111.  109    (holding,  however,  that  its 
Canal  Cas.  4.    See,  also,  Manning  v.  adequacy   or   sufficiency   is   for   the 
Louisville,  &c.   R.   Co.   95  Ala.   392,  jury) ;    Hoffbauer   v.   Delhi,   &c.   R. 
11  So.  8,  16  L.  R.  A.  55  n,  36  Am.  St.  Co.  52  Iowa  342,  3  N.  W.  121,  35  Am. 
225,  52  Am.  &  Eng.  R.  Cas.  213.  R.    278;    Louisville,    &c.    R.    Co.    v. 

79  See    ante,    §    191.      We    do    not  Fleming,  14  Lea    (Tenn.)   128;   Ma- 
mean,  however,  that  a  state  law  will  roney  v.  Old  Colony,  &c.  R.  Co.  106 
control  the  authority  of  the  United  Mass.  153,  8  Am.  R.  305;  Yorton  v. 
States  over  the  road  as  an  instru-  Milwaukee,  &c.  R.  Co.  54  Wis.  234, 
ment  of  interstate  commerce.  11  N.  W.  482,  41  Am.  R.  23;   Pitts- 

80  Chicago,  &c.  R.  Co.  v.  Williams,  burgh,  &c.  R.  Co.  v.  Nuzum,  50  Ind. 
55   111.   185,   8   Am.   R.    641.     Ante,  141,  19  Am.  R.  703;  Fertich  v.  Mich- 
§  193.  ener,  111  Ind.  472,  481,  11  N.  E.  605; 

81  State  v.  Overton,  24  N.  J.  L.  435,  60  Am.  R.  709;  South  Florida  R.  Co. 
61  Am.  Dec.  671;  Morris,  &c.  R.  Co.  v.  Rhoads,  25  Fla.  40,  6   So.   60,  3 
v.  Ayres,  29  N.  J.  L.  393;   State  v.  L.    R.    A.    733    n,    23    Am.    St.    506; 
Chovin,  7  Iowa  204;    Texas,  &c.  R.  Pierce   v.    Randolph,    12    Tex.    290; 
Co.  v.  Adams,  78  Tex.  372,  14  S.  W.  Vedder  v.  Fellows,  20  N.  Y.  126;  No- 
666,  22  Am.  St.  56;  Prather  v.  Rail-  Ian  v.  New  York,  &c.  R.  Co.  7  Conn, 
way  Co.  80  Ga.  427,  9  S.  E.  530,  12  159,  180,  39  Atl.  115,  43  L.  R.  A.  305; 
Am.  St.  263.  1  Elliott's  Gen.  Pr.  §  436. 

82  Illinois  Central  R.  Co.  v.  Whitte-  w  Day   v.   Owen,   5   Mich.   520,   72 
more,  43  111.  420,  92  Am.  Dec.  138;  Am.  Dec.  62;   Bass  v.  Chicago,  &c. 


307    FAILUEE  TO   ENFORCE  RULES — WAIVER  OR  ABROGATION.    [§    202a 


court  only  where  the  facts  are  undisputed.84  There  are,  doubtless, 
many  cases  in  which  the  reasonableness  of  the  rule  depends,  in  the 
particular  instance,  upon  disputed  facts  or  circumstances,  and,  where 
this  is  true,  it  may,  perhaps,  be  called  a  mixed  question  of  law  and 
fact;  but,  when  the  facts  are  undisputed,  we  think  it  is  clear,  both 
upon  principle  and  according  to  the  weight  of  authority,  that  the 
question  is  one  of  law  for  the  court.85 

§  202a.  Failure  to  enforce  rules — Waiver  or  abrogation. — By-laws 
may  often  be  waived,  and  so,  too,  in  some  instances,  at  least,  may  a 
rule  of  a  railroad  company.  By  failing  to  enforce  a  rule  the  company 
may  allow  it  to  become  a  dead  letter,  and,  in  effect,  waive,  abandon, 
or  abrogate  it.  As  will  hereafter  be  shown,  it  is  not  every  failure  to  en- 
force or  carry  out  a  rule  by  every  employe,  or  in  a  few  exceptional 
instances,  that  will  ordinarily  have  this  effect,  but  there  are  instances 
in  which  both  employes  and  others  have  been  relieved  from  the  oper- 
ation of  a  rule  at  one  time  promulgated  by  the  company  because  it 
was  no  longer  considered  in  force,  and  such,  in  general,  is  the  effect 
or  result  where  the  company  itself  does  not  enforce  "it  but  knowingly 
permits  it  to  become  a  dead  letter.86 


R.  Co.  36  Wis.  450;  Brown  v.  Mem- 
phis, &c.  R.  Co.  4  Fed.  37;  Redfield 
on  Railways  (6th  ed.),  82,  83; 
Thompson  on  Carriers,  §  335.  See, 
also,  Clason  v.  Milwaukee,  30  Wis. 
316;  Christian  v.  First  Div.  St.  Paul, 
&c.  R.  Co.  20  Minn.  21.  It  is  for  the 
jury  to  ascertain  the  facts  in  such 
a  case,  but  it  is  a  question  of  law 
whether  upon  such  facts  the  rule  is 
reasonable.  But  see  Devoe  v.  New 
York,  &c.  R.  Co.  174  N.  Y.  1,  66  N. 
E.  568. 

84  Commonwealth  v.  Power,  7  Met. 
(Mass.)   596;  Pittsburgh,  &c.  R.  Co. 
v.  Lyon,  123  Pa.  St.  140,  16  Atl.  607, 
2  L.  R.  A.  489,  10  Am.  St.  517. 

85  St.  Louis,  &c.  R.  Co.  v.  Hardy, 
55  Ark.  134,  17  S.  W.  711,  52  Am. 
&  Eng.  R.  Cas.  224;   Old  Colony  R. 
Co.  v.  Tripp,  147  Mass.  35,  17  N.  E. 
89,  9  Am.  St.  661;  Louisville,  &c.  R. 


Co.  v.  Fleming,  14  Lea  (Tenn.)  128; 
Wolsey  v.  Railroad  Co.  33  Ohio  St. 
227;  Hoffbauer  v.  Railway  Co.  52 
Iowa  342,  3  N.  W.  121,  35  Am.  R. 
278,  and  authorities  cited  in  note  82, 
supra.  The  construction  of  a  writ- 
ten rule  is  for  the  court.  Lake 
Shore,  &c.  R.  Co.  v.  Peterson,  144 
Ind.  214,  42  N.  E.  480,  43  N.  E.  1. 

88  See  Sweetland  v.  Lynn,  &c.  R. 
Co.  177  Mass.  574,  59  N.  E.  443,  51 
L.  R.  A.  783;  Greenfield  v.  Detroit, 
&c.  R.  Co.  133  Mich.  557,  95  N.  W. 
546;  Montgomery,  &c.  Ry.  Co.  v. 
Kolb,  73  Ala.  396,  49  Am.  R.  54; 
Chicago,  &c.  R.  Co.  v.  Lowell,  151 
U.  S.  209,  219,  14  Sup.  Ct.  281.  This 
subject,  especially  with  reference  to 
employes,  is  hereafter  considered. 
See,  also,  Northern  Pac.  R.  Co.  v. 
Nickels,  50  Fed.  718,  1  C.  C.  A.  625. 


CHAPTER  XI. 


CORPORATE  REPRESENTATIVES. 


Sec.  Sec. 

203.  Railroad   corporations  act    219. 

through   officers,   agents   or 
other  representatives. 

204.  Appointment    of    officers    and     220. 

agents — General  doctrine. 

205.  Statutory  privileges  bestowed    221. 

on  agents. 

206.  Officers  generally.  221a. 

207.  Qualifications  of  officers. 

208.  Election  of  officers — Generally. 

209.  Agents  generally.  222. 

210.  Proof  of  the  existence  of  the 

relation    of    principal    and    223. 
agent.  224. 

211.  Proof  of  authority. 

212.  Agency  inferred.  225. 

213.  Powers,  duties  and  authority 

of  officers  and  agents  gener-    226. 
ally.  227. 

214.  Authority   of   agent— Line    of    228. 

duty.  229. 

215.  Scope    of    authority — General    230. 

conclusions.  231. 

216.  Contracts  by  agents — General 

doctrine.  232. 

217.  Declarations    and    admissions    233. 

of  agents. 

218.  Declarations     of     agent — Res 

gestae. 


Declarations  must  relate  to 
transaction  or  event  in  con- 
troversy. 

Exercise  of  authority  by 
agents — Illustrative  cases. 

Scope  of  authority — Illustra- 
tive cases, 

Authority  of  agent — Emergen- 
cies and  special  circum- 
stances. 

Authority  of  agents — Employ- 
ment of  surgeons. 

Physicians  and  surgeons. 

Delegation  of  power  by  di- 
rectors. 

Employment  of  sub-agents  and 
servants. 

Notice  to  agents  or  officers. 

Ratification. 

Acts  that  may  be  ratified. 

Ratification — What  constitutes. 

Compensation  of  officers. 

Liability  of  agents  for  their 
torts. 

Bonds  of  officers  and  agents. 

Sureties — Bonds  of  officers 
and  agents. 


§  203.  Railroad  corporations  act  through  officers,  agents  or  other 
representatives. — It  is  elementary  learning  that  corporations  act 
through  agents,  officers,  attorneys  or  servants.  The  nature  of  a  cor- 
poration aggregate,  as  is  well  known,  is  such  that  it  can  only  perform 
its  corporate  functions,  duties  and  acts  through  the  medium  of  natu- 
ral persons.1  The  creation  of  a.  railroad  corporation  invests  it  with 

'New  York,  &c.  Co.  v.  Schuyler,  34  N.  Y.  30;  Lyman  v.  White  River, 

308 


309 


APPOINTMENT  OP  OFFICERS  AND  AGENTS. 


power,  without  express  words,  to  choose  officers,  agents,  attorneys  and 
servants.2  In  other  words,  the  creation  of  a  railroad  company  invests 
it,  as  an  incidental  power,  with  the  authority  to  appoint  officers  and 
agents. 

§  204.  Appointment  of  officers  and  agents — General  doctrine. — As 
a  general  rule  agents  or  servants  may  be  appointed  by  railroad  corpo- 
rations in  the  same  manner  as  agents  and  servants  may  be  appointed 
by  natural  persons.3  It  is,  however,  to  be  understood  that  where  the 
charter  or  act  of  incorporation  provides  the  mode  in  which  officers  or 
agents  shall  be  appointed  that  mode  must  be  pursued.  There  may  be 
cases  where  a  departure  from  the  mode  prescribed  by  the  charter  or 
act  of  incorporation  would  not  prejudice  the  rights  of  third  persons, 
but  the  general  rule  is  that  where  the  mode  is  expressly  prescribed 
by  the  charter  or  the  act  of  incorporation  the  appointment  will  not  be 
valid  if  there  is  a  substantial  or  material  departure  from  the  pre- 
scribed mode.4  To  prevent  misunderstanding  we  say  that  we  are  here 
outlining  general  doctrines  and  are  not  stating  specific  rules. 

§205.  Statutory  privileges  bestowed  on  agents. — Because  of  the 
entire  reliance  of  a  railroad  corporation  upon  its  servants  for  the 
discharge  of  its  duties  to  the  public,  some  of  the  older  charters 


&c.  Co.  2  Aik.  (Vt.)  255,  16  Am. 
Dec.  705;  Angell  &  Ames  Corp.  (llth 
ed.)  §  276. 

2  Protection  Life  Ins.  Co.  v.  Foote, 
79  111.  361,  368;  Hurlbut  v.  Marshall, 
62  Wis.  590,  22  N.  W.  852;  Kitchen 
v.   Cape   Girardeau,  &c.  Co.   59  Mo. 
514;   Alabama,  &c.  Co.  v.  Kidd,  29 
Ala.  221;  Wood  v.  Ontario,  &c.  Co. 
24  U.  C.  C.  P.  334. 

3  Hamilton  v.  Newcastle,  &c.  Co.  9 
Ind.  359;  Alabama,  &c.  Co.  v.  Kidd, 
29  Ala.  221;   Giles  v.  Taff  Vale.  R. 
Co.  2  El.  &  Bl.  822;   Goff  v.  Great 
Northern,  &c.  Co.  3  El.  &  El.  672,  30 
L.  J.  Q.  B.  148;  Santa  Clara,  &c.  Co. 
v.  Meredith,  49  Md.  389,  33  Am.  R. 
264;  Crowley  v.  Genessee,  &c.  Co.  55 
Cal.   273;    White  v.    State,    69    Ind. 
273;  Despatch  Line,  &c.  v.  Bellamy, 
&c.  Co.  12  N.  H.  205,  37  Am.  Dec. 
203;    Cook   v.   Kuhn,   1   Neb.    472; 


Fitch  v.  Lewiston  Steam  Mill  Co. 
80  Me.  34,  12  Atl.  732;  Bank  of  Co- 
lumbia v.  Patterson,  7  Cranch  (U. 
S.)  299;  Randall  v.  Van  Vechten,  19 
Johns.  (N.  Y.)  60,  10  Am.  Dec.  193; 
Reynolds  v.  Collins,  78  Ala.  94;  Ban- 
croft v.  Wilmington,  &c.  Academy,  5 
Houst  (Del.)  577. 

*  Henning  v.  United  States  Ins.  Co. 
47  Mo.  425,  4  Am.  R.  332;  Salem 
Bank  v.  Gloucester  Bank,  17  Mass. 
1,  9  Am.  Dec.  Ill;  Badger  v.  Amer- 
ican, &c.  Co.  103  Mass.  244,  4  Am. 
R.  547;  Beatty  v.  Marine  Ins.  Co.  2 
Johns.  (N.  Y.)  109,  3  Am.  Dec.  401; 
Card  v.  Carr,  1  C.  B.  N.  S.  197;  Kirk 
v.  Bell,  16  Q.  B.  290;  Gordon  v. 
Preston,  1  Watts  (Pa.)  385;  Chi- 
cago,. &c.  Co.  v.  James,  22  Wis.  194. 
See  Bridgeport  Bank  v.  New  York, 
&c.  Co.  30  Conn.  231. 


§  206]  CORPORATE  REPRESENTATIVES.  310 

granted  to  them  special  privileges  and  exemptions.  Privileges  and 
exemptions  granted  corporate  agents  are  generally  regarded  as  be- 
stowed upon  the  corporation  and  not  upon  persons  who  chance  to  be 
the  corporate  agents.  Thus,  it  is  held  that  an  exemption  of  the  ser- 
vants of  a  corporation  from  military  duty,  serving  on  juries,  and 
working  on  public  roads,  is  not  a  mere  personal  privilege  to  the 
officers,  agents  and  servants  of  the  company,  but  is  a  right  or  privilege 
of  the  corporation,  on  which  it  may  insist  in  favor  of  any  servant 
whom  it  may  employ.5 

§  206.  Officers  generally. — The  most  important  of  corporate  agents 
are,  of  course,  the  officers,6  without  whom  no  business  can  be  trans- 
acted by  the  corporation.7  Indeed,  in  most  acts  for  the  incorporation 
of  railroad  companies,  a  choice  of  officers  is  one  of  the  essential  steps 
toward  incorporation.8  The  power  to  choose  officers  is  inherent  in  a 
corporation  and  implied  from  the  fact  of  incorporation  without  being 
specially  granted.9  This  implied  power  is  limited  by  the  rule  that  the 
officers  must  be  such  as  are  necessary  to  the  discharge  of  corporate 
functions  and  are  necessary  to  enable  the  corporation  to  accomplish 
the  object  for  which  it  was  created. 

5  Johnson  v.  State,  88  Ala.  176,  7  692,  4  S.  W.  156;  Gashwiler  v.  Wil- 
So.  253,  41  Am.  &  Bng.  R.  Cas.  275;  lis,   33    Cal.   11,   91   Am.   Dec.   607; 
Zimmer  v.  State,  30  Ark.  677.     The  Conro   v.   Port   Henry,   &c.    Co.    12 
grant  of  such  a  privilege  was  held  Barb.  (N.  Y.)  27. 
unconstitutional  in  Tennessee.   Nee-  "StimsonAm.  Stat.  (1892)  §§8022, 
ly  v.  State,  4  Lea  (Tenn.)  316.  8523,    citing    statutes    of    Pennsyl- 

6  Officers      are      but      ministerial  vania,  Wisconsin,   Iowa,  Minnesota, 
agents    of    the     corporation.      Dis-  Kansas,   Nebraska,   Maryland,   Ken- 
patch  Line,  &c.  v.  Bellamy  Mfg.  Co.  tucky,    Texas,    California,    Nevada, 
12  N.  H.  205,  37  Am.  Dec.  203 ;  Burr  Colorado,    Washington,    Dakota, 
v.    McDonald,    3    Gratt.    (Va.)    215.  Idaho,    Montana,    Wyoming,    Utah, 
Officers  may  be  invested  with  very  Florida,  New  Mexico,  District  of  Co- 
comprehensive  powers,  but  they  are  lumbia,  Oklahoma,  New  Hampshire, 
not  the  corporation.     A  corporation  Massachusetts,    Maine,    Vermont, 
may  entrust  the  conduct  of  its  busi-  Connecticut,  Indiana,  Illinois,  Mich- 
ness    to    its    officers,    and    may    be  igan,  Arkansas,  New  York,  Arizona, 
bound  by  their  acts,  but  no  matter  New   Jersey,    North    Carolina,   Mis- 
how  extensive  the  powers  conferred  souri,  Georgia. 

upon    corporate    officers,    they    are  8  Hurlbut  v.  Marshall,  62  Wis.  590, 

merely   the   representatives   of   the  22   N.   W.   852;    Terwilliger  v.   Gt. 

corporation,    for   that   legal    entity  Western  Tel.  Co.  59  111.  249;  Hughes 

is  the  principal,  and  its  officers  are  v.  Parker,  19  N.  H.  181;    Wheeler, 

its  agents  or  representatives.  Ex  parte,  2  Abb.  Pr.  N.  S.  (N.  Y.) 

7  Gulf,  &c.  R.  Co.  v.  Morris,  67  Tex.  361. 


311  QUALIFICATIONS  OF  OFFICERS.  [§   207 

§  207.  Qualifications  of  officers. — It  is,  of  course,  competent  for  the 
legislature  to  prescribe  by  charter  the  qualifications  of  corporate  offi- 
cers and  to  provide  what  persons  shall  or  shall  not  be  eligible  to  hold  a 
corporate  office.  The  legislative  decision  as  to  who  shall  be  eligible 
is  necessarily  conclusive  and  not  subject  to  review  by  the  courts.  The 
laws  of  several  of  the  states  prohibit  any  officer  of  a  railroad  corpo- 
ration from  becoming  an  officer  of  a  parallel  or  competing  line,10 
and  some  of  the  states  make  stockholders  and  owners  of  express  and 
transportation  companies  ineligible  to  hold  office  or  act  as  agents  in 
any  railroad  company.11  Ordinarily,  any  one  may  be  an  officer  of  a 
corporation  who  is  competent  to  transact  business  for  another,  unless 
special  qualifications  are  required  by  the  charter  or  by-laws.12  - 

§  208.  Election  of  officers — Generally. — Where  the  mode  of  choos- 
ing officers  is  not  prescribed  by  the  charter,  they  must,  as  a  general 
rule,  be  chosen  by  the  body  of  the  corporators,  or  in  such  a  mode  as 
the  corporators  acting  in  accordance  with  the  charter  may  prescribe.13 
Officers  can  exercise  only  the  powers  granted  to  them  either  expressly 
by  the  charter  or  by  the  by-laws,  enacted  pursuant  to  the  charter,  or 
implied  by  a  declaration  of  the  purposes  of  their  appointment,  or  such 
as  by  necessary  implication  are  conferred  upon  them.  It  was  held  at 
common  law  that  the  power  to  appoint  agents  rests  with  the  stock- 
holders at  large,  but  this  doctrine  is  almost  entirely  swept  away  as 
to  mere  agents.  It  was  also  held  that  the  courts  cannot  judicially 
know  that  a  particular  board  or  body  of  a  corporation  not  created  by  a 
public  statute  is  authorized  by  the  charter  and  by-laws  to  appoint 
agents,  where  no  proof  of  the  fact  is  introduced,14  but  this  doctrine 

10Stimson  Am.  Stat.  (1892)  §  8540,  "Angell  &  Ames  Corp.  (llth  ed.) 

citing  laws  of  Wisconsin,  Missouri,  §  277.  It  has  been  held  that  the 

Arkansas.  court  cannot  judicially  know  the  au- 

uStimson  Am.  Stat.  (1892)  §  8540,  thority  and  duties  of  officers  of  a 

citing  laws  of  Pennsylvania,  Wis-  railroad  corporation  where  they  are 

consin,  Missouri,  Ohio.  Pennsyl-  not  defined  by  law.  Brown  v.  Mis- 

vania  and  Missouri  make  it  a  mis-  souri,  &c.  R.  Co.  67  Mo.  122.  Nor 

demeanor  for  an  officer  or  employe  of  agents.  Wood  v.  Chicago,  &c.  R. 

of  a  railroad  to  be  interested  in  the  Co.  59  Iowa  196,  13  N.  W.  99;  Mc- 

business  of  transportation  as  a  com-  G-owan  v.  St.  Louis,  &c.  R.  Co.  61 

mon  carrier  over  such  road.  Mo.  528;  Southern  R.  Co.  v.  Hogan, 

"People  v.  Webster,  10  Wend.  (N.  103  Ga.  564,  29  S.  E.  760.  But  see 

Y.)  554.  See,  also,  Mobile,  &c.  R.  Co.  Louisville,  &c.  R.  Co.  v.  McVay,  98 

v.  Owen,  121  Ala.  505,  25  So.  612.  Ind.  391,  49  Am.  R.  770,  where  the 

18  State  v.  Ancker,  2  Rich.  L.  ( S.  court  noticed  the  duties  and  powers 

C.)  245.  of  a  "general  manager"  without 


§  209] 


CORPORATE    REPRESENTATIVES. 


312 


requires  limitation  and  qualification.  Principal  governing  officers, 
such  as  the  members  of  the  board  of  directors,  must  be  chosen  by  the 
members  of  the  corporation  unless  otherwise  provided  by  the  charter. 
All  of  the  states  make  provision  by  their  statutes  for  the  incorporation 
of  railroads  for  the  choice  of  a  board  of  directors,  who  are  charged 
with  the  immediate  government  and  direction  of  the  affairs  of  the 
corporation,16  and  of  a  president  usually  chosen  by  them.16  Many 
of  the  states  provide  that  the  directors  shall  also  choose  certain  other 
officers,  as  vice-president,17  secretary,18  and  treasurer;19  while  other 
states  leave  all  officers  and  agents,  as  these  states  leave  all  but  those 
enumerated,  to  be  selected  by  the  directors  in  accordance  with  the  by- 
laws that  may  be  adopted,  or  in  response  to  the  apparent  needs  of  the 
corporation.20 

§209.  Agents  generally. — Agents  are  sometimes  appointed  for  a 
term  certain,  though  they  are  more  often  appointed  to  serve  at  the 
pleasure  of  the  directors  or  principal  officers.  Except  where  some  other 


proof.  And  Sacalaris  v.  Eureka,  &c. 
R.  Co.  18  Nev.  155,  1  Pac.  835,  51 
Am.  R.  737,  where  the  court  did  the 
same  as  to  a  "superintendent."  We 
think  that  the  courts  may  take  ju- 
dicial notice  of  the  powers  and  du- 
ties of  many  classes  of  officers  and 
agents  of  railroad  companies.  It 
may  be  true  that  courts  will  not 
take  judicial  notice  of  the  particu- 
lar powers  and  duties  of  officers,  but 
that  they  will  take  notice  of  the 
general  scope  and  nature  of  the 
powers  and  duties  of  many  classes 
of  officers  and  agents  is  also  true. 
See  1  Elliott  Ev.  §  72. 

"Stimson  Am.  Stat.  (1892) 
§§  8043,  8532. 

16  Stimson  Am.  Stat.  (1892) 
§§  8044,  8533. 

"Stimson  Am.  Stat.  (1892) 
§§  8044,  8533,  citing  laws  of  Ohio, 
Wisconsin,  Dakota,  Georgia,  Florida, 
Oklahoma,  Nevada,  Arizona,  New 
Jersey,  Pennsylvania  and  Utah. 

"Stimson  Am.  Stat.  (1892) 
§§  8044,  8533,  citing  laws  of  Massa- 


chusetts, Vermont,  Connecticut,  New 
York,  Wisconsin,  Nebraska,  Mis- 
souri, Nevada,  Utah,  North  Caro- 
lina, New  Mexico,  Dakota,  Montana, 
Arizona,  Georgia,  Oklahoma,  Dela- 
ware, California,  New  Hampshire, 
Ohio,  Kansas,  Arkansas,  Colorado, 
Wyoming,  District  Columbia. 

"Stimson  Am.  Stat.  (1892) 
§§  8044,  8533,  citing  laws  of  Nevada, 
Arizona,  Massachusetts,  Vermont, 
Connecticut,  New  York,  Wisconsin, 
Nebraska,  Ohio,  North  Carolina, 
Maryland,  Dakota,  Montana,  Utah, 
Georgia,  Florida,  Oklahoma,  New 
Mexico,  Delaware,  California,  Kan- 
sas, Arkansas,  Idaho. 

20  Stimson  Am.  Stat.  (1892) 
§§  8044,  8533.  Without  express 
power  granted  to  them,  it  is  the 
right  of  the  directors  to  appoint 
necessary  officers  and  agents  of  the 
company,  and  to  provide  for  the 
payment  of  compensation.  Falki- 
ner  v.  Grand  Junction  R.  Co.  4  Ont. 
Rep.  350. 


'313 


PROOF  OF  RELATION  OF  PRINCIPAL  AND  AGENT.    [§  210 


provision  is  contained  in  the  charter  or  by-laws,  the  directors  have 
implied  power  to  remove  at  any  time  agents  appointed  by  them,  sub- 
ject to  the  rules  which  govern  similar  contracts  between  the  agents  of 
individuals  and  their  principals.21  But  the  authority  of  a  duly  ap- 
pointed agent  does  not,  necessarily,  cease  with  the  termination  of  the 
office  of  the  board  of  directors  by  which  he  was  appointed;22  such, 
authority,  as  a  general  rule,  continues  until  revoked,  unless  a  limit 
was  placed  upon  its  duration  when  granted. 

§  210.  Proof  of  the  existence  of  the  relation  of  principal  and 
agent. — The  general  rule  is  that  the  existence  of  the  relation  of  prin- 
cipal and  agent  may  be  established  by  direct  evidence  or  by  facts  and 
circumstances.  Whether  the  relation  exists  is  ordinarily,  but  not 
always,  a  question  of  fact.23  As  is  well  known,  the  relation  of  prin- 
cipal and  agent  cannot  be  established  by  evidence  of  the  declarations 
of  the  person  claiming  to  act  as  agent,24  nor  can  it  be  established  by 
evidence  of  a  general  understanding  among  business  men.25  The 
agents  of  the  corporation  not  expressly  named  in  the  charter  are 
usually  appointed  by  the  directors  under  their  general  authority  to 
direct  the  affairs  of  the  corporation.26  Such  an  appointment  should, 
when  practicable,  be  proved  by  the  records  of  the  corporation,  and 
cannot  be  established  by  the  mere  acts  of  the  assumed  agent  as  to  the 


21  Taylor    Priv.    Corp.     (2d    ed.) 
§  650. 

22  Anderson  v.  Longden,  1  Wheat. 
(U.   S.)    85;    Northampton  Bank  v. 
Pepoon,  11  Mass.  288;  Exeter  Bank 
v.  Rogers,  7  N.  H.  21. 

23  Waterbury  v.  New  York,  &c.  Co. 
21  Blatchf.   314;    McDougall  v.  Co- 
vert, 18  U.  C.  C.  P.  119;   St.  Louis, 
&c.  Co.  v.  Hendricks,   48  Ark.  177, 
2  S.  W.  783,  3  Am.  St.  220;  Barrett 
v.  Indianapolis,  &c.  Co.  9  Mo.  App. 
226;  Missouri,  &c.  Co.  v.  Carpenter, 
44  Kan.  257,  24  Pac.  462.     See  1  El- 
liott  Gen.   Pr.    §    426.     Where   the 
facts  are  in  controversy  the  ques- 
tion is  for  the  jury.    Franklin,  &c. 
Co.  v.  Mackey,  83  Hun  (N.  Y.)  511, 
31  N.  Y.  S.  1057;  Baker  v.  Tibbetts, 
162  Mass.   468,  39  N.  E.  350.     See, 


generally,  on  this  subject,  3  Elliott 
Ev.  §§  1626-1635. 

24  New  England,  &c.  Co.  v.  Baxley, 
44    S.   Car.   81,   21   S.   E.   444,   885; 
Burke  v.  Frye,  44  Neb.  223,  62  N. 
W.  476;  Brady  v.  Nagle  (Tex.  App.), 
29  S.  W.  943 ;  Taylor  v.  Second  Ave. 
&c.  Co.  17  J.  &  S.  (N.  Y.)  513;  Mar- 
vin v.  Wilber,  52  N.  Y.  270;  Hirsch- 
mann  v.  Iron  Range,  &c.  R.  Co.  97 
Mich.  384,  56  N.  W.  842;  Columbus, 
&c.  Co.  v.  Powell,  40  Ind.  37;  Lind- 
say v.  Central,  &c.  Co.  46  Ga.  477;  3 
Elliott  Ev.  §  1636. 

25  McGregor     v.     Hudson      (Tex. 
App.),  30  S.  W.  489.     See,  also,  3 
Elliott  Ev.  §  1638. 

28  For  statute  provisions  to  this 
effect  see  Stimson  Am.  Stat.  Law 
(1892),  §  8533,  citing  the  laws  of 
twenty-two  states. 


§  211]  CORPORATE  REPRESENTATIVES.  314 

particular  matter  in  question  without  proof  that  they  were  adopted 
or  ratified  by  the  corporation.27  But,  as  a  general  rule,  no  formal 
resolution  of  the  board  of  directors  is  required  to  appoint  an  agent  or 
define  his  powers.28  It  is  not,  ordinarily,  necessary  that  the  agent's 
authority  be  conferred  by  writing.29  The  fact  of  his  agency  may  also 
be  proved  by  showing  what  he  has  been  accustomed  to  do  for  his 
principal  with  the  latter's  acquiescence.30 

§  211.  Proof  of  authority. — It  is  not  enough,  as  a  general  rule,  to 
prove  the  existence  of  the  relation  of  principal  and  agent,  but,  or- 
dinarily, there  must  be  some  evidence  of  the  authority  and  its  scope. 
In  the  case  of  general  superior  officers,  as  president,  general  manager, 
and  the  like,  the  court  may  infer,  in  a  general  way,  the  existence  of 
authority.  In  the  case  of  mere  agents,  where  nothing  has  been  done 
toward  executing  a  contract  made  by  one  who  assumes  to  act  for  the 
corporation,  and  damages  for  non-performance  are  sought  to  be  re- 
covered, the  plaintiff  must  affirmatively  show  that  the  agent  had  au- 
thority to  bind  the  corporation.31  Evidence  that  a  person  is  an  agent 
of  the  company  is,  ordinarily,  not  sufficient  to  establish  his  authority 
to  bind  the  company  by  his  acts,  but,  as  a  general  rule,  evidence  that 
the  relation  of  principal  and  agent  exists  must  be  supplemented  by 
evidence  showing  the  nature  and  extent  of  the  agent's  authority.32 

•  a  Waterman    Corp.    323;     Hunts-  Paris  Mfg.  Co.  39  Me.  316.    His  au- 

ville,  &c.  R.  Co.  v.  Corpenning,  97  thority   may   be    implied    from    his 

Ala.  681,  12  So.  295;   International,  course  of  action  and  its  ratification 

&c.  R.  Co.  v.  Prince,  77  Tex.  560,  14  by    the     corporation.       Perkins    v. 

S.   W.    171,   19   Am.    St.    795;    City  Washington  Ins.  Co.  4  Cow.  (N.  Y.) 

Electric  St.  R.  Co.  v.  First  Nat.  &c.  645;    Elysville   Mfg.   Co.   v.   Okisko 

Bank,  62  Ark.  33,  34  S.  W.  89,  31  L.  Co.  1  Md.  Ch.  392.     See,  also,  3  El- 

R.  A.  535,  54  Am.  St.  282.  liott  Ev.  §§  1633,  1634. 

28  Bank  of  Lyons  v.  Demmon,  Hill  31  Fister   v.  LaRue,   15  Barb.    (N. 

&  D.   Supp.    (N.  Y.)    398;    Goodwin  Y.)   323;  Atlantic  Co.  v.  Vigilancia, 

v.  Union   Screw  Co.  34  N.  H.   378.  73  Fed.  452.   See,  also,  3  Elliott  Ev. 

It    may    be    made    "by    the    usual  §§  1625,  1632. 

course  of  business."     Bank  of  Mid-  ^Bonnell  v.   State,   64    Ind.   498; 

dlebury  v.  Rutland,  &c.  R.  Co.  30  Vt.  Brown  v.  Missouri,  &c.  Co.  67  Mo. 

159.  122;  McGowan  v.  St.  Louis,  &c.  Co. 

28  Bank  of  Middlebury  v.  Rutland,  61  Mo.  528;  Highland  Av.  &c.  Co.  v. 
&c.  R.  Co.  30  Vt.  159;  Nicholas  v.  Walters,  91  Ala.  435,  8  So.  57;  Chat- 
Oliver,  36  N.  H.  218;  3  Elliott  Ev.  tanooga,  &c.  Co.  v.  Liddell,  85  Ga. 
§  1628.  482,  11  S.  E.  853,  21  Am.  St.  169; 

30  Hamilton   v.   Newcastle,   &c.  R.  Nail  v.  Louisville,  &c.  Co.  129  Ind. 

Co.   9   Ind.   359;    Whitney  v.   South  260,  264,  28  N.  E.  183,  611. 


315 


AGENCY  INFERRED. 


[ 


§212.  Agency  inferred. — The  law  will  often  infer  an  agency 
from  the  general  character  of  the  acts  which  one  assuming  to  act  for 
the  corporation  has  been  permitted  to  do,33  although  they  do  not  come 
strictly  within  the  terms  of  his  employment,  and  the  agent  will  be 
held  to  possess  the  power  to  bind  his  principal  within  the  limits  of 
the  authority  with  which  he  has  apparently  been  clothed  by  the  prin- 
cipal in  respect  to  the  subject-matter.34  The  corporation  will,  as  a 
general  rule,  be  bound  by  the  acts  of  an  agent  whom  it  has  permitted 
to  pursue  a  particular  line  of  conduct  for  a  considerable  period  with- 
out objection.35  Thus,  where  the  board  of  managers  of  a  railroad 
company  permitted  the  president  to  assume  entire  control  of  the  busi- 
ness of  the  company  for  three  years,  and  to  make  such  purchases  for 
the  company  as  he  deemed  necessary,  giving  notes  and  corporate  secur- 
ities in  payment,  and  at  the  end  of  the  three  years  assumed  control 
of  the  road,  together  with  all  the  property  so  acquired,  and  continued 
to  use  it  without  questioning  the  manner  in  which  it  was  obtained, 
the  company  was  held  bound  by  all  the  acts  of  the  president  during 
the  time  he  held  control  of  its  road.36  But,  unless  his  authority  is 
shown  to  have  been  enlarged  by  the  course  of  business  which  the  cor- 
poration has  permitted  him  to  pursue,  or  by  ratifying  acts  not  em- 
braced in  his  original  authority,37  an  agent  under  a  general  appoint- 
ment to  do  specified  things  has  only  limited  special  powers.38 


^Isbell  v.  Brinkman,  70  Ind.  118; 
Hotchin  v.  Kent,  8  Mich.  526;  Wash- 
burn  v.  Nashville,  &c.  R.  Co.  40 
Tenn.  638,  75  Am.  Dec.  784;  Ala- 
bama, &c.  R.  Co.  v.  Kidd,  29  Ala. 
221;  Perkins  v.  Portland,  &c.  R.  Co. 
47  Me.  573,  74  Am.  Dec.  507;  Tanner 
v.  Oil  Creek  R.  Co.  53  Pa.  St.  411. 

34  Pickering  v.  Busk,  15  East.  38; 
Columbus,  &c.  R.  Co.  v.  Powell,  40 
Ind.  37;  Louisville,  &c.  R.  Co.  v.  Mc- 
Vay,  98  Ind.  391,  49  Am.  R.  770; 
Alabama,  &c.  R.  Co.  v.  Kidd,  29  Ala. 
221;  Covington  v.  Covington  Bridge 
Co.  10  Bush  (Ky.)  69;  Mechanics' 
Bank  v.  New  York,  &c.  R.  Co.  13  N. 
Y.  599.  And  authority  to  act  in  a 
certain  matter  will  carry  with  it  au- 
thority to  bind  the  corporation  in 
all  things  incident  thereto.  Bodine 
v.  Exchange  Fire  Ins.  Co.  51  N.  Y. 


117,  10  Am.  R.  566;  Newell  v.  Smith, 
49  Vt.  255. 

35  Caldwell  v.  National  Mohawk 
Valley  Bank,  64  Barb.  (N.  Y.)  333. 
See,  generally,  3  Elliott  Ev.  §§  1631, 
1633,  1634,  1635.  A  single  recogni- 
tion of  a  single  act  of  an  assumed 
agent,  if  sufficiently  unequivocal, 
positive  and  comprehensive  in  its 
character,  may  be  sufficient  to  estab- 
lish an  agency  to  do  other  similar 
acts.  Wilcox  v.  Chicago,  &c.  R.  Co. 
24  Minn.  269. 

""Olcott  v.  Tioga  R.  Co.  27  N.  Y. 
546,  84  Am.  Dec.  298.  And  see  Kelley 
V.  Newburyport,  &c.  Horse  R.  Co.  141 
Mass.  496,  6  N.  E.  745. 

87  Commonwealth  v.  Ohio,  &c.  R. 
Co.  1  Grants'  Cas.  (Pa.)  329,  and 
cases  cited  in  preceding  notes. 

38  Wilson  v.  Genesee  Mut.  Ins.  Co. 
14  N.  Y.  418. 


213] 


CORPORATE  REPRESENTATIVES. 


316 


§  213.  Powers,  duties  and  authority  of  officers  and  agents  gener- 
ally.— An  attempt  is  made  in  some  of  the  states  to  outline  the  duties 
of  certain  officers  of  railroad  companies,  but  most  of  the  states  leave 
this  matter  to  be  controlled  by  the  by-laws.  As  between  themselves 
and  the  corporation,  the  officers  and  agents  have  only  such  powers 
as  are  directly  or  impliedly  conferred  upon  them  by  the  charter,  or 
by  the  terms  of  their  appointment.39  Where  the  charter  provides  that 
certain  powers  of  the  corporation  shall  be  exercised  by  particular 
officers  or  agents,  only  such  officers  or  agents  may  exercise  them,  and 
any  attempt  by  other  persons  to  bind  the  corporation  by  the  exercise 
of  such  powers  will  ordinarily  be  voidable,40  but  there  may  be  cir- 
cumstances which  will  prevent  the  corporation  from  avoiding  the  acts 
of  such  officers  or  agents.  The  general  rule  is  that  where  the  duties 
of  an  officer  or  agent  are  defined  by  law,  or  prescribed  in  the  charter 
or  articles  of  association,  or  established  by  usage,  a  person  dealing 
with  the  corporation  is  bound  to  know  the  limitations  upon  his  au- 
thority thus  determined.41  It  has  been  held  by  some  of  the  courts 
that  he  must,  in  doubtful  cases,  acquaint  himself  with  the  extent  of 
such  authority,  or  submit  to  the  consequences  of  an  omission  to  do 
so.42  As  between  the  corporation  $nd  third  persons,  where  the  agent's 
power  is  not  limited  by  the  charter  or  by  positive  law,  the  corporation 


^Angell  &  Ames  Corp.  (llth  ed.) 
§  280. 

40  Union  Mut.  F.  Ins.  Co.  v.  Keyser, 
32  N.  H.  313,  64  Am.  Dec.  375. 

"Adriance  v.  Roome,  52  Barb.  (N. 
Y.)  399,  State  v.  Commercial  Bank, 
14  Miss.  218,  45  Am.  Dec.  280;  Er- 
nest v.  Nicholls,  6  H.  L.  Cas.  401. 
Persons  dealing  with  the  officers  of 
a  corporation,  or  with  persons  as- 
suming to  represent  it,  are  charge- 
able with  notice  of  the  purpose  of 
its  creation  and  its  powers  and  with 
the  authority,  actual  or  apparent,  of 
its  officers  or  agents  with  whom 
they  deal.  Wilson  v.  Kings  County 
Elev.  R.  Co.  114  N.  Y.  487,  21  N.  E. 
1015,  24  N.  Y.  S.  81;  Bocock  v.  Alle- 
ighany  Coal  &  Iron  Co.  82  Va.  913,  1 
;S.  E.  325,  3  Am.  St.  128;  Whitehurst 
,v.  Whitehurst,  83  Va.  153,  1  S.  E. 
801;  Memphis,  &c.  Elevator  Co.  v. 


Memphis,  &c.  R.  Co.  85  Tenn  703,  5 
S.  W.  52,  4  Am.  St.  798. 

42  Risley  v.  Indianapolis,  &c.  R.  Co. 
1  Hun  (N.  Y.)  202,  in  which  there 
is  a  dictum  to  the  effect  that  one 
contracting  with  an  officer  of  the 
corporation  must  be  informed  as  to 
his  powers  set  forth  in  the  by-laws. 
But  the  principle  upon  which  the 
case  is  based  is  that  one  dealing 
with  a  corporation  must  ascertain 
with  certainty  the  authority  of  a 
person  professing  to  act  for  the  cor- 
poration, unless  he  has  been  held  out 
by  the  corporation  as  possessing  the 
powers  in  question  or  has  before 
acted  for  it  in  the  same  capacity; 
and  failing  to  do  this  he  must  abide 
the  consequences  of  his  neglect. 
Adriance  v.  Roome,  52  Barb.  (N.  Y.) 
399;  Salem  Bank  v.  Gloucester 
Bank,  17  Mass.  1,  9  Am.  Dec.  111. 


sir 


POWERS   AXD   DUTIES   OF    OFFICERS   AND   AGENTS. 


'  213 


will  generally  be  held  bound  by  his  acts  performed  within  the  scope 
of  his  apparent  authority;  and  this  is  true  not  only  of  his  contracts, 
but  of  all  his  other  acts  and  omissions.43  Thus  it  is  held  liable  for  the 
frauds,  the  misrepresentations,44  and  even  the  torts,45  of  its  author- 


43  Ranger  v.  Great  Western  R.  Co. 
5  H.  L.  Gas.  72;  Reed  v.  Home  Sav- 
ings Bank,  130  Mass.  443,  39  Am.  R. 
468;  Chestnut  Hill,  &c.  Co.  v.  Rutter, 
4  Serg.  &  R.  (Pa.)  6,  8  Am.  Dec. 
675;  Washburn  v.  Nashville,  &c.  Co. 

3  Head.  (Tenn.)  638  ;  Nashville,  &c. 
Co.  v.  Carroll,  6  Heisk.  (Tenn.)  347; 
Clouse    v.  Canada  Southern,  &c.  Co. 

4  Ont.  28,  14  Am.  &  Eng.  R.  Cases 
456;   Langan  v.  Great  Western,  &c. 
Co.    30   L.   T.    (N.   S.)    173;    Cedar 
Rapids,  &c.  Co.  v.  Stewart,  25  Iowa 
115;  New  York,  &c.  Co.  v.  Bates,  68 
Md.  184,  11  Atl.  705;  Olcott  v.  Tioga, 
&c.  Co.  27  N.  Y.  546,  84  Am.  Dec. 
298;  Hirschmann  v.  Iron  Range,  &c. 
Co.    97    Mich.    384,    56    N.    W.    842; 
Ecker  v.  Chicago,  &c.  Co.  8  Mo.  App. 
223.  If  an  agent  is  invested  with  the 
indicia   of   authority,   the   company 
will  be  liable  to  innocent  third  per- 
sons for  the  acts  of  the  agent  within 
the    scope    of    the    authority    with 
which  he  appears  to  be  clothed,  al- 
though he  may  transcend  his  actual 
authority  or  violate  instructions,  but 
this  rule  does  not  prevail  where  the 
authority  of  the  agent  is  prescribed 
by  the  corporate  charter.    Madison 
&c.  Co.  v.  Norwich,  &c.  Society,  24 
Ind.  457;  American,  &c.  Co.  v.  Min- 
neapolis, St.  Paul,  &c.  Co.  44  Minn. 
93,  46  N.  W.  143 ;  Goff  v.  Toledo,  &c. 
Co.  28  111.  App.  529;  Illinois,  &c.  Co. 
v.  Jonte,  13  111.  App.  424;  Meyer  v. 
Harnden,  &c.  Co.  24  How.  Pr.    (N. 
Y.)   290;  Hull  v.  East  Line,  &c.  Co. 
66  Texas  619,  2  S.  W.  831;  Harrison 
v.  Kansas  City,  &c.  Co.  50  Mo.  App. 
332;  Lake  Shore,  &c.  Co.  v.  Foster, 
104  Ind.  293,  4  N.  E.  20,  54  Am.  R. 
319;    Brooke  v.  New  York,  &c.  Co. 


108  Pa.  St.  529,  1  Atl.  206,  56  Am.  R. 
235 ;  Winchell  v.  National,  &c.  Co.  64 
Vt.  15,  23  Atl.  728. 

"Bank  of  U.  S.  v.  Davis,  2  Hill 
(N.  Y.)  451;  New  York,  &c.  R.  Co.  v. 
Schuyler,  34  N.  Y.  30. 

45  Drake  v.  Kiely,'  93  Pa.  St.  492; 
Moore  v.  Fitchburg  R.  Corp.  70 
Mass.  465,  64  Am.  Dec.  83;  White- 
man  v.  Wilmington,  &c.  R.  Co.  2 
Harr.  (Del.)  514,  33  Am.  Dec.  411; 
Evansville,  &c.  R.  Co.  v.  McKee,  99 
Ind.  519,  50  Am.  R.  102;  where  the 
company's  detective  caused  the  ar- 
rest of  an  innocent  person,  and  the 
company  was  held  liable  in  dam- 
ages. Ranger  v.  Great  Western,  &c. 
Co.  5  H.  L.  Cases  72;  Nolton  v.  West- 
ern R.  Co.  15  N.  Y.  444,  69  Am.  Dec. 
623;  Miller  v.  Burlington,  8  Neb. 
219;  Brokaw  v.  New  Jersey,  &c.  Co. 
32  N.  J.  L.  328;  Gillemater  v.  Madi- 
son, &c.  Co.  5  Ind.  339;  State  v.  Mor- 
ris, &c.  Co.  23  N.  J.  L.  360;  Quinn  v. 
South  Carolina,  &c.  Co.  29  S.  Car. 
381,  7  S.  E.  614,  1  L.  R.  A.  682; 
Cohen  v.  Dry  Dock,  &c.  69  N.  Y.  170; 
Pittsburgh,  &c.  Co.  v.  Kirk,  102  Ind. 
399,  52  Am.  R.  675;  Hussey  v.  Nor- 
folk, &c.  Co.  98  N.  C.  34,  2  Am.  St. 
312;  Payne  v.  Western,  &c.  Co.  13 
Lea  (Tenn.)  507,  49  Am.  R.  666; 
Craker  v.  Chicago,  &c.  Co.  36  Wis. 
657,  17  Am.  R.  504;  Smith  v.  Man- 
hattan, &c.  Co.  45  N.  Y.  S.  865; 
Stewart  v.  Brooklyn,  &c.  Co.  90  N. 
Y.  588,  43  Am.  R.  185;  Northwest- 
ern, &c.  Co.  v.  Hack,  66  111.  238; 
Ramsden  v.  Boston,  &c.  Co.  104 
Mass.  117,  6  Am.  R.  200;  Sawyer  v. 
Norfolk,  &c.  R.  Co.  (N.  Car.),  54  S. 
E.  793. 


§  213]  CORPORATE  REPRESENTATIVES.  318 

ized  agents,  committed  in  the  course  of  their  employment.46  In  an 
action  of  .trespass  against  a  railroad  company  and  its  president,  who 
was  also  the  manager  of  a  construction  company,  which  had  con- 
tracted with  the  railroad  company  to  construct  its  road,  it  appeared 
that  as  such  manager  of  the  construction  company,  he  made  a  contract 
with  contractors  to  build  a  certain  portion  on  a  line,  "as  shown 
hy  a  map  designating  the  surveys,  both  on  file  in  the  office  of  the  chief 
engineer"  of  the  railroad,  with  such  variations  as  should  be  determined 
on  by  the  construction  company ;  that  as  such  he  notified  the  contract- 
ors to  commence  the  work  "as  per  contract/'  and  that  they  underlet 
four  sections  to  a  contractor,  who  committed  the  trespass;  the  presi- 
dent also  wrote  the  body  of  a  letter  purporting  to  be  signed  by  the  con- 
struction company  to  the  contractors,  stating  that  it  was  deemed  ad- 
visable by  the  executive  committee  of  the  railroad  (of  which  com- 
mittee he  was  a  member)  to  change  the  line  of  survey  at  that  place, 
and  requesting  them  to  await  instructions,  and  suspend  operations; 
the  contractors  stopped  work,  but  were  paid  for  the  work  on  plaintiff's 
land,  on  estimates  approved  by  the  chief  engineer  in  drafts  approved 
by  the  executive  committee,  and  it  was  held  that  the  testimony  of  a 
director  of  the  railroad  company  that  there  was  a  contract  with  the. 
construction  company,  together  with  the  fact  that  the  latter  company 
was  working  under  the  railroad  company's  franchise,  and  with  its 
consent,  was  enough  to  show  a  liability  on  the  part  of  the  railroad 
company  for  whatever  the  sub-contractors  did.  bona  fide  and  in  the  line 
of  their  employment.47  The  corporation  is  also  liable  for  the  negli- 
gence of  its  agents  or  servants  resulting  in  the  failure  to  perform 
duties  imposed  upon  it  for  consequent  injury  to  one  to  whom  such 

46  The   old   common   law   doctrine  tral,  &c.  Co.  11  Nev.  350,  21  Am.  R. 

that  a  master  is  not  liable  for  the  757;  Ritchie  v.  Waller,  63  Conn.  155, 

willful  act  of  the  servant,  although  28  Atl.  29,  27  L.  R.  A.  161,  and  notes, 

performed  within  the  line  of  duty,  38  Am.  St.  361;  Pennsylvania  Co.  v. 

has  been  overthrown.  Craker  v.  Chi-  Weddle,    100    Ind.    138,    and    cases 

cago,  &c.  Co.  36  Wis.  657,  17  Am.  R.  cited. 

504;  Perkins  v.  Missouri,  &c.  Co.  55  "  St.  Louis,  &c.  R.  Co.  v.  Drennan, 
Mo.  201;  Heenrich  v.  Pullman,  &c.  26  111.  App.  263.  A  corporation  can- 
Co.  20  Fed.  100;  De  Camp  v.  Missis-  not,  by  its  by-laws,  or  any  constat- 
sippi,  &c.  12  Iowa  348;  Toledo,  &c.  ing  instrument,  avoid  liability  for 
R.  Co.  v.  Harmon,  47  111.  298,  95  Am.  the  wrongful  acts  of  its  officers  or 
Dec.  489;  Indianapolis,  &c.  Co.  v.  servants  performed  within  the  scope 
Anthony,  43  Ind.  183;  Terre  Haute,  of  their  authority.  Sherman  v.  Com- 
"&c.  Co.  v.  Jackson,  81  Ind.  19,  6  Am.  mercial  Printing  Co.  29  Mo.  App.  31. 
&  Eng.  R.  Cases  178;  Quigley  v.  Cen- 


319 


AUTHORITY   OF   AGENT — LINE    OF  DUTY. 


[§    214 


duties  are  owing,48  even  though  the  servants  were  carefully  selected 
with  reference  to  their  competency.49  The  employer's  duty  is  not 
fully  discharged  in  such  a  case  when  he  exercises  care  in  the  selection 
of  employes,  although  it  is  his  duty  to  exercise  such  care,60  but  he  is 
liable  for  not  seeing  to  it  that  his  employes  perform  their  duties  with 
reasonable  care,  skill  and  diligence.  As  already  suggested,  the  em- 
ployer is  not  exonerated,  although  the  negligence  consisted  in  diso- 
beying orders.51 

§  214.  Authority  of  agent — line  of  duty. — The  principal  is  liable 
only  for  acts  done  within  the  scope  of  the  agent's  authority,  express 
or  implied.52  Beyond  the  scope  of  authority  or  duty  he  is  a  stranger 


48  Brown  v.  Chicago,  &c.  R.  Co.  54 
Wis.  342,  11  N.  W.  356,  911,  41  Am. 
R.  41;  Pennsylvania  Co.  v.  Hoagland, 
78   Ind.    203;    Byrne   v.   Wilson,   15 
Irish  C.  L.  332.   This  has  been  held, 
although  the  passenger  traveled  free, 
under   a    contract   whereby   he   as- 
sumed all  risks  of  accidents.    Ohio, 
&c.  R.  Co.  v.  Selby,  47  Ind.  471,  17 
Am.    R.    719;    Johnson   v.    Missouri 
Pacific,  &c.  Co.  96  Mo.  340,  9  S.  W. 
790,  9  Am.  St.  351. 

49  Gillenwater  v.   Madison,  &c.  R. 
Co.  5  Ind.  339,  61  Am.  Dec.  101.   See, 
generally,    McClung    v.    Dearborne, 
134  Pa.  St.  396,  19  Atl.  698,  8  L.  R. 
A.   204,  19  Am.   St.   708;    Golden  v. 
Newbrand,  52  Iowa  59,  35  Am.  R. 
257;  New  Orleans,  &c.  Co.  v.  Harri- 
son, 48   Miss.   112,  12  Am.  R.   356; 
Baird  v.  Shipman,  132  111.  16,  23  N. 
E.  384,  7  L.  R.  A.  128,  22  Am.   St. 
514;  Blake  v.  Ferris,  5  N.  Y.  (1  Sel- 
den)  48,  55  Am.  Dec.  304;  Georgia, 
&c.  R.  Co.  v.  Dougherty,  86  Ga.  744, 
12  S.  B.  747,  22  Am.  St.  499. 

60  Western  Stone  Co.  v.  Whalen, 
151  111.  472,  42  Am.  St.  244;  Hilts  v. 
Chicago,  &c.  Co.  55  Mich.  437,  21  N. 
W.  878;  Oilman  v.  Eastern,  &c.  Co. 
92  Mass.  233,  87  Am.  Dec.  635;  Gil- 
man  v.  Eastern,  &c.  Co.  95  Mass.  433, 
90  Am.  Dec.  210;  Monahan  v.  Wor- 


cester, 150  Mass.  439,  23  N.  E.  228, 
15  Am.  St.  226;  Grube  v.  Missouri, 
&c.  Co.  98  Mo.  330,  11  S.  W.  736,  4 
L.  R.  A.  776,  14  Am.  St.  645;  Lee  v. 
Michigan  Central,  &c.  Co.  87  Mich. 
574,  49  N.  W.  909;  Lake  Shore,  &c. 
Co.  v.  Stupak,  123  Ind.  210,  23  N.  E. 
246;  Hatt  v.  Nay,  144  Mass.  186,  10 
N.  E.  807;  Davis  v.  Detroit,  &c.  Co. 
20  Mich.  105,  4  Am.  R.  364;  Chicago, 
&c.  Co.  v.  Shannon,  43  111.  338;  To- 
ledo, &c.  Co.  v.  Bailey,  145  111.  159,  33 
N.  E.  1089;  Wabash,  &c.  Co.  v.  Mc- 
Daniels,  107  U.  S.  454,  2  Sup.  Ct. 
932;  Union,  &c.  Co.  v.  Young,  19 
Kans.  488;  Wright  v.  New  York,  &c. 
Co.  25  N.  Y.  562. 

51  Philadelphia,  &c.  R.  Co.  v.  Derby, 
14  How.  (U.  S.)  468.  A  person  seek- 
ing to  charge  a  corporation  with  the 
act    of    its    officers    or    authorized 
agents  is  not  affected  by  secret  in- 
structions    limiting     the     apparent 
powers  of   such   officers   or  agents. 
Benesch  v.  John   Hancock  Mut.  L. 
Ins.  Co.  (C.  P.)  32  N.  Y.  S.  73. 

52  The    general    subject   was    well 
considered  in  the  case  of  Chicago, 
&c.  Co.  v.  Bryant,  65  Fed.  969,  974. 
The    reporter    in    his    head    notes 
makes  this  statement  of  the  case: 
"A  yardmaster,  after  6  p.  m.,  on  be- 
ing relieved  from  duty,  took  a  pas- 


§  214] 


CORPORATE  REPRESENTATIVES. 


320 


to  his  principal  and  cannot  bind  him.  Very  many  cases  hold  that  the 
master  is  not  liable  for  a  servant's  willful  and  malicious  trespass 


senger  car  and  engine  to  give  him- 
self and  fellow-servants  a  free  ride 
to  and  from  a  meeting  of  theirs, 
without  notice  or  permission  from 
any  officer  who  had  authority  to  per- 
mit the  passage  of  such  a  train. 
Held  that  such  act,  not  having  been 
done  in  the  course  of  his  employ- 
ment, but  for  his  own  ends  exclus- 
ively, and  without  authority  to 
carry  passengers  for  the  company, 
and  having  no  apparent  authority, 
except  possession  of  the  train,  the 
company  was  not  liable  as  to  a  pas- 
senger for  injury  to  one  on  the 
train."  In  the  course  of  the  opinion 
the  court  used  this  language: 
"Moreover,  it  is  a  fatal  objection  to 
the  liability  of  this  company  for  the 
acts  of  this  yardmaster  in  operating 
this  train  that  they  were  not  in  the 
course  of  his  employment  for  the 
company,  but  for  his  own  ends  ex- 
clusively, while  he  was  at  liberty 
from  his  master's  service.  The  mas- 
ter is  not  liable  for  an  act  done  by 
a  servant  when  he  is  free  from  his 
service  and  is  not  attempting  to 
discharge  any  duty  to  his  master  im- 
posed upon  him  by  his  employment, 
but  is  pursuing  his  own  ends  ex- 
clusively, even  though  the  act  could 
not  have  been  done  without  the 
facilities  afforded  by  his  relation  to 
his  master."  In  Mitchell  v.  Crass- 
weller,  13  C.  B.  237,  a  carman,  whose 
duty  it  was  to  put  the  horse  and 
cart  of  his  master  in  his  stable  after 
the  day's  work  was  completed,  ob- 
tained the  keys  of  the  stable  for 
that  purpose,  and  then  drove  in  an- 
other direction  on  his  own  business, 
without  the  consent  of  his  master. 
On  his  return  he  drove  his  master's 
horse  and  cart  against  and  injured  a 


third  person,  but  the  master  was 
held  to  be  exempt  from  liability  for 
this  injury.  In  Cousins  v.  Hannibal, 
&c.  Railroad  Co.  66  Mo.  572,  the  su- 
perintendent of  the  company  took 
an  idle  locomotive  from  its  round- 
house in  the  night,  and  ran  it  two 
and  one-half  miles  for  a  doctor  for  a 
sick  neighbor.  On  the  way  he  care- 
lessly drove  the  engine  upon  and 
killed  the  plaintiff's  mule.  But  the 
supreme  court  of  Missouri  held  that 
the  company  was  not  liable  for  the 
death  of  the  mule.  In  Morier  v.  St. 
Paul,  &c.  R.  Co.  31  Minn.  351-353, 
17  N.  W.  952,  47  Am.  R.  793,  a 
case  in  which  an  action  was  brought 
against  the  company  for  damages 
that  resulted  from  a  fire  kindled  by 
its  sectionmen  on  its  right  of  way  to 
cook  their  dinners  on  a  day  when 
they  were  working  for  the  company, 
before  and  after  their  dinner,  Judge 
Mitchell,  of  the  supreme  court  of  the 
state  of  Minnesota,  states  this  rule 
in  these  words:  "If  the  act  be  done 
while  the  servant  is  at  liberty  from 
the  service,  and  pursuing  his  own 
ends  exclusively,  the  master  is  not 
responsible.  If  the  servant  was,  at 
the  time  when  the  injury  was  in- 
flicted, acting  for  himself,  and  as  his 
own  master,  pro  tempore,  the  mas- 
ter is  not  liable.  If  the  servant  step 
aside  from  his  master's  business,  for 
however  short  a  time,  to  do  an  act 
not  connected  with  such  business, 
the  relation  of  master  and  servant 
is  for  the  time  suspended.  Such, 
variously  expressed,  is  the  uniform 
doctrine  laid  down  by  all  authori- 
ties. 1  Thomp.  Neg.  (2d  ed.)  §  522, 
et  seq.  885,  886;  Shear.  &  R.  Neg. 
§§  62,  63;  Cooley  Torts,  533,  et  seq.; 
Little  Miami  Railroad  Co.  v.  Wet- 


321 


AUTHORITY  OF  AGENT LINE  OF  DUTY. 


[§  2U 


which  he  has  neither  commanded  nor  ratified  and  which  was  evidently 
perpetrated  to  gratify  the  private  hate  or  malignity  of  the  servant, 
although  done  under  color  of  a  discharge  of  the  duty  which  he  has  un- 
dertaken for  his  employer.53  Thus  it  is  held  that  where  a  person 
who  applies  to  have  his  baggage  checked,  and  by  his  abusive  language 
provokes  a  quarrel  with  the  baggageman,  in  the  course  of  which  the 
baggageman  injures  him  with  a  hatchet,  he  cannot  hold  the  railroad 
company  liable  for  his  injuries.54  The  principle  is  one  of  wide  sweep 
and  is  illustrated  by  many  cases  presenting  divers  phases.55  It  is  held 


more,  19  Ohio  St.  110,  2  Am.  R.  373; 
Storey  v.  Ashton,  L.  R.  4  Q.  B.  476; 
Mitchell  v.  Crassweller,  13  C.  B.  237; 
McClenaghan  v.  Brock,  5  Rich.  L.  (S. 
Car.)  17."  To  the  same  effect  are 
Campbell  v.  Providence,  9  R.  I.  262, 
and  Garretzen  v.  Duenckel,  50  Mo. 
104,  107,  111,  11  Am.  R.  405.  See, 
also,  Southern  R.  Co.  v.  Chambers 
(Ga.),  55  S.  E.  37;  Central  of 
Georgia  R.  Co.  v.  Morris,  121  Ga. 
484,  49  S.  E.  606,  104  Am.  St.  164; 
Obertoni  v.  Boston,  &c.  R.  Co.  186 
Mass.  481,  71  N.  E.  980,  67  L.  R.  A. 
422. 

53  McManus  v.  Crickett,  1  East  106; 
Evansville,  &c.  R.  Co.  v.  Baum,  26 
Ind.  70;  Hibbard  v.  New  York,  &c. 
R.  Co.  15  N.  Y.  455;  Illinois  Central 
R.  Co.  v.  Downey,  18  111.  259,  and  au- 
thorities cited  in  last  preceding 
note.  Where  one  agrees  to  supply  a 
railroad  company  with  timber  for 
construction  of  its  road,  and  em- 
ployes of  subcontractors  under  him 
committed  trespasses  in  getting  tim- 
bers for  such  construction,  the  rail- 
road company  is  not  liable  under 
the  statute  providing  that  an  em- 
ployer is  not  liable  for  torts  of  his 
employes,  engaged  in  an  independ- 
ent business,  when  there  is  no  evi- 
dence of  a  ratification  by  the  com- 
pany. Parker  v.  Waycross  &  F.  R. 
Co.  81  Ga.  387,  8  S.  E.  871. 

M  Little  Miami  R.  Co.  v.  Wetmore, 
19  Ohio  St.  110,  2  Am.  R.  373.  The 
ELL.  RAILROADS — 21 


weight  of  authority  holds  the  em- 
ployer liable  for  willful  injuries  in  a 
proper  case.  See  post,  §§  1255,  1638. 
"Walker  v.  Hannibal,  &c.  Co.  121 
Mo.  575,  26  S.  W.  360,  24  L.  R.  A. 
363,  42  Am.  St.  547;  Garretzen  v. 
Duenckel,  50  Mo.  104,  11  Am.  R.  405; 
Cousins  v.  Hannibal,  &c.  Co.  66  Mo. 
572;  Mitchell  v.  Crassweller,  13  C. 
B.  237;  Farber  v.  Missouri,  &c.  Co. 
116  Mo.  81,  22  S.  W.  631;  Towanda, 
&c.  Co.  v.  Heeman,  86  Pa.  St.  418; 
McKenzie  v.  McLeod,  10  Bing.  385; 
Farber  v.  Missouri  Pacific  Co.,  32 
Mo.  App.  378;  McKeon  v.  Citizens', 
&c.  Co.  42  Mo.  79;  Walton  v.  New 
York,  &c.  Co.  139  Mass.  556,  2  N.  E. 
101;  Cunningham  v.  Grand  Trunk 
Railroad,  31  U.  C.  Q.  B.  350;  Steph- 
enson  v.  Southern,  &c.  Co.  93  Cal. 
558,  29  Pac.  234,  15  L.  R.  A.  475,  27 
Am.  St.  226;  Pittsburgh,  &c.  Co. 
v.  Shields,  47  Ohio  St.  387,  24  N.  E. 
658,  8  L.  R.  A.  464,  21  Am.  St.  840. 
In  many  cases  the  question  whether 
the  act  was  performed  within  the 
scope  of  the  agent's  authority  is  one 
of  fact.  Kimball  v.  Cushman,  103 
Mass.  194,  4  Am.  R.  528;  Redding  v. 
South  Carolina,  &c.  Co.  3  S.  C.  1,  16 
Am.  R.  681;  Ritchie  v.  Waller,  63 
Conn.  155,  28  Atl.  29,  27  L.  R.  A.  161, 
38  Am.  St.  361.  But  the  question  is 
often  one  of  law.  Stone  v.  Hill,  45 
Conn.  44,  29  Am.  R.  635;  Storey  v. 
Ashton,  L.  R.  4  Q.  B.  476.  See,  gen- 
erally, Rounds  v.  Delaware,  &c.  Co. 


§  214] 


CORPORATE    REPRESENTATIVES. 


that  an  agent  employed  to  control  and  supervise  the  lands  of  a  railway 
corporation  cannot  render  the  company  liable  in  damages  for  ma- 
licious prosecution  by  instituting  a  criminal  prosecution  for  larceny 
of  the  company's  property,  even  though  the  prosecution  is  shown  to 
be  malicious  and  without  probable  cause.58  So  where  a  railroad  in- 
spector imprisoned  the  plaintiff  on  a  charge  of  drunkenness  and  re- 
fusal to  pay  his  fare,  and  preferred  a  charge  against  him  before  a 
magistrate  by  whom  he  was  dismissed,  the  court  held  that  the  company 
was  not  liable  in  the  absence  of  anything  going  to  show  that  the  in- 
spector was  authorized  to  make  the  arrest  or  that  the  fact  of  the 
plaintiff  being  in  custody  was  known  to  the  company.57  If,  however, 


64  N.  Y.  129,  21  Am.  R.  597;  Cor- 
mack  v.  Digby,  9.1.  R.  C.  L.  557; 
Burns  v.  Poulson,  L.  R.,  8  C.  P.  563; 
Sleath  v.  Wilson,  9  Carr.  &  P.  607; 
Whatman  v.  Pearson,  L.  R.  3  C.  P. 
422;  Pollock  says,  "whether  the 
servant  is  really  bent  on  his  mas- 
ter's affairs  or  not  is  a  question  of 
fact,  but  a  question  which  may  be 
troublesome."  Pollock  Torts,  mar- 
ginal page  71.  This  statement  of  the 
law  is  not  entirely  correct,  for  there 
are  cases  in  which  the  court  must 
determine,  as  matter  of  law, 
whether  the  agent  was  acting  with- 
in the  scope  of  his  authority. 

58  Pressley  v.  Mobile,  &c.  R.  Co.  15 
Fed.  199.  The  same  ruling  was  made 
in  a  somewhat  similar  case  where  a 
foreman  and  crew  assaulted  a  party. 
Waller  v.  Great  Northern  R.  Co.  18 
S.  Dak.  420,  100  N.  W.  1097,  70  L.  R. 
A.  731.  But  if  it  was  part  of  the 
duty  of  a  ticket  agent  of  a  corpora- 
tion to  post  in  his  office  notices  per- 
taining to  the  business  carried  on 
there,  the  corporation  is  liable  for  a 
libel  contained  in  a  notice  posted  by 
him,  though  in  excess  of  his  author- 
ity. Fogg  v.  Boston,  &c.  R.  Co.  148 
Mass.  513,  20  N.  E.  109,  12  Am.  St. 
583.  And  the  railroad  company  is 
liable  for  a  malicious  prosecution  in- 
stituted by  the  general  manager, 


although  its  charter  did  not  author- 
ize his  act.  Gulf,  &c.  R.  Co.  v. 
James,  73  Tex.  12,  10  S.  W.  744,  15 
Am.  St.  743. 

57  Eastern  Counties  R.  Co.  v. 
Broom,  15  Jur.  297,  2  Eng.  L.  &  Eq. 
406.  See,  also,  Daniel  v.  Atlantic 
Coast  Line  R.  Co.  136  N.  Car.  517,  48 
S.  E.  816,  67  L.  R.  A.  455;  Allen  v. 
London,  &c.  R.  Co.  L.  R.  6  Q.  B.  65, 
23  L.  T.  612.  But  where  the  agent  is 
employed  to  detect  and  arrest  per- 
sons who  unlawfully  interfere  with 
its  business,  and  while  acting  within 
the  scope  of  his  employment  he  ar- 
rests an  innocent  person,  the  corpo- 
ration is  liable.  Evansville,  &c.  R.  Co, 
v.  McKee,  99  Ind.  519,  5  Am.  R.  102; 
Galveston,  &c.  R.  Co.  v.  Donahoe,  56 
Tex.  162;  Lynch  v.  Metropolitan,  &c. 
R.  Co.  90  N.  Y.  77,  43  Am.  R.  141; 
Pennsylvania  Co.  v.  Weddle,  100 
Ind.  138;  Higgins  v.  Watervliet,  &c. 
R.  Co.  46  N.  Y.  23,  7  Am.  R.  293; 
Louisville,  &c.  Co.  v.  McKee,  92  Ind. 
371,  47  Am.  R.  193 ;  Pierce  Railroads 
277;  2  Rorer  Railroads  821.  See 
Goff  v.  Great  Northern  R.  Co.  30  L. 
J.  Q.  B.  148,  holding  a  railroad  com- 
pany liable  for  an  arrest  made  by 
one  of  its  servants  under  an  author- 
ity to  make  arrests  in  certain  cases, 
conferred  upon  railway  employes  by 
statute.  There  is,  however,  a  con- 


323  SCOPE   OF   AUTHORITY GENERAL   CONCLUSION.  [§215 

the  act  is  within  the  scope  of  the  agent's  duty,  and  is  performed  in  the 
line  of  service,  the  weight  of  authority  is  that  the  master  is  liable, 
although  the  act  is  willful. 

§  215.  Scope  of  authority — General  conclusion. — The  conflict 
among  the  authorities  to  which  we  have  referred  makes  it,  we  know, 
hazardous  to  venture  to  state  a  general  conclusion,  but  we  think  that 
it  is  safe  to  affirm  that,  where  cars  or  other  equipments  or  appliances 
are  owned  and  used  for  particular  purposes  and  this  is  matter  of  gen- 
eral knowledge,  no  agent  or  servant  of  a  railway  company  has  author- 
ity to  impose  a  duty  upon  the  company  by  inviting  a  third  person  to 
use  such  equipments  or  appliances  for  his  own  pleasure  or  convenience, 
such  person  not  being  in  the  service  of  the  company,  having  no  busi- 
ness relations  with  it,  and  there  being  no  emergency  warranting  a 
departure  from  the  ordinary  course  of  conduct  or  business.  We  have, 
indeed,  stated  our  general  conclusion  in  narrower  terms  than  the  best 
reasoned  cases  warrant,  and  are  inclined  to  think  the  conclusion 
should  be  stated  in  broader  terms.  In  our  opinion,  no  agent  or  ser- 
vant of  a  railroad  company  has  general  authority  to  devote  any 
of  the  property  of  the  company  to  uses  entirely  different  and  foreign 
from  that  to  which  the  property  was  devoted  by  the  corporation.  The 
most  liberal  view  that  can  be  justly  taken  in  favor  of  one  who  acts 
upon  an  invitation  given  by  an  agent  or  servant  of  the  company  to 
use  its  property  for  a  purpose  essentially  different  from  that  to  which 
the  property  is  devoted  by  the  company  is  that  he  is  a  bare  licensee  to 
whom  the  company  owes  no  duty  except  that  of  doing  him  no  willful 
injury.  There  is,  in  truth,  strong  reason  for  regarding  such  a  person 
as  a  mere  trespasser.  The  cases  which  hold  that  one  who  undertakes 
to  render  service  for  a  railroad  company  upon  the  request  of  an  agent 
or  employe  who  has  no  authority  to  bind  the  company  by  such  a  re- 
quest is  a  mere  volunteer  to  whom  the  company  is  responsible  for  will- 

flict    of    authority.      The    supreme  thority  for  such  action  or  it  is  rati- 

court  of  Maryland,  in  the  case  of  fied  by  the  company,  citing  Carter  v. 

Central   R.   Co.   v.   Brewer,   78   Md.  Machine  Co.  51  Md.  290,  34  Am.  R. 

63,  28  Atl.,615,  held  that  a  street  311;  Tolchester  Co.  v.  Steimmier,  72 
railway  company  is  not  liable  for  a  '  Md.  313,  20  Atl.  188,  8  L.  R.  A.  846. 

malicious  prosecution  and  false  ar-  The  conflicting  cases  are  collected  in 

rest  of  an  individual  by  its  presi-  a  note  to  Ritchie  v.  Waller,  63  Conn, 

dent  and  superintendent  on  a  charge  155,  28  Atl.  29,  27  L.  R.  A.  161,  38 

of  having  passed  counterfeit  money,  Am.  St.  361. 
unless  such  officers  have  express  au- 


§  216] 


CORPORATE   REPRESENTATIVES. 


ful  wrongs,  but  not  for  injuries  resulting  from  negligence,  support  the 
conclusion  stated.58 

§  216.  Contracts  by  agents — General  doctrine. — The  general  rules 
applicable  to  contracts  by  agents  of  corporations  apply  to  contracts 
by  agents  of  railroad  companies,  varied  only  by  the  peculiar  facts  or 
by  the  nature  of  the  business  to  which  the  contracts  relate.  It  is  not 
our  purpose  to  consider  the  subject  of  agency  generally,  but  to  treat  it 
only  so  far  as  is  necessary  to  the  unity  and  completeness  of  the  plan 
of  our  work.  It  may  be  said  at  the  outset  that  an  agent  may  bind  the 
corporation  by  any  contract  which  he  may  make  within  the  scope  of 
his  apparent  authority,  although  he  exceeds  his  real  authority,  unless 
the  party  with  whom  he  is  dealing  knows  or  ought  to  know  the  con- 
tract to  be  one  which  he  is  not  authorized  to  make,  but  he  cannot  bind 
the  company  by  an  act  outside  of  the  real  or  apparent  scope  of  his 
authority.59  It  has  been  held  that  a  railroad  company  can  neither 


58  We  cite  a  few  of  the  many  cases 
which  by  their  direct  judgments  or 
by  their  reasoning  sustain  our  con- 
clusion. Ream  v.  Pittsburg,  &c.  R. 
Co.  49  Ind.  93;  Chicago,  &c.  R.  Co.  v. 
Bryant,  65  Fed.  969;  Mitchell  v. 
Crassweller,  13  C.  B.  237;  Cousins  v. 
Railroad  Co.  66  Mo.  572;  Morier  v. 
Railway  Co.  31  Minn.  351,  353,  17  N. 
W.  952,  47  Am.  R.  793;  Campbell  v. 
Providence,  9  R.  I.  262;  McClen- 
aghan  v.  Brock,  5  Rich.  L.  (S.  Car.) 
17;  Wyllie  v.  Palmer,  137  N.  Y.  248, 
33  N.  E.  381,  19  L.  R.  A.  285;  Ara- 
smith  v.  Temple,  11  111.  App.  39; 
Flower  v.  Pennsylvania  Co.  69  Pa. 
St.  210,  8  Am.  R.  251;  Walton  v. 
New  York,  &c.  Co.  139  Mass.  556,  2 
N.  E.  101;  Gulf,  &c.  Co.  v.  Dawkins, 
77  Texas  228,  13  S.  W.  932;  Texas, 
&c.  R.  Co.  v.  Skinner,  4  Tex.  Civ. 
App.  661,  23  S.  W.  1001;  Murray  v. 
Currie,  L.  R.  6  C.  P.  24;  Louisville, 
&c.  Co.  v.  Douglass,  69  Miss.  723,  11 
So.  933,  30  Am.  St.  583;  Everhart 
v.  Terre  Haute,  &c.  Co.  78  Ind.  292, 
41  Am.  R.  567;  Mayton  v.  Texas,  &c. 
Co.  63  Tex.  77,  51  Am.  R.  637;  Os- 


borne  v.  Knox,  &c.  R.  Co.  68  Me.  49, 
28  Am.  R.  16;  Pittsburgh,  &c.  v.  Ad- 
ams, 105  Ind.  151,  5  N.  E.  187;  Mellor 
v.  Merchants',  &c.  Co.  150  Mass.  362, 
23  N.  E.  100,  5  L.  R.  A.  792;  Bairdv. 
Petit,  70  Pa.  St.  477;  Washburn  v. 
Nashville,  &c.  R.  Co.  40  Tenn.  638, 
75  Am.  Dec.  784;  Gilshannon  v. 
Storybrook,  &c.  Co.  10  Gush.  (Mass.) 
228;  Wright  v.  Rawson,  52  Iowa  329, 
3  N.  W.  106,  35  Am.  R.  275;  Keating 
v.  Michigan,  &c.  Co.  97  Mich.  154.  56 
N.  W.  346.  See,  also,  post,  §§  1305, 
1580,  1581,  1582. 

58  Harrison  v.  Missouri  Pacific  R. 
Co.  74  Mo.  364,  41  Am.  R.  318.  Where 
the  brakeman  took  up  the  tickets 
for  the  conductor  and  returned  the 
wrong  part  of  a  return  ticket  to  a 
passenger,  thinking,  as  he  testified, 
that  "one-half  of  the  ticket  was  good 
for  a  ride  either  way,"  the  railroad 
was  bound  to  accept  suth  part  of 
the  ticket  in  payment  for  the  return 
passage,  and  was  held  liable  in  dam- 
ages for  a  refusal  so  to  do.  Lake 
Erie,  &c.  R.  Co.  v.  Fix,  88  Ind.  381,  45 
Am.  R.  464.  Persons  held  out  as  the 


325 


DECLARATIONS   AXD  ADMISSIONS   OF   AGENTS. 


[§'   217 


be  bound  by  a  contract  made  by  a  person  who  is  not  its  agent,  nor  can 
it  ordinarily  enforce  a  contract  made  by  a  person  who  is  not  its  agent.60 
We  suppose,  however,  that  the  doctrine  of  the  cases  cited  in  the  note 
must  be  qualified  by  the  rule  that  an  effective  ratification  is  equivalent 
to  precedent  authority.  Strictly  speaking,  the  relation  of  principal 
and  agent  cannot  exist  in  the  absence  of  a  contract,  express  or  im- 
plied.61 This  doctrine  sustains  the  decisions  which  adjudge  that  a 
volunteer  cannot  be  regarded  as  the  agent  or  employe  of  a  railroad 
company,  although  he  may,  in  fact,  assume  to  perform  acts  in  its 
service. 

§  217.  Declarations  and  admission  of  agents. — The  familiar  rule 
is  that  a  principal  is  not  bound,  as  a  general  rule,  by  the  declarations 
or  admissions  of  an  agent  unless  made  in  the  course  of  business  or 
line  of  duty  of  the  agent  and  while  "the  transaction  is  depending." 
This  rule  is  one  of  extensive  application.  An  agent  may  bind  the 


general  agent  and  the  state  agent  of 
a  foreign  corporation,  who  employ  a 
general  manager  to  assist  them  in 
its  work,  bind  the  corporation  by 
their  contract,  if  the  other  party  is 
ignorant  of  the  limitation  on  their 
authority.  Equitable  Endowment 
Assn.  v.  Fisher,  71  Md.  430,  18  Atl. 
808.  But  an  officer  of  a  corporation 
not  authorized  to  transact  the  gen- 
eral business  of  the  company  with 
third  persons  cannot  bind  the  com- 
pany by  certifying  that  the  company 
has  no  lien  on  certain  shares  of 
stock.  Kenton  Ins.  Co.  v.  Bowman, 
84  Ky.  430,  1  S.  W.  717;  Katzen- 
stein  v.  Raleigh,  &c.  R.  Co.  84  N.  C. 
688,  6  Am.  &  Eng.  R.  Cas.  464;  Mont- 
gomery, &c.  Co.  v.  Hurst,  9  Ala.  513; 
Chicago,  &c.  Co.  v.  Volk,  45  111.  175; 
Wood  v.  Ontario,  &c.  Co.  24  U.  C. 
C.  P.  334;  Dye  v.  Virginia,  &c.  Co. 
9  Mackey  (D.  C.)  63;  Deming  v. 
Grand  Trunk,  &c.  Co.  48  N.  H.  455; 
Fowlds  v.  Evans,  52  Minn.  551,  54 
N.  W.  743;  Internationa!,  &c.  Co.  v. 
Ragsdale,  67  Texas  24,  2  S.  W.  515; 
Beattie  v.  Delaware,  &c.  Co.  90  N.  Y. 
643;  St.  Louis,  &c.  Co.  v.  Hendricks, 


48  Ark.  177,  2  S.  W.  783,  3  Am.  St. 
220;  Neibles  v.  Minneapolis,  &c.  Co. 
37  Minn.  151,  33  N.  W.  332;  Mont- 
gomery, &c.  Co.  v.  Hardaway,  104 
Ala.  100,  16  So.  29;  London  &  North- 
western R.  Co.  v.  Bartlett,  7  H.  &  N. 
400;  Foster  v.  Cleveland,  &c.  Co.  56 
Fed.  434. 

60  Chicago,    &c.    Co.    v.    Estes,    71 
Iowa  603,  33  N.  W.  124,  30  Am.  & 
Eng.  R.  Cas.  276;  Estes  v.  Chicago, 
&c.,Co.  72  Iowa  235,  33  N.  W.  647. 

61  Central  Trust  Co.  v.  Bridges,  57 
Fed.  753,  57  Am.  &  Eng.  R.  Cas.  452; 
Fischer  v.  Merchants'  Despatch,  &c. 
Co.  13  Mo.  App.  133;   Kelly  v.  Le- 
high,  &c.  Co.  8  Daly  (N.  Y.)  291.    In 
the  case  first  cited  the  court  said: 
"An  agency  is  created — authority  is 
actually  conferred — very  much  as  a 
contract  is  made,  i.  e.,  by  an  agree- 
ment   between    the    principal    and 
agent  that  such  a  relation  shall  ex- 
ist.   The  minds  of  the  parties  must 
meet   in    establishing   the    agency." 
This  rule  does  not  apply  where  the 
principal  holds  out  another  as  his 
agent,  for  in  such  a  case  the  liability 
rests  upon  the  ground  of  estoppel. 


218] 


CORPORATE   REPRESENTATIVES. 


326 


corporation  by  his  declarations  and  admissions  made  in  and  about  the 
execution  of  the  duties  of  his  employment  in  the  same  manner  that 
an  agent  of  a  private  individual  may  bind  his  principal.62  It  is,  how- 
ever, essential  to  the  competency  of  such  declarations,  as  a  general 
rule,  that  they  be  not  narratives  of  past  occurrences,  but,  in  a  sense 
at  least,  part  of  the  res  gestae.63 

§  218.  Declarations  of  agent — Res  gestae. — The  settled  rule  is  that 
the  declarations  of  an  agent  made  after  the  transaction  is  closed,  or 
usually  long  after  an  event  has  happened,  are  not  admissible  against  the 
principal.64  The  authorities  are  substantially  agreed  that  the  declara- 
tions are  not  competent  unless  made  under  such  circumstances  and 
at  such  a  time  and  place  as  to  be  regarded  as  part  of  the  res  gestae  ;65 


82  Whitworth  v.  Detroit,  &c.  R.  Co. 
81  Mich.  98,  45  N.  V/.  500;  Malecek 
v.  Tower  Grove  R.  Co.  57  Mo.  17; 
Covington  R.  Co.  v.  Ingles,  15  B. 
Mon.  (Ky.)  637;  Henderson  v.  Rail- 
road Co.  17  Tex.  560,  67  Am.  Dec. 
675;  Montgomery  R.  Co.  v.  Hurst,  9 
Ala.  513;  Union,  &c.  Co.  v.  Hepner, 
3  Colo.  App.  313,  33  Pac.  72;  Inter- 
national, &c.  Co.  v.  Lewis,  (Tex.  Civ. 
App.)  23  S.  W.  323;  Ohio,  &c.  Co.  v. 
Stein,  133  Ind.  243,  31  N.  E.  180;  32 
N.  E.  831,  19  L.  R.  A.  773;  Louis- 
ville, &c.  Co.  v.  Buck,  116  Ind.  566, 
19  N.  E.  453,  2  L.  R.  A.  520,  9  Am. 
St.  883. 

63  To  be  admissible  the  declara- 
tions must  be  made  by  the  agent  act- 
ing within  the  scope  of  his  author- 
ity, dum  fervet  opus.  Bevis  v.  Balti- 
more, &c.  Co.  26  Mo.  App.  19;  Bens- 
ley  v.  Brockway,  27  111.  App.  410; 
Corrister  v.  Kansas  City,  &c.  Co.  25 
Mo.  App.  619;  Southerland  v.  Wil- 
mington, &c.  Co.  106  N.  C.  100,  11  S. 
E.  189;  Deere  v.  Bagley,  80  Iowa  197, 
45  N.  W.  557.  See,  also,  Hogan  v. 
Kelly,  29  Mont.  485,  75  Pac.  81;  St. 
Louis,  &c.  R.  Co.  v.  Carlisle,  34  Tex. 
Civ.  App.  268,  78  S.  W.  553;  Axtell 
v.  Northern  Pac.  R.  Co.  9  Idaho  392, 
74  Pac.  1075;  1  Elliott  Ev.  §§  252, 
564,  565. 


84  Borland  v.  Nevada  Bank,  99  Cal. 
89,  33  Pac.  737,  37  Am.  St.  32;  Holt 
v.  Spokane,  &c.  Co.  3  Idaho  703,  35 
Pac.  39;  Wendt  v.  Chicago,  &c.  Co. 
4  S.  Dak.  476,  57  N.  W.  226;  Belle- 
fontaine,  &c.  Co.  v.  Hunter,  33  Ind. 
335,  5  Am.  R.  201;  St.  Louis,  &c.  Co. 
v.  McLelland,  62  Fed.  116;  McCarthy 
v.  Muir,  50  111.  App.  510;  Ft.  Smith 
Oil  Co.  v.  Slover,  58  Ark.  168,  24  S. 
W.  106;  Weideman  v.  Tacoma,  &c. 
Co.  7  Wash.  517,  35  Pac.  414;  Chew- 
ning  v.  Ensly,  &c.  R.  Co.  100  Ala. 
493,  14  So.  204;  Huntsville,  &c.  Co. 
v.  Corpening,  97  Ala.  681, 12  So.  295; 
La  Rue  v.  St.  Anthony,  &c.  Co.  3  S. 
Dak.  637,  54  N.  W.  806;  Johnson  v. 
East  Tennessee,  &c.  Co.  90  Ga.  810, 
17  S.  E.  121;  Ohio,  &c.  Co.  v.  Levy, 
134  Ind.  343,  32  N.  E.  815;  Atchison, 
&c.  Co.  v.  Parker,  55  Fed.  595; 
Grisim  v.  Milwaukee,  &c.  Co.  84  Wis. 
19,  54  N.  W.  104;  Chicago,  &c.  Co.  v. 
Johnson,  36  111.  App.  564;  Petrie  v. 
Columbia,  &c.  Co.  27  S.  C.  63,  2  S.  E. 
837;  Waldrop  v.  Greenwood,  &c.  Co. 
28  S.  C.  157,  5  S.  E.  471;  St.  Louis, 
&c.  R.  Co.  v.  Kelley,  61  Ark.  52,  31 
S.  W.  884. 

65  State  v.  Tilley,  3  Ired.  L.  (N.  C.) 
424;  Vicksburg,  &c.  Co.  v.  O'Brien, 
119  U.  S.  99,  7  Sup.  Ct.  118;  Durkee 
v.  Central  Pacific,  &c.  Co.  69  Cal. 


327 


DECLARATIONS  AS  TO  TRANSACTIONS  OR  EVENTS.    [§  219 


but  there  is  much  diversity  of  opinion  as  to  what  declarations  can  be 
considered  as  part  of  the  res  gesta9.  Some  of  the  cases  have  unduly 
extended  the  rule  and  allowed  prejudicial  declarations  to  go  to  the 
jury66  unmindful  of  the  sound  principle  that  declarations  of  a  third 
person  are  generally  incompetent  and  that  the  declarations  of  an  agent 
are  held  competent  as  exceptions  to  the  general  rule.  Other  cases  have 
erred,  as  we  think,  in  allowing  expressions  of  opinion  to  go  in  evi- 
dence as  part  of  the  res  gesta?.67  It  seems  to  us  that  an  opinion  of  a 
witness  cannot  be  regarded  as  part  of  an  occurrence  or  transaction, 
and  that  only  the  facts  connected  with  the  occurrence  can  be  strictly 
said  to  form  part  of  the  res  gestae. 

§219.  Declarations  must  relate  to  transaction  or  event  in  con- 
troversy.— As  a  general  rule,  declarations  of  an  agent  not  relating  to 
the  transaction  or  occurrence  are  not  admissible  against  the  principal, 
nor  are  declarations  not  connected  with  matters  over  which  the  agent 
has  authority.68  It  has  been  held  that  declarations  of  an  agent,  al- 
though made  at  the  time  of  the  occurrence,  are  not  competent  against 


533,  11  Pac.  30,  58  Am.  R.  562;  State 
v.  Pomeroy,  25  Kans.  349;  Michigan, 
&c.  Co.  v.  Coleman,  28  Mich.  440, 
446;  Southerland  v.  Wilmington,  &c. 
Co.  106  N.  C.  100,  11  S.  E.  189; 
Martin  v.  New  York,  &c.  Co.  103 
N.  Y.  626,  9  N.  E.  505;  Waldele 
v.  New  York,  &c.  R.  Co.  95  N.  Y. 
274,  47  Am.  R.  41;  Luby  v.  Hud- 
son River,  &c.  Co.  17  N.  Y.  131;  Chi- 
cago, &c.  Co.  v.  Becker,  32  Fed.  849; 
Cincinnati,  &c.  Co.  v.  Mara,  26  Ohio 
St.  185;  Adams  v.  Hannibal,  &c.  Co. 
74  Mo.  553,  41  Am.  R.  333;  Memphis, 
&c.  Co.  v.  Womack,  84  Ala.  149,  4 
So.  618;  Pittsburgh,  &c.  Co.  v.  Theo- 
bald, 51  Ind.  246;  Ohio,  &c.  Co.  v. 
Stein,  133  Ind.  243,  31  N.  E.  180,  32 
N.  E.  831. 

*6  Omaha,  &c.  Co.  v.  Chollette,  41 
Neb.  578,  59  N.  W.  921;  Linderberg 
v.  Crescent  Co.  9  Utah  163,  33  Pac. 
692;  International,  &c.  R.  Co.  v. 
Smith,  (Texas)  14  S.  W.  642,  44  Am. 
&  Eng.  R.  Cas.  324;  Gulf,  &c.  Co.  v. 
Compton,  75  Texas  667,  13  S.  W.  667; 


Hooker  v.  Chicago,  &c.  Co.  76  Wis. 
542,  44  N.  W.  1085,  41  Am.  &  Eng.  R. 
Cas.  498;  Texas,  &c.  Co.  v.  Lester,  75 
Texas  56,  12  S.  W.  955;  Gorman  v. 
Minneapolis,  &c.  Co.  78  Iowa  509,  43 
N.  W.  303.  For  instances  of  declara- 
tions held  admissible,  see  1  Elliott 
Ev.  §§  564,  565,  and  3  Elliott  Ev. 
§  2510. 

67Elledge  v.  National,  &c.  Co.  100 
Cal.  282,  34  Pac.  720,  38  Am.  St.  290. 
See  Metropolitan,  &c.  Co.  v.  Collins, 
1  App.  D.  C.  383;  St.  Louis,  &c.  Co. 
v.  Paup  (Ark.),  22  S.  W.  213;  Ala- 
bama, &c.  Co.  v.  Hill,  90  Ala.  71,  8 
So.  90,  9  L.  R.  A.  442,  24  Am.  St. 
764. 

"Baltimore,  &c.  Co.  v.  Christie,  5 
W.  Va.  325;  Missouri,  &c.  Co.  v. 
Sfults,  31  Kans.  752,  3  Pac.  522,  15 
Am.  &  Eng.  R.  Cas.  97;  Chillicothe 
v.  Raynard,  80  Mo.  185;  Wells  v. 
Alabama,  &c.  Co.  67  Miss.  24,  6  So. 
737;  Kirby  v.  Great  Western,  &c.  Co. 
18  L.  T.  N.  S.  658.  See,  generally, 
1  Elliott  Ev.  §  252. 


220] 


CORPORATE  REPRESENTATIVES. 


328 


the  principal  because  not  connected  with  it.89  It  is  important  that  the 
rule  admitting  declarations  of  agents  be  confined  within  its  legitimate 
limits,  as  its  extension  is  likely  to  result  in  unjust  injury. 

§  220.  Exercise  of  authority  by  agents — Illustrative  cases. — >As  a 
general  rule  the  authority  of  an  agent  extends  to  the  doing  of  all 
subordinate  acts  which  properly  accompany  the  principal  act  which 
he  is  to  do.  Thus,  a  power  given  by  a  corporation  to  an  agent  to  pur- 
chase property  for  the  corporation  necessarily  carries  with  it  the  power 
to  obligate  the  company  to  pay,  notwithstanding  the  fact  that  a  by- 
law forbids  the  contracting-  of  any  debt  for  a  company  except  by  order 


69  Butler  v.  Manhattan  R.  Co.  143 
N.  Y.  417,  38  N.  E.  454,  26  L.  R.  A. 
46,  42  Am.  St.  738.  We  quote  from 
the  opinion  the  following:  "We 
think  there  was  error  also  in  one  of 
the  rulings  upon  the  admission  of 
evidence.  The  plaintiff's  wife  testi- 
fied to  the  closing  of  the  gate  and 
the  blow  received,  and  stated  that  at 
the  time  the  guard  was  looking  in 
the  opposite  direction;  that  im- 
mediately after  the  blow  she  made 
an  exclamation  of  pain.  Then 
plaintiff's  counsel  then  asked  the 
witness  'What  the  guard  said  in  re- 
ply to  her  exclamation  of  pain.'  The 
question  was  objected  to  by  the 
counsel  for  the  defendant  as  incom- 
petent and  hearsay,  whereupon  the 
plaintiff's  counsel  said:'  'I  intend  to 
prove  that  the  brakeman  in  charge 
of  the  brakes  at  the  moment  of  the 
blow  did  not  treat  her  (the  plain- 
tiff's wife)  with  respect,  but,  on  the 
contrary,  insulted  her.'  The  trial 
judge,  after  warning  the  plaintiff's 
counsel,  finally  allowed  the  question 
to  be  put,  and  the  witness  answered. 
He  said :  'I  can  go  to  hell ;  shut  up.' 
The  defendant's  counsel  excepted  to 
the  evidence.  The  only  claim  made 
in  support  of  the  ruling  of  the  court 
is  that  the  remark  of  the  brakeman 
was  part  of  the  res  gestae.  We  think 


the  ruling  cannot  be  supported  upon 
this  ground.  The  only  circumstance 
upon  which  it  can  be  claimed  to 
have  been  part  of  the  res  gestae  was 
its  connection  in  point  of  time  with 
the  transaction  under  investigation, 
viz.:  The  alleged  injury  from  the 
closing  of  the  gate.  While  proximity 
in  point  of  time  with  the  act  causing 
the  injury  is,  in  every  case  of  this 
kind,  essential  to  make  what  was 
said  by  a  third  person  competent 
evidence  against  another  as  part  of 
the  res  gestae,  that  alone  is  insuffi- 
cient, unless  what  was  said  may  be 
considered  part  of  the  principal  fact, 
and  so  a  part  of  the  act  itself.  But, 
as  in  this  case,  the  act  was  complete 
before  the  remark  of  the  brakeman 
was  made,  although  closely  con- 
nected with  it  in  point  of  time,  and 
was  not  one  naturally  accompany- 
ing the  act,  or  calculated  to  unfold 
its  character  or  quality,  it  was  not 
admissible  as  res  gestae.  It  was  as 
independent  of  the  principal  fact, 
and  as  incompetent  as  evidence,  as 
though  the  act  and  the  remark  had 
been  much  further  separated  in 
point  of  time.  Res  gestae  in  a  case 
like  this  implies  substantial  coinci- 
•dence  in  time,  but  if  declarations  of 
third  persons  are  not  in  their  na- 
ture a  part  of  the  fact,  they  are  not- 


329  EXERCISE  OF  AUTHORITY  BY  AGENTS ILLUSTRATIVE  CASES.   [§  220 

of  the  directors.70  If,  however,  he  has  never  been  clothed  with  any  real 
or  apparent  authority  by  the  corporation,  the  person  who  deals  with 
him  relying  upon  his  representations  as  to  his  authority  has  no  recourse 
on  any  one  but  the  person  who  assumes  to  be  the  agent  of  the  corpora- 
tion.71 And  where  the  acts  done  are  outside  of  the  ordinary  duties  of 
similar  agents  in  corporations  generally,  the  presumption  will  be  that 
they  were  done  without  authority.72  Accordingly,  it  is  held  that  with- 
out a  special  authority  conferred  upon  him  in  the  particular  instance, 
neither  an  assistant  roadmaster  nor  a  master  of  transportation  can  be 
presumed  to  have  authority  to  represent  a  railroad  company  in 
claiming  disputed  titles.73  And  it  has  also  been  held  that  the  track- 
master  of  a  railroad  company,  having  charge  of  a  section  of  its  road- 
bed, which  includes  an  ash-pit,  has  no  authority  to  make  a  contract 
allowing  one  to  have  all  the  coals  and  ashes  dumped  by  locomotives  at 
the  pit  as  compensation  for  keeping  it  clear.74  The  fact  that  a  civil 
engineer  of  a  railroad,  who  had  no  special  authority  to  employ  men, 
told  a  man  to  see  to  delivering  some  freight  which  was  on  the  steps  of 
the  freight  house,  and  to  look  to  things  there,  and  remain  until  the 
company  discharged  him,  creates  no  right  of  action  against  the  com- 
pany; and  such  an  employment  does  not  become  binding  upon  the 

admissible     in     evidence,     however  Fredricksburg,  &c.  R.  Co.  27  Gratt. 

closely  related  in  point  of  time.   See  (Va.)    119.     An    agency   cannot   be 

Waldele  v.  New  York,  &c.  R.  Co.  95  proved  by  proof  of  the  oral  declara- 

N.  Y.  274,  47  Am.  R.  41,  and  cases  tions  of  the  supposed  agent  himself, 

cited.   The  remark  of  the  brakeman  Missouri  Pacific  R.  Co.  v.  Stults,  31 

was  brutal,  and  for  that  reason  was  Kans.  752,  3  Pac.  522. 

calculated  to  prejudice  the  jury,  but  72  Louisville,  &c.  R.  Co.  v.  McVay, 

it  had  nothing  to  do  with  the  ques-  98   Ind.   391,   49  Am.  R.  770;    Mar- 

tion    at    issue,    viz.,    whether    the  quette,  &c.  R.  Co.  v.  Taft,  28  Mich, 

plaintiff's  wife  sustained  an  injury  289.  But  see  where  the  act  is  within 

through  the  defendant's  negligence,  the  scope  of  the  ordinary  and  appro- 

and,  having  been  admitted  against  priate    duties    of    such    officers    or 

the  protests  of  the  defendant's  coun-  agents.  National  State  Bank  v.  Vigo 

sel,    its    admission    was    reversible  County  Nat.  Bank,  141  Ind.  352,  40 

error."  N.  E.  799,  50  Am.  St.  330;   Eureka 

70Arapahoe  Cattle  &  Land  Co.  v.  Iron,   &c.   Works  v.   Bresnehan,   60 

Stevens,  13  Colo.  534,  22  Pac.  823,  28  Mich.    332,    23    N.    W.    524;    Lucky 

Am.  &  Eng.  Corp.  Gas.  12.                    ,  Queen  Min.  Co.  v.  Abraham,  26  Oreg. 

71  Talladega  Ins.  Co.  v.  Peacock,  67  282,  38  Pac.  65. 

Ala.  253;  Risley  v.  Indianapolis,  &c.  "Drew  v.  Comstock,  57  Mich.  176, 

R.  Co.  1  Hun  (N.  Y.)  202.   Even  in  23  N.  W.  721. 

cases     of     negotiable     instruments,  "Little  v.  Kerr,  44  N.  J.  Eq.  263, 

those  dealing  with  an  agent  must  in-  14  Atl.  613. 
quire  into  his  authority.  Silliman  v. 


CORPORATE  REPRESENTATIVES. 


330 


company  by  being  ratified  by  the  station  agent  who  is  not  shown  to 
have  had  authority  in  the  matter.76  It  is  also  apparently  held  in  a 
recent  case  that  a  division  superintendent  had  no  authority  to  direct 
a  section  foreman  to  assist  in  unloading  cattle-guard  timber,  that  not 
being  part  of  the  foreman's  duty,  and  that  the  foreman  while  so  en- 
gaged was  not  an  employe  of  the  company.76  So  it  has  been  held  that 
a  station  agent  has  no  authority  to  employ  third  persons  to  watch 
the  station  for  burglars,  and  that  no  implication  of  authority  to  do  so 
arises  from  the  bare  fact  that  the  station  agent  himself  had  authority 
to  do  the  acts.77 

§  221.  Scope  of  authority — Illustrative  cases. — A  person  climbed 
upon  a  railroad  train  on  which  he  was  forbidden  by  the  rules  of  the 
company  to  ride,  and  was  compelled  by  an  employe  of  the  company, 
who  had  no  authority  over  the  train,  to  alight  while  it  was  in  motion, 
and  was  thereby  injured.  The  company  was  held  not  liable.78  It  has 
been  held  that  a.  locomotive  engineer,  being  subordinate  to  the  con- 
ductor in  charge  of  the  train,  has  no  authority  to  impose  a  duty  upon  a 
railroad  company  to  persons  whom  he  permits  to  ride  on  the  train  in 
violation  of  the  rules  of  the  company.79  A  similar  doctrine  is  held 
with  reference  to  the  authority  of  the  baggagemaster  to  permit  persons 
to  ride  on  a  train,80  and  a  like  doctrine  was  applied  in  a  case  where 
a  person  was  riding  on  the  train  by  invitation  of  a  brakeman.81  A 


"Willis  v.  Toledo,  &c.  R.  Co.  72 
Mich.  160,  40  N.  W.  205.  But,  see, 
Wilson  v.  Kings  Co.  El.  R.  Co.  114 
N.  Y.  487,  21  N.  E.  1015. 

70  Bryan  v.  International,  &c.  R. 
Co.  (Tex.  Civ.  App.),  90  S.  W.  693, 
citing  Freeman  v.  San  Antonio 
Brew.  Co.  (Tex.  Civ.  App.),  85  S.  W. 
1165,  where  it  is  held  that  a  fore- 
man of  one  department  had  no  au- 
thority to  order  a  workman  in  his 
department  to  work  in  another  sep- 
arate department,  and  that  the  rela- 
tion of  master  and  servant  did  not 
exist  with  respect  to  such  work  and 
the  servant  could  not  recover  as  a 
servant  while  injured  in  such  sep- 
arate department. 

"Lipscomb  v.  Houston,  &c.  R.  Co. 
95  Tex.  5,  64  S.  W.  923,  55  L.  R.  A. 
869,  93  Am.  St.  804. 


78  Towanda  Coal  Co.  v.  Heeman,  86 
Pa.  St.  418;  Marion  v.  Chicago,  &c. 
R.  Co.  59  Iowa  428,  13  N.  W.  415,  44 
Am.  R.  687.  But  if  one  with  author- 
ity to  put  him  off  the  train  should 
do  so  in  an  improper  manner  and 
thereby  cause  him  to  be  injured,  the 
company  would  be  liable.  Carter  v. 
Louisville,  &c.  R.  Co.  98  Ind.  552,  49 
Am.  R.  780;  Rounds  v.  Delaware, 
&c.  R.  Co.  64  N.  Y.  129;  Benton  v. 
Chicago,  &c.  R.  Co.  55  Iowa  496,  8 
N.  W.  330. 

78  Chicago,  &c.  Co.  v.  Casey,  9  111. 
App.  632,  citing  Chicago,  &c.  Co.  v. 
Mitchie,  83  111.  427. 

80Reary  v.  Louisville,  &c.  Co.  40 
La.  Ann.  32,  3  So.  390,  8  Am.  St.  497, 
34  Am.  &  Eng.  R.  Cas.  277. 

81Candiff  v.  Louisville,  &c.  Co.  42 
La.  Ann.  477,  7  So.  601. 


331 


AUTHORITY  OF  AGENTS  IN   EMERGENCIES.  [§    221a 


somewhat  different  doctrine  was  held  in  a  case  where  a  person  was 
invited  to  get  on  an  engine,82  but  the  doctrine  of  the  case  referred  to 
seems  to  us  to  be  unsound.  An  employe  has  no  authority  to  invite 
persons  to  ride  on  the  hand-car  for  their  own  pleasure  or  convenience.83 
It  has,  however,  been  held  that  a  trainmaster  has  authority  to  invite 
persons  to  ride  on  a  hand-car,84  but  in  our  opinion  this  decision  is 
erroneous,  for  a  hand-car,  as  every  one  is  bound  to  know,  is  not  kept 
or  used  by  a  railroad  company  for  carrying  persons  not  in  its  service 
or  having  business  with  it.  In  a  well  considered  case  it  was  held 
that  a  section  foreman  had  no  authority  to  invite  persons  to  ride  on  a 
hand-car,86  and  the  doctrine  asserted  in  that  case  we  regard  as  the 
true  one. 

§  221a,  Authority  of  agents — Emergencies  and  special  circum- 
stances.— Special  circumstances  may  sometimes  give  authority  to  an 
agent  over  a  particular  matter  or  to  do  an  act  in  regard  to  which  he 
would  ordinarily  have  no  authority  either  express  or  implied.  That 
is  to  say,  facts  may  exist  which  may  greatly  broaden  an  agent's  or- 
dinary authority,  and  the  special  circumstances  may  be  such  that  an 
act  of  an  officer,  or  even  of  an  agent  who  is  not  an  officer,  may  bind 


M  Nashville,  &c.  Co.  v.  Erwin, 
(Tenn.)  3  Am.  &  Eng.  R.  Cas.  465. 
But  see  Ohio,  &c.  Co.  v.  Allender,  47 
111.  App.  484. 

83  International,  &c.  Co.  v.  Cock,  68 
Texas  713,  5  S.  W.  635,  2  Am.  St. 
521.   See  Pool  v.  Chicago,  &c.  Co.  56 
Wis.  227,  14  N.  W.  46. 

84  International,  &c.  Co.  v.  Prince, 
77    Texas    560,    14    S.    W.    171,    19 
Am.  St.  795,  44  Am.  &  Eng.  R.  Cas. 
294.  See  Prince  v.  International,  &c. 
Co.  64  Texas  144. 

85  Hoar   v.   Maine   Central   Co.   70 
Me.   65,  35  Am.  R.  299.    The  court 
cited  the  cases  of  Graham  v.  Toron- 
to, &c.  Co.  23  U.  C.  C.  P.  541;  Sheer- 
man  v.  Toronto,  &c.  Co.  34  U.  C.  Q. 
B.  451,  and  in  the  course  of  the  opin- 
ion said :  "A  master  is  bound  by  the 
acts  of  his  servant  in  the  course  of 
his  employment,  but  not  by  those  ob- 
viously and  utterly  outside  of  the 
scope  of  such  employment.    If  not 


common  carriers,  a  section  foreman 
with  his  handcar  has  no  right  to 
impose  upon  the  defendant  the  oner- 
ous responsibilities  arising  from 
that  relation.  He  has  no  right  to 
accept  passengers  for  transportation 
and  bind  the  defendants  for  their 
safe  carriage,  and  every  man  may 
safely  be  presumed  to  know  this 
much.  If  the  risk  is  much  greater 
by  this  mode  of  conveyance,  the 
plaintiff's  intestate,  by  adopting  it, 
assumed  the  extra  risk  arising 
therefrom,  and  must  be  held  to  abide 
the  unfortunate  consequences.  No 
one  becomes  a  passenger  except  by 
the  consent,  express  or  implied,  of 
the  carrier.  There  is  no  allegation 
of  express  consent  by  the  defend- 
ants, nor  of  anything  from  which 
consent  can  be  implied  that  the 
plaintiff's  intestate  should  be  car- 
ried at  their  risk  by  this  unusual 
mode  of  conveyance." 


§  221a]  CORPORATE  REPRESENTATIVES.  332 

the  company,  when,  under  ordinary  circumstances  such  officer  or  em- 
ploye would  have  no  authority  in  the  premises.  Thus,  an  emergency 
may  arise  in  which  there  is  an  absolute  duty  resting  on  the  company 
to  act  at  once,  and  in  which,  either  because  its  own  interests  require  it 
or  because  of  such  duty  to  others  to  be  present  by  some  representative 
and  to  act  at  once,  or  both,  the  highest  agent  on  the  ground,  or  some 
other  agent,  depending  somewhat  upon  the  circumstances  of  the  par- 
ticular case,  may  act  for  and  bind  the  company  to  the  extent,  at  least, 
that  the  emergency  requires.  Such  cases  are,  of  course,  exceptional, 
but  is  easy  to  suppose  cases  where  a  conductor,  or  an  engineer, 
or  even  a  brakeman  or  switchman,  in  the  absence  of  any  one  else, 
would  be  authorized  to  do  some  act  to  save  life,  or  the  like,  not  or- 
dinarily within  the  scope  of  his  employment  or  duty,  and  even  to  bind 
or  make  the  company  responsible.  We  suppose,  for  instance,  that  if 
the  wires  were  down,  and  all  communication  were  cut  off  because  of  a- 
stonn,  and  the  engine  should  break  down  and  human  life  would  be 
endangered  by  delay  and  failure  to  repair,  or  even  perishable  freight 
ruined,  the  conductor,  or,  perhaps,  the  engineer,  under  some  circum- 
stances, would  have  authority  to  purchase  a  small  piece  of  material 
necessary  to  make  temporary  repairs,  or  that  the  conductor,  under 
such  circumstances,  might  employ  necessary  assistance  to  save  perish- 
able freight  in  case  of  a  wreck.  Certainly  if  there  were  a  wreck  and 
passengers  were  caught  under  a  car  and  injured,  and  in  imminent  dan- 
ger of  being  crushed  to  death,  a  conductor,  being  the  highest  repre- 
sentative present,  would  have  authority  to  employ  assistance,  if  neces- 
sary, to  raise  the  car  and  rescue  such  passengers.  Other  illustrations 
might  be  given,86  but  the  question  has  usually  arisen  in  regard  to  the 

88  See  post,  §  302.    See,  also,  Cros-  while  in  the  absence  of  a  superior 

san  v.  New  England  R.  Co.  149  Mass,  it  may  become  broad   and  compre- 

196,  21  N.  E.  367,  3  L.  R.  A.  766,  14  hensive.     An  emergency  may  arise 

Am.    St.    408;    Baldwin    Railroads,  which  will  require  the  corporation 

253.     In  the  course  of  the  opinion  to  act  instantly,  and  if  the  conductor 

in  Terre  Haute,  &c.  R.  Co.  v.  Me-  is  the  only  agent  present,  and  the 

Murray,  98  Ind.  358,  49  Am.  R.  752,  emergency   is  urgent,  he   must  act 

it   is   said:     "The   authority  of  an  for  the  corporation,  and  if  he  acts 

agent  is  to  be  determined  from  the  at  all,  his  acts  are  of  just  as  much 

facts  of  the  particular  case.     Facts  force  as  that  of  the  highest  officer 

may  exist  which  will  greatly  broad-  of  the  corporation.    There  are  cases, 

en  or  greatly  lessen  an  agent's  au-  where  the  train  is  distant  from  the 

thority.    A  conductor's  authority  in  supervision     of     superior     officers, 

the   presence   of   a   superior   agent  where  the  conductor  must  act,  and 

may     dwindle    into    insignificance,  act  for  the  company,  and  where,  for 


333 


AUTHORITY   OF   AGENTS EMPLOYMENT   OF   SURGEONS.     [§'   222 


employment  of  physicians  and  surgeons,  and  that  branch  of  the  sub- 
ject merits  more  than  a  general  reference.  It  will  be  considered  in  the 
following  section. 

§222.  Authority  of  agents — Employment  of  surgeons. — It  may 
be  affirmed  that  the  employment  of  a  physician  or  surgeon  is  not  or- 
dinarily within  the  scope  of  the  authority  of  a  subordinate  agent  or  em- 
ploye, but  that  there  may  be  extraordinary  cases  giving  authority  to 
employ  a  surgeon  or  physician.  Neither  a  roadmaster,87  section 
agent,88  yardmaster,89  nor  stationmaster,90  will  be  presumed  to  have 


the  time,  and  under  the  exigencies 
of  the  occasion,  he  is  its  sole  repre- 
sentative, and  if  he  be  its  only  rep- 
resentative, he  must,  for  the  time 
and  the  exigency,  be  its  highest  rep- 
resentative. Simple  examples  will 
prove  this  to  be  true.  Suppose,  for 
illustration,  that  a  train  is  brought 
to  a  halt  by  the  breaking  of  a  bolt, 
and  that  near  by  is  a  mechanic  who 
can  repair  the  broken  bolt  and  en- 
able the  train  to  proceed  on  its  way, 
may  not  the  conductor  employ  the 
mechanic?  Again,  suppose  a  bridge 
is  discovered  to  be  unsafe,  and  that 
there  are  timbers  at  a  neghboring 
mill  which  will  make  it  safe,  may 
not  the  conductor,  in  behalf  of  his 
principal,  employ  men  to  haul  the 
timber  to  the  bridge?  Once  more, 
suppose  the  engineer  of  a  locomo- 
tive to  be  disabled,  and  that  it  is 
necessary  to  at  once  move  the  train 
to  avoid  danger,  and  there  is  near 
by  a  competent  engineer,  may  not 
the  conductor  employ  him  to  take 
the  train  out  of  danger?" 

"Louisville,  &c.  R.  Co.  v.  McVay, 
98  Ind.  391,  49  Am.  R.  770. 

88  Tucker  v.  St.  Louis,  &c.  R.  Co. 
54  Mo.  177. 

89  Marquette,  &c.  R.  Co.  v.  Taft,  28 
Mich.  289. 

90  Cox   v.    Midland,   &c.    R.    Co.    3 
Exch.  268.    See,  also,  Godshaw  v.  J. 


N.  Struck  &  Bro.  109  Ky.  285,  58 
S.  W.  781,  51  L.  R.  A.  668.  A  rail- 
road company  will  be  held  to  be  le- 
gally liable  to  furnish  necessary 
medical  attendance  and  care  to  pas- 
sengers injured  by  its  fault,  since  it 
has  contracted  to  carry  them  safely, 
and  is  liable  for  any  failure  to  do 
so.  But  no  such  liability  attaches 
when  they  are  hurt  by  an  inevitable 
accident,  such  as  the  derailment  of 
a  train  by  a  cyclone.  Union  Pacific 
R.  Co.  v.  Beatty,  35  Kans.  265,  10 
Pac.  845,  57  Am.  R.  160.  And  a  rail- 
road company  will  be  held  liable  for 
any  necessary  care  bestowed  upon 
an  injured  employe  at  the  instance 
and  request  of  the  principal  agent, 
which  it  may  have  upon  the  ground 
and  in  a  position  to  engage  such 
care,  in  an  emergency  calling  for 
immediate  action.  Since  an  em- 
ployer does  not  stand  to  his  serv- 
ants as  a  stranger,  but  owes  them 
the  duty  imposed  by  the  dictates  of 
humanity.  Terre  Haute,  &c.  R.  Co. 
v.  McMurray,  98  Ind.  358,  49  Am.  R. 
752;  Terre  Haute,  &c.  R.  Co.  v. 
Brown,  107  Ind.  336,  8  N.  E.  218. 
But  such  authority  by  implication 
from  necessity  will  not  be  extended 
any  further  than  the  necessities  of 
the  case  require.  Louisville,  &c.  R. 
Co.  v.  Smith,  121  Ind.  353,  22  N.  E. 
775,  6  L.  R.  A.  320. 


§  222] 


CORPORATE  REPRESENTATIVES. 


334 


authority  to  employ  a  physician  to  attend  a  servant  of  the  company 
injured  in  the  line  of  his  duties.  So,  also,  it  is  held  that  there  is  noth- 
ing in  the  duties  of  the  company's  solicitor,91  or  surgeon,92  or  en- 
gineer,98 or  conductor94  from  which  such  authority  can  be  presumed. 


91  Neither  a  conductor  nor  a  solic- 
itor of  a  railroad  company  can  ordi- 
narily contract  for  surgical  attend- 
ance upon  an  injured  passenger  or 
employe,  so  as  to  bind  the  company. 
St.  Louis,  &c.  R.  Co.  v.  Hoover,  53 
Ark.  377,  13  S.  W.  1092. 

82  Mayberry  v.  Chicago,  &c.  R.  Co. 
75  Mo.  492;  Terre  Haute,  &c.  R.  Co. 
v.  Brown,  107  Ind.  336,  8  N.  E.  218. 

93  In  an  action  by  a  physician 
against  a  railroad  company  for  pro- 
fessional services  rendered  to  an 
employe  of  the  company  who  had 
sustained  an  injury  on  its  cars,  it 
was  held  that  evidence  that  the  en- 
gineer of  the  train,  on  which  the  in- 
jury happened,  telegraphed  to  a  sta- 
tion agent  to  have  a  doctor  at  the 
station  when  the  train  arrived,  does 
not  show  an  employment  of  the 
plaintiff  by  the  company,  in  the  ab- 
sence of  evidence  of  the  authority 
of  the  engineer  to  bind  the  com- 
pany. Cooper  v.  New  York  Central, 
&c.  R.  Co.  13  N.  Y.  Sup.  Ct.  276.  But 
it  would  seem  that  evidence  that  he 
was  in  sole  charge  of  the  train,  and 
the  employe's  injuries  required  im- 
mediate attention  would  be  sufficient 
to  show  his  authority.  Terre  Haute, 
&c.  R.  Co.  v.  McMurray,  98  Ind.  358, 
49  Am.  R.  752;  Marquette,  &c.  R. 
Co.  v.  Taft,  28  Mich.  289,  per  Cooley, 
J.  The  doctrine  of  these  cases  last 
cited  is  to  be  carefully  limited  and 
rigidly  confined  to  cases  where  there 
is  pressing  and  urgent  emergency 
requiring  immediate  action.  There 
is,  of  course,  no  general  duty  rest- 
ing on  the  employer  to  care  for  sick 
or  wounded  employes,  and  the  duty 
to  obtain  the  services  of  a  surgeon 


is  not  a  general  one,  but  a  transient 
one  arising  out  of  and  only  exist- 
ing during  an  emergency.  An  agent 
can  not  do  more  than  the  immediate 
urgency  requires  without  exceeding 
his  authority. 

MSt.  Louis,  &c.  R.  Co.  v.  Hoover, 
53  Ark.  377,  13  S.  W.  1092;  Tucker 
v.  St.  Louis,  &c.  R.  Co.  54  Mo.  177; 
Terre  Haute,  &c.  R.  Co.  v.  McMurray, 
98  Ind.  358,  49  Am.  R.  752.  See,  also, 
Wills  v.  International,  &c.  R.  Co. 
(Tex.  Civ.  App.)  92  S.  W.  273.  See 
Northern  Central  R.  Co.  v.  State,  29 
Md.  420,  96  Am.  Dec.  545.  In  Hays  v. 
Wabash  R.  Co.  (Mo.  App.)  95  S.  W. 
299,  the  defendant  railroad  company 
had  a  book  of  rules,  one  of  which 
had  been  delivered  to  the  plaintiff, 
a  local  surgeon  retained  by  the  de- 
fendant, and  one  of  such  rules  pro- 
vided that  in  cases  of  wrecks  or  ac- 
cidents, where  either  passengers  or 
employes  are  injured,  the  nearest 
competent  surgeon  should  be  sum- 
moned and  the  nearest  hospital  and 
the  chief  officers  of  the  road  should 
be  notified  by  wire,  giving  the  name 
and  whereabouts  of  the  injured  per- 
sons, the  name  of  the  surgeon  in  at- 
tendance, and  the  like.  Plaintiff  was 
wired  by  the  conductor  of  the  train 
to  meet  the  same  at  a  certain  sta- 
tion and  take  care  of  a  passenger 
who  had  been  injured,  and  on  the 
arrival  of  the  train  met  and  con- 
ducted the  passenger  to  a  hospital, 
where  he  performed  an  operation 
and  subsequently  cared  for  him. 
The  court  held  that  the  plaintiff  was 
at  least  entitled  to  recover  the  rea- 
sonable value  of  his  services  in 
treating  such  passenger  for  a  rea- 


335  AUTHORITY   OF   AGENTS EMPLOYMENT   OF    SURGEONS.     [§    222 


But  an  emergency  calling  for  immediate  action  in  order  to  save  life 
or  prevent  suffering  may  be  sufficient  to  confer  authority  upon  the 
subordinate  to  employ  necessary  surgical  aid,  if  he  is  the  highest 
representative  of  the  company  on  the  ground.95  There  may  be  cases 
of  immediate  urgency  when  it  will  be  within  the  scope  of  the 
agent's  employment  to  render  those  imperative  services  which  the  dic- 
tates of  justice  and  humanity  hold  to  be  due  from  an  employer  to  a 
servant  injured  while  engaged  in  his  service  ;96  and  not  only  this,  but 
in  cases  of  urgent  emergency  it  may  become  his  duty  to  take  such 
measures  as  will  prevent  needless  suffering  and  loss  of  life.97  And 


sonable  time  until  the  defendant's 
claim  agent  could  have  been  notified 
and  his  answer  returned. 

85Terre  Haute,  &c.  R.  Co.  v.  Mc- 
Murray,  98  Ind.  358,  49  Am.  R.  752; 
Arkansas  Southern  R.  Co.  v.  Lough- 
ridge,  65  Ark.  300,  45  S.  W.  907. 

86Terre  Haute,  &c.  R.  Co.  v.  Mc- 
Murray,  98  Ind.  358,  49  Am.  R.  752. 
In  Marquette,  &c.  R.  Co.  v.  Taft,  28 
Mich.  289,  Judge  Cooley  says:  "We 
shall  not  stop  to  prove  that  there 
is  a  strong  moral  obligation  resting 
upon  any  one  engaged  in  a  danger- 
ous business,  to  do  what  may  be 
immediately  necessary  to  save  life 
or  prevent  an  injury  becoming  ir- 
reparable, when  an  accident  happens 
to  a  person  in  his  employ.  We  shall 
assume  this  to  be  too  obvious  to 
require  argument  *  *  *.  There 
can  be  no  doubt  that  it  is  within  the 
scope  of  somebody's  employment  for 
a  railway  company  to  cause  a  beast 
which  is  injured  in  carriage  or  run 
over  at  a  crossing  to  be  picked  up 
and  have  the  attention  proper  and 
suitable  to  its  case;  and  if  no  one 
is  authorized  to  do  as  much  for  the 
faithful  servant  of  the  company  who 
is  in  like  manner  injured,  but  all 
persons  in  its  employ  are  impliedly 
forbidden  to  incur  any  expense  be- 
yond what  may  be  necessary  to  re- 
move him  out  of  the  way  of  their 
trains  and  machinery — even  to  con- 


vey him  to  his  house,  or  to  save  his 
life  by  binding  up  a  threatening 
wound — then,  if  such  is  the  law,  the 
courts  must  not  hesitate  to  apply  it, 
even  though  it  be  impossible  ta 
avoid  feeling  that  it  ought  not  to  be 
the  law,  and  that  no  business  of 
this  extensive  and  hazardous  nature 
ought  to  be  suffered  to  be  carried 
on  with  no  one  for  the  major  part 
of  the  time  empowered  tec  recognize 
and  perform  a  duty  which,  at  least 
on  moral  grounds,  is  so  obvious  and 
imperative.  But  we  do  not  think 
such  is  the  law." 

97  In  the  case  of  Northern  Central 
R.  Co.  v.  State,  29  Md.  420,  96  Am. 
Dec.  545,  a  man  was  so  injured  by 
a  collision  with  the  defendant's 
train  as  to  become  unconscious. 
The  company's  agents  believing 
him  to  be  dead,  but,  without  care- 
ful examination,  laid  him  upon  a 
box  in  a  tool  house  and  left  him 
without  care  over  night.  The  man 
recovered  consciousness  in  the 
night,  but,  because  of  the  lack  of 
attention  to  his  wounds,  bled  to 
death.  The  court  held  that  it  is  the 
duty  of  agents  in  charge  of  a  rail- 
road train  to  take  care  of  one  in- 
jured by  the  train  which  they  are 
operating,  and  to  do  it  with  a  proper 
regard  to  his  safety  and  the  laws 
of  humanity.  And  that  the  above 
facts  were  evidence  that  he  came 


222] 


CORPORATE   REPRESENTATIVES. 


336 


even  though  the  agent  had  no  authority  to  engage  a  physician,  such  an 
employment  may  be  ratified,  and  it  is  held  that  a  physician  employed 
by  the  conductor  of  a  train  to  care  for  a  man  injured  by  the  train 
can  recover  against  the  railroad  company  for  his  services  if,  after 
knowledge  of  his  employment  by  the  conductor,  the  company  failed 
to  notify  him  that  it  would  not  be  responsible.98  The  authority  of 
such  a  subordinate  agent,  however,  arises  only  with  the  emergency 
which  makes  it  necessary  for  him  to  possess  it,  and  ends  with  such 
emergency."  And  neither  a  conductor,100  a  roadmaster,101  a  section 
agent,102  a  station  agent,103  nor  the  company's  physician  possessing 
authority  to  purchase  medicines  on  the  company's  credit,104  can  bind 


to  his  death  by  the  negligence  of 
the  company's  servants,  although 
he  may  have  been  negligent  in  get- 
ting upon  the  track  in  the  first 
place. 

98  Terre  Haute,  &c.  R.  Co.  v.  Stock- 
well,  118  Ind.  98,  20  N.  E.  650.  To  the 
same  effect  see  Toledo,  &c.  R.  Co.  v. 
Rodrigues,  47  111.  188,  95  Am.  Dec. 
484,  where  a  letter  was  written  to 
the  general   superintendent  by   the 
station  agent,  by  whom  a  nurse  and 
physician  were  employed,  stating  the 
facts,  and  he  did  not  disclaim  liabil- 
ity for  the  company.    Toledo,  &c.  R. 
Co.  v.  Prince,  50  111.  26,  holding  that 
the  superintendent,  to  escape  liabil- 
ity,   should    repudiate    the    station 
agent's  act  in  such  a  case  and  direct 
him  to  apprise  the  surgeon  of  such 
dissent.    Louisville,   &c.    R.   Co.   v. 
McVay,  98  Ind.  391,  49  Am.  R.  770, 
holding  the   company   bound   by   a 
ratification  by  the  general  manager 
of  a  contract  for  nursing  made  by 
the    roadmaster.     Indianapolis,   &c. 
R.  Co.  v.  Morris,  67  111.  295. 

99  Louisville,  &c.  R.  Co.  v.  Smith, 
121  Ind.  353,  22  N.  E.  775,  6  L.  R.  A. 
320;   Ohio,  &c.  R.  Co.  v.  Erly,  141 
Ind.  73,  40  N.  E.   257,  28  L.  R.  A. 
546,  and  note;  St.  Louis,  &c.  R.  Co. 
v.   Hoover,  53   Ark.   377,   13   S.  W. 
1092. 


100  Indianapolis,  &c.  R.  Co.  v.  Mor- 
ris, 67  111.  295;  St.  Louis,  &c.  R.  Co. 
v.   Hoover,   53  Ark.   377,   13   S.   W. 
1092;     Sevier    v.    Birmingham,    &c. 
R.   Co.   92   Ala.   258,   9    So.    405.    A 
conductor  having  procured  or  con- 
sented to  the  attendance  of  a  com- 
petent   surgeon    upon    an    injured 
brakeman  cannot  bind  the  company 
by    engaging    additional    surgeons. 
Louisville,  &c.  R.  Co.  v.  Smith,  121 
Ind.  353,  22  N.  E.  775,  6  L.  R.  A. 
320. 

101  Louisville,  &c.  R.  Co.  v.  McVay, 
98  Ind.  391,  49  Am.  R.  770. 

102  Tucker  v.  St.  Louis,  &c.  R.  Co. 
54  Mo.  177.   But  see  Bigham  v.  Chi- 
cago, &c.  R.  Co.  79  Iowa  534,  44  N. 
W.  805. 

103  Atlantic,  &c.  R.  Co.  v.  Reisner, 
18  Kans.  458,  where  the  court  says: 
"The  authorities  cited   sustain  the 
proposition  that  a  station  agent  of 
a  railroad  company  is  not  author- 
ized, by  virtue  of  his  position  as 
such    agent,    to    employ    a    hotel- 
keeper,  at  the  expense  of  the  com- 
pany, to  attend  to  one  of  its  brake- 
men,  injured  while  working  for  the 
company,  nor  to   furnish  such  em- 
ployes with  board  and  lodging  while 
disabled."    See,  also,  Tucker  v.  St. 
Louis,  &c.  R.  Co.  54  Mo.  177. 

104  Mayberry  v.  Chicago,  &c.  R.  Co. 


337  AUTHORITY   OF   AGENTS EMPLOYMENT   OF   SURGEONS.     [§'   222 


it  by  a  contract  for  nursing  and  care  bestowed  on  an  employe  during 
a  protracted  illness,  though  such  contracts  may  be  ratified  by  the 
company105  and  made  binding  upon  it  if  it  owes  either  a  legal  or  moral 
obligation  to  the  injured  party.106  In  the  case  of  officers  and  superior 
agents  having  general  authority  to  enter  into  contracts  for  the  com- 
pany, however,  the  courts  hold  that  authority  to  procure  care  and 
medical  attendance  of  an  injured  employe  is  incident  to  such  general 
authority.  Accordingly  it  is  held  that  the  general  manager,107  or  the 
general  superintendent,108  or  an  assistant  superintendent,109  having 
general  supervising  authority  over  the  interests  of  a  railroad  company 


75  Mo.  492,  11  Am.  &  Eng.  R.  Gas. 
29. 

105  Indianapolis,  &c.  R.  Co.  v.  Mor- 
ris,  67   111.   295;    Louisville,  &c.   R. 
Co.  v.  McVay,  98  Ind.  391,  49  Am. 
R.  770. 

106  In  Louisville,  &c.  R.  Co.  v.  Mc- 
Vay, 98  Ind.  391,  49  Am.  R.  770,  the 
court  says:    "There  is  no  evidence 
as  to  how  Barnett  was  injured;  but 
inasmuch  as  the   general  manager 
ratified  contracts  for  taking  care  of 
him,  and  the  company  paid  for  such 
service    (except   the    claim    of   ap- 
pellee),   it    should    be    presumed — 
there  being  no  evidence  to  the  con- 
trary— that  the   injury  was   so   in- 
flicted as  that  the  contract  for  his 
care  was  not  ultra  vires." 

107  Atlantic,  &c.  R.  Co.  v.  Reisner, 
18  Kans.  458;  Walker  v.  Great  West- 
ern R.   Co.  L.  R.   2  Exch.   228.    In 
this  case,  Chief  Baron  Kelley,  in  the 
course   of   the   argument,   inquired, 
"Must  a  board  be  convened  before  a 
man  who  has  both  legs  broken  can 
have    medical    assistance?"     Louis- 
ville, &c.  R.  Co.  v.  McVay,  98  Ind. 
391,  49  Am.  R.  770,  where  it  is  held 
that  the  courts  will  presume  a  gen- 
eral authority  on  the  part  of  one 
holding    the    position    of    "general 
manager."    But   it    has   been    held 
otherwise  as  to  the  general  manager 
of  an  ordinary  private  corporation. 
J.  F.  Spelman  v.  Gold  Mine,  &c.  Co. 

ELL.  RATLUOADS — 22 


26  Mont.  76,  66  Pac.  597,  55  L.  R.  A. 
'640,  91  Am.  St.  402.  See,  also, 
Holmes  v.  McAllister,  123  Mich.  493, 
82  N.  W.  220,  48  L.  R.  A.  396. 

148  Cincinnati,  &c.  R.  Co.  v.  Davis, 
126  Ind.  99,  25  N.  E.  878,  9  L.  R.  A. 
503;  Terre  Haute,  &c.  R.  Co.  v. 
Stockwell,  118  Ind.  98,  20  N.  E.  650; 
Atchison,  &c.  R.  Co.  v.  Reecher,  24 
Kans.  228;  Cairo,  &c.  R.  Co.  v.  'Ma- 
honey,  82  111.  73,  25  Am.  R.  299; 
Toledo,  &c.  R.  Co.  v.  Rodrigues,  47 
111.  188,  95  Am.  Dec.  484.  Contra, 
Stephenson  v.  New  York,  &c.  R.  Co. 
2  Duer  (N.  Y.)  341.  See  Marquette, 
&c.  R.  Co.  v.  Taft,  28  Mich.  289, 
where  a  divided  court,  in  an  opinion 
written  by  Judge  Cooley,  Chris- 
tiancy,  C.  J.,  concurring,  held  that 
he  has  such  power,  Graves  and 
Campbell,  J.  J.,  dissenting. 

109  Bigham  v.  Chicago,  M.  &  St.  P. 
R.  Co.  79  Iowa  534,  44  N.  W.  805; 
Pacific  R.  Co.  v.  Thomas,  19  Kans. 
256.  See  Brown  v.  Missouri,  &c.  R. 
Co.  67  Mo.  122,  holding  that  a  di- 
vision superintendent  would  not  be 
presumed  to  have  power  to  bind  the 
company  for  a  "small  bill  of  drugs 
furnished  a  woman  who  had  been 
hurt  by  a  locomotive  or  cars  of  the 
company."  The  court  says:  "No 
proof  was  offered  as  to  the  duties 
of  such  officer,  and  the  courts  can- 
not take  judicial  notice  of  them." 


'§  222] 


CORPORATE   REPRESENTATIVES. 


338 


possesses  authority  to  make  such  contracts  on  behalf  of  the  com- 
pany.110 And  in  England  it  is  held  that  the  sub-inspector  of  railway 
police  has  implied  power  to  employ  surgical  aid  for  an  injured  em- 
ploye.111 If  the  railroad  company  assumes  to  furnish  a  physician  or 
surgeon  to  treat  an  injured  passenger112  or  employe,113  it  takes  upon 


110  See  Trenor  v.  Central  Pacific 
R.  Co.  50  Cal.  222;  Cox  v.  Midland 
Counties  R.  Co.  3  Exch.  268;  Tucker 
v.  St.  Louis,  &c.  R.  Co.  54  Mo.  177; 
Indianapolis,  &c.  R.  Co.  v.  Morris,  67 
111.  295. 

1U  Langan  v.  Great  Western  R.  Co. 
30  L.  T.  N.  S.  173. 

112  In  Secord  v.  St.  Paul,  &c.  R.  Co. 
18   Fed.   221,  224,   Shiras,  J.,  says: 
"If  it  assumes  the  responsibility  of 
engaging  a  surgeon,  and  placing  him 
in  charge  of  parties  that  may  be  in- 
jured,  then    it  is   responsible   thus 
far;  that  the  person  it  selects  must 
be  a  competent  man;    he   must  be 
reasonably     fitted     for     the    duties 
which  he  is  called  upon  to  perform. 
In  other  words,  it  will  not  do  for 
the  company  to  take   up   some   in- 
competent man,  who  is  not  fit  by 
education   or   experience   to    under- 
take the  responsibilities  of  any  case 
that  may  be  placed  in  his  hand.    If 
it  does  engage  a  physician  and  sur- 
geon who  is  sufficiently  experienced, 
that  is  all  that  can  be  expected  of 
the  railroad  company,  and  is  all  of 
its  liability." 

113  In  the  case  of  South  Florida  R. 
Co.  v.  Price,  Notes  of  Cases,  October, 
1893,  the  supreme  court  of  Florida 
says:      "The   plaintiff,   however,   in 
this  case  undertakes  in  his  declara- 
tion to  fasten  liability  upon  the  de- 
fendant   company    upon    a   further 
charge  that  a  surgeon,  who  was  em- 
ployed by  said  company  to  render 
medical  and  surgical  aid  to  injured 
employes,  did,  in  the  exercise  of  his 
'duty  as  such  physician  and  surgeon, 
set  the  injured  arm  of  plaintiff  in 


such  an  unskilled  and  negligent 
manner  as  to  render  it  ill-shaped 
and  forever  useless  to  him  in  the 
performance  of  any  manual  labor. 
There  is  no  allegation  or  proof  that 
the  physician  and  surgeon  so  al- 
leged to  have  been  employed  by  the 
defendant  company  was  not  compe- 
tent and  skilled  in  the  line  of  his 
profession;  and,  in  the  absence  of 
such  allegation  and  the  proof  to  sus- 
tain it,  the  defendant  is  not  liable 
for  any  negligent  exercise  by  such 
surgeon  of  his  profession  in  the 
treatment  of  the  plaintiff.  Even 
though  we  should  admit  it  to  be 
within  the  corporate  powers  of  such 
a  company  to  obligate  itself  to  the 
rendition  of  medical  or  surgical  aid 
to  its  sick  or  injured  employes,  by 
assuming  it  as  a  duty  or  otherwise, 
or  to  become  liable  under  any  cir- 
cumsttances  for  any  negligence  of 
any  such  surgeon  acting  in  the  line 
of  his  profession,  still  it  seems  to 
be  well  settled  that  it  will  have  per- 
formed its  entire  duty  in  that  re- 
spect when  it  employs  a  person  of 
ordinary  competence  and  skill  in 
that  profession;  and  that,,  having 
done  so,  it  cannot  be  held  liable  for 
the  carelessness  or  negligence  of 
such  surgeon  in  the  performance  of 
his  duties  as  such.  Secord  v.  Rail- 
way Co,  18  Fed.  221;  McDonald  v. 
Mass.  &c.  Hospital,  120  Mass.  432, 
21  Am.  R.  529;  O'Brien  v.  Cunard 
Steamship  Co.  154  Mass.  272,  28  N. 
E.  266,  13  L.  R.  A.  329;  Laubheim 
v.  De  Koninglyke  N.  S.  Co.  107  N.  Y. 
228,  13  N.  E.  781,  1  Am.  St.  815. 
From  what  has  been  said  it  becomes 


339 


PHYSICIANS   AND   SURGEONS. 


[§   223 


itself  only  the  obligation  to  furnish  a  competent  man,  skilled  in  his 
profession,  and  having  done  so  is  not  responsible  if  he  proves  negli- 
gent in  caring  for  this  particular  patient.  In  the  absence  of  an  ex- 
press contract  entered  into  on  behalf  of  the  company  by  some  one  au- 
thorized to  represent  it,  a  physician  can  have  no  claim  against  the 
company  for  services  rendered  to  an  injured  employe  or  passenger. 
He  can  not  render  the  services  gratuitously  and  then  sue  the  railway 
company  upon  an  implied  assumpsit.114  And  even  though  the  com- 
pany's representative  may  have  promised  on  behalf  of  the  company 
that  his  bill  should  be  paid,  a  physician  cannot  hold  it  liable  where 
it  does  not  appear  that  the  services  were  rendered  in  reliance  upon, 
such  promise  or  upon  the  credit  of  the  company.116 

*§  223.  Physicians  and  surgeons. — If  a  railroad  exercises  reasona- 
ble care  in  selecting  a  physician  or  surgeon  to  treat  an  injured  employe 
it  is  not  liable  for  the  acts  of  such  surgeon  or  physician.116  The  physi- 
cian or  surgeon  so  employed  does  not  become  the  agent  of  the  com- 
pany. As  we  have  elsewhere  said,  there  is  no  general  duty  to  care  for 


unnecessary  to  notice  the  errors  as 
they  are  specifically  assigned."  See, 
also,  Ohio,  &c.  R.  Co.  v.  Early,  141 
Ind.  73,  40  N.  E.  257,  28  L.  R.  A.  546, 
and  note;  Atchison,  &c.  R.  Co.  v. 
Zeiller,  54  Kans.  340,  38  Pac.  282; 
South  Florida  R.  Co.  v.  Price,  32 
Fla.  46,  13  So.  638. 

114  Toledo,  &c.  R.  Co.  v.  Rodrigues, 
47  111.  188,  95  Am.  Dec.  484;  Ellis  v. 
Central  Pacific  R.  Co.  5  Nev.  255. 

115  Northern  Central  R.  Co.  v.  Pren- 
tiss,  11  Md.  119;    Canney  v.   South 
Pacific    Coast   R.    Co.    63    Cal.    501, 
where  the  court  says:    "The  plain- 
tiff,  in   his   testimony   and   on   the 
trial,    admitted,    and    his   witnesses 
proved,  that  the  services  were  ren- 
dered in  pursuance  of  his  original 
employment    by    those    who    were, 
wounded,  and  not  otherwise.    There 
was,  therefore,  n6  contract,  express 
or  implied,  between  the  plaintiff  and 
the    defendant    in    relation    to    the 
services   which   are   the   subject   of 
the  suit,  and  as  there  is  no  prejudi- 


cial error  in  the  record  the  judg- 
ment and  order  are  affirmed." 

118  Pittsburgh,  &c.  Co.  v.  Sullivan, 
141  Ind.  83,  40  N.  E.  138,  27  L.  R. 
A.  840,  50  Am.  St.  313;  Laubheim 
v.  De  Koninglyke,  &c.  Co.  107  N.  Y. 
228,  13  N.  E.  781,  1  Am.  St  815; 
Eighmy  v.  Union  Pac.  R.  Co.  93  Iowa 
538,  61  N.  W.  1056;  McDonald  T. 
Mass.  &c.  Hospital,  120  Mass.  432, 
21  Am.  R.  529 ;  Secord  v.  St.  Paul,  &c. 
R.  Co.  18  Fed.  221;  Union  Pac.  Rail- 
way Co.  v.  Artist,  60  Fed.  365;  Fire 
Insurance  Patrol  v.  Boyd,  120  Pa. 
St.  624,  15  Atl.  553,  1  L.  R.  A.  417, 
6  Am.  St.  745;  O'Brien  v.  Cunard 
Steamship  Co.  154  Mass.  272,  28  N. 
E.  266,  13  L.  R.  A.  329;  Haas  v.  Mis- 
sionary Society,  &c.  6  Misc.  (N.  Y.) 
281,  26  N.  Y.  S.  868;  Van  Tassell  v. 
Manhattan,  &c.  Hospital,  60  Hun 
(N.  Y.)  585,  15  N.  Y.  S.  620;  Allan 
v.  State  Steamship  Co.  132  N.  Y.  91, 
30  N.  E.  482,  15  L.  R.  A.  166,  28  Am. 
St.  556;  South  Railroad  Co.  v. 
Price,  32  Fla.  46,  13  So.  638. 


§  224]  CORPORATE  REPRESENTATIVES.  340 

sick  or  injured  employes  or  to  employ  surgeons  to  attend  them.117 
There  are  exceptional  cases  where  an  urgent  emergency  imposes  upon 
the  company  a  special  duty  to  secure  surgical  attention,  but,  as  else- 
where said,  such  a  duty  is  transient  and  special,  coming  into  existence 
with  the  emergency  and  with  the  emergency  expiring.118 

§  224.  Delegation  of  power  by  directors. — The  directors  are  held 
to  be  superior  officers  and  as  such  possessors  of  very  extensive  powers, 
and  they  may  delegate  to  agents  or  employes  authority  of  wide 
scope,119  but  they  cannot  delegate  powers  which  they  are  specially 
required  to  exercise  by  the  provisions  of  the  charter,120  or  by  neces- 
sary implication.  The  powers  which  they  are  held  by  implication  to 
be  unable  to  delegate  are  generally  said  to  be  such  as  require  the  exer- 
cise of  judicial  or  personal  discretion  as  a  board,121  such  as  declaring 
dividends,  making  calls,  leasing  the  franchises  and  property  of  the 
company  or  executing  a  mortgage  upon  them,  or  entering  into  a  con- 
solidation agreement  with  another  company,  where  such  powers  are 
lodged  in  the  directors.122  What  powers  are  and  what  are  not  specially 
enjoined  upon  the  directors  personally  and  required  to  be  executed  by 
them  in  person  must  generally  be  ascertained  from  the  charter  or  act 

117 Smith   Master  &  Servant  New  York,  &c.  R.  Co.  v.  Smith,  20 

(Blacks'  ed.)    302;   Wennell  v.  Ad-  R.  I.  134,  37  Atl.  636;  Davis  v.  Mem- 

ney,  3  B.  &  P.  252;   Cooper  v.  Phil-  phis  City  R.  Co.  22  Fed.  883.     The 

lips,  4  C.  &  P.  581;    Sellen  v.  Nor-  directors  may  appoint  all  necessary 

man,  4  C.  &  P.  80;  Newby  v.  Wilt-  subordinate     officers.       Kitchen     v. 

shire,  2  Esp.  739;  Sevier  v.  Birming-  Cape  Girardeau,  &c.  R.  Co.  59  Mo. 

ham,  &c.  Co.  92  Ala.  258,  9  So.  405;  514. 

Toledo,  &c.  Co.  v.  Rodrigues,  47  111.  12°  County  Palatine  Loan,  &c.  Co., 

188,   95  Am.   Dec.  484;    Toledo,   &c.  Cartmell's  Case,  In  re,  43  L.  J.  Eq. 

Co.  v.  Prince,  50  111.  26;  Cairo,  &c.  588;  Silver  Hook  Road  v.  Greene,  12 

Co.  v.  Mahoney,  82  111.  73,  25  Am.  R.  R.  I.  164 ;  Farmers'  Mut.  Ins.  Co.  r. 

299;    Union,   &c.   Co.   v.   Beatty,   35  Chase,  56  N.  H.  341;   York,  &c.  R. 

Kans.  265,  10  Pac.  845,  57  Am.  R.  Co.  v.  Ritchie,  40  Me.  425;  Read  v. 

160.  Memphis,  &c.  Co.  9  Heisk.   (Tenn.) 

118  Pittsburgh,  &c.  Co.  v.  Sullivan,  545. 

141  Ind.  83,  40  N.  E.  138,  27  L.  R.  A.  ia  Farmers'  Mut.  Ins.  Co.  v.  Chase, 

840,  50  Am.  St.  313.  56  N.  H.  341;   Silver  Hook  Road  v. 

"•  Hoyt  v.  Thompson,  19  N.  Y.  207;  •  Greene,  12  R.  I.  164;  Percy  v.  Millau- 

Burrill  v.   Nahant  Bank,   43   Mass,  don,  3  La.  568;    Patterson  v.  Port- 

163,  35  Am.  Dec.  395;   Saltmarsh  v.  land  Smelting  Works,  35  Oreg.  96, 

Spaulding,  147  Mass.  224,  17  N.  E.  56  Pac.  407. 

316 ;  Manchester,  &c.  R.  Co.  v.  Fisk,  "*  See  ante  under  the  various  ti- 

33  N.  H.  297.     See,  also,  Lewis  v.  ties  of  dividends,  calls,  etc. 
Albemarle,  &c.  R.  Co.  95  N.  Car.  179; 


341 


EMPLOYMENT   OF    SUB-AGENTS   AND   SERVANTS. 


[§'   225 


of  incorporation.  Powers  of  a  legislative  or  judicial  nature  necessarily 
exercised  in  governing  the  corporation  cannot  be  delegated  unless  the 
statute  by  express  words  or  fair  implication  confers  a  right  to  delegate 
them. 

§  225.  Employment  of  sub-agents  and  servants. — The  general  rule 
is  that  the  authority  of  an  agent  cannot  be  delegated  unless  power  to 
delegate  is  expressly  or  impliedly  conferred  upon  him.  Authority  to 
employ  sub-agents  may  often  be  implied  from  the  rank  and  position 
of  the  agent,  but,  as  a  rule,  agents  of  inferior  rank  and  limited  author- 
ity cannot  rightfully  employ  other  agents  or  servants.  Ordinarily  a 
mere  agent  cannot,  without  the  authority  or  consent,  express  or  im- 
plied, of  the  corporation,  employ  another  to  perform  the  duties  re- 
quired of  him  so  as  to  bind  the  corporation,  especially  in  anything 
which  requires  the  exercise  of  judgment  and  discretion,123  or  of 
skill,124  in  its  performance.  But  in  the  case  of  superintendents,  man- 
agers and  agents  invested  with  general  powers,  an  authority  to  employ 
subordinate  agents  is  implied  from  necessity  and  custom,  even  if  not 
expressly  given.125 

§  226.  Notice  to  agents  or  officers. — Notice  given  to,  or  knowledge 
acquired  by  an  officer126  or  an  agent  of  a  corporation,  when  acting  for 
the  corporation  within  the  scope  of  his  authority,127  concerning  matters 


^Brewster  v.  Hobart,  15  Pick. 
(Mass.)  302;  Gillis  v.  Bailey,  21  N. 
H.  149;  Silver  Hook  Road  v.  Greene, 
12  R.  I.  164;  York,  &c.  R.  Co.  v. 
Ritchie,  40  Me.  425. 

^Everhart  v.  Terre  Haute,  &c. 
R.  Co.  78  Ind.  292,  41  Am.  R.  567, 
where  a  brakeman  employed  plain- 
tiff to  perform  some  of  his  duties, 
and  the  plaintiff  being  injured  by 
the  company's  negligence,  the  com- 
pany was  held  not  liable.  Kent  Com. 
(9th  ed.),  854,  856. 

128  Wood  Field  Priv.  Corp.  (1883), 
§  183.  When  the  regular  brakeman 
is  absent,  and  the  proper  and  safe 
management  of  the  train  so  re- 
quires, the  conductor  has  authority 
to  supply  the  place  of  the  absent 
brakeman,  and,  for  the  time  being, 
such  person  is  an  employe  of  the 


railroad,  with  all  of  an  employe's 
rights.  Sloan  v.  Central  R.  Co.  62 
Iowa  728,  16  N.  W.  331. 

^Notice  to  the  president  when 
acting  for  the  corporation  is  notice 
to  the  corporation.  Hoffman,  &c.  Co. 
v.  Cumberland,  &c.  Co.  16  Md.  456, 
77  Am.  Dec.  311;  First  Nat.  Bank 
v.  Gifford,  47  Iowa  575;  Barnes  v. 
Trenton  Gas  Co.  27  N.  J.  Eq.  33. 
But  the  notice  or  information  must 
be  given  or  acquired  while  he  was 
acting  as  president.  Winchester  v. 
Baltimore,  &c.  R.  Co.  4  Md.  231; 
filler  v.  Illinois  Central  R.  Co.  24 
Barb.  (N.  Y.)  312.  So  notice  to  the 
secretary  was  held  sufficient.  Tren- 
ton Banking  Co.  v.  Woodruff,  2  N.  J. 
Eq.  117. 

127  Schenck  v.  Mercer  County  Mut. 
Ins.  Co.  24  N.  J.  L.  447;  Goodall  v. 


§  226] 


CORPORATE  REPRESENTATIVES. 


342 


about  which  he  is  acting  or  has  authority  to  act,  will  be  imputed  to  the 
corporation.128  But  the  knowledge  must  be  shown  to  relate  to  the 
business  of  his  agency,  and  must  not  be  merely  casual  knowledge,  but 
must  usually  be  knowledge  acquired  while  acting  as  agent.129  And 
the  corporation  will  be  chargeable  with  notice  of  all  facts  within  the 
knowledge  of  a  person  assuming  to  act  for  it,  relative  to  the  business 
in  hand,  in  case  it  ratifies  and  adopts  his  acts.130  Notice  to  or  notice 
acquired  by  an  individual  stockholder  will  not  bind  the  corporation,131 
and  the  fact  that  he  afterwards  becomes  an  officer  will  not  render 
it  binding.132  There  are  many  decisions  to  the  effect  that  notice  to  an 
agent  at  some  previous  time  and  when  he  was  engaged  in  a  different 
business  will  not  bind  his  principal  unless  it  is  shown  to  have  been 
actually  disclosed  to  him,133  and  the  better  reason,  we  are  inclined  to 


New  Eng.  Mut.  Fire  Ins.  Co.  25  N. 
H.  169;  Marine  Mfg  Co.  v.  Harding, 
155  Ind.  648,  58  N.  B.  194.  But  such 
knowledge  should  be  imputed  to  the 
corporation  only  so  long  as  the 
agency  remains ;  and  where  an  agent 
possessing  knowledge  not  acquired 
by  any  usage,  custom  or  course  of 
business  of  the  company,  such  as 
knowledge  of  the  arbitrary  mark  of 
a  consignee  of  goods  shipped  by 
railroad,  ceases  to  serve  as  agent, 
the  company  cannot  be  charged  with 
such  knowledge.  Great  Western 
Railway  v.  Wheeler,  20  Mich.  419. 
See,  generally,  Pittsburgh,  &c.  Co. 
v.  Ruby,  38  Ind.  294,  10  Am.  R.  Ill; 
Ohio,  &c.  Co.  v.  Collarn,  73  Ind.  261, 
38  Am.  R.  134. 

123  2  Purdy's  Beach  Priv.  Corp. 
§  769.  It  is  essential  that  notice 
should  relate  to  matters  over  which 
the  authority  of  the  agent  extends 
and  should  be  more  than  mere  ca's- 
ual  information  gathered  as  an  in- 
dividual. Day  v.  Wamsley,  33  Ind. 
145. 

128  Brown  v.  Bankers',  &c.  Co.  30 
Md.  39;  Goodloe  v.  Godley,  13  S.  & 
M.  (Miss.)  233,  51  Am.  Dec.  159, 
Willard  v.  Denise,  50  N.  J.  Eq.  482, 
26  Atl.  29,  35  Am.  St.  788;  notes  in 


24  Am.  St.  228-233,  and  38  Am.  St. 
770. 

130Hovey  v.  Blanchard,  13  N.  H. 
145. 

131  Danville  Bridge  Co.  v.  Pomeroy, 
15  Pa.  St.  151;  Nashville,  &c.  R.  Co. 
v.  Elliott,  1  Coldw.  (Tenn.)  611,  78 
Am.  Dec.  506;  Black  v.  Camden,  &c. 
R.  Co.  45  Barb.  (N.  Y.)  40. 

132  Housatonic  Bank  v.  Martin,  42 
Mass.  294;  Union  Canal  Co.  v.  Loyd, 
4   W.   &   S.    (Pa.)    393.     See,   also, 
Brennan  v.  Emery,  &c.  Co.  99  Fed. 
971;  Casco  Nat.  Bank  v.  Clark,  139 
N.  Y.  307,  34  N.  E.  908,  36  Am.  St. 
705;    Kearny  Bank  v.  Froman,  129 
Mo.  427,  31  S.  W.  769,  50  Am.  St. 
456. 

133  Miller  v.  Illinois  Central  R.  Co. 
24  Barb.  (N:Y.)  312;  Reed's  Appeal, 
34  Pa.  St.  207;  Keenan  v.  Missouri 
Ins.    Co.    12    Iowa    126;    Pepper   v. 
George,  51  Ala.  190;   United  States 
Ins.  Co.  v.  Shriver,  3  Md.  Ch.  381; 
Winchester  v.  Baltimore,  &c.  R.  Co. 
4  Md.  231;   Plympton  v.  Preston,  4 
La.  Ann.  356;  Washington  Bank  v. 
Lewis,  22  Pick.    (Mass.)    24;    Astor 
v.    Wells,    4    Wheat.    (U.    S.)    466; 
Trenton  v.  Pothen,  46  Minn.  298,  49 
N.  W.  129,  24  Am.  St.  250.     In  Mc- 
Comb  v.  Chicago,  &c.  R.  Co.  7  Fed. 


343 


RATIFICATION. 


[§  227- 


think,  supports  this  rule.  Very  respectable  authority,  however,  holds 
that  notice  or  knowledge  received  by  an  agent  before  he  was  appointed 
as  such  is  imputable  to  the  principal  in  regard  to  matters  in  which 
he  is  afterward  employed,  if  it  can  be  shown  that  the  facts  were  then 
present  in  the  agent's  mind,  or  that  knowledge  of  them  was  so  re- 
cently acquired  that  it  should  be  presumed  that  he  still  had  it  in 
mind  ;134  but  this  doctrine  we  are  inclined  to  regard  as  unsound.  The 
rule  in  England135  is  that  which  we  have  said  we  believe  to  be  sup- 
ported by  the  better  reason.136  So,  if  the  agent  is  acting  adversely 
to  the  corporation,  and  his  interests  are  adverse,  there  is  no  presump- 
tion that  he  will  inform  the  corporation  in  regard  to  such  matter,  and 
his  notice  or  knowledge  in  that  regard  is  not,  therefore,  imputed  to  the 
corporation  in  such  a  case.137 

§  227.     Ratification. — Even  though  the  agent  is  not  shown  to  have 
received  any  authority  from  the  corporation,  and  it  does  not  appear 


426,  it  was  held  that  an  officer  could 
not  be  made  a  party  to  a  bill  of  dis- 
covery when  he  did  not  derive  his 
information  in  his  official  capacity, 
but  derived  it  from  a  participation 
in  the  creation  of  the  corporation. 

134  The  Distilled  Spirits,  11  Wall. 
(U.  S.)  356;  Fairfield  Savings  Bank 
v.  Chase,  72  Me.  226,  39  Am.  R.  319; 
Ingalls  v.  Morgan,  10  N.  Y.  178; 
Hovey  v.  Blanchard,  13  N.  H.  145; 
Lebanon  Savings  Bank  v.  Hollen- 
beck,  29  Minn.  322,  13  N.  W.  145. 
See,  also,  note  in  24  Am.  St.  229, 
230,  where  this  view  is  taken  and 
additional  authorities  are  cited  up- 
on both  sides. 

131  Dresser  v.  Norwood,  17  C.  B.  N. 
S.  466.  But  the  older  cases  hold  to 
the  other  rule.  Preston  v.  Tubbin, 
1  Vern.  286;  Lowther  v.  Carlton,  2 
Atk.  242;  Hiern  v.  Mill,  13  Ves.  114. 

139  por  cases  forming  exceptions  to 
the  general  rule  that  notice  to  the 
agent  is  notice  to  the  principal,  see 
Thompson,  &c.  Co.  v.  Capitol,  &c. 
Co.  65  Fed.  341;  Allen  v.  South  R. 
Co.  150  Mass.  200,  22  N.  E.  917,  5  L. 


R.  A.  716,  15  Am.  St.  185;  Kennedy 
v.  Green,  3  Mylne  &  K.  699;  Espin 
v.  Pemberton,  3  De  Gex  &  J.  547; 
Rolland  v.  Hart,  L.  R.  6  Ch.  App. 
678;  Cave  v.  Cave,  L.  R.  15  Ch.  Div. 
639;  Kettlewell  v.  Watson,  L.  R.  21 
Ch.  Div.  685,  707;  Innerarity  v. 
Bank,  139  Mass.  332,  1  N.  E.  282,  52 
Am.  R.  710;  De  Kay  v.  Hackensack 
Water  Co.  38  N.  J.  Eq.  158;  Frankel 
v.  Hudson,  82  Ala.  158,  2  So.  758,  60 
Am.  R.  736.  The  doctrine  of  the 
cases  cited  is  that  when  the  agent 
is  attempting  to  defraud  his  princi- 
pal notice  to  him  is  not  notice  to  the 
principal. 

137  Lamson  v.  Beard,  94  Fed.  30,  36 
C.  C.  A.  56;  Corcoran  v.  Snow  Cattle 
Co.  151  Mass.  74,  23  N.  E.  727;  Mer- 
chants' Nat.  Bank  v.  Lovitt,  114  Mo. 
519,  21  S.  W.  825,  35  Am.  St.  770, 
and  note;  Grinster  v.  Scranton,  &c. 
Co.  181  Pa.  St.  327,  37  Atl.  550,  59 
Am.  St.  650;  Booker  v.  Booker,  208 
111.  529,  70  N.  E.  709,  100  Am.  St. 
250;  Camden  Safe,  &c.  Co.  v.  Lord, 
67  N.  J.  Eq.  489,  58  Atl.  607. 


CORPORATE  REPRESENTATIVES. 


344 


that  he  has  been  held  out  to  the  world  as  possessing  any  such  author- 
ity, and  no  former  acts  of  his  are  shown  from  which  his  authority  as 
an  agent  could  be  presumed,  yet  the  corporation  will  be  bound  if  it  is 
shown  to  have  knowingly  ratified  the  particular  act  in  question138  by 
express  adoption  of  the  contract,139  either  in  whole  or  in  part,140  by 
availing  itself  of  the  proceeds  or  benefits  arising  from  an  execution  of 
the  contract  by  the  other  party,141  or  by  neglecting  to  disavow  and  ac- 
tively condemn  the  unauthorized  act  for  a  long  time  and  until  innocent 
third  persons  have  been  thereby  induced  to  put  themselves  in  a 
position  from  which  they  cannot  be  taken  without  loss  if  the  act 
should  be  held  invalid.142  Wha,t  is  a  reasonable  time  in  which  to 
disavow  an  act  of  the  agent  after  being  informed  of  what  he  has  done 
will  depend  upon  the  particular  circumstances  of  the  case.  If  the 
corporation  and  its  officers  have  knowledge  that  the  other  contracting 
party  is  making  large  expenditures  on  the  faith  of  the  contract,  they 
must  act  promptly  if  they  would  disaffirm  it.143  Eatification  from  long 
silence  has  been  held  a  question  for  the  jury.144  But  ratification  should 
not  be  lightly  presumed,  especially  where  the  act  is  wholly  beyond  the 


138  Stuart  v.  London,  &c.  R.  Co.  16 
Jur.  209,  10  Eng.  L.  &  Eq.  57.  Evi- 
dence that  representatives  of  a  cor- 
poration agreed  that  certain  land 
should  be  used  as  a  highway  and 
that  such  agreement  was  afterward 
ratified  is  not  rendered  inadmissible 
by  the  fact  that  no  such  authority 
was  given  the  representatives  in  the 
resolution  authorizing  the  purchase 
of  the  land.  People  v.  Eel  River, 
&c.  R.  Co.  98  Cal.  665,  33  Pac.  728. 

138  McLaughlin  v.  Detroit,  &c.  R. 
Co.  8  Mich.  99. 

148  United  States  Rolling  Stock  Co. 
v.  Atlantic,  &c.  R.  Co.  34  Ohio  St. 
450,  32  Am.  R.  380. 

141Bangor,  &c.  R.  Co.  v.  Smith,  47 
Me.  34;  Scott  v.  Middletown,  &c.  R. 
Co.  86  N.  Y.  200;  Oilman,  &c.  R.  Co. 
v.  Kelly,  77  111.  426;  Davidson  v. 
Bridgeport,  8  Conn.  472;  Billiard  v. 
Goold,  34  N.  H.  230,  66  Am.  Dec.  765; 
Kickland  v.  Menasha,  &c.  Co.  68 
Wis.  34,  31  N.  W.  471,  60  Am.  R.  831. 
When  a  corporation  receives,  with- 


out objection,  the  benefit  of  a  con- 
tract made  by  any  agent  in  its  be- 
half, for  a  purpose  authorized  in  its 
charter,  it  may  be  presumed  to  have 
authorized  or  ratified  the  contract. 
Pittsburgh,  &c.  R.  Co.  v.  Keokuk, 
&c.  Co.  131  U.  S.  371,  9  Sup.  Ct.  770. 

142  Sheldon,  &c.  Co.  v.  Eickemeyer, 
&c.  Co.  90  N.  Y.  607;  Hazlehurst  v. 
Savannah,    &c.    R.    Co.    43    Ga.    13; 
United  States,  &c.  Stock  Co.  v.  At- 
lantic, &c.  R.  Co.  34  Ohio  St.  450,  32 
Am.   St.    380;    Indianapolis   Rolling 
Mill  Co.  v.  St.  Louis,  &c.  R.  Co.  120 
U.  S.  256,  7  Sup.  Ct.  542.    See,  also, 
Kelly   v.    Newburyport,   &c.   R.    Co. 
141  Mass.  496,  6  N.  E.  745. 

143  United  States,  &c.  Stock  Co.  v. 
Atlantic,  &c.  R.  Co.  34  Ohio  St.  450, 
32  Am.  St.  380. 

144  First   Nat.    Bank   v.    Reed,    36 
Mich.   263.     See  1  Elliott  Gen.  Pr. 
§  426;  Arkansas,  &c.  R.  Co.  v.  Dick- 
inson   (Ark.),   95    S.   W.   802;   Hall 
v.  New  York,  &c.  R.  Co.,  27  R.  L.  525, 
65  Atl.  278. 


345 


ACTS    THAT    MAY   BE   RATIFIED. 


[§•  228 


ordinary  duties  of  the  officer  or  agent  performing  it;145  for  no  in- 
dividual member  can  represent  the  corporation  in  its  aggregate  ca- 
pacity, except  by  consent.  Thus,  proof  that  the  plaintiff's  men  were 
seen  at  work  upon  a  turnpike  road  by  different  members  of  the  cor- 
poration owning  it,  and  by  its  agent  who  was  authorized  to  bind  the 
corporation  only  by  written  contracts,  was  held  insufficient  to  establish 
a  claim  for  pay  for  such  work,  where  it  was  not  shown  that  any  author- 
ized agent  of  the  coroporation,  or  any  one  who  had  previously  acted  for 
the  corporation  in  such  matters,  had  requested  that  the  work  should  be 
done  or  promised  to  pay  for  it.146 

§  228.  Acts  that  may  be  ratified. — It  is  competent  for  a  railroad 
company  to  ratify  any  act  of  an  agent  performed  within  the  scope 
of  the  corporate  power.  The  general  rule  is  that  a  corporation  can 
only  ratify  contracts  which  it  has  power  to  enter  into,147  and  it  is 
powerless  to  ratify  one  which  it  is  prohibited  from  making  by  its 
charter,  by  public  policy  or  by  general  statute.148  It  is,  in  general, 
true  that  a  void  act  cannot  be  ratified.  A  recovery  may  be  had  on  the 
quantum  meruit  in  many  cases  for  the  value  of  the  property  actually 
received  by  the  company.  Such  a  recovery  does  not,  as  a  general  rule, 
rest  upon  the  void  contract,  but  there  are  cases  which  hold  that  a  re- 
covery can  be  had  on  the  contract.149 


145  Kersey  Oil  Co.  v.  Oil  Creek,  &c. 
R.  Co.  12  Phila.  (Pa.)  374. 

148Hayden  v.  Middlesex  Turnp.  Co. 
10  Mass.  397,  6  Am.  Dec.  143.  See 
Cox  v.  Midland  R.  Co.  18  Law  J.  N. 
S.  Exch.  65.  But  where  an  engineer 
who  had  previously  made  such  con- 
tracts which  had  been  ratified  by 
the  corporation,  promised  that  par- 
ties furnishing  materials  to  build  a 
bridge  for  the  company  should  be 
paid,  it  was  held  bound  by  such 
promise.  Beattie  v.  Delaware,  &c. 
R.  Co.  90  N.  Y.  643. 

"T  Scott  v.  Middletown,  &c.  R.  Co. 
86  N.  Y.  200;  United  States,  &c. 
Stock  Co.  v.  Atlantic,  &c.  R.  Co.  34 
Ohio  St  450,  32  Am.  St.  380;  Bos- 
ton, &c.  R.  Co.  v.  New  York,  &c.  R. 
Co.  13  R.  I.  260;  Pacific  R.  Co.  v. 
Thomas,  19  Kans.  256;  Board,  &c. 


v.  Lafayette,  &c.  R.  Co.  50  Ind.  85; 
Miller  v.  Rutland,  &c.  Co.  36  Vt.  452. 

118  Such  a  contract  is  as  if  no  con- 
tract had  ever  been  made,  and,  of 
course,  incapable  of  ratification.  Al- 
exander v.  Cauldwell,  83  N.  Y.  480; 
Davis  v.  Old  Colony  R.  Co.  131  Mas«. 
258,  41  Am.  R.  221;  Martin  v.  Zeller- 
bach,  38  Cal.  300,  99  Am.  Dec.  365; 
Taymouth  Tp.  v.  Koehler,  35  Mich. 
22. 

149  Hitchcock  v.  Galveston,  96  U.  S. 
341;  Dill  v.  Wareham,  7  Metcf. 
(Ky.)  438;  Schipper  v.  Aurora,  121 
Ind.  154,  158,  22  N.  E.  878,  6  L.  R.  A. 
318;  State  Board,  &c.  Co.  v.  Citi- 
zens', &c.  Co.  47  Ind.  407,  17  Am.  R. 
702;  Bissell  v.  Michigan,  &c.  Co.  22 
N.  Y.  258;  DeGroff  v.  American,  &c. 
Co.  21  N.  Y.  124;  Missouri  Pacific 
Co.  v.  Sidell,  67  Fed.  464;  Whitney 


229] 


CORPORATE   REPRESENTATIVES. 


§  229.  Ratification — What  constitutes. — A  ratification  will  be  pre- 
sumed only  in  case  the  corporation  was  aware  of  all  the  material  facts 
and  circumstances  which  would  influence  it  in  adopting  or  rejecting 
the  contract,150  or  had  such  means  of  knowing  that  it  was  chargeable 
with  negligence  in  not  being  informed  of  them.151  The  rule  stated 
is  a  familiar  one,  and  little  else  than  its  bare  statement  is  required. 
We  refer  in  the  note  to  a  few  of  the  great  number  of  cases  which  as- 
sert and  apply  the  rule.152 

§  230.  Compensation  of  officers. — As  a  general  rule  there  is  no  im- 
plied promise  to  pay  corporate  officers  anything  for  their  services, 
but  they  are  presumed  to  serve  without  compensation  unless  some 
provision  for  payment  is  made  by  statute,  by  contract,  or  by  resolu- 
tion of  the  board  of  directors.153  Where  a  certain  compensation  is 
agreed  upon  before  the  services  are  rendered,  payment  of  it  will  be 
enforced.  Accordingly,  it  is  held  that  a  by-law  of  a  corporation,  pro- 
viding that  "no  debts  shall  be  contracted  by  the  company  unless  there 


Arms  Co.  v.  Barlow,  63  N.  Y.  62,  20 
Am.  R.  504;  Railway  Co.  v.  McCar- 
thy, 96  U.  S.  258;  Bank  v.  Patterson, 
7  Cranch  (U.  S.)  299;  Pennsylvania 
R.  Co.  v.  Keokuk,  &c.  Co.  131  U.  S. 
371,  9  Sup.  Ct.  770;  Davis  v.  Old.»Col- 
ony  R.  Co.  131  Mass.  258,  41  Am.  R. 
221;  Louisiana  v.  Wood,  102  U.  S. 
294;  Parkersburg  v.  Brown,  106  U. 
S.  487,  1  Sup.  Ct.  442;  Pennsylvania, 
&c.  Co.  v.  St.  Louis,  &c.  Co.  118  U.  S. 
290,  6  Sup.  Ct.  1094. 

150  Oilman,  &c.  R.  Co.  v.  Kelly,  77 
111.  426. 

151Hotchin  v.  Kent,  8  Mich.  526; 
Exchange  Bank  v.  Monteath,  17 
Barb.  (N.  Y.)  171. 

152  Western,  &c.  Bank  v.  Arm- 
strong, 152  U.  S.  346,  14  Sup.  Ct. 
572;  Battaglia  v.  Thomas,  -5  Tex. 
Civ.  App.  563,  23  S.  W.  1118;  First 
Nat.  Bank  v.  Badger,  &c.  Co.  54  Mo. 
App.  327;  Russ  v.  Telfener,  57  Fed. 
973;  Sherrill  v.  Weisiger,  &c.  Co. 
114  N.  C.  436,  19  S.  E. '365;  W.  O. 
Johnson  &  Sons  v.  Des  Moines,  &c. 
R.  Co.  (Iowa)  105  N.  W.  509.  It 


is  familar  and  established  law  that 
the  act  of  an  agent  must  be  ratified 
in  toto  or  entirely  repudiated.  Ra- 
der  v.  Maddox,  150  U.  S.  128,  14 
Sup.  Ct.  46;  Nicklase  v.  Griffith,  59 
Ark.  641,  26  S.  W.  381;  Stanard  Mill- 
ing Co.  v.  Flower,  46  La.  Ann.  315, 
15  So.  16;  Brown  v.  Parsons,  10 
Utah  223,  37  Pac.  346;  Graff  v.  Calla- 
han,  158  Pa.  St.  389,  27  Atl.  1009; 
Tallman  v.  Kimball,  74  Hun  (N.  Y.) 
279,  26  N.  Y.  S.  811.  A  principal 
who  seeks  to  escape  liability  for  the 
unauthorized  act  of  the  agent  must 
repudiate  it  within  a  reasonable 
time  after  it  comes  to.  his  knowl- 
edge. Swartz  v.  Duncan,  38  Neb. 
782,  57  N.  W.  543. 

^Officers  of  corporations  are  pre- 
sumed to  perform  the  duties  of  their 
trusfr  gratuitously,  unless  otherwise 
provided  by  a  statute  or  a  contract. 
.Smith  v.  Putnam,  61  N.  H.  632;  Bar- 
ril  v.  Calendar  Insulating,  &c.  Co. 
50  Hun  (N.  Y.)  257,  19  N.  Y.  S.  877; 
Toponce  v.  Corinne  Mill,  C.  &  S.  Co. 
6  Utah  439,  24  Pac.  534.  There  is  no 


347  INDIVIDUAL  LIABILITY   OF  AGENTS  FOR  THEIR  TORTS.    [§   231 

are  funds  in  the  treasury  to  meet  the  same,"  does  not  apply  to  the 
salary  of  the  secretary  of  such  corporation,  especially  when  it  has 
received  the  consideration  for  the  indebtedness  contracted.154  And 
a  by-law  or  resolution  adopted  by  the  directors  of  a  corporation  that 
the  salary  of  the  president  shall  be  paid  monthly  out  of  the  money 
that  may  come  into  the  hands  of  the  treasurer  from  the  first  sale  of 
bonds  is  held  not  to  exempt  the  corporation  from  liability  therefor 
in  case  the  bonds  are  not  sold.155  Officers  and  agents,  of  whom  active 
duties  are  required,  not  chosen  from  among  the  directors  are,  ordi- 
narily, entitled  to  a  reasonable  compensation  for  services  rendered  at 
the  request  of  the  corporation  or  of  its  authorized  representatives.158 
Payment  for  labor  as  well  as  for  materials  useful  in  carrying  on  the 
business  of  the  corporation  may  usually  be  made  in  money  or  its 
equivalent ;  and,  if  in  the  latter,  the  transaction  cannot  be  impeached 
for  error  of  judgment  on  the  part  of  the  officers  as  to  the  value  of  the 
services  or  property.157 

§231.  Individual  liability  of  agents  for  their  torts. — Although 
the  corporation  becomes  bound  to  answer  for  any  wrongs  committed  by 
an  agent  in  the  course  of  his  employment,  the  agent  is  not  thereby 
discharged  from  liability.  He  must  answer  for  his  frauds,158  mis- 
implied  promise  to  pay  the  presi-  a  corporation,  a  man  became  its 
dent  of  a  private  corporation  for  his  general  agent  and  purchased  a  large 
services.  McAvity  v.  Lincoln  Pulp,  number  of  shares  of  its  capital 
&c.  Co.  82  Me.  504,  20  Atl.  82.  See  stock,  and  gave  active  and  valuable 
McMullen  v.  Ritchie,  64  Fed.  253;  service  to  the  company,  expecting 
Starbuck  v.  Housatonic  R.  Co.  83  that  when  it  became  prosperous  he 
Hun  (N.  Y.)  534,  32  N.  Y.  S.  87;  would  have  a  large  salary  for  the 
Potts  v.  Rose  Valley  Mills,  167  Pa.  future,  with  some  compensation  for 
St.  310,  31  Atl.  655.  the  past,  but  with  no  agreement  as 

154McCracken  v.  Halsey  Fire  En-  to   salary — the   fact  that  he   stated 

gine  Co.  57  Mich.  361,  24  N.  W.  104.  several  times  to  other  stockholders 

155  Indianapolis,  &c.  R.  Co.  v.  Hyde,  that  he   was   serving  without  com- 

122  Ind.   188,  23  N.  E.  706.     But  a  pensation  will  not  defeat  his  right 

resolution    fixing    the    salary    of    a  to   reasonable   pay   for  his  services 

charter  officer  elected  for  one  year  when  the  corporation  has  become  in- 

at  a  sum  certain  per  month  does  not  solvent.     Bard  v.  Banigan,  39  Fed. 

necessarily    fix    that    rate    for    the  13. 

year.  Bennett  v.  St.  Louis  Car  Roof-  '    UT  Arapahoe  Cattle  &  Land  Co.  v. 

ing  Co.  23  Mo.  App.  587.  Stevens,  13  Colo.  534,  22  Pac.  823,  28 

158  Rogers  v.  Hastings,  &c.  R.  Co.  Am.  &  Eng.  Corp.  Cas.  12. 

22  Minn.  25;  Missouri  River  R.  Co  158Dodgson  Case,  3  De  Gex  &  S. 

v.  Richards,  8  Kans.  101;  St.  Louis,  85;  Att'y-Gen.  v.  Leicester,  7  Beav. 

&c.  R.  Co.  v.  Grove,  39  Kans.  731,  18  176. 
Pac.  958.    Where,  at  the  request  of 


§  232] 


CORPORATE  REPRESENTATIVES. 


348 


representations,160  and  other  wrongful  acts,100  even  though  he  does 
them  by  the  express  direction  of  a  superintendent  or  other  superior 
officer  of  the  corporation.161 

§  232.  Bonds  of  officers  and  agents. — The  officers  and  agents  of  a 
corporation  are  liable  to  it  for  any  losses  occasioned  by  their  miscon- 
duct or  neglect,162  and  it  is  competent  for  the  corporation  to  take  a 
bond  from  an  officer  or  agent  to  secure  the  faithful  performance  of  his 
duty.  The  right  to  require  such  a  bond  is  given  by  statute  in  many 
states,163  but  such  statutes  are  but  an  affirmance  of  the  common 
law,164  and  any  corporation  may  pass  a  valid  by-law  requiring  security 
to  be  given  by  its  agents.165  Even  though  the  charter  prescribes  the 
security  to  be  taken,  such  provision  will  be  held  merely  directory  and 
a  different  bond  may  be  enforced  against  the  sureties  in  case  of  the 
agent's  default.166  If  the  bond  is  executed  and  delivered  to  the  cor- 
poration, and  the  officer  enters  upon  the  discharge  of  his  duties,  it  may 
be  enforced  against  the  sureties  upon  a  breach  of  its  conditions  without 
showing  any  formal  acceptance  of  it  by  the  directors.167  A  total  fail- 
ure to  execute  any  bond  whatever  will  not  prevent  the  person  ap- 


169  Salmon  v.  Richardson,  30  Conn. 
360,  79  Am.  Dec.  255;  Meyer  v.  Ami- 
don,  45  N.  Y.  169;  Fusz  v.  Spaun- 
horst,  67  Mo.  256;  Henderson  v.  La- 
con,  L.  R.  5  Eq.  249.  See,  also,  Ty- 
ler v.  Savage,  143  U.  S.  79,  12  Sup. 
Ct.  340. 

160  Homer  v.   Lawrence,   37   N.   J. 
L.  46;   Harriman  v.  Stowe,  57  Mo. 
93;    Crane  v.   Onderdonk,   67   Barb. 
(N.  Y.)    47;    Berghoff  v.  McDonald, 
87   Ind.   549;    Elmore  v.   Brooks,   6 
Heisk.    (Tenn.)    45;    Richardson   v. 
Kimball,    28    Me.    463;    Cameron   v. 
Kenyon,   &c.   Co.   22   Mont.   312,   56 
Pac.  358,  74  Am.  St.  602. 

161  Duluth  v.  Mallett,  43  Minn.  204, 
45  N.  W.  154,  where  the  conviction 
of    an    engineer    for    obstructing   a 
crossing  was  upheld,  though  it  ap- 
peared that  he  acted  only  in  obedi- 
ence to  orders. 

ld2  Pontchartrain  R.  Co.  v.  Pauld- 
ing,  11  La.  41;  Lexington  R.  Co.  v. 
Bridges,  7  B.  Mon.  (Ky.)  556; 


Briggs  v.  Spaulding,  141  U.  S.  132, 

11  Sup.  Ct.  924;   March  v.  Eastern 
R.  Co.,  43  N.  H.  529. 

163Stimson  Am.  Stat.  (1892) 
§§  8046,  8533,  citing  laws  of  Massa- 
chusetts, Vermont,  Connecticut,  New 
York,  Pennsylvania,  Arkansas,  West 
Virginia,  Texas,  Nevada,  Utah,  Indi- 
ana, Michigan,  Illinois,  Arizona,  Col- 
orado, Montana,  Wyoming,  District 
of  Columbia. 

184Angell  &  Ames  (8th  ed.),  §  285. 

165  Bank  v.  United  States  v.  Dand- 
ridge,  12  Wheat.  (U.  S.)  64.  See 
Bank  of  North  Liberties  v.  Cresson, 

12  Serg.  &  R.   (Pa.)  306;   Peppin  v. 
Cooper,  2  B.  &  Aid.  431. 

168  As  where  the  charter  prescribed 
a  bond  with  two  sureties,  and  a 
bond  with  only  one  surety  was 
taken.  Bank  of  Northern  Liberties 
v.  Cresson,  12  Serg..  &  R.  (Pa.)  306. 

197Amherst  Bank  v.  Root,  2  Mete. 
(Mass.)  522. 


349  BONDS   OF   OFFICERS   AND  AGENTS.  [§'  232 

pointed  to  an  office  from  being  a  legal  agent  of  the  corporation,  even 
where  the  charter  provides  that  he  shall  "give  bond  before  he  enters 
upon  the  duties  of  his  office,"168  although  a  failure  to  require  a  bond 
may  render  the  officers  whose  duty  it  was  to  require  the  bond  liable 
for  any  loss  resulting  from  their  failure  to  do  so.169  A  bond  is  not 
void  as  to  the  obligors  because  it  is  signed  by  the  officers  who  should 
examine  and  approve  it,170  nor  because  the  officer  neglected  to  be 
sworn.171  But,  if  the  principal  knows  of  some  fact  which  will  ma- 
terially affect  the  liability  of  the  sureties,172  as  that  he  is  being  cheated 
by  an  agent,173  and  applies  for  security  for  the  good  conduct  of 
the  agent,  but  conceals  this  fact  from  the  one  who,  in  ignorance  of  it, 
becomes  a  surety  for  the  agent,  the  obligation  so  obtained  may  be 
avoided  by  the  surety.  The  corporate  representative  must,  if  fit  oppor- 
tunity offers,  inform  the  surety  of  any  material  facts  within  his 
knowledge  relative  to  the  trustworthiness  of  the  officer,  such  as  prior 
defaults  and  the  like,  or  the  surety  will  not  be  bound.174  And  the 
corporation  cannot,  upon  misconduct  of  the  agent  amounting  to  a 
substantial  breach  of  the  bond  after  it  is  executed,  retain  him  in  its 
employ  and  yet  hold  the  sureties  liable  for  his  future  defaults,  unless 
notice  is  given  to  the  sureties  and  they  expressly  or  impliedly  consent 
to  the  agent's  retention.175  The  fact  that  the  agent  is  retained  will 
not  relieve  the  surety  from  a  liability  already  accrued.176  As  a  gen- 
eral rule  the  corporation  is  not  bound  upon  discovering  that  an  officer 

168  Bank  of  United  States  v.  Band-  time  of  signing  the  official  bond  is 
ridge,  12  Wheat.  (U.  S.)  64.    But  if  in  default,  and  the  sureties  are  not 
the  charter  especially  provided  that  informed  of  that  fact,  they  will  not 
he  should  not  be  deemed  for  any  be  bound.     Wilmington,  &c.  R.  Co. 
purpose   in   his   office   until   an   ap-  v.  Ling,  18  S.  C.  116. 

proval  of  his  bond  by  the  proper  1M  Western,  &c.  Ins.  Co.  v.  Clinton, 

board,  any  acts  which  he  did  before"  66  N.  Y.  326;  -<Etna  Life  Ins.  Co.  v. 

such  approval  would  be  utterly  void.  Mabbett,    18    Wis.    667;     Franklin 

Bank  of  United  States  v.  Dandridge,  Bank  v.  Cooper,  36  Me.  179;   Dins- 

12  Wheat.  (U.S.)  64,  per  Story,  J.  more  v.   Tidball,   34  Ohio   St.   411; 

169  Pontchartrain  R.  Co.  v.  Pauld-  Graves  v.   Lebanon  Nat.  Bank,   10 
ing,  11  La.  41.  Bush  (Ky.)  23,  19  Am.  R.  50;  State 

""Amlierst  Bank  v.  Root,  2  Mete.  v.  Atherton,  40  Mo.  209. 

(Massu)  522.  (175  Phillips  v.  Foxall,  L.  R.  7  Q.  B. 

m  State  Bank  v.  Chetwood,  8  N.  J.  666;  Taylor  v.  Bank  of  Kentucky,  2 

L.  1.  J.  J.  Marsh  (Ky.)  564;  Wilmington, 

in  Franklin   Bank  v.   Stevens,   39  &c.  R.  Co.  v.  Ling,  18  S.  C.  116. 

Me.  532.  ""  State  Bank  v.  Chetwood,  8  N. 

1T3Maltby's  Case,  cited  in  1  Dow.  J.  L.  1;  Union  Bank  v.  Forstall,  11 

294.    Where  a  station  agent  at  the  La.  211. 


§  232]  CORPORATE  REPRESENTATIVES.  350 

is  in  default  to  dismiss  the  officer  and  notify  the  sureties  in  order  that 
they  may  take  measures  to  protect  themselves.177  And  where  the  officer 
or  employe  was  a  defaulter  at  the  time  of  giving  the  bond,  but  this 
fact  was  unknown  to  the  company,  or  where  the  corporation  retains 
him  in  its  employ  after  his  default,  but  in  ignorance  of  his  miscon- 
duct, the  surety  is  not  thereby  discharged,  even  though  such  ignorance 
arises  from  the  negligence  of  officers  of  the  corporation  in  failing  to 
examine  into  the  accounts  of  the  person  under  bond.178  The  mere 
fact  that  a  balance  was  due  from  the  agent  to  the  principal  on  account 
of  money  received  by  him,  where  it  did  not  carry  an  imputation  of 
misconduct  on  the  part  of  the  agent,  was  held  not  a  material  fact,  the 
concealment  of  which  would  release  the  surety.179  And  the  fact  that 
a  balance  is  found  to  be  due  from  the  agent  to  the  corporation,  and  he 
is  afterward  allowed  to  continue  in  its  employ  will  not  necessarily 
release  the  sureties,  for  it  is  only  where  the  default  is  evidently  a  dis- 
honest one,  amounting  to  a  breach  of  the  bond,  that  the  corporation 
is  bound  to  discharge  the  delinquent.180  A  bond  will  be  presumed  to 
be  executed  with  reference  to  the  time  for  which  the  officer  or  agent 
is  appointed,  if  for  a  term  certain,  and  the  sureties  cannot  be  held 
liable  for  his  misconduct  in  any  subsequent  terms  for  which  he  may 
be  chosen.181  But  they  may,  by  the  use  of  apt  words  in  the  bond, 
bind  themselves  for  an  indefinite  number  of  successive  terms  during" 
which  he  may  hold  his  position.182  Where  one  gives  a  bond  as  an 
officer  of  a  corporation  whose  charter  will  soon  expire,  his  bondsmen 
cannot  be  held  liable  for  his  defalcations  while  acting  as  an  officer 

177  Pittsburg,  &c.  R.  Co.  v.  Shaef-     196.     See  Vilwig  v.  Baltimore,  &c. 
fer,  59  Pa.  St.  350;  Morris  Canal,  &c.     R.  Co.  79  Va.  449. 

Co.  v.  Van  Vorst,  21  N.  J.  L.  100;  ^  Atlantic,  &c.  Tel.  Co.  v.  Barnes, 
Peel  v.  Tatlock,  1  Bos.  &  Pull.  419;  64  N.  Y.  385,  21  Am.  R.  621;  Rich- 
Grocers'  Bank  v.  Kingman,  16  Gray  mond,  &c.  R.  Co.  v.  Kasey,  30  Gratt. 
(Mass.)  473.  (Va.)  218. 

178  Bowne  v.  Mt.  Holly  Nat.  Bank,  m  Chelmsford  Co.  v.  Demarest,  7 
45  N.  J.  L.  360;  Watertown,  &c.  Ins.  Gray  (Mass.)  7;  Manufacturers',  &c. 
Co.   v.   Simmons,   131   Mass.   85,   41  Loan  Co.  v.  Odd  Fellows'  Hall  Ass'n, 
Am.  R.  196;  Atlas  Bank  v.  Brownell,  48  Pa.  St.  446;  Exeter  Bank  v.  Rog- 
9  R.  I.  168,  11  Am.  R.  231;   Black  ers,  7  N.  H.  21. 

v.   Ottoman  Bank,   15   Moore   P.   C.  M2  Middlesex    Manf.    Co.    v.    Law- 

472.  rence,  1  Allen  (Mass.)  339.  See  Lex- 

179  Guardians,   &c.  v.   Strother,   24  ington,  &c.  R.  Co.  v.  Elwell,  8  Allen 
Eng.  Law  &  Eq.  183,  22  L.  T.  84;  (Mass.)  371;  Eastern  R.  Co.  v.  Lor- 
Wilmington,  &c.  R.  Co.  v.  Ling,  18  ing,    138    Mass.    381;     Consolidated 
S.  Car.  116;  Watertown,  &c.  Ins.  Co.  Nat.   Bank   v.   Fidelity,   &c.    Co.   6T 
v.  Simmons,  131  Mass.  85,  41  Am.  R.  Fed.  874. 


351         SURETIES BONDS  OF  OFFICERS  AND  AGENTS.      [§  233 

under  an  extension  of  the  charter.183  But  the  adoption  of  a  by-law- 
changing  the  time  for  holding  the  annual  meeting,  or  changing  the 
mode  of  conducting  the  business  of1  the  corporation  after  the  termina- 
tion of  a  lease  of  its  property  will  not  discharge  the  sureties.184  It 
has  also  been  held  that  the  obligation  of  a  bond  is  not  avoided  by  the 
amalgamation  of  the  company  to  which  it  was  given  with  another 
under  an  act  of  parliament  providing  that  all  the  securities  of  the 
old  companies  should  be  vested  in  the  new,  and  the  duties  of  the 
officer  were  unchanged.185 

§233.  Sureties — Bonds  of  officers  and  agents. — The  rules  which 
govern  as  to  the  effect  of  changes  in  obligations  of  sureties  apply  to 
sureties  on  the  bonds  of  corporate  officers  and  agents.  We  shall  not 
discuss  the  subject  at  length,  but  will  refer  to  some  general  rules.  A 
change  in  the  contract  in  any  material  part,  without  the  consent  of 
the  surety,  will  discharge  him  from  his  obligation,186  as  where  one 
who  is  working  for  a  salary  goes  to  work  on  a  commission,187  or  where 
one  who  gives  bond  as  agent  for  an  insurance  company  which  has  no 
authority  to  engage  in  banking  is  intrusted  by  it  with  the  business 
of  banking  for  the  corporation,  and  embezzles  funds  intrusted  to 
him  for  that  purpose.188  But  a  surety  on  the  bond  of  a  ticket  seller, 
conditioned  for  his  faithful  performance  of  "all  the  duties  of  the 
said  office  which  are  or  may  be  imposed  upon  him  under  this  or  any 
future  appointment,"  is  not  released  by  the  fact  that  the  capital  stock 
of  the  corporation  is  increased,  that  the  travel  becomes  much  greater, 
and  that  the  ticket  agent's  salary  is  nearly  doubled  after  the  bond 
is  given.189  The  sureties  on  the  official  bond  of  an  officer  or  agent  of 
a  private  corporation  conditioned  for  the  faithful  performance  of  his 
duties  will  not  be  held  to  any  greater  liability  than  would  attach  to 
the  agent  if  no  bond  were  given,  unless  the  language  of  the  bond 
clearly  requires  it.190  Such  a  bond  has  reference  to  the  agent's  hon- 

183  Thompson  v.  Young,  2  Ohio  334.  ^  Blair  v.   Perpetual   Ins.   Co.   10 

1S*  Lexington,  &c.  R.  Co.  v.  Elwell,  Mo.  559,  47  Am.  Dec.  129. 

8  Allen  (Mass.)  371.  189 Eastern   R.   Co.   v.   Loring,  138 

185  Eastern  Union  R.  Co.  v.  Coch-  Mass.  381 ;  Strawbridge  v.  Baltimore, 
rane,  24  Eng.  L.  &  Eq.  495;  London,  '  &c.  R.  Co.  14  Md.  360,  74  Am.  Dec. 
&c.  R.  Co.  v.  Goodwin,  3  Exch.  320.  541.    See,  also,  Bank  of  Wilmington 

186  Miller  v.  Stewart,  9  Wheat.  (U.  v.    Wollaston,    3    Harr.    (Del.)    90; 
S.)  680.  Morris  Canal  &  Banking  Co.  v.  Van 

18T  Northwestern   R.   Co.   v.   Whin-    Vorst,  21  N.  J.  L.  100. 
ray,  26  Eng.  L.  &  Eq.  488.  19°  Chicago,  &c.  R.  Co.  v.  Bartlett, 


§  233] 


CORPORATE  REPRESENTATIVES. 


352 


esty,191  and  binds  him  only  to  the  reasonable  skill  and  ordinary  dili- 
gence in  performing  the  duties  of  his  office192  to  which  he  is  bound 
by  the  terms  of  an  ordinary  employment.  And  where  a  sum  of 
money  belonging  to  the  corporation  is  stolen  from  the  agent  without 
his  fault,  his  sureties  cannot  be  held  liable  upon  a  bond  which  provides 
that  he  shall  "well,  truly  and  faithfully  perform  the  duties  required 
of  him  *  *  *  and  promptly  pay  over  and  promptly  account  for 
all  moneys  belonging  to  said  company  which  shall  be  received  by  him 
as  such  agent/'193  The  corporation  cannot,  without  the  unanimous 
consent  of  the  stockholders,  condone  gratuitously  the  fraud  of  its 
officers.194 


120  111.  603,  11  N.  E.  867;  Baltimore, 
&c.  R.  Co.  v.  Jackson,  33  Alb.  J.  (N. 
Y.)  239;  Planters',  &c.  Bank  v.  Hill, 
1  Stew.  (Ala.)  201,  18  Am.  Dec.  39. 

191  Union     Bank     v.     Clossey,     10 
Johns.    (N.  Y.)    271,  11  Johns.    (N. 
Y.)  182. 

192  American    Bank   v.   Adams,   12 
Pick.   (Mass.)   303.    An  officer  of  a 
private  corporation  is  liable  only  for 
the   care   required   of   an   ordinary 
trustee  or  bailee  for  hire,  and  is  not 
an  insurer  of  property  coming  into 
his  hands.    Mowbray  v.  Antrim,  123 


Ind.  24,  23  N.  E.  858;  Wayne  Pike 
Co.  v.  Hammons,  129  Ind.  368,  27  N. 
E.  487. 

193  Chicago,  &c.  R.  Co.  v.  Bartlett, 
120  111.  603,  11  N.  E.  867;  Baltimore, 
&c.  R.  Co.  v.  Jackson,  33  Alb.  L.  J. 
(N.  Y.)   239.     So  where  property  is 
lost  without  his  fault.     Mowbray  v. 
Antrim,  123  Ind.  24,  23  N.  E.  858. 

194  Hazard  v.  Durant,  11  R.  I.  195. 
See,  as  to  right  of  stockholders  to 
sue,  notes  in  97  Am.  St.  30,  et  seq. 
See,    also,    Greathouse    v.    Martin 
(Tex.),  94  S.  W.  322. 


CHAPTER  XII. 


DIRECTORS. 


Sec.  Sec. 

234.  Different  classes   of  officers —     254. 

Generally. 

235.  The   governing   board — Gener-    255. 

ally. 

236.  Governing  board  not  the  cor-    256. 

poration.  257. 

237.  The  board  of  directors  repre- 

sents the  corporation.  258. 

238.  Directors — Generally. 

239.  Number  of  directors.  259. 

240.  Directors — How    chosen — Gen- 

erally. 260. 

241.  Eligibility  to  the  office  of  di-    261. 

rector. 

242.  Ineligibility    because    of    con-    262. 

nection     with     competing    263. 
lines. 

243.  Election   of   ineligible   person    264. 

to  office  of  director. 

244.  Officers  de  facto — Generally.        265. 

245.  Election  of  ineligible  person — 

Who  may  question  right  to     266. 
office. 

246.  Directors     de     facto — Illustra-    267. 

tive  cases. 

247.  De     facto     d  irecto  r  s— Two    268. 

boards.  269. 

248.  Holding  over — Failure  to  elect. 

249.  Powers    of    directors — Source    270. 

of. 

250.  Powers    of    directors — Gener-    271. 

ally. 

251.  Powers  of  directors — Illustra-    272. 

tive  cases.  273. 

252.  Directors — Powers  of — Organic  ' 

changes.  -274. 

253.  Directors — Extent   of   author-    275. 

ity — Generally. 


Powers   of   directors,   general 
conclusion. 

Directors — Official  action  — 
Preliminary. 

Directors — Official  action. 

Directors — Delegation    of    au- 
thority. 

Directors — Delegation    of    au- 
thority— Illustrative  cases. 

Directors — Action    where    the 
mode  is  prescribed. 

Directors — Meetings. 

Directors — Meetings — S  t  a  ted 
and  special. 

Di  rectors — Meetings — Notice. 

Directors — Meetings — Proxies 
— Quorum. 

Directors — Meetings       outside 
of  the  state. 

Directors — Proceedings — Rec- 
ord. 

Directors — Corporate     records 
as  evidence. 

Proof   of   the    proceedings   of 
the  board  of  directors. 

Notice  to  directors. 

Directors  —  Admissions     and 
declarations. 

Ratification  of  the  acts  of  di- 
rectors. 

Directors — Removal    from   of- 
fice. 

Compensation  of  directors. 

Directors — Relation   to    stock- 
holders— Preliminary. 

Directors  considered  trustees. 

Directors  as  trustees — Illustra- 
tive cases. 


ELL.  RAILROADS — 23 


353 


§    234]  DIRECTORS.  354 

Sec.  Sec. 

276.  Directors — Dealings  with  cor-    280.    Directors — B  r  r  o  r  s   of  judg- 

poration.  ment. 

277.  Termination  of  fiduciary  rela-    281.     Directors — Liability  for  negli- 

tions.  gence. 

278.  Directors — Liability     of — Gen-    282.    Directors — Fraud  on  third  per- 

erally.  sons. 

279.  Directors — Liability  in  matter 

of  contract. 

§  234.  Different  classes  of  officers — Generally. — In  the  preceding 
chapter  we  have  in  a  general  way  treated  of  the  officers  and  agents  of 
railway  companies  and  shall  now  consider  that  class  of  corporate  of- 
ficers that  may  be  said  to  be  the  governing  officers  of  the  corporation. 
Some  of  these  officers  are  invested  with  powers  that  resemble  gov- 
ernmental, legislative  and  judicial  powers,  while  others  are  executive 
of  ministerial  officers.  The  common-law  rule  was  quite  strict,  and 
under  it  only  the  members  of  the  board  of  directors,  or  the  governing 
board  by  whatever  name  designated,  were  regarded  as  officers  of  such 
superior  rank  and  authority  as  to  constitute  them  very  much  more 
than  agents  and  servants,1  but  this  doctrine  has  been  greatly  limited, 

§  235.  The  governing  board — Generally. — The  power  of  corporate 
government  is  vested  in  a  board  of  officers  generally  denominated 
"board  of  directors"  or  "board  of  trustees/'  The  governing  board  is 
the  highest  representative  of  the  corporation.  The  members  of  the 
board  are  the  officers  in  whom  are  lodged  the  primary  and  highest 
corporate  powers.  They  actively  exercise 'the  powers  of  the  corpora- 
tion, and,  while  it  is  true  that  the  powers  they  exercise  are  in  a  sense 
delegated  to  them,  yet  their  powers  are  not  delegated  powers  in  the 
same  sense  as  are  the  powers  conferred  upon  agents,  attorneys  or  em- 
ployes.2 The  governing  board  must,  under  many  statutes,  exercise  all 

Priestley  v.  Fowler,  3  M.  &  W.  1;  Conro  v.  Port  Henry,  &c.  Co.  12 

Hutchinson  v.  York,  &c.  Co.  5  Exch.  Barb.  (N.  Y.)  27;  Union,  &c.  Co.  v. 

343 ;  Murray  v.  South  Carolina  R.  Co.  Rocky  Mountain,  &c.  Co.  2  Colo. 

1  McMullan  (S.  C.)  385;  Farwell  v.  565;  McCullough  v.  Moss,  5  Den. 

Boston,  &c.  Co.  45  Mass.  49,  38  Am.  (N.  Y.)  567,  575;  Dana  v.  Bank  of 

Dec.  339;  McFarlane  v.  Caledonian,  United  States,  5  Watts  &  S.  (Pa.) 

&c.  Co.  6  Macph.  (Sc.  Ct.  of  Ses-  223;  United  Soc.  v.  Underwood,  9 

sions,  3d  Ser.)  102;  Bartonshill,  &c.  Bush  (Ky.)  609,  15  Am.  R.  731; 

Co.  v.  Reid,  3  Macq.  266.  Nashua,  &c.  R.  Co.  v.  Boston,  &c.  R. 

2  Bliss  v.  Kaweah,  &c.  Co.  65  Cal.  Co.  27  Fed.  821;  Mahoney  Min.  Co. 

502,  4  Pac.  507.  See,  generally,  v.  Anglo-California  Bank,  104  U.  S. 


355 


GOVERNING  BOARD  NOT  THE  CORPORATION. 


[§  236 


corporate  powers,  for,  while  the  shareholders  select  the  members  of 
the  board,  the  board  exercises  powers  which  those  who  put  them  in 
office  cannot  rightfully  exercise.  As  a  rule  corporate  powers  must  be 
exercised  by  the  governing  board,  or  through  agents  and  servants  ap- 
pointed directly  or  indirectly  by  it.  Where  the  act  of  incorporation 
requires  corporate  powers  to  be  exercised  by  the  governing  board 
they  cannot  be  exercised  by  any  other  corporate  department  officers  or 
agents,  for  where  the  mode  of  corporate  action  is  prescribed  it  must 
be  pursued.8  The  members  of  the  governing  board  are  usually  desig- 
nated as  the  directors,  and  we  shall  employ  that  term  as  a  generic 
one  denoting  the  officers  invested  with  the  principal  governmental 
powers. 

§  236.  Governing  board  not  the  corporation. — The  board  of  direct- 
ors is  not  in  strictness  the  corporation  unless  made  so  by  the  act  of 
incorporation.4  Statements  are  found  in  some  of  the  books  and  cases 
which  seem  to  indicate  that  the  board  of  directors  constitute  the  cor- 
poration.6 These  statements,  as  we  believe,  assert  an  erroneous  doc- 
trine, for  broad  and  comprehensive  as  are  the  powers  of  the  board  of 
directors,  the  body  politic  and  corporate  is  distinct  from  the  board, 
and  there  are  corporate  powers  which  the  board  cannot  exercise.  The 
board  cannot,  unless  expressly  authorized  by  the  act  of  incorporation, 
prescribe  the  qualifications  of  its  own  members,  enact  by-laws,  amend 


192;  Beveridge  v.  New  York  El.  R 
Co.  112  N.  Y.  1,  19  N.  E.  416. 

3  Beatty  v.  Manne  Ins.  Co.  2  Johns. 
(N.  Y.)  109,  3  Am.  Dec.  401;  People 
v.  Utica,  &c.  Co.  15  Johns.   (N.  Y.) 
358,  383,  8  Am.  Dec.  243;  New  York, 
&c.  Co.  v.  Ely,  2  Cow.  (N.  Y.)  678; 
Willcocks,  Ex  parte,  7  Cow.  (N.  Y.) 
402,   17   Am.   Dec.   525;    Hosack   v. 
College,  &c.  5  Wend.    (N.  Y.)    547. 
See,   also,   Flagg  v.   Manhattan  R. 
Co.  20  Blatchf.  (U.  S.)  142. 

4  Grant  Corporations,  365;  Reg.  v. 
Paramore,  10  A.  &  E.  286;   Regina 
v.  New  York,  2  Q.  B.  847 ;  Mayor,  &c. 
v.   Simpson,  8  Q.  B.  65;    Tiffets  V. 
Walker,  4  Mass.  597. 

8  Maynard  v.  Firemen's  Ins.  Fund, 
34  Cal.  48,  91  Am.  Dec.  672.  See, 
generally,  Hoyt  v.  Thompson,  19  N. 


Y.  207;  Beveridge  v.  New  York  El. 
R.  Co.  112  N.  Y.  1,  19  N.  E.  416; 
Leavitt  v.  Oxford,  &c.  Co.  3  Utah 
265,  1  Pac.  356,  4  Am.  &  Eng.  Corp. 
Gas.  234;  Miller  v.  Rutland,  &c.  R. 
Co.  36  Vt.  452;  Cleveland,  &c.  R.  Co. 
v.  Himrod,  &c.  Co.  37  Ohio  St.  321, 
41  Am.  R.  509.  Judge  Redfleld 
says:  "As  a  general  rule  it  may  be 
safely  affirmed  that  the  board  of  di- 
rectors have  all  the  power  which 
resides  in  the  corporation,  subject 
to  such  restrictions  only  as  are  im- 
posed upon  by  the  charter  and  by- 
laws of  the  corporation."  Redfleld 
Railways,  136.  This  statement,  we 
venture  to  say,  with  deference  to 
its  learned  author,  is  somewhat  too 
broad  and  requires  limitation. 


§  237] 


DIRECTORS. 


356 


articles  of  association,  increase  capital  stock  or  effect  a  consolidation 
with  another  company,  for  power  to  do  these  things,  and  others,  dwells 
elsewhere.6 

§237.  The  board  of  directors  represents  the  corporation. — When 
duly  organized  and  officially  acting  within  the  scope  of  the  authority 
conferred  upon  it  by  the  charter  or  the  valid  by-laws  of  the  corporate 
body,  the  board  of  directors  represents  and  acts  for  the  corporation  to 
the  exclusion  of  the  individual  stockholders.  As  we  have  elsewhere 
said,  action  by  the  stockholders  where  the  charter,  ©r  act  ©f  incorpora- 
tion, requires  action  by  the  board  ©f  directors,  is  ineffective.  In  such 
cases  the  stockholders  are  substantially  strangers  to  the  corporation  so 
far  as  corporate  action  is  concerned.  They  elect  the  directors,  but  they 
cannot  perform  the  duties  or  exercise  the  funetions  enjoined  upon  the 
board  of  directors  by  law.  The  stockholders  are  not  co-owners  ©f  the 
corporate  property,  and  hence  cannot  act  in  regard  to  it  as  joint- 
owners  of  property  can  do  where  the  title  is  in  natural  persons.7 


8  State  v.  Adams,  44  Mo.  570;  Day- 
ton, &c.  R.  Co.  v.  Hatch,  1  Disney 
(Ohio)  84;  Commonwealth  v.  Cul- 
len,  13  Pa.  St.  133,  53  Am.  Dec.  450; 
Chicago,  &c.  Co.  v.  Allerton,  18  Wall. 
(U.  S.)  233.  In  Nashua,  &c.  Co.  v. 
Boston,  &c.  Go.  27  Fed.  821:  "The 
general  power  of  the  board  ©f  di- 
rectors to  perform  all  corporate  acts 
refers  to  ordinary  transactions  and 
not  to  fundamental  and  organic 
changes,  like  increasing  its  capital 
stock  or  leasing  its  plant,"  citing 
Cass  v.  Manchester,  &c.  Co.  9  Fed. 
640;  Thomas  v.  Railroad  Go.  101  U. 
S.  71.  See,  also,  Bedford  R.  60.  v. 
Bowser,  48  Pa.  St.  29. 

7  Williamson  v.  Smoot,  7  Mart. 
(La.)  O.  S.  31,  12  Am.  Dec.  494; 
Mickles  v.  Rochester,  &c.  Bank,  11 
Paige  (N.  Y.)  118,  42  Am.  Dec.  103; 
Spurlock  v.  Missouri  Pacific  R.  Co. 
90  Mo.  199,  12  S.  W.  219;  Burrall  v. 
Bushwick  R.  Co.  75  N.  Y.  211.  See, 
also,  Lawson  v.  Black  Diamond,  &c. 
Co.  (Wash.),  86  Pac.  1120.  In  the 
case  of  American,  &c.  Co.  v.  Norris, 


43  Fed.  71-1,  the-  court  said:  "It  is 
the  familiar  law  that  a  corporation 
has  a  personality  of  its  own  dis- 
tinct frem  that  of  its  stockholders, 
that  it  is  not  affected  in  the  re- 
motest degree  by  contracts  made  by 
its  stockholders  with  third  parties, 
whether  they  own  much  or  little  of 
its  capital  stock,  and  is  not  bound 
to  'discharge  any  personal  obliga- 
tions assumed  by  its  stockholders." 
The  court  cited  Pullman,  &c.  Co.  v. 
Missouri  Pacific  Co.  115  U.  S.  587, 
6  Sup.  Ct.  194;  Moore,  &c.  Co.  v. 
Towers,  &c.  Co.  87  Ala.  206,  6  So.  41, 
13  Am.  St.  23;  Davis,  &c.  Co.  v.  Da- 
vis, &c.  Wagon  Co.  20  Fed.  699.  The 
court  also  distinguished  the  case 
from  that  of  Beal  v.  Chase,  31  Mich. 
490.  The  case  of  American,  &c.  Co. 
v.  Taylor  Manuf.  Co.  46  Fed.  152,  is 
the  same  case  as  that  from  which 
we  have  quoted  and  was  heard  upon 
an  amended  bill.  See,  generally, 
Hancock  v.  Holbrook,  9  Fed.  353; 
Railroad  Co.  v.  Howard,  7  Wall.  (U. 
S.)  392. 


357  DIRECTORS — GENERALLY.  [§    238 

Shareholders  cannot  convey  the  corporate  real  estate  for  the  reason 
that  the  title  is  in  the  corporation,8  and  conveyances  must  be  made  by 
the  authorized  representatives  of  the  corporation.  A  conveyance  made 
by  all  the  stockholders  may  be  upheld  in  equity  where  facts  are  al- 
leged and  proved  sufficient  to  invoke  the  assistance  of  the  court  of 
conscience,  but  the  conveyance  in  and  of  itself  is  not  effective  to 
carry  the  title.9  In  various  modes  the  question  as  to  the  authority  of 
the  stockholders  to  act  for  the  corporation  has  been  presented  and  the 
conclusion  generally  declared  is  that  it  is  only  in  exceptional  cases 
that  their  acts  can  be  regarded  as  those  of  the  corporation.10  A  stock- 
holder may,  of  course,  be  appointed  an  agent  of  the  corporation  and 
his  acts,  within  the  scope  of  his  authority,  will  be  binding  on  the  cor- 
poration, but  his  authority  will  be  attributable  to  his  appointment  and 
not  to  his  position  as  a  shareholder.11 

§  238.  Directors — Generally. — The  principal  officers  of  a  private 
corporation  are,  as  already  indicated,  the  directors.  A  choice  of  di- 
rectors is  an  essential  step  in  its  organization,  and  in  many  of  the 
states  it  is  specified  that  the  corporate  powers  are  to  be  exercised  by 
them.12  It  is  competent  for  the  legislature  to  constitute  the  board  of 
directors  the  corporation,  and  where  there  is  a  statute  making  the  di- 
rectors the  corporation,  they  are  necessarily  the  possessors  of  the  whole 
corporate  power  not  elsewhere  lodged.  But,  as  a  rule,  directors  are 
elective  officers,  chosen  as  the  chief  representatives  of  the  corporation. 

§  239.  Number  of  directors. — The  number  of  directors  is  fixed  by 
charter  or  by  the  law  providing  for  the  incorporation  of  railroads,  or 
is  left  to  be  determined  by  the  stockholders  within  certain  limits. 
Where  the  number  is  not  fixed  by  the  charter,  or  the  statute  under 
which  the  company  is  organized,  it  may  be  fixed  by  the  stockholders 

8Wheelock  v.  Moulton,  15  Vt.  519;  124;  Gillett  v.  Bowen,  23  Fed.  625; 

Myers  v.  Perigal,  2  DeGex,  M.  &  G.  Whitman  v.  Cox,  26  Me.  335;  Lang- 

599;   Edwards  v.  Hall,  6  DeGex,  M.  don  v.  Hillside,  &c.  Co.  41  Fed.  609; 

&  G.  74,  92;  Baldwin  v.  Canfield,  26  Tomlinson  v.  Bricklayers'  Union,  87 

Minn.   43,   1   N.  W.  261.     See,  gen-  Ind.  308. 

erally,  Harris  v.  Muskingum,  &c.  Co. '  °  American,  &c.  Co.  v.  Taylor,  &c. 

4  Blackf.    (Ind.)   267,  29  Am.  Dec.  Co.  46  Fed.  152;  Society,  &c.  v.  Ab- 

372 ;  Carothers  v.  Alexander,  74  Tex.  bott,  2  Beav.  559. 

309,  12  S.  W.  4;  Shay  v.  Terolumie,  10  Gordon  v.  Swan,  43  Cal.  564. 

&c.  Co.  6  Cal.  73;  Smith  v.  Hurd,  12,  u  Taylor  Priv.  Corp.  §  187. 

Mete.  (Mass.>  371,  46  Am.  Dec.  690;  "Stimson  Am.  Stat.  (1892)  §  8060. 
Moffat  v.  Winslow,  7  Paige  (N.  Y.) 


§  240]  DIRECTORS.  358 

by  appropriate  action.  Where  the  number  is  fixed  definitely  by  the 
constating  articles  or  articles  of  association  it  cannot  be  changed  ex- 
cept in  the  manner  provided  by  law,  or  by  an  authorized  change  or 
amendment  of  such  articles.18 

§  240.  Directors — How  chosen — Generally. — Directors  are  usually 
chosen  by  the  stockholders.14  In  the  absence  of  statutory  provisions 
vesting  the  power  elsewhere  it  properly  resides  in  the  stockholders  of 
the  company.  The  members  compose  the  corporation  and  it  is  for 
them  to  choose  their  representatives  in  some  authorized  or  appropriate 
mode,  unless  the  statute  prescribes  the  mode ;  but  in  the  event  that  a 
mode  is  prescribed  the  stockholders  cannot  rightfully  pursue  any  other. 
As  we  shall  see  presently,  an  immaterial  or  unsubstantial  deviation 
from  the  mode  prescribed  will  not  vitiate  the  election. 

§  241.  Eligibility  to  the  office  of  director. — Where  the  act  of  in- 
corporation requires  that,  to  render  a  person  eligible  to  the  office  of 
director,  he  shall  possess  certain  prescribed  qualifications,  he  cannot 
be  rightfully  chosen  to  the  office  unless  he  possesses  the  required 
qualifications.  In  this,  as  in  all  other  matters,  the  act  under  which 
the  company  is  incorporated  constitutes  the  paramount  law.15  At 
common  law,  any  person  capable  of  acting  as  the  business  agent  for 
another  may  be  a  director.16  Persons  under  the  disability  of  coverture 
or  infancy  are  eligible  to  the  office  of  director  unless  the  statutory  law 
interdicts  the  selection  of  such  persons.  Non-residents  may,  in  the 
absence  of  statutory  prohibition,  be  eligible  to  the  office  of  director,17 
but  if  residence  is  required  by  the  statute  a  non-resident  is  ineligible. 
Where  the  statute  does  not  make  the  ownership  of  stock  essential  to 
eligibility  to  the  office  of  director  a  person  who  is  not  a  stockholder 

"Stimson  Am.  Stat.  (1892)  §  8532.  24  L.  R.  A.  252,  29  W.  L.  Bull.  160, 

14  Stimson  Am.  Stat.  §  8532,  citing  29  Ohio  L.  J.  160. 

laws  of  Connecticut,  Vermont,  New  "People  v.  Webster,  10  Wend.  (N. 

York,  New  Jersey,  Pennsylvania,  In-  Y.)  554. 

diana,  Illinois,  Minnesota,  Nebraska,  1T  Commonwealth   v.    Hemingway, 

Maryland,  West  Virginia,  North  Car-  131  Pa.  St.  614,  18  Atl.  992,  7  L.  R. 

olina,    Arkansas,    Texas,    Montana,  A.  357;  Commonwealth  v.  Detwiler, 

Utah,  Georgia,  Alabama,  New  Mex-  131  Pa.  St.  614,  18  Atl.  990,  7  L.  R. 

ico,  Arizona,  Oklahoma.  A.  357;  McCall  v.  Byram  Mfg.  Co.  6 

"Horton  v.  Wilder,  48  Kans.  222,  Conn.   428.    See  State  v.  Smith,  15 

29  Pac.  566;  State  v.  Manufacturers',  Oreg.  98,  14  Pac.  814;  and  note  in  24 

&c.  Co.  50  Ohio  St.  45,  33  N.  E.  401,  L.  R.  A.  252. 


359 


INELIGIBILITY   OF  DIRECTOR  OF  COMPETING   LINE.        [§    242 


may  be  elected.18  If  the"  charter  or  by-laws  enacted  in  accordance  with 
it  require  that  directors  shall  be  stockholders,  then  the  persons  chosen 
must  be  the  owners  of  stock.19  It  has  been  held  that  where  one  is 
appointed  director  by  the  articles  of  association  he  is  a  de  jure  officer, 
although  he  did  not  at  the  time  of  his  appointment  own  the  number 
of  shares  required  by  the  articles  of  association.20  The  conclusion 
reached  in  the  case  cited  in  the  note  is  placed  upon  the  ground  that 
the  articles  of  association  only  relate  to  officers  appointed  in  the 
future. 


§  242.    Ineligibility  because  of  connection  with  competing  lines. — 

It  is  held  that  a  director  of  one  company  is  incompetent  to  serve  as 
director  of  a  company  having  adverse  interests,  and,  if  chosen,  the 
court  will  remove  him  and  replace  him  by  trustees  of  its  own  ap- 
pointing.21 The  decisions  to  which  we  refer  seem  to  be  supported  by 
sound  reason.  Directors  occupy  fiduciary  relations  to  the  corporation 


18  Wight  v.  Springfield,  &c.  Co.  117 
Mass.  226,  19  Am.  R.  412;  Spering's 
Appeal,  71  Pa.  St.  11,  10  Am.  R.  684; 
St.  Lawrence  Steamboat  Co.,  In  re, 
44  N.  J.  529 ;  Stock,  Ex  parte,  33  L. 
J.  Ch.  731;  Kerchner  v.  Gettys,  18  S. 
Car.  521;  British,  &c.  Ass'n,  Re,  L. 
R.  5  Ch.  Div.  306.     See  Penobscot, 
&c.  Co.  v.  Dummer,  40  Me.  172,  63 
Am.  Dec.  654;  Despatch  Line  v.  Bel- 
lamy, &c.  Co.  12  N.  H.  265,  37  Am. 
Dec.  203;   Fey  v.  Peoria,  &c.  Co.  32 
111.  App.   618;    Corporate   Directors, 
Re,  7  Pa.  Co.  Ct.  178.    See,  generally, 
Trisconi  v.  Winship,  43  La.  Ann.  45, 
9  So.  29,  26  Am.  St.  175;  Beardsley 
v.  Johnson,  121  N.  Y.  224,  24  N.  E. 
380. 

19  Bartholomew  v.  Bently,  1  Ohio 
St.  37.    It  is  held  that  actual  bene- 
ficial ownership  is  requisite.    Bain- 
bridge  v.  Smith,  L.  R.  41  Ch.  Div. 
462,  33  Am.  &  Eng.  Corp.  Cases  172; 
Stock,  Ex  parte,  33  L.  J.  Ch.  731; 
Newcomb,  Matter  of,  63  Hun  633,  18 
N.  Y.  S.  549.    See  Cumming  v.  Pres- 
cott,    2    Younge    &    C.    Exch.    488; 
Chemical,  &c.  Bank  v.  Colwell,  132 


N.  Y.  250,  30  N.  E.  644;  Common- 
wealth v.  Detwiller,  131  Pa.  St.  614, 
18  Atl.  990,  7  L.  R.  A.  357;  Nathan 
v.  Tompkins,  82  Ala.  437,  2  So.  747; 
Richards  v.  Attleborough,  &c.  Bank, 
148  Mass.  187,  19  N.  E.  353,  1  L.  R. 
A.  781;  Hazelhurst  v.  Savannah,  &c. 
R.  Co.  43  Ga.  13 ;  Argus  Printing  Co. 
1  N.  Dak.  434,  48  N.  W.  347,  26  Am. 
St.  639;  Pulbrook  v.  Richmond,  &c. 
Co.  L.  R.  9  Ch.  Div.  610. 

^Karuth's  Case,  L.  R.  20  Eq.  506; 
Portal  v.  Emmens,  1  Com.  PI.  Div. 
664. 

21  Pearson  v.  Concord  R.  Co.  62  N. 
H.  537,  13  Am.  St.  590.  In  West 
Virginia  a  corporation  may  provide 
by  by-law  that  no  person  who  is  at- 
torney against  it  in  a  suit  shall  be 
eligible  to  serve  as  director.  Cross 
v.  West  Virginia  Central,  &c.  R.  Co. 
37  W.  Va.  342,  16  S.  E.  587,  18  L.  R. 
A.  582.  But  the  mere  fact  that  one 
is  a  director  in  two  companies  is 
not  necessarily  a  disqualification 
where  the  duties  or  interests  do  not 
conflict.  Mobile,  &c.  R.  Co.  v.  Owen, 
121  Ala.  505,  25  So.  612. 


§•  243]  DIRECTORS.  360 

and  they  ought  not  to  be  interested  adversely  to  the  corporation.  It 
has,  however,  been  held  that  the  fact  that  a  stockholder  intends,  if 
elected  a  director,  to  vote  for  an  arrangement  by  which  another  cor- 
poration will  control  the  company  cannot,  though  such  an  arrangement 
be  illegal,  affect  the  validity  of  his  election.22 

§  243.    Election  of  ineligible  person  to  office  of  director. — It  is 

generally  held  that  the  election  of  an  eligible  person  to  the  office  of 
director  is  voidable  only  and  not  absolutely  void.23  If  the  election  is 
not  void,  but  merely  voidable,  it  would  seem  to  follow  that  the  per- 
son chosen  is  invested  with  color  of  office  and,  ordinarily,  is  not  to  be 
regarded  as  a  mere  usurper.  He  is  not,  to  be  sure,  an  officer  de  jure, 
but  it  seems  to  us  that  he  is  to  some  extent  and  for  some  purposes  a 
corporate  representative;  but  there  are  authorities  holding  that  an 
ineligible  person  cannot  be  a  de  facto  officer.24  It  is  also  held  that 
votes  cast  for  an  ineligible  candidate  are  "thrown  away."25  For  the 
reasons  given  and  upon  the  authorities  referred  to  in  the  next  para- 
graph, we  are  inclined  to  the  opinion  that  an  ineligible  candidate 
formally  elected  and  inducted  into  office  may  be  an  officed  de  facto.26 

§  244.  Officers  de  facto — Generally. — Where  the  rights  of  third 
persons  are  involved  an  officer  may  be  such  de  facto,  although  in 
strict  right  he  is  not  eligible  to  the  office  and  has  not  been  legally 
elected.  It  would  be  a  hardship  upon  third  persons  who  deal  with 
corporations  to  require  them  at  their  peril  to  determine  whether 
persons  acting  as  corporate  officers  under  color  of  right  are  in  fact  the 
officers  of  the  corporation.  The  question  is  essentially  different  in 
cases  where  third  persons  are  concerned  from  what  it  is  in  cases  where 
the  person  claiming  to  be  an  officer  asserts  some  right  by  virtue  of  the 

22  Ohio  &  M.   R.   Co.  v.   State,  49  officer  and  may  be  ousted  by  legal 
Ohio  St.  668,  32  N.  E.  933.    See,  also,  proceedings."       Cook     Stockholders 
Stanley  v.  Luse,  36  Oreg.  25,  58  Pac.  (3d  ed.)  620.    See  Schmidt  v.  Mitch- 
75.  ell,  101  Ky.  570,  41  S.  W.  929,  72  Am. 

23  The  doctrine  goes  back  to  the  St.  427;  Tramways  Co.  In  re,  5  Ch. 
case  of  Crawford  v.  Powell,  2  Burr.  D.  963. 

1013.     See,  also,  note  in  15  L.  R.  A.  *  Horton  v.  Wilder,  48  Kans.  222, 

418.  29  Pac.  566.     See,  also,  Burr  v.  Mc- 

24  People  v.  Albany,  &c.  R.  Co.  55  Donald,  3  Gratt.  (Va.)  215;  note  in 
Barb.  (N.  Y.)  344;  Craw  v.  Easterly,  15  L.  R.  A.  418.     As  to  when  they 
54  N.  Y.  679;  Easterly  v.  Barber,  65  are  not  de  facto  officers,  see  Water- 
N.  Y.  252.  man  v.  Chicago,  &c.  R.  Co.  139  111. 

25 Mr.  Cook  says:    "Votes  cast  for     658,  29  N.  E.  689,  15  L.  R.  A.  418, 
a  person  not  eligible  to  office  cannot    and  note, 
elect  him.    He  is  not  even  a  de  facto 


361  INELIGIBLE   OFFICER WHO   MAY    QUESTION   EIGHT.       [§'   245 

office.  Where  there  is  color  of  right  under  a  corporate  election  and 
corporate  recognition  of  the  acts  of  the  person  claiming  to  be  a  di- 
rector, third  persons  who  in  good  faith  act  upon  the  belief  that  he  is 
an  officer  are  entitled  to  protection.  The  same  principle  which  pro- 
tects persons  who  deal  with  persons  having  color  of  right  to  a  public 
office  should  protect  those  who  deal  with  representatives  of  corpora- 
tions, for  it  would  be  unjust  to  require  persons  dealing  with  corporate 
representatives  acting  as  officers  under  color  of  right  to  investigate  and 
decide  whether  the  claim  to  office  is  well  founded.  The  same  prin- 
ciple which  upholds  acts  of  corporations  de  facto  ought  to  be  sufficient 
to  uphold  the  acts  of  persons  who  with  color  of  right  assume  the  func- 
tions of  corporate  officers.  We  believe  the  conclusion  we  have  stated 
to  be  supported  by  principle  and  authority .2T 

§  245.  Election  of  ineligible  person — Who  may  question  right  to 
office. — A  private  person  who  has  no  interest  whatever  in  the  affairs 
of  a  railroad  corporation  cannot  successfully  challenge  the  right  of 
an  ineligible  person  to  hold  the  office  to  which  he  was  chosen,  except 
in  cases  where  it  is  otherwise  provided  by  statute.  One  who  actively 
and  knowingly  participates  in  securing  an  illegal  election  and  the 
choice  of  persons  not  qualified,  cannot  be  heard  to  complain  of  the 

27  Selma,  &c.  Co.  v.  Tipton,  5  Ala.  and  his  place  is  filled  by  election, 
787,  39  Am.  Dec.  344;  Despatch  Line,  he  is  not  even  a  director  de  facto, 
&c.  v.  Bellamy,  12  N.  H.  205,  37  Am.  and  service  of  process  on  him  is 
Dec.  203;  Wallace  v.  Walsh,  125  N.  void.  There  is,  as  every  one  knows, 
Y.  26,  25  N.  E.  1076,  11  L.  R.  A.  166;  an  essential  difference  between  cases 
Demarest  v.  Flack,  128  N.  Y.  205,  28  where  the  rights  of  innocent  third 
N.  E.  645,  13  L.  R.  A.  854;  Atlantic,  persons  are  involved  and  cases 
&c.  Co.  v.  Johnston,  70  N.  C.  348 ;  where  the  rights  of  the  claimant  are 
Moses  v.  Tompkins,  84  Ala.  613,  4  asserted  by  him,  and  so  there  is  be- 
So.  763;  Burr  v.  McDonald,  3  Gratt.  tween  cases  involving  rights  of 
(Va.)  215;  Cahill  v.  Kalamazoo,  &c.  third  persons  and  cases  where  the 
Co.  2  Dougl.  (Mich.)  124,  43  Am.  state  assails  the  right  of  the  claim- 
Dec.  457;  Rockville,  &c.  v.  Van  Ness,  ant  to  the  office.  Ebaugh  v.  German, 
2  Cranch  (U.  S.)  449;  Mahoney  &c.  Church,  3  E.  D.  Smith  (N.  Y.) 
Min.  Co.  v.  Anglo-California  Bank,  60;  County,  &c.  Co.,  In  re,  L.  R.  5 
104  U.  S.  192;  Tucker  v.  Aiken,  7  N.  Ch.  App.  288;  People  v.  Albany,  &c. 
H.  113,135;  Atlas  Nat.  Bank  v,  Gard-  ,  Co.  55  Barb.  (N.  Y.)  344.  See,  gen- 
ner,  &c.  Co.  8  Biss.  537.  Contra,  New-  erally,  Cooper  v.  Curtis,  30  Me.  488; 
comb,  In  re,  42  N.  Y.  St.  442,  18  N.  Mechanics',  &c.  Bank  v.  Burnet,  &c. 
Y.  S.  16.  In  Beardsley  v.  Johnson,  Co.  32  N.  J.  Eq.  236;  Atlantic,  &c. 
121  N.  Y.  224,  24  N.  E.  380,  it  was  Co.  v.  Johnston,  70  N.  C.  348;  Char- 
held  that  if  a  person  elected  to  the  itable  Assn.  v.  Baldwin,  1  Metcf. 
office  of  director  becomes  ineligible  (Mass.)  359. 


§  246] 


DIRECTORS. 


3G2 


result  of  the  election.  If  the  complainant  has  been  guilty  of  an  in- 
tentional wrong  he  is  not  in  a  situation  to  invoke  the  assistance  of  the 
courts.28 

§  246.  Directors  de  facto — Illustrative  cases. — Persons  acting  as 
officers  although  their  term  of  office  had  expired  and  they  were  hold- 
ing over  have  been  held  to  be  officers  de  facto,  but  it  seems  to  us  that 
they  should  be  regarded  as  officers  de  jure.29  Officers  chosen  at  a  day 
other  than  that  specified  are  at  least  officers  de  facto,  and  there  is  au- 
thority as  well  as  reason  for  holding  them  to  be  officers  de  jure  in  the 
just  sense  of  the  term.30  It  has  been  held  that  a  director  elected  by  a 
minority  of  the  stockholders  is  a  de  facto  director.31  So  an  officer 
elected  under  an  unconstitutional  statute  has  been  held  to  be  an  officer 
de  facto*2  Officers  elected  at  a  meeting  held  outside  of  the  state  have 
been  held  to  be  de  facto  officers.33  Directors  discharging  the  functions 
of  office  and  holding  under  color  of  appointment  by  the  legislature  are 
de  facto  directors.34  It  has  been  adjudged  that  directors  may  be  such 
de  facto  although  the  corporation  was  illegally  or  irregularly  organ- 
ized.35 We  suppose,  however,  that  there  can  be  no  officers  de  factof 


^Wiltz  v.  Peters,  4  La.  Ann.  339. 
Application  of  Syracuse,  &c.  Co., 
Matter  of,  91  N.  Y.  1. 

29  Thorington  v.  Gould,  59  Ala.  461. 

30  In  Beardsley  v.  Johnson,  121  N. 
Y.  224,  24  N.  E.  380,  the  provisions 
of  a  statute  requiring  the  corporate 
election  to  be  held  on  a  designated 
day   were    directory,    and    directors 
chosen  on  a  day  different  from  that 
specified  were  held  officers  de  jure. 

31  Delaware,    &c.    Co.    v.    Pennsyl- 
vania, &c.  Co.  21  Pa.  St.  131.    See, 
also,  Baird  v.  Bank  of  Washington, 
11  S.  &  R.  (Pa.)  411. 

"Leach  v.  People,  122  111.  420,  12 
N.  E.  726.  See,  generally,  Mallett 
v.  Uncle  Sam,  &c.  Co.  1  Nev.  188,  90 
Am.  Dec.  484;  Plymouth  v.  Painter, 
17  Conn.  585,  44  Am.  Dec.  574;  State 
v.  Curtis,  9  Nev.  325;  Hamlin  v. 
Kassafer,  15  Oreg.  456,  15  Pac.  778, 
3  Am.  St.  176. 

83  Ohio,  &c.  R.  Co.  v.  McPherson, 
35  Mo.  13,  86  Am.  Dec.  128,  citing 
Trustees,  &c.  v.  Hill,  6  Cow.  (N.  Y.) 


23,  16  Am.  Dec.  429;  All  Saint's 
Church  v.  Lovett,  1  Hall  (N.  Y.  S. 
Ct.)  191;  John  v.  Farmers',  &c. 
Bank,  2  Blkf.  (Ind.)  367,  20  Am. 
Dec.  119;  Mining  Co.  v.  Anglo-Cali- 
fornian,  &c.  Bank,  104  U.  S.  192. 
See  Anglo-Californian,  &c.  Bank  v. 
Mahoney,  &c.  Co.  5  Sawy.  (U.  S.) 
255,  258.  See,  also,  Commonwealth 
v.  Milton,  12  B.  Mon.  (Ky.)  222,  54 
Am.  Dec.  522;  Aspinwall  v.  Ohio, 
&c.  Co.  20  Ind.  329,  83  Am.  Dec.  329; 
Bradford  v.  Frankfort,  &c.  R.  Co. 
142  Ind.  383,  40  N.  E.  741,  41  N.  E. 
819. 

34  Ellis  v.  North  Carolina,  &c.  68 
N.  C.  423.     See,  generally,  Smith  v. 
Bank    of    the    State,    18    Ind.    327; 
Humphreys  v.  Mooney,  5  Colo.  282; 
Savage  v.   Ball,   17  N.  J.   Eq.   142; 
Smith  v.    Erb,   4   Gill.    (Md.)    437; 
People  v.  Staton,  73  N.  C.   546,   21 
Am.  R.  479. 

35  Hackensack,  &c.  Co.  V.  DeKay, 
36  N.  J.  Eq.  548. 


363  DE   FACTO  DIEECTOES — TWO   BOAEDS.  [§    247 

and,  of  course,  no  officers  de  jure,  where  there  is  no  statute  authoriz- 
ing the  organization  of  the  corporation,  for  in  such  a  case  there  could 
be  no  color  of  right,  and  color  of  right  is  essential  to  create  an  officer 
de  facto.  Mere  irregularities  in  the  mode  of  conducting  an  election 
will  not,  unless  very  material  and  substantial,  impair  the  title  of  the 
persons  chosen  as  directors,  and  as  to  third  persons,  officers  chosen 
will  be  de  facto  officers,  although  there  may  be  many  irregularities 
and  errors  in  conducting  the  election. 

§  247.  De  facto  directors — Two  boards. — If  there  are  two  boards 
of  directors  the  question  as  to  whether  there  can  be  de  facto  directors 
is  perplexing.  If  those  claiming  to  be  directors  have  color  of  title, 
are  not  mere  usurpers,  and  have  acted  as  directors  for  a  considerable 
length  of  time,  we  think  that  as  to  third  persons,  acting  in  good 
faith  and  without  notice,  in  the  ordinary  course  of  business,  they 
should  be  regarded  as  directors  de  facto.3*  The  question  is,  of  course, 
radically  different  where  it  arises  in  a  suit  or  action  by  innocent  third 
persons  from  what  it  is  when  it  arises  in  a  suit  or  action  by  one  claim- 
ing rights  as  an  officer,  or  in  a  suit  or  action  by  one  who  actively  par- 
ticipates in  giving  the  claimants  color  of  office  and  seeks  to  obtain 
personal  benefit  through  the  acts  of  such  persons,  for  in  such  cases 
there  is  reason  for  holding  that  the  corporation  is  not  bound  by  the 
acts  of  the  claimants  of  the  office.37 

§  248.  Holding  over — Failure  to  elect. — Where  officers  are  elected 
for  a  designated  term  and  the  stockholders  fail  to  elect  at  the  time 
fixed  for  the  election,  the  officers  will  hold  over,  unless  the  statute 
otherwise  provides,  and  their  official  acts  will  bind  the  corporation.38 
A  failure  to  elect  officers  at  the  time  prescribed  does  not  work  a  dis- 

88  Lebanon,    &c.    Co.   v.    Adair,   85  98  Pa.  St.  444;  Moses  v.  Tompkins, 

Ind.  244;  Waterman  v.  Chicago,  &c.~  84  Ala.  613,  4  So.  763. 

Co.  139  111.  658,  29  N.  E.  689,  15  L.  ^Cassell    v.    Lexington,    &c.    Co. 

R.  A.  418,  32  Am.  St.  228;   Genesee  (Ky.)    9   S.  W.  701;    Thorington  v. 

Tp.  v.  McDonald,  98  Pa.  St.  444.  Gould,  59  Ala.  461;    Currie  v.  Mu- 

"Hildreth    v.    Mclntire,    1    J.    J.  tual,  &c.  Co.  4  Hen.  &  M.  (Va.)  315, 

Marsh.   (Ky.)   206,  19  Am.  Dec.  61;  4  Am.  Dec.  517;  Huguenot,  &c.  Bank 

Conway   v.    St.   Louis,   9    Mo.   App.  v.  Stud  well,  6  Daly  (N.  Y.)  13;  Ol- 

488.     See,   also,   Waterman   v.   Chi-  cott  v.  Tioga,  &c.  Co.  27  N.  Y.  546, 

cago,  &c.  R.  Co.  139  111.  658,  29  N.  E.  84  Am.  Dec.  298;  South  Bay,  &c.  Co. 

689,  15  L.  R.  A.  418,  32  Am.  St.  228;  v.  Gray,  30  Me.  547.    See,  also,  Pen- 

Genesee  School  Dist.  v.  McDonald,  obscot,  &c.  R.  Co.  v.  Dunn,  39  Me. 

587. 


§    249]  DIRECTORS.  364 

solution,  unless  the  statute  expressly  or  impliedly  makes  such  failure 
operate  as  a  dissolution.39  Where  the  stockholders  refuse  or  neglect 
to  elect  officers  and  corporate  affairs  are  put  in  jeopardy  by  such  fail- 
ure, or  the  rights  of  property  are  thereby  prejudiced  the  court  may, 
upon  the  suit  of  a  party  who  shows  equity,  and  makes  it  appear  that 
his  rights  are  in  danger  of  being  impaired  or  destroyed,  appoint  a  re- 
ceiver to  take  charge  of  the  affairs  of  the  corporation.40 

§  249.  Powers  of  directors — Source  of. — The  statute  under  which 
a  railroad  company  is  organized  is  the  source  of  power  and  the  stock- 
holders cannot  invest  the  persons  chosen  as  directors  with  powers  not 
conferred  upon  the  corporation  by  the  charter.41  The  stockholders  have 
authority  to  select  the  persons  to  whom  such  powers  are  to  be  intrusted, 
but  individual  stockholders  do  not  stand  in  the  relation  of  principals.42 
The  corporation,  however,  does  occupy  the  position  of  a  principal,  for 
the  directors  are  its  agents  or  representatives. 

§  250.  Powers  of  directors — Generally. — As  a  general  rule,  except 
so  far  as  their  action  is  controlled  by  special  provisions  of  the  charter, 
or  of  by-laws  adopted  under  its  authority,  the  directors  may  do  any 
act  within  the  general  range  of  the  ordinary  business  of  the  company 
which  the  company  itself  may  do.43  As  elsewhere  said,  the  board  of 

39  Cahill  v.  Kalamazoo,  &c.  Co.  2  « Bank  of  Middlebury  v.  Rutland, 
Dougl.    (Mich.)    124,    43    Am.    Dec.  &c.   R.   Co.   30   Vt.   159;    Wright  v. 
457;    Philips  v.  Wickham,   1   Paige  Oroville,   &c.   Co.   40   Cal.   20.     See, 
(N.  Y.)  590;  Knowlton  v.  Ackley,  8  also,  Reich wald  v.  Commercial  Ho- 
Cush.  (Mass.)  93.  tel  Co.  106  111.  439;  Eastern  R.  Co. 

40  Lawrence  v.  Greenwich,  &c.  Co.  v.  Boston,  &c.  Co.  Ill  Mass.  125,  15 
1  Paige  (N.  Y.)   587;  Ward  v.  Sea,  Am.  R.  13;  Phillip  v.  Aurora  Lodge, 
&c.  Co.  7  Paige  (N.  Y.)  294.  87  Ind.  505;  Beveridge  v.  New  York 

41  It    is    not    necessary,    however,  El.  R.  Co.  112  N.  Y.  1,  19  N.  E.  489. 
that  all   powers   be   expressly   con-  Where   two    railroads    in   adjoining 
ferred  upon  the  corporation  by  the  states  are  operated  together,  and  ad- 
charter,  for  many  powers  exist  by  ditional    land    and    depot   buildings 
necessary  implication.  are  necessary  in  one  of  the  states 

42  Bank  of  Middlebury  v.  Rutland,  to  enable  them  to  retain  their  in- 
&c.  R.  Co.  30  Vt.  159;   Dayton,  &c.  creased    business,    the    directors   of 
R.  Co.  v.  Hatch,  1  Disney  (Gin.  Sup.  the  railroad  in  the  other  state  have 
Ct.)  84;  Wood  Hydraulic,  &c.  Co.  v.  power  to  contract  to  pay  a  proper 
King,  45  Ga.  34;    Shaw  v.  Norfolk  portion  of  the  cost  of  these  extend- 
County  R.  Co.  16  Gray  (MassO  407;  ed  business  facilities,  though,  as  a 
Chetlain  v.  Republic,  &c.  Ins.  Co.  86  general  rule,  they  have  no  authority 
111.  220.  to    expend    money    upon    buildings 


365 


POWERS  OF  DIRECTORS — GENERALLY. 


[§   250 


directors  is  the  governing  department  of  the  corporation  and  it  is 
through  the  board  or  those  acting  under  it,  that  ordinary  corporate 
affairs  are  managed  and  the  usual  corporate  business  transacted.  The 
implied  powers  of  the  directors  generally  have  merely  as  wide  a  range 
as  the  implied  powers  of  the  corporation  itself.  Comparatively  few 
powers  are  reserved  to  the  stockholders  of  railroads  in  this  country. 
The  right  to  elect  the  directors,  and  to  pass  upon  questions  of  leasing 
or  selling  the  franchises  and  property,  of  increasing  or  decreasing  the 
capital  stock,  of  consolidating  with  other  corporations,44  and  other 
matters  of  a  fundamental  or  organic  nature  do  not,  however,  properly 
belong  to  the  directors,  for  those  powers  properly  belong  to  the  stock- 
holders.45 The  board  of  directors  is  the  proper  agency  to  make  ordi- 
nary corporate  contracts.  Its  power  in  this  respect  is  very  broad  and 
comprehensive.  The  board,  unless  so  required  by  statute,  is  not  bound 
to  make  all  contracts  itself,  but  may  in  most  instances  empower  officers 
or  agents  to  make  ordinary  business  contracts.  Contracts  entered  into 
by  the  board  of  directors  will  always  be  binding  upon  the  company, 
where  the  contracts  are  within  the  scope  of  the  corporate  powers,  and 
are  made  in  pursuance  of  some  object  embraced  by  the  charter.46  The 
rule  stated  is  a  general  one  of  wide  sweep,  but,  wide  as  the  rule  is,  it 
is  always  to  be  understood  that  the  power  to  contract,  its  extent  and 
limitations,  must  be  ascertained  from  the  act  of  incorporation.  The 


outside  the  states  in  which  their 
road  is  located,  without  the  consent 
of  the  stockholders.  Nashua  &  L. 
R.  Corp.  v.  Boston  &  L.  R.  Corp.  136 
TJ.  S.  356,  10  Sup.  Ct.  1004,  34  L.  Ed. 
363,  42  Am.  &  Eng.  Cas.  688. 

"Stimson  Am.  Stat.  (1892) 
§§  8453,  8732,  8721,  8722,  8611; 
Wood  Ry.  Law  400.  See  Dayton, 
&c.  R.  Co.  v.  Hatch,  1  Dis.  (Gin. 
Super.  Ct.)  84.  The  stockholders 
and  not  the  directors  are  the  proper 
parties  to  increase  the  capital  stock 
where  no  provision  is  made  as  to 
how  it  is  to  be  done.  Wheeler,  In  re, 
2  Abb.  Pr.  (N.  Y.)  N.  S.  361.  Or  to 
agree  to  an  amendment  of  the  char- 
ter. Witter  v.  Mississippi,  &c.  R. 
Co.  20  Ark.  463. 

45  Organic  or  fundamental  changes 
in  the  corporate  body,  its  organiza- 


tion or  object  cannot  be  made  by 
the  directors  except  where  the  char- 
ter authorizes  the  directors  to  make 
such  changes.  There  is  an  impor- 
tant distinction  between  conducting 
and  managing  general  corporate  af- 
fairs and  making  changes  of  the  na- 
ture of  those  mentioned. 

46  Bank  of  Middlebury  v.  Rutland, 
&c.  R.  Co.  30  Vt.  159;  Dayton,  &c. 
R.  Co.  v.  Hatch,  1  Dis.  (Cin.  Sup. 
Ct.)  84;  Record  v.  Central  Pac.  Co. 
15  Nev.  167;  Fackiner  v.  Grand 
Junction  R.  Co.  4  Ont.  R.  Ch.  Div. 
350;  Hodder  v.  Kentucky,  &c.  R. 
Co.  7  Fed.  793;  Union  Mut.  Ins.  Co. 
v.  Keyset,  32  N.  H.  313,  64  Am.  Dec. 
375;  Cicotte  r.  Anciaux,  53  Mich. 
227;  Protection  L.  Ins.  Co.  v.  Foote, 
79  111.  361. 


§  251] 


DIRECTORS. 


366 


action  of  the  board  of  directors  in  making  contracts  cannot  be  con- 
trolled even  by  a  majority  of  the  stockholders,  where  the  power  to 
contract  is  conferred  upon  the  board  by  the  act  of  incorporation47  and 
where  they  act  in  good  faith,  that  is,  the  action  cannot  be  controlled 
directly.  It  may,  however,  often  be  controlled  indirectly  by  voting 
the  directors  out  of  office,  in  a  legal  mode.  Where  the  rights  of  third 
persons  have  intervened  the  stockholders  cannot  annul  the  action  of 
the  directors,  unless  they  have  violated  the  provisions  of  the  charter 
or  transcended  their  authority;  and  not  always,  even  in  such  cases, 
for  there  may  be  conduct  or  acts  constituting  an  estoppel  which  will 
preclude  the  stockholders  from  successfully  assailing  the  action  of 
their  representatives.  The  authority  and  discretion  of  the  directors, 
being  intrusted  to  them  by  the  effective  agreement  of  all  the  stock- 
holders expressed  in  the  charter  or  articles  of  association,  can  be  con- 
trolled by  the  majority  or  by  any  other  agent  in  comparatively  very 
few  cases.48 

§  251.  Powers  of  directors — Illustrative  cases. — Where  two  rail- 
way corporations  of  different  states  whose  lines  connected  entered  into 
an  agreement  to  operate  and  manage  their  road  as  one  system,  it  was 
held  that  the  directors  of  one  company  were  authorized  without  the 
previous  approval  of  the  stockholders  to  pay  for  the  construction  of  a 
passenger  station  in  the  state  foreign  to  that  in  which  it  was  created, 
and  into  which  its  line  did  not  extend,  where  it  appeared  that  the  con- 


47  Wardell  v.  Union  Pac.  R.  Co.  103 
U.  S.  651;  Flagg  v.  Manhattan  R. 
Co.  20  Blatchf.  (U.  S.)  142.  Di- 
rectors do  not  exceed  their  powers 
by  making  an  agreement,  with  ap- 
parently good  reasons  and  in  good 
faith,  to  reduce  the  amount  of 
money  payable  under  a  lease  of 
their  corporation,  especially  if  near- 
ly nine-tenths  of  the  stockholders 
have  acquiesced.  Beveridge  v.  New 
York  El.  R.  Co.  112  N.  Y.  1,  19  N. 
E.  489,  2  L.  R.  A.  648. 

"Morawetz  Priv.  Corp.  (2d  ed.) 
§  511;  Karnes  v.  Rochester,  &c.  11. 
Co.  4  Abb.  Pr.  N.  S.  (N.  Y.)  107; 
Belfast,  &c.  R.  Co.  v.  Belfast,  77  Me. 
445,  1  Atl.  350;  Sims  v.  Street  R. 
Co.  37  Ohio  St.  556;  Elkins  v.  Cam- 


den,  &c.  R.  Co.  36  N.  J.  Eq.  241; 
Bardstown,  &c.  Turnp.  Co.  v.  Rod- 
man (Ky.),  13  S.  W.  917;  Banet  v. 
Alton,  &c.  R.  Co.  13  111.  504;  Oglesby 
v.  Attrill,  105  U.  S.  605.  But  if  they 
act  in  matters  where  their  private 
interests  are  concerned  any  stock- 
holder may  have  their  action  set 
aside.  Hedges  v.  Paquett,  3  Oreg. 
77.  A  tripartite  agreement  between 
three  corporations  having  been  ad- 
judged void  as  to  one,  the  directors 
of  the  other  companies  may,  in  their 
honest  discretion,  bring  action  to 
sever  the  contractual  relations.  Bev- 
eridge v.  New  York  Elevated  R.  Co. 
112  N.  Y.  1,  19  N.  E.  489,  2  L.  R.  A 
648. 


367 


POWERS   OF   DIRECTORS ILLUSTRATIVE    CASES. 


[§    251 


struction  of  the  passenger  station  was  for  the  purpose  of  enabling  the 
joint  management  to  retain  and  extend  its  increasing  business.49  Di- 
rectors usually  have  power  to  fix  and  provide  for  the  payment  of  the 
salaries  of  the  officers  of  the  company.50  So,  it  has  been  held  that  they 
have  power  to  pay  part  of  the  corporate  indebtedness  in  stock  of  the 
company,51  and  authority  to  compensate  one  of  their  number  for  ser- 
vices rendered  the  company  not  within  the  line  of  his  duties  as  direc- 
tor,52 and  to  issue  bonds  to  pay  debts  contracted  for  constructing  and 
completing  the  road,  and  to  mortgage  the  corporate  property  to  secure 
the  payment  of  the  same.53  The  directors  of  a  railroad  company  have 
no  authority,  implied  or  general,  to  appropriate  its  bonds  to  aid  in  the 
construction  of  the  line  of  another  corporation.54  Nor  have  they  power 
to  postpone  the  time  of  an  annual  election  of  officers,  so  as  to  con- 
tinue themselves  in  office.55  Directors  have  power  to  borrow  money 
to  conduct  the  business  of  the  corporation,  and  ordinarily,  they  may 
pledge  its  personal  property  or  mortgage  its  real  estate  to  secure  money 
borrowed  for  corporate  purposes.56  They  have  power,  except  where 
the  law  otherwise  provides,  to  make  contracts  for  the  transportation 


49  Nashua,  &c.  Co.  v.  Boston,  &c. 
Co.  136  U.  S.  356,  10  Sup.  Ct.  1004. 

60  St.  Louis,  &c.  Co.  v.  Tiernan,  37 
Kans.  606, 15  Pac.  544,  40  Am.  &  Eng. 
R.    Gas.    525;     Falkiner '  v.    Grand 
Junction,  &c.  Co.  4  Ont.  R.  Ch.  Div. 
350,  16  Am.  &  Eng.  R.  Gas.  591. 

61  County  Court  v.  Baltimore,  &c. 
Co.  35  Fed.  161. 

52  Ten  Eyck  v.  Pontiac,  &c.  Co.  74 
Mich.  226,  41  N.  W.  905,  3  L.  R.  A. 
378,  16  Am.  St.  633,  37  Am.  &  Eng. 
R.  Gas.  273. 

MMcLane  v.  Placerville,  &c.  Co. 
66  Cal.  606,  6  Pac.  748,  26  Am.  & 
Eng.  R.  Gas.  404. 

M  Starbuck  v.  Mercantile  Trust  Co. 
9  Ry.  &  Corp.  L.  J.  203.  See,  also, 
Western  Md.  R.  Co.  v.  Blue  Ridge 
Hotel  Co.  102  Md.  307,  62  Atl.  351, 
3  L.  R.  A.  (N.  S.)  887. 

85  Elkins  v.  Camden,  &c.  R.  Co.  36 
N.  J.  Eq.  467. 

58Ridgway  v.  Farmers'  Bank,  12 
S.  &  R.  (Pa.)  256,  14  Am.  Dec.  681; 
Davis  v.  Flagstaff,  &c.  Co.  2  Utah 


74;  Wood  v.  Wheelan,  93  111.  153; 
Burrell  v.  Nahant  Bank,  43  Mass. 
163,  35  Am.  Dec.  395;  Hendee  v. 
Pinkerton,  14  Allen  (Mass.)  381; 
Saltmarsh  v.  Spaulding,  147  Mass. 
224,  17  N.  E.  316;  Tupp  v.  Swanzey, 
&c.  Co.  20  Mass.  291,  15  Am.  Dec. 
209;  Hopson  v.  JEtna,-&c.  Co.  50 
Conn.  597;  Taylor  v.  Agricultural, 
&c.  Co.  68  Ala.  229.  See,  generally, 
West  of  England  Bank,  In  re,  L.  R. 
14  Ch.  Div.  317;  Bank  of  South 
Australia  v.  Abrahams,  L.  R.  6  P. 
C.  265;  Flagg  v.  Manhattan,  &c.  Co. 
10  Fed.  413;  Hoyt  v.  Thompson,  19 
N.  Y.  207,  216;  McCullough  v.  Moss, 
5  Denio  (N.  Y.)  567,  575;  Sheffield, 
&c.  Co.  v.  Unwin,  L.  R.  2  Q.  B.  Div. 
214;  Chamberlain  v.  Bromberg,  83 
Ala.  576,  3  So.  434;  Descombes  v. 
Wood,  91  Mo.  196,  60  Am.  R.  239; 
Union  Bank  v.  Ellicott,  6  G.  &  J. 
(Md.)  363;  Sheldon,  &c.  Co.  v. 
Eickemeyer,  &c.  Co.  90  N.  Y.  607; 
Duncomb  v.  New  York,  &c.  Co.  88 
N.  Y.  1. 


§'  251] 


DIRECTORS. 


368 


of  property,"  and,  as  it  has  been  held,  to  make  a  contract  with  another 
company  to  divide  the  earnings  of  the  two  companies.68  It  has  been 
held  that  directors  have  no  authority  to  organize  a  second  company  in 
another  state  and  impose  the  expense  upon  the  home  company.09  It 
has  been  adjudged  that  where  the  directors  and  shareholders  are  not 
identical,  the  directors  have  no  authority  to  bind  the  corporation  by 
an  agreement  with  a  designated  person  that  he  shall  be  a  director.60 
Unless  authority  is  granted  by  the  act  of  incorporation  to  the  board 
of  directors  to  invest  corporate  funds  in  the  stock  of  other  corporations, 
the  board  has  no  power  to  make  such  an  investment.61  There  are  ex- 
ceptions to  this  general  rule,  but  they  are  very  rare.  Stock  of  other 
corporations  may  be  acquired  as  a  security  for,  or  in  payment  of,  a 
debt;  for  a  railway  company,  unless  its  charter  otherwise  provides, 
is  entitled  to  secure  payment  of  claims  owing  to  it,  in  the  same  man- 
ner as  may  be  done  by  other  business  corporations,  or  by  natural 
persons.62  The  directors  of  a  corporation  invested  with  authority  to 
dispose  of  corporate  funds  may,  as  it  has  been  held,  accept  stock  of 
other  corporations  in  payment,63  but  we  regard  the  doctrine  asserted 
by  the  cases  referred  to  as  one  to  be  very  cautiously  received  and  very 
carefully  applied.  Where  the  statute  authorizes  the  consolidation  of 


"Railroad  Co.  v.  Furnace  Co.  37 
Ohio  St.  434. 

""Elkins  v.  Camden,  &c.  R.  Co.  36 
N.  J.  Eq.  241. 

B9Eakins  v.  American  White 
Bronze  Co.  75  Mich.  568,  42  N.  W. 
982. 

60  Seymour     v.     Detroit     Rolling 
Mills,  56  Mich.  117,  22  N.  W.  317,  23 
N.  W.  186. 

61  Joint  Stock,  &c.  Co.  v.  Brown, 
Law  8  Eq.  Cases  381;    Commercial, 
&c.  Co.  v.  Board,  &c.  99  Ala.  1,  14 
So.  490,  42  Am.  St.  1;  Bank  v.  Hart, 
37  Neb.  197,  40  Am.  St.  479;  Denny, 
&c.  Co.  v.  Schram,  6  Wash.  134,  32 
Pac.  1002,  36  Am.  St.  130;   Valley, 
&c.    Co.   v.   Lake   Erie,   &c.    Co.    46 
Ohio  St.  44,  18  N.  E.  486;    Central 
R.  Co.  v.  Pennsylvania  R.  Co.  31  N. 
J.    Eq.    475;    Franklin,    &c.    Co.    v. 
Lewiston,  &c.  68  Me.  43,  28  Am.  R. 
9;   Mechanics',  &c.  Co.  v.  Meridean, 
&c.   Co.   24   Conn.    159;    Sumner   v. 


Marcy,  3  Woodb.  &  M.  (U.  S.)  105; 
Central  R.  Co.  v.  Collins,  40  Ga.  582; 
Hazlehurst  v.  Savannah,  &c.  R.  Co. 
43  Ga.  13,  58;  People  v.  Chicago,  &c. 
Co.  130  111.  268,  22  N.  E.  798,  17  Am. 
St.  319;  Memphis,  &c.  R.  Co.  v. 
Woods,  88  Ala.  630,  7  So.  122,  16 
Am.  St.  81;  Easun  v.  Buckeye,  &c. 
Co.  51  Fed.  156;  Mackintosh  v. 
Flint,  &c.  R.  Co.  34  Fed.  582;  Pear- 
son v.  Concord  R.  Co.  62  N.  H.  537, 
13  Am.  St.  590. 

62  Memphis,  &c.  R.  Co.  v.  Woods, 
88  Ala.  630,  7  So.  122,  16  Am.  St.  81. 
See,  generally,  National  Bank  v. 
Case,  99  U.  S.  628;  County  Court, 
&c.  v.  Baltimore,  &c.  R.  Co.  35  Fed. 
161;  Holmes,  &c.  Co.  v.  Holmes,  &c. 
Co.  127  N.  Y.  252,  27  N.  E.  831,  24 
Am.  St.  448. 

^Treadwell  v.  Salisbury,  &c.  Co. 
7  Gray  (Mass.)  393,  66  Am.  Dec. 
490;  Hodges  v.  New  England,  &c. 
Co.  1  R.  I.  312,  53  Am.  Dec.  624. 


369 


DIRECTORS — POWERS   OF — ORGANIC    CHANGES. 


[§   252 


railway  corporations,  and  the  purchase  of  the  stock  of  the  one  com- 
pany by  the  other,  and  a  consolidation  is  rightfully  effected,  the  pur- 
chase of  stock  may  be  made  by  the  board.64 

§  252.  Directors — Powers  of — Organic  changes. — Directors  have 
no  general  authority  to  make  any  fundamental  changes  in  the  pur- 
poses and  objects  of  the  corporation,65  nor  to  accept  an  amendment  to 
the  charter  making  such  changes,66  unless,  perhaps,  where  such  power 
is  clearly  lodged  in  them  by  the  charter.67  It  has,  however,  been  held 
that  the  power  to  accept  amendments  is  lodged  with  the  directors  when 
it  is  given  in  general  terms  to  the  corporation,  and  the  directors  are 
intrusted  with  all  of  the  corporate  powers.68  But  we  suppose  that  the 


64  Atchison,  &c.  R.  Co.  v.  Fletcher, 
35  Kans.  236,  10  Pac.  596;   State  v. 
Atchison,  &c.  R.  Co.  24  Neb.  143,  38 
N.  W.  43,  8  Am.  St.  164;  Atchison, 
&c.  R.  Co.  v.  Cochran,  43  Kan.  225, 

19  Am.   St.   129;    Ryan   v.   Leaven- 
worth,  &c.  Co.  21  Kans.  365;  Hill  v. 
Nisbet,  100  Ind.  341. 

65  Witter  v.  Mississippi,  &c.  R.  Co. 

20  Ark.  463;   Railway  Co.  v.  Aller- 
ton,  18  Wall.    (U.   S.)    233;   Fry  v. 
Lexington,  &c.  R.  Co.  2  Met.   (Ky.) 
314;    Commonwealth   v.   Cullen,   13 
Pa.   St.  133,  53  Am.   Dec.   450;    At- 
lantic, &c.  R.  Co.  v.  St.  Louis,  66  Mo. 
228;   Goodin  v.  Evans,  18  Ohio  St. 
150;  Joy  v.  Jackson,  &c.  Plank  Road 
Co.  11  Mich.  155 ;  Black  v.  Delaware 
&  R.  Canal  Co.   22  N.  J.  Eq.  130; 
Durfee  v.  Old  Colony  R.  Co.  5  Allen 
(Mass.)    230;    Baker's   Appeal,    109 
Pa.  St.  461;  Marlborough,  &c.  Co.  v. 
Smith,  2  Conn.  579;   Hope,  &c.  Co. 
v.  Beckmann,  47  Mo.  93;  Mississippi, 
&c.   R.   Co.  v.   Gaster,   24   Ark.   96; 
Venner  v.  Atchison,  &c.  Co.  28  Fed. 
581;  Era,  &c.  Co.,  In  re,  30  L.  J.  Eq. 
137;  Blatchford  v.  Ross,  5  Abb.  Pr. 
R.    (N.    S.)    434;    Starbuck  v.   Mer- 
cantile Trust  Co.  9  Corp.  &  Ry.  L. 
J.    203;    Elkins   v.   Camden,   &c.   R. 
Co.  36  N.  J.  Eq.  233. 

"Mobile,   &c.    Co.   v.    Steiner,   61 
Ala.   559;    Baker's  Appeal,   109   Pa. 
Eix.  RAILROADS — 24 


St.  461;  Commonwealth  v.  Cullen, 
13  Pa.  St.  133,  53  Am.  Dec.  450; 
Brown  v.  Fairmount,  &c.  Co.  10 
Phila.  32;  Marlborough,  &c.  Co.  v. 
Smith,  2  Conn.  579;  Hope,  &c.  Co. 
v.  Beckmann,  47  Mo.  93;  Mississippi, 
&c.  R.  Co.  v.  Gaster,  24  Ark.  96. 

67  In  Dayton,  &c.  R.  Co.  v.  Hatch,  1 
Disney    (Cin.    Super.    Ct.)    84,   the 
court  said:    "That  both  the  special 
charter  of  the  plaintiff  and  the  gen- 
eral railroad  law  contemplated  that 
all  corporate  acts,  including  an  as- 
sent to  such  an  amendment  as  the 
one  authorized,  should  be  done  by 
the   board  of  directors,  appears  to 
be  clear."     In  the  note  which   fol- 
lows we  have  ventured  to  question 
the  soundness  of  the  decision  in  the 
case   here   cited.     Our  judgment  is 
that  amendments  which  are  funda- 
mental in  their  nature  must  be  ac- 
cepted by  all  the  stockholders  ex- 
cept in  cases  where  the  statute  ex- 
pressly  vests   the   whole   corporate 
power  in  the  directors  or  provides 
that  amendments  may  be  accepted 
by  them.    Buffalo,  &c.  R.  -Co.  v.  Dud- 
ley, 14  N.  Y.  336;   Kenosha,  &c.  R. 
Co.  v.  Marsh,  17  Wis.  13;  Sprigg  v. 
Western  Tel.  Co.  46  Md.  67;  Venner 
v.  Atchison,  &c.  Co.  28  Fed.  581. 

68  Dayton,  &c.  R.  Co.  v.  Hatch,  1 
Disney    (Cin.   Super.  Ct.)    84.     We 


§    252]  DIRECTORS.  370 

doctrine  of  the  case  referred  to  can  only  apply  where  the  statute  im- 
pliedly  or  expressly  vests  the  board  with  power  to  accept  amendments, 
for  that  power  properly  resides  in  the  stockholders.  When  the  amend- 
ment is  immaterial  and  does  not  work  a  fundamental  change  impair- 
ing the  rights  of  the  stockholders,  or,  possibly,  where  the  legislature 
has  reserved  the  right  to  amend,  the  directors  may  act  upon  the  amend- 
ment.09 If  the  legislature  has  reserved  the  power  to  amend,  then  an 
immaterial  amendment  cannot  be  justly  said  to  impair  the  rights  of 
stockholders,  but  it  would  be  otherwise  if  the  amendment  were  a  ma- 
terial one  and  power  to  amend  were  not  reserved.70  Directors,  al- 
though entrusted  with  extensive  powers  in  the  management  of  the 
corporation  business,  have,  ordinarily,  no  authority  to  apply  to  the 
legislature  for  an  enlargement  of  the  corporate  powers  nor  to  accept 
a  grant  of  such  powers  made  upon  their  application.71  Directors  can- 
not, in  the  absence  of  any  provisions  of  the  charter  giving  them  power, 
increase  the  capital  stock,72  since  this  is  a  change  of  a  fundamental 
character,  which,  by  introducing  additional  votes  into  the  corporate 
body,  would  change  the  relative  influence,  control  and  profit  of  each 
member,  and  have  the  effect  of  making  the  stockholders  members  of 
a  company  in  which  they  never  consented  to  become  members.  Nor 
can  they  dispose  of  the  company's  property  which  is  necessary  to  the 
transaction  of  its  business,  and  wind  up  its  affairs  without  special 
authority  from  the  stockholders.73  The  rule  just  stated  as  to  the  dis- 

think  that  the  doctrine  of  the  case  83  Ga.  61,  9  S.  E.  1104.    See  to  the 

cited  is  broader  than  principle  or  effect  that  the  directors  cannot  bind 

authority  will  justify;  at  all  events,  the  stockholders  by  their  acceptance 

some  of  the  expressions  in  the  opin-  of  an   amendment  to   the  charter, 

ion  require  qualification  and  limita-  where   the  legislature   had  not  re- 

tion.     The   doctrine   laid   down   in  served  the  power  to  amend,  Witter 

Railway   Co.   v.   Allerton,   18   Wall.  v.   Mississippi,   &c.  R.   Co.   20  Ark. 

(U.  S.)  233,  is  the  true  one  in  our  463;    Commonwealth  v.   Cullen,  13 

judgment.  Pa.  St.  133,  53  Am.  Dec.  450.     See 

09  New  Haven,  &c.  R.  Co.  v.  Chap-  ante,  §  45. 

man,  38  Conn.  56;  Pacific  R.  Co.  v.  "Eidman  v.  Bowman,  58  111.  444, 

Hughes,  22  Mo.  291;  Bedford  R.  Co.  11  Am.  R.  90;  Wheeler,  In  re,  2  Abb. 

v.  Bowser,  48  Pa.  St.  29;  Delaware,  Pr.   (N.  Y.)  N.  S.  361.     See  Durfee 

&c.  R.  Co.  v.  Irick,  23  N.  J.  L.  321;  v.  Old  Colony  R.  Co.  5  Allen  (Mass.) 

Bailey  v.  Hollister,  26  N.  Y.  112.  230;  Atlantic,  &c.  R.  Co.  v.  St.  Louis, 

70  See  ante,  §  45.  66  Mo.  228. 

"Marlborough  Mfg.  Co.  v.  Smith,  "Rollins  v.  Clay,  33  Me.  132;  Ab- 

2  Conn.  579.     Any  such  action  on  hot  v.  American,  &c.  Co.  33  Barb, 

their  part  would  not  bind  the  stock-  (N.  Y.)  578. 
holders.    Snook  v.  Georgia  Imp.  Co. 


371 


DIRECTORS — EXTENT   OF  AUTHORITY  GENERALLY. 


[§    253 


position  of  property  is  a  general  one,  but  is  not  without  exceptions. 
There  may  be  cases,  as  for  instance,  where  it  is  necessary  to  preserve 
corporate  property  and  interests  by  an  assignment,  in  which  the  di- 
rectors may  dispose  of  corporate  property.  The  general  rule  is  that 
the  authority  conferred  upon  the  directors  is  granted  them  in  order 
that  they  may  carry  forward  the  purposes  for  which  the  corporation 
was  organized,  and  not  that  they  may  terminate  its  existence.74  Where 
no  special  authority75  to  do  so  is  contained  in  the  charter,  the  directors 
of  a  railroad  company  cannot  execute  a  lease  of  the  company's  prop- 
erty without  being  directed  by  a  regularly  called  meeting  of  the  stock- 
holders to  do  so.76 


§253.  Directors — Extent  of  authority — Generally. — The  author- 
ity of  the  board  of  directors  extends  to  contracting  debts  in  pursuance 
of  the  business  and  purposes  of  the  corporation  and  pledging  or  con- 
veying real  or  personal  property  in  payment  or  as  security.77  It  is 
held  that  the  board  may  make  an  assignment  of  the  property  of  the 
corporation  for  the  benefit  of  its  creditors,  without  the  express  author- 
ity or  consent  of  the  stockholder,78  if  it  acts  in  good  faith.  The  direct- 
ors can,  of  course,  only  bind  the  corporation,  as  a  rule  as  to  corporate 
matters  and  by  acts  within  the  scope  of  the  powers  conferred  upon  the 
company.79 


74  Bank  Commrs.  v.  Bank  of  Brest, 
1  Harr.  Ch.  (Mich.)  106. 

75  Under  this  general  doctrine  it  is 
held  that  authority  to  manage  the 
business  does  not  include  power  to 
lease  the  road.     Metropolitan  El.  R. 
Co.  v.  Manhattan  El.  R.  Co.  11  Daly 
(N.  Y.)   373,  where  it  is  held  that 
the   directors   could   not   lease   the 
road,  although  the  corporation  was 
specially  empowered  to  do  so. 

78  Martin  v.  Continental  Pass.  R. 
Co.  14  Phila.  (Pa.)  10,  holding  this 
to  be  true  where  the  directors  hold 
a  majority  of  the  stock.  But  where 
the  directors  owned  all  the  stock, 
It  was  said  that  there  was  no  one 
in  a  situation  to  complain.  Barr  v. 
New  York,  &c.  R.  Co.  96  N.  Y.  444. 

77  Miller  v.  Rutland,  &c.  R.  Co.  36 
Vt.  452;  Despatch  Line  v.  Bellamy 


Mfg.  Co.  12  N.  H.  205,  37  Am.  Dec. 
203.  Unless  specially  prohibited 
the  directors  may  mortgage  the  cor- 
porate property  to  secure  a  debt 
which  they  may  create.  County 
Court  of  Taylor  Co.  v.  Baltimore, 
&c.  R.  Co.  35  Fed.  161;  Reichwald 
v.  Commercial  Hotel  Co.  106  111. 
439;  Ellis  v.  Boston,  &c.  R.  Co.  107 
Mass.  1. 

78DeCamp  v.  Alward,  52  Ind.  468; 
Dana  v.  Bank  of  U.  S.  5  Watts  & 
Serg.  (Pa.)  223.  Of  course  it  could 
only  do  so  where  the  corporation 
itself  is  not  prohibited  from  mak- 
'ing  such  an  assignment.  Dana  v. 
Bank  of  U.  S.  5  Watts  &  Serg.  (Pa.) 
223. 

19  Ricord  v.  Central  Pac.  R.  Co.  15 
Nev.  167. 


§  254]  DIRECTORS.  372 

§  254.  Powers  of  directors — General  conclusion. — It  may  be  safely 
affirmed  that  the  general  rule  is  that  all  the  ordinary  affairs  and  busi- 
ness of  a  railway  company  are  under  the  control  and  management  of 
the  board  of  directors  and  that  in  conducting  that  business  and  man- 
aging those  affairs  the  board  of  directors  is  in  effect  the  corporation, 
but  is  not  the  corporation  so  far  as  concerns  matters  beyond  the  ordi- 
nary corporate  business  and  affairs.  The  difficulty  is  in  determining 
what  shall  be  considered  as  the  ordinary  affairs  and  business  of  the 
corporation.80  It  is  evident,  from  the  authorities  to  which  we  have 
referred,  that  a  change  of  the  scheme  of  the  corporate  organization,  or 
of  the  nature  of  the  corporate  business  or  objects,  is  not  within  the 
meaning  of  the  cases  which  hold  that  the  ordinary  affairs  and  business 
of  the  corporation  are  to  be  managed  and  controlled  by  the  board  of 
directors.  The  shareholders  cannot  manage  or  control  the  ordinary 
corporate  affairs,  for  the  power  over  those  affairs  being  vested  in  the 
board  of  directors  necessarily  excludes  the  shareholders.  But  the  share- 
holders, although  excluded  from  the  management  and  control  of  ordi- 
nary corporate  matters,  do  control  all  matters  of  a  fundamental  or 
organic  nature. 

§  255.  Directors — Official  action — Preliminary. — In  discharging 
the  duties  and  exercising  the  functions  imposed  by  law  upon  the  direct- 
ors as  the  governing  officers  of  the  corporation  they  should  act  as  a 
body,  duly  convened  in  session  as  an  official  board.  What  may  be 
called  governmental  powers  cannot  be  delegated,  and  powers  that  can- 
not be  delegated  must  be  exercised  by  the  board  of  directors  acting 
as  a  body.  Individual  and  separate  action  is  not  official  action.  These 
governmental  powers  are  in  their  nature  legislative  or  judicial  and 
require  for  their  proper  and  rightful  exercise  deliberation  and  dis- 
cussion. It  is  necessary,  therefore,  that  such  powers  should  be  exer- 
cised by  the  board  of  directors  so  that  there  may  be  a  comparison  of 
views  and  an  exercise  of  judgment  and  discretion  by  all  the  members 
of  the  board. 

§  256.  Directors — Official  action. — Directors  should  act  together  as 
a  board,  and,  upon  principle,  action  by  them  separately  is  not  valid  or 
effective.  A  corporate  act  required  to  be  performed  by  the  directors  is 

"•Hoyt  v.  Thompson,  &c.  19  N.  Y.    651.     The  first  of  these  cases  goes 
207,  217;  Bathe  v.  Decatur,  &c.  Co.    too  far. 
73  Iowa  11,  34  N.  W.  484,  5  Am.  St. 


373  DIRECTORS — DELEGATION   OF  AUTHORITY.  [§   257 

not  effectively  performed  unless  the  directors  convene  as  a  body  in 
obedience  to  the  requirements  of  the  charter  or  in  accordance  with  the 
provisions  of  a  by-law  enacted  under  authority  conferred  by  the 
charter  or  act  of  incorporation.  Separate  action  of  a  majority  of  the 
directors  is  not  the  action  of  the  board  of  directors.  The  members  of 
the  board,  when  acting  together,  are  the  authorized  governing  officers 
of  the  company,  but  the  members  acting  separately  are  not.81  The  rule 
just  stated  applies,  although  a  majority  of  the  directors  may  separately 
assent  to  a  given  measure  or  contract.82 

§  257.  Directors — Delegation  of  anthority. — The  directors  cannot 
rightfully  delegate  to  other  corporate  officers  or  agents  powers  which 
the  law  requires  them  to  exercise.83  The  directors  may  appoint  agents 
to  perform  duties  of  a  ministerial  and  executive  character,  but  it  does 
not  follow  from  this  that  they  can  entrust  to  others  the  duties  im- 
posed upon  them  by  law.  There  is  an  essential  difference  between  ap- 
pointing agents  to  perform  duties  not  required  of  the  board  of  direct- 
ors, and  assuming  to  delegate  to  others,  authority  vested  in  the  direct- 
ors as  the  governing  board  of  the  corporation.  In  many  instances 
duties  may  be  delegated  to  other  agents  or  officers,  but  duties  of  a 
judicial  or  legislative  nature  which  the  law  requires  the  directors  to 

^Filon  v.  Miller,  &c.  Co.  15  N.  Y.  Conn.  335;  D'Arcy  v.  Tamar,  &c.  Co. 
S.  57;  Bank  of  Healdsburg  v.  Bail-  4  Hurls.  &  Colt.  463;  Bosanquet  v. 
hache,  65  Cal.  327,  4  Pac.  106;  Kup-  Shortridge,  4  Exch.  699;  Cannon 
fer  v.  South  Parish,  12  Mass.  185;  River,  &c.  Co.  v.  Rogers,  51  Minn. 
Browning  v.  Hinkle,  48  Minn.  544,  388,  53  N.  W.  759. 
51  N.  W.  605,  31  Am.  St.  691;  Lock-  M  There  is  conflict  in  the  adjudged 
wood  v.  Thunder,  &c.  Co.  42  Mich,  cases  as  to  what  powers  are  inca- 
536,  4  N.  W.  292;  Readrich  v.  Wil-  pable  of  delegation,  and  some  of 
son,  8  Baxt.  (Tenn.)  108;  Allemong  the  cases  go  very  far  in  restricting 
v.  Simmons,  124  Ind.  199,  23  N.  B.  the  right  to  delegate,  while  others 
768;  Harris  v.  Muskingum,  &c.  Co.  go  to  the  extreme  in  the  other  di- 
4  Blackf.  267,  29  Am.  Dec.  372;  rection.  Against  authority  to  dele- 
Gashwiler  v.  Willis,  33  Colo.  11;  gate,  see  Weidenfeld  v.  Sugar  R. 
Tileston  v.  Newell,  13  Mass.  406;  Co.  48  Fed.  615;  Pike  v.  Bangor,  &c. 
New  Haven,  &c.  Co.  v.  Hayden,  107  R.  Co.  68  Me.  445.  Upholding  dele- 
Mass.  525;  Tennessee,  &c.  R.  Co.  v.  gation  to  executive  committee,  see 
East  Alabama  R.  Co.  73  Ala.  426;  Union  Pac.  R.  Co.  v.  Chicago,  &c.  R. 
Kansas  City,  &c.  Co.  v.  Devol,  72  Co.  163  U.  S.  564,  597,  16  Sup.  Ct. 
Fed.  717;  Roberts  v.  Button,  14  Vt.  1173;  Hoyt  v.  Thompson,  19  N.  Y. 
195;  Barcus  v.  Hannibal,  &c.  Co.  26  207;  Black  River  Imp.  Co.  v.  Hoi- 
Mo.  102.  way,  85  Wis.  344,  55  N.  W.  418. 

82  Butler  v.   Cornwall,  &c.  Co.  22 


257] 


DIRECTORS. 


374 


perform  as  a  body,  cannot  be  delegated.  There  are,  no  doubt,  duties 
that  may  be  performed  through  the  medium  of  committees.  The 
board  may  appoint  a  committee  of  its  number  to  discharge  cer- 
tain duties,  such  as  auditing  the  accounts  of  the  financial  offi- 
cers, or  arranging  the  terms  of  a  lease  or  mortgage,  but  it  has 
been  held  that  the  acts  of  the  committee  must  be  pas»ed  upon, 
or  in  some  method  adopted  or  ratified,  by  the  board  to  make 
them  binding  on  the  corporation.84  In  other  words,  the  action 
of  the  committee  must  in  some  appropriate  mode  be  made  that 
of  the  board  of  directors,  either  by  precedent  authority  or  subsequent 
ratification.85  Some  cases  hold  that  ministerial  or  executive  acts,  the 
performance  of  which  may  be  delegated,  may  be  authorized  or  ratified 
by  the  assent  of  a  majority  of  the  board  given  separately,  especially, 
if  that  has  been  the  usage.86  And  it  is  also  held  that  the  concurrent 
action  of  a  majority  of  the  directors  is  sufficient  in  such  a  case,87 


"Waite  v.  Windham  Co.  Mining 
Co.  36  Vt.  18. 

85  Berks,  &c.  Road  v.  Myers,  6 
Sergt.  &  R.  (Pa.)  12,  9  Am.  Dec. 
402;  Sheridan  Electric  Light  Co.  v. 
Chatham,  &c.  Bank,  127  N.  Y.  517, 
28  N.  E.  467;  Union,  &c.  Co.  v.  Chi- 
cago, &c.  Co.  51  Fed.  309;  Tippets  v. 
Walker,  4  Mass.  595.  Power  to  ap- 
point a  committee  and  to  invest 
them  with  authority  to  contract 
may  be  conferred  upon  the  board  of 
directors  by  the  act  of  incorpora- 
tion. In  Chicago  v.  Union,  &c.  Co. 
47  Fed.  15, 17,  the  court  said:  "Sum- 
ming up  this  question,  the  instru- 
ment was  signed  and  attested  by 
the  proper  officers.  It  was  approved 
by  the  executive  committee,  which 
executive  committee  was  granted  ad 
interim  by  the  board  of  directors 
all  the  power  of  that  board;  au- 
thority to  make  such  delegation  of 
power  was  given  to  the  board  by  the 
by-laws.  Power  to  make  such  by- 
laws was  bestowed  by  the  act  of  in- 
corporation upon  the  stockholders. 
At  the  regular  meeting  the  contract 
was  approved  by  all  the  stockhold- 
ers preseat  Under  tbeae  circum- 


stances if  the  contract  was  one 
which  the  corporation  could  make 
it  was  fully  authorized  and  duly  ex- 
ecuted and  binding." 

86  Bee  v.  San  Francisco,  &c.  R.  Co. 
46  Cal.  248;  Foot  v.  Rutland,  &c.  R. 
Co.  32  Vt.  633;  Estes  v.  German  Nat. 
Bank,  62  Ark.  7,  34  S.  W.  85.     See 
Rogers   v.    Hastings,   22    Minn.    25, 
where  the  corporation  was  held  lia- 
ble   to    compensate    an    agent    em- 
ployed   by    the    directors    without 
formal   action  by  the  board.     See, 
also,  Tenney  v.  East  Warren  Lum- 
ber Co.  43  N.  H.  343,  where  it  was 
held  sufficient  proof  of  the  concur- 
rence of  the  board  to  show  that  they 
assented  separately. 

87  Despatch   Line,  &c.   v.  Bellamy 
Mfg.  Co.  12  N.  H.  205,  37  Am.  Dec. 
203;   Edgerly  v.  Emerson,  23  N.  H. 
555,  55  Am.  Dec.  207;    Dey  v.  Jer- 
sey City,  19  N.  J.  Eq.  412;    Stoys- 
town,  &c.  Turnp.  Co.  v.  Craver,  45 
Pa.  St.  386;  Ross  v.  Crockett,  14  La. 
Ann.  811 ;  Yellow  Jacket  Min.  Co.  v. 
Stevenson,  5  'Nev.  224.     See  Lynde- 
borough  Glass  Co.  v.  Massachusetts 
Glass  Co.  Ill  Mass.  315,  where  the 
superintendent    acted     with    the 


375 


.DIRECTORS DELEGATION   OF   AUTHORITY. 


[§    238 


without  the  formality  of  a  meeting,  but  it  is  held  that  the  action 
should,  in  such  case,  be  taken  by  them  as  directors,  and  not  in  some 
other  capacity,  and  that  it  should  clearly  appear  that  a  majority  of 
the  board  consented.88  It  is  to  be  said  that  some  of  the  cases  trench 
upon  the  rule  forbidding  the  delegation  of  authority  as  well  as  upon 
the  rule  requiring  the  directors  to  act  as  a  board,  and  so  far  as  they 
do  run  counter  to  these  rules  they  are  of  doubtful  soundness. 

§  258.    Directors — Delegation  of  authority — Illustrative  cases. — It 

is  generally  held  that  the  directors  cannot  delegate  the  authority  to 
make  assessments,  but  it  is  also  held  that  they  may  ratify  an  assess- 
ment made  without  adequate  authority  by  an  agent.89  Some  of  the 
cases  hold  that  the  power  to  execute  mortgages  and  leases  of  cor- 
porate property  cannot  be  delegated,  but  on  this  point  the  authorities 
are  in  conflict.90  Our  opinion  is  that  as  to  property  not  required  to 
enable  the  corporation  to  exercise  its  corporate  functions  and  dis- 
charge its  duties  to  the  public,  the  board  of  directors  has  power  to 
delegate  the  authority  to  sell  or  lease.  The  board  of  directors  may 
effectively  authorize  corporate  officers  or  agents  to  sell  and  assign 
notes,  bonds  or  other  securities,  belonging  to  the  corporation.91 

§  259.    Directors — Action  where  the  mode  is  prescribed. — If  the 
statute  prescribes  the  formalities  to  be  observed  by  the  directors  in 


knowledge  of  all  of  the  directors 
except  one  in  making  a  purchase, 
and  that  one  learned  of  the  super- 
intendent's act  soon  afterward,  but 
no  action  repudiating  the  purchase 
was  ever  taken.  In  a  suit  to  re- 
cover the  purchase  price  the  court 
held  that  the  purchase  was  author- 
ized by  the  company.  Directors 
holding  a  majority  of  the  stock  have 
power  to  agree  that  an  individual 
may  have  the  full  amount  that  he 
can  collect  of  a  claim  against  a 
third  person.  Delaware  City,  &c. 
Nav.  Co.  v.  Reybold,  8  Houst.  (Del.) 
203,  14  Atl.  847. 

88  Junction    R.    Co.   v.    Reeve,    15 
Ind.  236. 

89  Ante,  §  175;  Winsor,  Ex  parte,  3 
Story    (U.    S.)     411;     Silver    Hook 
Road  v.  Greene,  12  R.  I.  164. 


80  Female,  &c.  Asylum  v.  Johnson, 
43  Me.  180;  Gillis  v.  Bailey,  21  N.  H. 
149;  Burrill  v.  Nahant  Bank,  2 
Metcf.  (Mass.)  163,  35  Am.  Dec. 
395;  Leeds,  &c.  Co.,  Re,  1  L.  R.  Ch. 
App.  561;  Emerson  v.  Providence, 
&c.  Co.  12  Mass.  237,  7  Am.  Dec.  66; 
Manchester,  &c.  R.  Co.  v.  Fisk,  33  N. 
H.  297;  Lyon  v.  Jerome,  26  Wend. 
(N.  Y.)  485,  37  Am.  Dec.  271;  Dana 
v.  Bank  of  United  States,  5  Watts 
&  S.  (Pa.)  233;  Whitney  v.  Union, 
&c.  Co.  65  N.  Y.  576. 

"Fleckner  v.  Bank  of  United 
States,  8  Wheat.  (U.  S.)  338;  Ridg- 
way  v.  Farmers'  Bank,  12  Sergt.  & 
R.  (Pa.)  256,  14  Am.  Dec.  681; 
Northampton  Bank  v.  Pepoon,  11 
Mass.  288;  Stevens  v.  Hill,  29  Me. 
133. 


259] 


DIRECTORS. 


376 


doing  a  given  act,  they  must  comply  therewith,  or  their  act  may  be 
voidable.92  This  rule  applies  to  cases  where  observance  of  the  for- 
malities is  expressly  declared  by  statute  to  be  a  necessary  condition 
precedent,93  and  to  all  cases  in  which  the  effect  of  the  act  will  be  to 
destroy  pre-existing  rights,94  or  to  impose  burdens  upon  persons  whose 
willingness  to  assume  them  depends  on  their  assent  to  such  formali- 
ties.95 In  such  cases,  all  persons  are  bound  at  their  peril  to  know 
whether  the  formalities  have  been  observed  or  not.  But  with  regard 
to  formalities  which  are  merely  directory,  a  different  rule  is  estab- 
lished. A  substantial  compliance  in  such  a  case  is  sufficient,  and  where 
the  material  formalities  have  been  observed,  a  failure  to  comply  with 
those  which  are  not  material  will  not  invalidate  the  acts,  at  least  as 
to  innocent  parties.96  The  failure  to  observe  a  formality  cannot  be 
set  up  by  one  who  is  bound  to  see  to  its  observance,  against  those  who 
have  no  knowledge  of  such  failure,97  unless  they  bore  such  a  relation 
to  the  company  that  they  knew  or  were  bound  to  know  that  such  for- 
mality was  necessary  and  had  the  means  of  ascertaining  whether  it 
had  been  observed.98  If  the  directors  have  general  authority  to  do  an 
act,  all  persons  dealing  with  them  in  reference  to  such  act  may  assume 
that  it  was  regularly  done,  and  that  all  necessary  formalities  were  ob- 
served,99 unless  something  appears  on  the  face  of  the  transaction  to 


82  Leominster  Canal  Co.  v.  Shrews- 
bury,  &c.   R.    Co.    3    K.   &   J.    654; 
Leavensworth     R.     Co.     v.     County 
Court,  42  Mo.  171;    Pittsburgh,  &c. 
R.  Co.  v.  Clarke,  29  Pa.  St.  146. 

83  Leominster  Canal  Co.  v.  Shrews- 
bury,  &c.    R.    Co.    3   K.   &   J.    654; 
Homersham       v.       Wolverhampton 
Water  Works,  6  Exchq.  137. 

84  As  where   shares   are    forfeited 
for  non-payment.    Portland,  &c.  R. 
Co.  v.  Graham,  52  Mass.  (11  Mete.) 
1;  Lewey's  Island  R.  Co.  v.  Bolton, 
48  Me.  451,  77  Am.  Dec.  236;   Gar- 
den Gully,  &c.  Co.  v.  McLister,  L. 
R.  1  App.  Cases  39. 

85  As  where  the  corporation  is  au- 
thorized to  incumber  or  transfer  its 
property,  if  the  stockholders  vote  to 
do  so,  or  where  aid  may  be  levied 
by    municipal    corporations    if    the 
taxpayers  so  vote.    Eagle  v.  Kohn, 


84  111.  292;  Concord  v.  Portsmouth 
Savings  Bank,  92  U.  S.  625;  Leav- 
enworth  R.  Co.  v.  County  Court, 
42  Mo.  171. 

86  Mott  v.  United  States  Ins.  Co.  19 
Barb.   (N.  Y.)  568;  Town  of  Venice 
v.  Murdock,  92  U.  S.  494;   Lane  v. 
Schomp,  20  N.  J.  Eq.  82;   Bissell  v. 
Michigan,  &c.  R.  Co.  22  N.  Y.  258. 

87  New  Castle,  &c.  Marine  Ins.  Co., 
In    re,   19    Beav.    97;    Galveston  R. 
Co.  v.   Cowdrey,  11  Wall.    (U.   S.) 
459. 

88  Jackson    Ins.    Co.    v.    Cross,    9 
Heisk.    (Tenn.)    283;    European   R. 
Co.,  In  re,  L.  R.  8  Eq.  444;  Mott  v. 
United  States  Trust  Co.  19  Barb.  (N. 
Y.)  568. 

"Conn.  Mut.  Life  Ins.  Co.  v. 
Cleveland,  &c.  R.  Co.  41  Barb.  (N. 
Y.)  9.  See,  also,  Bissell  v.  Michigan, 
&c.  R.  Co.  22  N.  Y.  258;  Zabriskre  v. 


377  DIRECTORS MEETINGS.  [§    260 

suggest  inquiry.100  Thus  a  railroad  corporation  cannot  dispute  the  va- 
lidity of  a  mortgage  given  to  secure  its  honds  that  are  owned  by 
bona  fide  holders  upon  the  ground  that  its  directors  authorized  its 
execution  at  a  meeting  held  outside  of  the  state.101  Nor  can.  a  cor- 
poration dispute  the  validity  of  acts  authorized  by  its  directors  at  a 
special  meeting,  upon  the  ground  that  proper  notice  of  such  special 
meeting  was  not  given,  where  no  objection  to  their  validity  was  made 
by  any  director  or  stockholder  until  after  the  rights  of  innocent  third 
parties  had  intervened.102  When  the  mode  of  action  and  formalities 
to  be  observed  are  prescribed  by  the  by-laws,  even  more  liberal  rules 
obtain  in  determining  the  rights  of  persons  claiming  by  virtue  of  the 
acts  of  the  directors.  Such  rule  may  be  varied  by  usage,103  at  least 
where  the  by-laws  are  made  by  the  directors.104  And  persons  dealing 
with  the  corporation  will  not  be  held  to  so  strict  a  knowledge  of  limi- 
tations and  restrictions  upon  the  general  authority  of  the  directors 
contained  in  the  by-laws  as  of  those  contained  in  public  statutes.105 
The  observance  of  required  formalities  may  be  waived,  and  the  cor- 
poration may  become  bound  by  acquiescence  in  informal  acts,106  ex- 
cept where  the  charter  or  public  statutes  make  the  observance  of  the 
formalities  a  condition  precedent  to  the  directors'  authority  to  act.107 

§  260.  Directors — Meetings. — The  official  action  of  directors  is 
taken  in  regular  or  special  meetings  convened  in  accordance  with  the 
provisions  of  the  charter  or  by-laws.  Strictly  speaking,-  the  functions 
of  directors  can  only  be  exercised  at  such  meetings.  The  rule  is  that 
the  directors  can  exercise  the  powers  specially  intrusted  to  them  only 
as  a  board  convened  in  regular  session  as  a  board.108  Thus,  where  the 

Cleveland,  &c.  R.  Co.  23  How.   (U.  as  to  cease  to  be  operative.  Walton, 

S.)  381;  Royal  British  Bank  v.  Tur-  Ex  parte,  26  L.  J.  Ch.  545. 

quand,  6  E.  &  B.  327.  105  Bissell  v.  Michigan  Southern  R. 

100  Eagle  Ins.  Co.  Ex  parte,  4  K.  &  Co.  22  N.  Y.  258. 

J.  549.  ™  Zabriskie  v.   Cleveland,  &c.   R. 

101  Galveston,   &c.   R.   Co.   v.   Cow-  Co.  23  How.  (U.  S.)  381;  Bargate  v. 
drey,  11  Wall.  (U.  S.)  459.  Shortridge,  5  H.  L.  Gas.  297;   Wal- 

102  Samuel  v.  Holladay,  1  Woolw.  ton,  Ex  parte,  26  L.  J.  Ch.  545. 

(U.  S.)  400.  -    10T  Walton,  Ex  parte,  26  L.  J.  Ch. 

103  Pittsburgh,  &c.  R.  Co.  v.  Clarke,  545 ;  Pittsburgh,  &c.  R.  Co.  v.  Clarke, 
29  Pa.  146.  29  Pa.  St.  146. 

104  Samuel  v.  Holladay,  1  Woolw.  108  Johnston  v.  Jones,  23  N.  J.  Eq. 
(U.   S.)    400.    And   a  formality   de-  216;  Schackelford   v.   New   Orleans, 
dared  to  be  imperative  may  be  so  &c.  R.  Co.  37  Miss.  202;  Junction  R. 
long  and  so  universally  disregarded  Co.  v.  Reeve,  15  Ind.  236 ;  Stoystown, 


§  261] 


DIRECTORS. 


378 


directors  took  part  in  a  stockholders'  meeting,  at  which  the  body  of 
the  stockholders  executed  a  lease,  the  action  was  held  void  as  beyond 
the  powers  of  the  stockholders,  and  the  court  said :  "It  is  no  answer, 
that  individual  stockholders  who  were  present  at  the  meeting  when  the 
lease  was  ordered,  were  also  directors.  They  did  not  meet  or  act  as 
directors,  but  as  stockholders."109  A  majority  of  those  present  at  a 
regularly  convened  meeting  may  act  for  the  corporation,110  but  in  order 
to  constitute  a  regular  meeting  it  is  necessary  that  a  quorum  be  pres- 
ent. In  the  absence  of  any  special  regulations,111  a  majority  of  the 
board  is  necessary  to  constitute  a  quorum.112 

§261.  Directors — Meetings — Stated  and  special. — The  charter 
sometimes  provides  for  stated  or  general  meetings  of  the  board  of  di- 
rectors, and  also  for  the  calling  and  holding  of  special  meetings.  It 
is  barely  necessary  to  suggest  that  where  provisions  are  made  by  the 
charter  for  the  time  and  place  of  holding  stated  meetings  and  for  the 


&c.  Turnp.  R.  Co.  v.  Graver,  45  Pa. 
St.  386;  Buttrick  v.  Nashua,  &c.  R. 
Co.  62  N.  H.  413,  13  Am.  St.  578; 
King  v.  Great  Marlow,  2  East.  244; 
Yellow  Jacket  Min.  Co.  v.  Stevenson, 
5  Nev.  224;  Green  v.  Miller,  6  Johns. 
(N.  Y.)  38;  Morrison  v.  Wilder  Gas 
Co.  91  Me.  492,  40  Atl.  542,  64  Am. 
St.  257;  Calumet  Paper  Co.  v.  Has- 
kell,  &c.  Co.  144  Mo.  331,  45  S.  E. 
1115,  66  Am.  St.  425;  Marseilles  Ex- 
tension R.  Co.,  In  re,  L.  R.  7  Ch. 
App.  161.  But  see  Bank  of  Middle- 
bury  v.  Rutland,  &c.  R.  Co.  30  Vt. 
159,  holding  that  the  directors  may 
give  their  assent  separately  if  that 
is  their  usual  practice. 

109  Conro  v.  Port  Henry  Iron  Co.  12 
Barb.  (N.  Y.)  27. 

110  Hax  v.  R.  T.  Davis  Mill  Co.  39 
Mo.  App.  453 ;  Despatch  Line  v.  Bel- 
lamy Mfg.  Co.  12  N.  H.  205,  37  Am. 
Dec.  203;  Smith  v.  Los  Angeles  Im., 
&c.  Assn.,  78  Cal.  289,  20  P.  677,  12 
Am.  St.  53;  Stimson  Am.  Stat.  Law 
(1892),  §  8063,  citing  laws  of  New 
York,    Maryland,    Missouri,    Texas, 
California,  Nevada,  "Washington,  Da- 


kota, Idaho,  Utah,  Florida,  New 
Mexico,  Oklahoma.  Provided,  of 
course,  that  they  are  a  majority  of 
those  present  and  voting.  And  even 
though  an  equal  number  be  present 
who  refrain  from  voting,  still  the 
votes  of  a  majority  of  the  number 
necessary  to  form  a  quorum  will 
carry  a  measure  where  there  are  no 
dissenting  votes.  Rushville  Gas  Co. 
v.  Rushville,  121  Ind.  206,  23  N.  E. 
72,  6  L.  R.  A.  315,  16  Am.  St.  388. 
Contra,  Lawrence  v.  Ingersoll,  88 
Tenn.  52, 12  S.  W.  422,  6  L.  R.  A.  308, 
17  Am.  St.  870. 

111  This  rule  is  prescribed  by  stat- 
ute in  most  of  the  states.  Stimson 
Am.  Stat.  (1892),  §  8063,  subject, 
however,  to  alteration  by  the  by- 
laws in  some  of  the  states.  Stimson 
Am.  Stat,  (1892),  §  8071. 

133  Price  v.  Grand  Rapids,  &c.  R. 
Co.  13  Ind.  58;  Edgerly  v.  Emerson, 
23  N.  H.  555,  55  Am.  Dec.  207;  Cram 
v.  Bangor  House  Proprietary,  12  Me. 
354;  Foster  v.  Mullanphy  Planing 
Mill  Co.  92  Mo.  79,  4  S.  W.  260. 


379 


DIRECTORS — MEETINGS NOTICE. 


[§    262 


mode  of  holding  special  meetings,  those  provisions  must  be  sub- 
stantially complied  with  in  all  material  respects.'  Notice  of  special 
meetings  must  be  given  in  the  mode  prescribed  by  the  charter  or  cor- 
porate by-laws;113  but  of  stated  or  regular  meetings  provided  for  by 
the  charter  or  by-laws  notice  need  not  be  given,  as  it  is  the  duty  of  the 
directors  to  take  notice  of  the  provisions  of  the  charter  and  by-laws 
of  the  company. 

§  262.  Directors — Meetings — Notice. — Where  stated  meetings  are 
held  by  the  board  at  prescribed  times  fixed  by  the  charter,  or  by-laws, 
or  by  resolution,  all  the  directors  are  bound  to  take  notice  of  the  time 
and  place  of  holding  them.114  The  presumption  is  in  favor  of  the 
regularity  of  the  meetings  of  corporate  directors  and  the  burden  is  on 
the  party  who  assails  their  regularity  to  show  that  there  were  irregu- 
larities in  calling,  holding  or  conducting  the  meeting,115  and  where  a 
quorum  is  present  the  presumption  is  that  all  were  notified.116  In 
order  that  special  meetings  held  at  other  times  or  places  may  be  such 
meetings  as  will  empower  the  directors-  present  to  act  for  the  corpora- 
tion, all  the  directors  must  have  proper  notice  of  the  time  of  meeting ; 
but,  if  all  the  directors  are  present  and  participate  in  the  proceed- 
ings the  fact  that  notice  has  not  been  formally  given  is  unimportant. 
If  notice  has  not  been  given  and  the  directors  are  not  all  in  attend- 
ance at  the  meeting  a  very  different  question  is  presented.  If  some  of 


U3Hunt  v.  School  District,  14  Vt. 
300,  39  Am.  Dec.  225;  Stow  v.  Wyse, 
7  Conn.  214,  18  Am.  Dec.  99;  Long 
Island.  &c.  R.  Co.,  Matter  of,  19 
Wend.  (N.  Y.)  37,  32  Am.  Dec.  429; 
Hatch  v.  Johnson,  &c.  Co.  79  Fed. 
828;  Doerubecher  v.  Columbia,  &c. 
Co.  21  Oreg.  573,  28  Am.  St.  766. 

n*  Warner  v.  Mower,  11  Vt.  385; 
People  v.  Peck,  11  Wend.  (N.  Y.) 
604,  27  Am.  Dec.  104;  Rex  v.  Hill,  4 
Barn.  &  Cress.  436;  Sampson  v.  Bow- 
doinham,  &c.  Co.  35  Me.  78;  People 
v.  Batchelor,  22  N.  Y.  128;  Atlantic, 
&c.  Co.  v.  Sanders,  36  N.  H.  252.  See, 
also  Western  Imp.  Co.  v.  Des  Moines 
Nat.  Bank,  103  la.  455,  72  N.  W.  657. 

115  Wells  v.  Rodgers,  60  Mich.  525, 
27  N.  W.  671;  Budd  v.  Walla  Walla, 
&c.  Co.  2  Wash.  Ter.  347,  7  Pac. 


896;  Sargent  v.  Webster,  12  Metcf. 
(Mass.)  497;  Leavitt  v.  Oxford,  &c. 
Co.  3  Utah  265,  1  Pac.  356;  Lane  v. 
Brainerd,  30  Conn.  565;  Chouteau, 
&c.  Co.  v.  Holmes,  68  Mo.  601,  30  Am. 
R.  807;  Stockton  Combined  Harves- 
ter Works  v.  Houser,  109,  Cal.  1,  41 
Pac.  809 ;  Hardin  v.  Iowa,  &c.  Co.  78 
la.  726,  43  N.  W.  543,  6  L.  R.  A.  52. 
u«McCall  v.  Byram,  &c.  Co.  6 
Conn.  428;  Leavitt  v/Oxford,  &c.  Co. 
3  Utah  265, 1  Pac.  356;  Wells  v.  Rah- 
way,  &c.  Co.  19  N.  J.  Eq.  402.  See 
'for  an  extreme  case  Arms  v.  Conant, 
36  Vt.  744.  See,  generally,  Wood,  &c. 
Co.  v.  King,  45  Ga.  34;  Wood  v. 
Boney,  (N.  J.)  21  Atl.  574;  Chase  v. 
Tuttle,  55  Conn.  455,  12  Atl.  874,  3 
Am.  St.  64. 


§  262] 


DIRECTORS. 


380 


the  directors  are  not  notified  the  proceedings  will  not,  as  a  rule,  be 
effective,  although  a  quorum  be  present  at  the  meeting  and  concur  in 
the  proceedings.117  Notice  of  special  meetings  should  be  given  to  all 
the  members  of  the  board  as  the  charter  or  by-laws  provide,  or,  if  no 
provision  is  made,  the  directors  should  be  notified  personally.118  As 
we  have  already  indicated,  the  rule  is  that  if  all  the  directors  attend 
at  the  meeting  any  irregularities  in  the  manner  of  giving  notice  will 
be  held  to  have  been  waived;119  and  this,  it  has  been  held,  will  be  true 
if  those  who  were  not  present  duly  acquiesce  in  the  action  of  those  who 
attended  the. meeting,  provided  there  was  a  quorum  present  at  the 
meeting.120  Eatification  of  the  proceedings  of  a  meeting  previously 
held  will  give  them  validity,  although  notice  of  the  previous  meeting 
may  have  been  insufficient.121  It  has  been  held  that  if  no  objection 
is  made  to  the  regularity  of  a  meeting  until  an  act  ordered  thereat 


117  Bank  of  Little  Rock  v.  McCar- 
thy, 55  Ark.  473,  18  S.  W.  759,  29 
Am.  St.  60;  Simon  v.  Sevier,  &c.  Co. 
54  Ark.  58,  14  S.  W.  1101;  School 
Dist.  v.  Bennett,  52  Ark.  511,  13  S. 
W.  132;  Paola,  &c.  R.  Co.  v.  Com- 
missioners, 16  Kans.  302;  Baldwin  v. 
Canfleld,  26  Minn.  43,  1  N.  W.  261; 
Harding  v.  Vandewater,  40  Cal.  77; 
Chouteau,  &c.  Co.  v.  Holmes,  68  Mo. 
601,  30  Am.  R.  807 ;  Stevens  v.  Eden, 
&c.  12  Vt.  688;  Gordon  v.  Preston,  1 
Watts  (Pa.)  385,  26  Am.  Dec.  75; 
Jackson  v.  Hampden,  16  Me.  184; 
Farwell  v.  Houghton,  &c.  Works,  8 
Fed.  66;  State  v.  Ferguson,  31  N.  J. 
L.  107;  Pike  County  v.  Rowland,  94 
Pa.  St.  238;  Covert  v.  Rogers,  38 
Mich.  363,  31  Am.  R.  319.  Compare 
Edgerly  v.  Emerson,  23  N.  H.  569,  55 
Am.  Dec.  207;  Bank  v.  Flour  Co.  41 
Ohio  St.  552;  Halifax,  &c.  R.  Co.  v. 
Francklyn,  8  Ry.  &  Corp.  L.  J.  91; 
Chase  v.  Tuttle,  55  Conn.  455,  12  Atl. 
874,  3  Am.  St.  64.  Mr.  Taylor  says 
that  the  decision  in  Edgerly  v. 
Emerson,  supra,  is  erroneous.  Tay- 
lor Corp.,  260  n.  We  concur  in  his 
view.  Stow  v.  Wyse,  7  Conn.  214,  18 
Am.  Dec.  99. 

mMorawetz  Priv.  Corp.    (2d  ed.) 


§  532.  Those  present  cannot  bind 
the  property  of  the  corporation 
against  the  wishes  of  others  not  no- 
tified. Doyle  v.  Mizner,  42  Mich.  332, 
3  N.  W.  968;  Kersey  Oil  Co.  v.  Oil 
Creek,  &c.  R.  Co.  5  W.  N.  C.  (Pa.) 
144.  But  see  Edgerly  v.  Emerson,  23 
N.  H.  555;  Bank  v.  Flour  Co.,  41 
Ohio  St.  552,  55  Am.  Dec.  207.  If  the 
notice  be  sent  in  the  prescribed  man- 
ner, but  directors  who  are  out  of  the 
state  fail  to  receive  it,  the  action  of 
the  other  directors  is  not  thereby 
nullified.  Chase  v.  Tuttle,  55  Conn. 
455,  12  Atl.  874,  3  Am.  St.  64. 

n9Judah  v.  American,  &c.  Co.  4 
Ind.  333;  Jones  v.  Milton,  &c.  Co.  7 
Ind.  547;  People  v.  Peck,  11  Wend. 
(N.  Y.)  604,  27  Am.  Dec.  104;  Stobo 
v.  Davis  Provision  Co.  54  111.  App. 
440. 

120  Reed  v.  Hayt,  109  N.  Y.  659,  17 
N.  E.  418. 

121  In    absence    of    fraud    or    con- 
spiracy, defect  in  notice  to  directors, 
of  a  special  meeting,  Is  cured  by  sub- 
sequent   ratification    of   the     action 
there  taken.    County   Court,  &c.  v. 
Baltimore  &  O.  R.  Co.  35  Fed.  161. 
See,  also,  Portugese,  &c.  Mines,  In 
re,  45  Ch.  D.  16,  63  L.  T.  423. 


381 


DIRECTORS — MEETINGS — PROXIES — QUORUM. 


[§'  263 


has  been  fully  performed,  the  legality  of  such  act  cannot  afterward 
be  questioned  in  a  court  of  equity  on  the  ground  of  failure  to  give 
notice;122  but  this  doctrine  cannot  prevail  except  in  cases  where  in- 
justice would  result  to  innocent  parties  if  it  were  not  applied. 

§  263.  Directors — Meetings — Proxies — Quorum. — The  rule  pro- 
hibiting the  delegation  of  authority  requires  the  personal  presence  of 
directors  at  all  meetings  of  the  board  and  forbids  voting  by  proxy. 
Where  a  definite  number123  constitutes  a  body  intrusted  with  cor- 
porate duties  or  functions,  it  is  necessary  to  effective  action  that  a 
quorum  of  members  be  present,  and  a  quorum  consists  of  a  majority 
of  the  members,  unless  the  statute  provides  otherwise.124  Proceedings 
at  a  meeting  where  there  is  not  a  quorum  of  the  directors  present  are 
voidable  but  not  absolutely  void,  and  as  they  are  not  void  they  may 
be  ratified.125  Where  a  quorum  is  present  a  majority  may  effectively 
act.126  It  has  been  held  that  where  the  act  of  incorporation  does  not 
designate  the  number  that  shall  constitute  a  quorum  and  confers 
power  upon  the  board  to  enact  by-laws  the  by-laws  may  fix  the  num- 
ber at  less  than  a  majority.121  There  is  reason,  we  venture  to  sug- 


122  Samuel  v.  Holladay,  1  Woolw. 
(U.  S.)  400.   See,  also,  Reed  v.  Hayt, 
51  N.  Y.  Sup.  Ct.  121. 

123  Where  the  body  is  composed  of 
an  indefinite  number  the  rule  is  dif- 
ferent.  Ante,  §  -161. 

m  St.  Louis,  &c.  Association  v. 
Hennessy,  11  Mo.  App.  555;  Cram  v. 
Bangor  House*  12  Me.  354;  Wicker- 
sham  v.  Crittenden,  93  Cal.  17,  28 
Pac.  788.  Willcocks,  Ex  parte,  7 
Cow.  (N.  Y.)  402,  17  Am.  Dec.  525; 
Hax  v.  Davis,  &c.  Co.  39  Mo.  App. 
453;  Price  v.  Grand  Rapids,  &c.  Co. 
13  Ind.  58;  Stringham  v.  Oshkosh, 
&c.  Co.  33  Wis.  471;  Tennessee,  &c. 
Co.  v.  East  Alabama,  &c.  R.  Co.  73 
Ala.  426. 

^Samuel  v.  Holladay,  1  Woolw. 
(U.  S.)  400;  Hanson  v.  Dexter,  36 
Me.  516;  Atlantic,  &c.  Co.  v.  Sanders, 
36  N.  H.  252.  A  different  doctrine  is 
asserted  in  Price  v.  Grand  Rapids  R. 
Co.  13  Ind.  58,  but  that  case  was 
wrongly  decided.  If  the  act  was  be- 


yond the  power  of  the  directors  it 
would  be  void,  and  if  void,  not  capa- 
ble of  ratification. 

126  Cotton    v.    Davis,    1    Stra.    53; 
Buell  v.  Buckingham,  16  Iowa  284, 
85   Am.    Dec.    516,    citing   2    Kent's 
Com.  293,  5  Dane's  Abr.  150;  Cahill 
v.    Kalamazoo,    &c.    Co.    2     Dougl. 
(Mich.)   124,  43  Am.  Dec.  457;   Sar- 
gent v.  Webster,   13  Mete.    (Mass.) 
497,  46  Am.  Dec.  743.   In  the  opinion 
of  Judge  Dillon  in  Buell  v.  Bucking- 
ham are  cited  Rex  v.  Monday,  Cowp. 
530;  Union,  &c.  Co.  In  re,  22  Wend. 
(N.   Y.)    591;    Rogers,   Ex  parte,   7 
Cow.    (N.   Y.)    526;    Southworth  v. 
Palmyra  R.  Co.  2  Mich.  287;   State 
v.  McBride,  4  Mo.  303,  29  Am.  Dec. 
636;  Green  v.  Weller,  32  Miss.  650; 
People  v.  Auditor,  33  111.  9. 

127  Hoyt  v.  Thompson,  5  N.  Y.  320. 
But  this  is  certainly  not  true  where 
the    charter    requires    a    majority. 
State  v.  Curtis,  9  Nev.  325. 


§    264]  DIRECTORS.  382 

gest,  for  doubting  the  soundness  of  the  doctrine  declared  in  the  case 
referred  to.  We  think  that  as  the  rule  requiring  a  majority  in  order 
to  constitute  a  quorum  is  well  established,  the  conclusion  must  be 
that  the  statute  is  to  be  considered  in  connection  with  that  rule  and 
not  as  a  detached  or  fragmentary  part  of  the  law,  and  that  silence 
upon  the  subject  means  that  the  usual  and  established  rule  of  law 
shall  prevail.  A  director  whose  presence  is  necessary  to  make  a  quorum 
cannot  effectively  vote  upon  a  question  in  which  he  is  individually, 
materially  .and  directly  interested,  as,  for  instance,  upon  a  contract 
with  himself  and  the  corporation,  so  that  as  to  such  a  question  there 
is  no  quorum  present  since  the  interested  person  is  not  as  to  the  par- 
ticular matter  competent  to  act  as  a  director.128  When  the  president 
is  a  member  of  the  board  of  directors  it  is  proper  to  count  him  in 
ascertaining  whether  a  quorum  is  present,  but  if  he  is  not  a  director 
then  he  cannot  be  counted  unless  the  act  of  incorporation  so  provides.129 

§  264.  Directors — Meetings  outside  of  the  state. — It  is  generally 
held  that  where  there  is  no  express  provision  to  the  contrary  in  the 
charter  or  in  some  general  statute,  the  directors  may  meet  outside  of 
the  state  by  which  the  corporation  is  created,  and  there  transact  ordi- 
nary corporate  business.130  It  seems,  indeed,  that  they  may  even  meet 
in  a  foreign  country.131  We  have  qualified  our  statement  that  meet- 
ings may  be  held  outside  of  the  state  which  created  the  corporation 
by  saying  that  such  meetings  may  be  held  for  the  transaction  of  ordi- 
nary corporate  business.  This  we  have  done  because  it  is  intimated 

125  Van  Hook  v.  Somerville,  &c.  Co.  v.  Byram,  &c.  Co.  6  Conn.  428;  Arms 
5  N.  J.  Eq.  137;  Miner  v.  Belle  Isle,  v.  Conant,  36  Vt.  744;  Wood,  &c. 
&c.  Co.  93  Mich.  97,  53  N.  W.  218;  Company  v.  King,  45  Ga.  34;  Bel- 
Foster  v.  Mullanphy,  &c.  Mill,  92  Mo.  lows  v.  Todd,  39  Iowa  209;  Thomp- 
79,  4  S.  W.  260;  Buell  v.  Bucking-  son  v.  Natchez,  &c.  Co.  68  Miss.  423, 
ham,  16  Iowa  284,  85  Am.  Dec.  576;  9  So.  821;  Smith  v.  Silver  Valley,  &c. 
St.  Louis  v.  Alexander,  23  Mo.  483;  Co.  64  Md.  85,  20  A.  1032,  54  Am.  R. 
Bassett  v.  Fairchild,  132  Cal.  637,  64  760;  Bassett  v.  Monte  Christo,  &c. 
Pac.  1082.  But  see  where  there  were  Co.,  15  Nev.  293;  Reichwald  v.  Corn- 
enough  competent  directors  voting,  mercial,  &c.  Co.  106  111.  439,  450; 
Foster  v.  Mullanphy,  92  Mo.  79;  4  S.  Smith  v.  Alvord,  63  Barb.  (N.  Y.) 
W.  260;  Leavitt  v.  Oxford,  &c.  Co.  3  415;  Missouri,  &c.  Co.  v.  Reinhard, 
Utah  265,  1  Pac.  356.  114  Mo.  218,  21  S.  W.  488,  35  Am.  St. 

129  Glens  Falls,  &c.  Co.  v.  White,  746;   Galveston,  &c.  R.  Co.  v.  Cow- 
18  Hun  (N.  Y.)  214;  Bank  of  Mary-  drey,  11  Wall.  (U.  S.)  459. 

land  v.  Ruff,  7  Gill  &  J.  (Md.)  448.  ^  Bank  of  Augusta  v.  Earle,   13 

130  Ohio,  &c.  R.  Co.  v.  McPherson,     Pet.  (U.  S.)  519. 
35  Mo.  13,  86  Am.  Dec.  128;  McCall 


383 


DIRECTORS — PROCEEDINGS — RECORD. 


by  high  authority  that  there  are  acts  which  cannot  be  rightfully  done 
outside  of  the  state.132  It  is,  however,  not  easy  to  conceive  what  acts 
within  the  power  of  the  board  of  directors  may  not  be  as  well  per- 
formed in  one  state  as  in  another.133  Some  of  the  authorities  make  a 
distinction  between  the  acts  of  the  corporation  itself  and  the  acts  of 
its  officers  and  agents,  holding  that  corporate  acts  which  the  corpora- 
tion itself  must  do  should  be  performed  within  the  limits  of  the  state 
by  which  it  was  created. 

§  265.  Directors — Proceedings — Record. — The  statutes  of  many  of 
the  states  require  the  directors  to  cause  a  record  of  their  proceedings 
to  be  kept,  and  where  such  statutes  exist  it  is  the  duty  of  the  directors 
to  cause  a  record  of  their  proceedings  to  be  made.  Where  there  is  no 
such  statute,  sound  business  policy  requires  a  record  of  all  the  pro- 
ceedings to  be  kept.  But  the  failure  or  neglect  of  corporate  officers 
to  keep  a  record  of  their  proceedings  cannot,  as  a  rule,  prejudice  the 
rights  of  third  persons.  Where  a  record  is  made  and  third  persons 
have  in  good  faith  acquired  rights  upon  the  faith  thereof  the  com- 
pany will  be  estopped,  provided  the  acts  evidenced  by  the  record  were 
not  ultra  vires.134  As  a  rule  entries  of  record  duly  made  in  regular 
course  are  prima  facie  evidence  of  the  facts  recited.135  The  familiar 


133  In  Galveston  Railroad  v.  Cow- 
drey,  11  Wall.  (N.  Y.)  459,  476,  the 
court  said:  "No  doubt  it  may  be 
true,  in  many  cases,  that  the  extra 
territorial  acts  of  directors  would 
be  held  void,  as  in  the  case  cited 
from  the  Fourteenth  New  Jersey 
Chancery  Reports,  383,  where  a  set 
of  directors  of  a  New  Jersey  cor- 
poration met  in  Philadelphia, 
against  a  positive  prohibitory  stat- 
ute of  New  Jersey,  and  improperly 
voted  themselves  certain  shares  of 
stock.  And  other  cases  may  be  put 
where  their  acts  would  be  held  void 
without  a  prohibitory  statute,  and  it 
is  generally  true  that  a  corporation 
exists  only  within  the  jurisdiction 
of  the  territory  that  created  it."  See 
Hilles  v.  Parrish,  14  N.  J.  Eq.  380; 
Warren,  &c.  Co.  v.  ^tna,  &c.  Co.  2 
Paine  (U.  S.)  501;  Bank  of  Virginia 


v.  Adams,  1  Parson  Eq.  Gas.  (Pa.) 
534;  Freeman  v.  Machias,  &c.  Co.  38 
Me.  343. 

133  In  Wright  v.  Bundy,  11  Ind.  398, 
404,  the  court  said:  "The  mere  place 
where  the  active  agents  of  a  corpor- 
ation enter  into  a  contract  must,  in 
general,  be  immaterial.  The  ma- 
terial question  must  be  one  of  power, 
not  of  place." 

131  Stratton  v.  Lyons,  53  Vt.  130.  A 
corporation  is  not  bound  where 
fraudulent  interpolations  have  been 
made  in  its  records  without  any 
fault  on  its  part  or  that  of  its  agents 
( or  officers.  Holden  v.  Hoyt,  134  Mass. 
181.  .  It  would  be  otherwise  if  the 
corporation  were  in  fault. 

135  Heintzelman  v.  Druids',  &c. 
Assn.  38  Minn.  138,  36  N.  W.  100; 
McDaniels  v.  Flower  Brook,  &c.  Co. 
22  Vt.  274;  Sanborn  v.  School  Dis- 


266] 


DIRECTORS. 


384 


general  rule  is  that  stockholders  have  a  right  to  inspect  the  corporate 
records,136  and  it  is  held  that  it  is  no  excuse  for  refusing  to  permit 
an  inspection  that  the  shareholder  proposes  to  be  assisted  in  the  ex- 
amination by  his  attorney.137  Eecord  entries,  duly  made  and  signed, 
may  be  sufficient  evidence  of  a  contract  so  as  to  take  a  case  out  of  the 
statute  of  frauds.138 


§  266.  Directors — Corporate  records  as  evidence. — The  primary 
evidence  of  the  proceedings  of  the  board  of  directors  is  the  record  ;139 
but,  as  elsewhere  shown,  the  rights  of  third  persons  are  not  prejudiced 
by  the  failure  to  keep  a  record,  nor  will  the  failure  to  keep  a  record 
preclude  resort  to  parol  testimony  in  the  proper  case.140  Entries  duly 
made  are  held  competent  evidence  to  prove  payments  to  an  employe 
of  the  company,141  but  it  is  held  that  corporate  records  are  not  com- 
petent to  prove  a  claim  against  strangers  to  the  company.142  We  sup- 


trict,  12  Minn.  17;  Isbell  v.  New 
York,  &c.  Railroad  Co.  25  Conn.  556; 
Hawkshaw  v.  Supreme  Lodge,  &c.  29 
Fed.  770;  Beardsley  v.  Johnson,  49 
Hun  (N.  Y.)  607,  1  N.  Y.  S.  608; 
Hathaway  v.  Addison,  48  Me.  440; 
Rollins  v.  Shaver,  &c.  Co.  80  Iowa 
380,  45  N.  W.  1037,  20  Am.  St. 
427;  Mcllhenny  v.  Beriz,  80  Tex. 
1,  13  S.  W.  655,  26  Am.  St.  705.  As 
to  being  the  best  evidence,  see  3 
Elliott  Bv.  §  1941,  and  see,  gener- 
ally, §  1943. 

136  Commonwealth  v.  Phoenix,  &c. 
Co.  105  Pa.  St.  Ill,  51  Am.  R.  184,  23 
Am.  L.  Reg.  (N.  S.)  388,  23  Cent.  L. 
J.  584,  and  notes;  Redfield  on  Rail- 
ways (6th  ed.),  §  60a;  Grant  Corp. 
311,  Beach  Railways,  §  406;  Angell 
&  Ames  Corp.  (llth  ed.),  §  681; 
Wharton  Evidence,  §  746;  Morawetz 
Corp.  (2d  ed.)  §  473. 

"'People  v.  Nassau,  &c.  Co.  86 
Hun  (N.  Y.)  128,  33  N.  Y.  S.  244. 
Ante,  §  172. 

i138  Jones  v.  Victoria,  &c.  Co.  L.  R. 
2  Q.  B.  D.  314;  Argus  Co.  v.  Mayor, 
55  N.  Y.  495,  14  Am.  R.  296. 

139  Dial  v.  Valley,  &c.  Assn.  29  S. 


Car.  560,  8  S.  E.  27;  Bowick  v.  Mil- 
ler, 21  Ore.  25,  26  Pac.  861;  Bun- 
combe, &c.  Co.  v.  McCarson,  1  Dev. 
&  B.  (N.  C.)  306;  Owings  v.  Speed, 
5  Wheat,  (U.  S.)  420,  424;  Thayer 
v.  Middlesex,  &c.  Co.  10  Pick.  (Mass.) 
326;  Clark  v.  Farmers',  &c.  Co.  15 
Wend.  (N.  Y.)  256;  Wells  v.  Rah- 
way,  &c.  Co.  19  N.  J.  Eq.  402 ;  Haven 
v.  New  Hampshire  Asylum,  13  N.  H. 
532,  38  Am.  Dec.  512.  See  3  Elliott 
on  Ev.  §§  1941,  1943. 

140  Post,  §  267;   Allis  v.  Jones,  45 
Fed.  148 ;  Melledge  v.  Boston,  &c.  Co. 
5  Gush.  (Mass.)  158;  Pickett  v.  Ab- 
ney,  84  Tex.  645,  19  S.  W.  859;  Mor- 
rill  v.  C.  T.  &c.  Co.  32  Hun  (N.  Y.) 
543;   Nashua,  &c.  R.  Co.  v.  Boston, 
fcc.  R.  Co.  27  Fed.  821;  Whiting  v. 
Wellington,  10  Fed.  810;  Bay  View, 
&c.  Co.  v.  Williams,  50  Cal.  353. 

141  Ganther  v.  Jenks  &  Co.  76  Mich. 
510,  43  N.  W.  600.   See  Humphrey  v. 
People,  18  Hun  (N.  Y.)  393;  Hunt- 
ington  v.  Attrill,  118  N.  Y.  365,  23  N. 
E.  544. 

142  Graville  v.  New  York,  &c.  Co.  34 
Hun  (N.  Y.)  224;  Blair  v.  St.  Louis, 
&c.   R.   Co.   25   Fed   684.    See,   also, 


385 


PROOF    OF    DIRECTORS     PROCEEDINGS. 


[ 


pose,  however,  that  for  some  purposes  corporate  records  are  admissible 
even  as  against  third  persons,  as,  for  instance,  to  show  that  a  meeting 
of  the  directors  was  held  on  a  certain  day,  or  the  like.  Record  entries 
are  generally  competent  evidence  against  officers  of  the  company,143 
but  are  not,  of  course,  always  conclusive  upon  them.  A  fraudulent 
entry  may  be  attacked,144  or  the  good  faith  of  the  directors'  acts  may 
be  inquired  into  by  giving  parol  proof  as  to  what  they  really  did.145 

§  267.  Proof  of  the  proceedings  of  the  board  of  directors. — Where 
the  act  of  incorporation  prescribes  the  mode  in  which  the  proceed- 
ings of  the  board  of  directors  shall  be  proved,  the  mode  prescribed  is 
generally  exclusive.  Where  there  is  a  record,  of  course  that  is  the 
best  evidence,  and  must  be  produced  or  some  excuse  shown  justify- 
ing a  resort  to  secondary  evidence.  But  where  it  is  not  in  conflict  with 
some  provision  of  the  charter,  the  acts  of  the  directors  of  a  corpora- 
tion, if  not  recorded,  may  be  proved  by  parol.146  Where  records  are 
lost,  parol  evidence  of  their  contents  is  competent.147  It  has  also 
been  held  that  omissions  in  the  records  may  be  supplied  by  parol 
proof.148 


Chesapeake,  &c.  R.  Co.  v.  Deepwater 
R.  Co.  57  W.  Va.  641,  50  S.  B.  890;  3 
Elliott  Ev.  §  1945. 

143  First  Nat.  Bank  v.  Tisdale,  84 
N.   Y.   655;    Allison  v.  Coal   Co.   87 
Tenn.  60,  9  S.  W.  226.    See  Wallace 
v.  Lincoln,  &c.  Bank,  89  Tenn.  630, 
15  S.  W.  448;    Spellier,  &c.  Co.  v. 
Geiger,  147  Pa.  St.  399,  23  Atl.  547; 
Rudd  v.  Robinson,  126  N.  Y.  113,  26 
N.  E.  1046,  12  L.  R.  A.  473,  22  Am. 
St.  816;  Rudd  v.  Robinson,  54  Hun 
(N.  Y.)   339,  7  N.  Y.  S.  535;  Olney 
v.  Chadsey,  7  R.  I.  224. 

144  Thome  v.  Travellers'  Ins.  Co.  80 
Pa.  St.  15,  21  Am.  R.  89. 

145Waite  v.  Windham  Co.  Mining 
Co.  36  Vt.  18. 

148Langsdale  v.  Bonton,  12  Ind. 
467;  Junction  R.  Co.  v.  Reeve,  15 
Ind.  236;  Weber  v.  Fickey,  52  Md. 
500.  In  the  case  of  Ten  Eyck  v.  Pon- 
tiac,  &c.  R.  Co.  74  Mich.  226,  41  N. 
W.  905,  3  L.  R.  A.  378,  16  Am.  St. 
633,  37  Am.  &  Eng.  R.  Cases,  273, 
ELL.  RAILROADS—  25 


the  court  said:  "What  is  resolved 
upon  at  a  meeting  of  a  board  of  di- 
rectors of  a  private  corporation  may 
be  proven  by  the  record  of  the  pro- 
ceedings of  the  board,  if  one  is  kept, 
and  the  proceedings  entered,  but  if 
a  record  is  not  kept  or  the  proceed- 
ings not  recorded,  parol  evidence  is 
admissible  to  show  what  was  re- 
solved upon,  and  by  what  vote  it 
was  carried."  See  Cram  v.  Bangor, 
&c.  12  Me.  354;  Edgerly  v.  Emerson, 
23  N.  H.  555,  55  Am.  Dec.  207;  Mc- 
Call  v.  Byram,  &c.  Co.  6  Conn.  428; 
Zihlman  v.  Cumberland,  &c.  Co.  74 
Md.  303,  22  Atl.  271;  Great  North- 
ern, &c.  Co.,  In  re,  62  L.  T.  R.  231; 
Bank  of  Yolo  v.  Weaver  (Cal.),  31 
Pac.  160;  3  Elliott  Ev.  §  1947. 
'  14TDix  v.  Akers,  30  Ind.  431;  3 
Elliott  Ev.  §§  1941,  1947. 

148Taymouth  v.  Koehler,  35  Mich. 
22;  Ratcliff  v.  Teters,  27  Ohio  St. 
66. 


268] 


DIRECTORS. 


386 


§  268.  Notice  to  directors. — Notice  to  the  directors,  when  acting 
in  their  official  capacity,  is  notice  to  the  company.149  Notice  to  in- 
dividual directors  when  not  acting  for  the  corporation  is  not,  ordi- 
narily, effective  as  notice  to  the  corporation.150  If  the  notice  is  effective 
upon  directors  in  office  it  is  effective  upon  their  successors  in  office.161 


149  Fulton  Bank  v.  New  York,  &c. 
Canal  Co.  4  Paige  (N.  Y.)  127;  Cra- 
gie  v.  Hadley,  99  N.  Y.  131,  1  N.  B. 
537,    52    Am.    R.    9;    National    Sec. 
Bank  v.   Cushman,   121   Mass.   490; 
Smith   v.   South,   &c.   Bank,   32   Vt. 
341,  76  Am.  Dec.  179. 

150  Gridley  v.  Lafayette,  &c.  Co.  -71 
111.  200;  German  Mining  Co.,  In  re,  4 
DeG.  M.  &  G.  19;  Parrel  Foundry  v. 
Dart,  26  Conn.  376;  Goodloe  v.  God- 
ley,  13  S.  &  M.  (Miss.)  233,  51  Am. 
Dec.  159;  Westfield  Bank  v.  Cornen, 
37  N.  Y.  320,  93  Am.  Dec.  573.    But 
see  Fairfield,  &c.  Bank  v.  Chase,  72 
Me.  226,  39  Am.  R.  319. 

151  United,    &c.    Co.    v.    Shriver,    3 
Md.   Ch.   381;   Washington  Bank  v. 
Lewis,  22  Pick.   (Mass.)    24;   Farm- 
ers',  &c.   Bank  v.   Payne,   25   Conn. 
444,  68  Am.  Dec.  367;   Fulton  Bank 
v.  New  York,  &c.   Co.  4  Paige    (N. 
Y.)    127;    Louisiana,    &c.    Bank    v. 
Senecal,    13    La.    525;    Edwards    v. 
Grand  Junction  R.  Co.  1  Myl.  &  Cr. 
(13  Eng.   Ch.  559)    650;    Lancey  v. 
Bryant,  30  Me.  466;   Pemigewassett 
Bank  v.  Rogers,  18  N.  H.  255.     The 
settled  rule  is  that  directors  acting 
as   individuals  merely  cannot  bind 
the  company  in  any  way,  and  the 
fact  that  one  or  two  directors,  con- 
stituting a  minority  of  the  board, 
have    knowledge   as   individuals   of 
certain  facts  is  insufficient  to  prove 
notice  to  the  corporation.    Winches- 
ter v.  Baltimore,  &c.  R.  Co.  4  Md. 
231 ;  Mercier  v.  Canonge,  8  La.  Ann. 
37;   Fulton  Bank  v.  New  York,  &c. 
Canal  Co.  4  Paige   (N.  Y.)  127;  Pe- 
ruvian R.  Co.  v.  Thames,  &c.   Ins. 


Co.  L.  R.  2  Ch.  App.  Gas.  617.  No- 
tice given  to  a  director  as  an  official 
to  be  communicated  to  the  board 
has  been  held  to  bind  the  corpora- 
tion. Boyd  v.  Chesapeake,  &c.  Canal 
Co.  17  Md.  195,  79  Am.  Dec.  646; 
National  Bank  v.  Norton,  1  Hill  (N. 
Y.)  572.  It  would  seem  that  any 
knowledge  of  facts  which  comes  to 
a  director  or  directors  privately,  or 
by  public  rumor,  but  which  is  not 
communicated  by  them  to  the  board 
will  not  bind  the  corporation.  U.  S. 
Ins.  Co.  v.  Shriver,  3  Md.  Ch.  381; 
Commercial  Bank  v.  Cunningham, 
41  Mass.  270,  35  Am.  Dec.  322. 
Though  if  such  knowledge  is  actu- 
ally imparted  by  such  director  to 
the  board  at  a  regular  meeting,  the 
corporation  is  bound.  Bank  of  Pitts- 
burgh v.  Whitehead,  10  Watts  397,. 
36  Am.  Dec.  186.  It  is  held  in  a  few 
cases  that  the  knowledge  of  a  di- 
rector who  acts  upon  the  matter  as 
to  which  he  has  such  knowledge,  is 
the  knowledge  of  the  board,  without 
regard  to  the  manner  in  which  he 
acquired  it,  and  even  though  he  did 
not  communicate  it  to  his  fellows. 
Bank  of  U.  S.  v.  Davis,  2  Hill  (N. 
Y.)  451;  North  River  Bank  v. 
Aymar,  3  Hill  (N.  Y.)  262.  But  this 
principle  is  opposed  by  the  weight 
of  authority,  and  it  has  been  held 
repeatedly,  that  where  the  interests 
of  a  director  are  opposed  to  those 
of  the  corporation  no  knowledge 
possessed  by  him  will  be  imputed  to 
it.  Hatch  v.  Ferguson,  66  Fed.  668, 
676;  Winchester  v.  Baltimore,  &c. 
R.  Co.  4  Md.  231;  Frenkel  v.  Hud- 


387 


DIRECTOBS — ADMISSIONS  AND  DECLARATIONS. 


[§    269 


§•  269.  Directors — Admissions  and  declarations. — Substantially  the 
same  rules  that  prevail  in  regard  to  officers  and  agents  generally  gov- 
ern the  subject  of  admissions  and  declarations  by  directors,  but  there 
is  this  important  exception,  namely,  the  directors,  in  order  to  bind 
the  company,  should  act  as  a  board  duly  convened.  Admissions  and 
representations  must,  as  a  rule,  be  made  by  at  least  a  quorum  of  the 
directors  acting  as  a  body,  in  order  to  bind  the  corporation,  unless 
special  authority  is  shown.152  When  made  at  a  time  the  board  is  not 
in  session,  they  are  the  statements  of  individuals,  and  not  of  corporate 
representatives,  except  in  cases  where  they  are  authorized  to  act  as 
agents.  It  follows  from  the  general  rule  we  have  stated  that  neither 
one  director,  nor  any  number  of  directors,  except  in  cases  where  there 
is  special  authority  from  the  company,  can  bind  it  by  admissions  or 
declarations.153  Where,  however,  a  director  has  special  authority  to 
act  as  an  agent  for  the  company,  he  can,  of  course,  bind  it  by  his 
acts  and  admissions  like  any  other  agent,154  but  his  acts  bind  the  com- 
pany because  of  the  special  authority,  and  not  simply  because  of  his 
position  as  a  director.  In  a  case  where  a  director  is  invested  with 


son,  82  Ala.  158,  2  So.  758,  60  Am. 
R.  736;  Wickersham  v.  Chicago  Zinc 
Co.  18  Kans.  481,  26  Am.  R.  784; 
First  Nat.  Bank  v.  Gifford,  47  Iowa 
575;  Barnes  vv  Trenton  Gas.  L.  Co. 
27  N.  J.  Eq.  33;  Innerarity  v.  Bank, 
139  Mass.  322,  1  N.  E.  282,  52  Am. 
R.  710;  Commercial  Bank  v.  Cun- 
ningham, 24  Pick.  (Mass.)  270,  35 
Am.  Dec.  322.  And  knowledge  by 
the  directors  of  their  own  misman- 
agement will  not  be  imputed  to  the 
corporation  to  raise  the  bar  of  the 
statute  of  limitations  in  a  suit 
against  them  by  the  corporation  or 
its  stockholders.  Ryan  v.  Leaven- 
worth,  &c.  R.  Co.  21  Kans.  365,  404. 
152  Huntingdon,  &c.  R.  Co.  v.  Deck- 
er, 82  Pa,,  St.  119;  Soper  v.  Buffalo, 
&c.  R.  Co.  19  Barb.  (N.  Y.)  310; 
Thew  v.  Porcelain  Mfg.  Co.  5  S.  C. 
415;  Michigan,  &c.  R.  Co.  v.  Gougar, 
55  111.  503;  Vicksburg,  &c.  R.  Co.  v. 
Ragsdale,  54  Miss.  200;  Low  v.  Con- 
necticut, &c.  R.  Co.  45  N.  H.  370. 
See  Titus  v.  Cairo,  &c.  Bank,  37  N. 


J.  L.  98;  Meux's  Case,  2  DeGex,  M. 
&  G.  522 ;  Tottendell  v.  Fareham,  &c. 
Co.  L.  R.  1  C.  P.  674;  St.  Louis,  &c. 
R.  Co.  v.  Drennan,  26  111.  App.  263. 

153  Michigan   Cent.  R.   Co.  v.  Gou- 
gar, 55  111.  503;  Low  v.  Connecticut, 
&c.  R.  Co.  45  N.  H.  370;    Fairfield 
County    Turnp.    Co.    v.    Thorp,    13 
Conn.  173;  Smith  v.  North  Carolina 
R.  Co.  68  N.  C.  107;  Charleston,  &c. 
R.  Co.  v.  Blake,  12  Rich.  L.   (S.  C.) 
634;  Matteson  v.  New  York  Cent.  R. 
Co.  62  Barb.   (N.  Y.)   364;   Pennsyl- 
vania  R.    Co.'s   Appeal,   80   Pa.   St. 
265.     See,  also,  Guillaume  v.  Fruit 
Land  Co.  (Oreg.)  86  Pac.  883.    Al- 
though   a    director    of    a    railroad 
company   owns   a   majority   of   the 
stock  he  cannot  bind  the  company 

-by  a  contract.  Allemong  v.  Sim- 
mons, 124  Ind.  199,  23  N.  E.  768,  7 
R.  &  Corp.  L.  J.  416. 

154  Burnes  v.  Pennell,  2  H.  L.  Cases 
497;   Meux's  Case,  2  DeG.,  M.  &  G. 
522. 


§  270]  DIRECTORS.  388 

special  authority,  then  as  to  such  matters  as  his  authority  covers 
notice  to  or  knowledge  acquired  by  him,  is  notice  to  the  board  of  di- 
rectors and  the  corporation.3 


155 


§  270.  Ratification  of  the  acts  of  directors. — The  ordinary  rules 
respecting  the  ratification  of  the  acts  of  agents  apply  to  the  acts  of 
directors.  Some  of  the  authorities  indicate  that  as  directors  are 
officers  of  superior  rank,  ratification  will  be  presumed  upon  less  evi- 
dence than  is  required  in  cases  where  the  acts  are  those  of  subordi- 
nate agents.  Any  acts  which  the  corporation  can  authorize  the  di- 
rectors to  perform  may  be  made  valid  by  subsequent  ratification,  al- 
though they  were  outside  of  the  directors'  powers  when  performed.156 
The  state  may,  by  a  subsequent  legislative  enactment,  give  validity 
to  their  unauthorized  acts.157  But  we  suppose  that  where  the  acts  of 
the  directors  are  entirely  outside  of  the  scope  of  their  authority  the 
state  could  not  impose  new  and  additional  burdens  upon  the  stock- 
holders, thereby  essentially  changing  the  charter,  without  the  con- 
sent, express  or  implied,  of  the  stockholders  of  the  company. 

§  271.  Directors — Removal  from  office. — The  general  rule  is  that 
a  board  of  directors  has  no  implied  power  to  remove  one  of  the  di- 
rectors and  declare  his  office  vacant.  The  power  of  removal  may,  of 
course,  be  given  by  the  act  of  incorporation  or  by  corporate  by-laws  en- 
acted in  accordance  therewith,  but  the  power  is  not  inherent  or  implied. 
A  director  cannot,  as  a  rule,  be  deprived  of  his  office  nor  excluded  by 
the  board  from  taking  part  in  its  proceedings  ;158  but  we  are  inclined 

155  Hoover  v.  Wise,  91  U.  S.  308;     that  acts  which  as  to  the  corpora- 
Fairfield  Savings  Bank  v.  Chase,  72    tion  itself  are  ultra  vires  can  be  rat- 
Me.    226,    39    Am.    R.    319;    Fulton     ified. 

Bank  v.  Canal  Co.  4  Paige  Ch.   (N.  ^Coe  v.  New  Jersey  Midland  R. 

Y.)  127;  Gen.  Ins.  Co.  of  Md.  v.  U.  S.  Co.  31  N.  J.  Eq.  105. 

Ins.  Co.  of  Baltimore,  10  Md.  517,  158If    they    were    to    attempt    to 

69  Am.  Dec.  174.  wrongfully  exclude  a  director,  he  is 

156  McLaughlin  v.  Detroit,  &c.  R.  entitled    to    an    order    restraining 
Co.  8  Mich.  99;  Farmers',  &c.  Co.  v.  them   from   so  doing.    Pulbrook   v. 
Toledo,  &c.  R.  Co.  67  Fed.  49.     See  Richmond,  &c.  Co.  L.  R.  9  Ch.  Div. 
Higgins  v.  Lansingh,  154   111.  301,  610.     See,  generally,  Mobile,  &c.  R. 
40  N.  E.  362.     See,  also,  Kessler  v.  Co.  v.  Owen,  121  Ala.  505,  25  So.  612; 
Ensley,  123  Fed.  546;   Greenleaf  v.  Deposit   Bank   v.    Hearne,   104    Ky. 
Norfolk,  &c.  R.  Co.  91  N.  Car.  33;  819,  46  S.  W.  160;  Commonwealth  v. 
2  Purdy's  Beach  Priv.  Corp.   §  773.  Detwiller,  131  Pa.   St.  614,  18  Atl. 
We  do  not  mean,  of  course,  to  say  990,  7  L.  R.  A.  357. 


389 


DIRECTORS — REMOVAL  FROM   OFFICE. 


[ 


to  believe  that  there  may  be  extraordinary  cases  where  there  is  a 
clear  and  undoubted  betrayal  of  trust  in  which  the  board  would  be 
justified  in  excluding  one  of  its  members  from  taking  part  in  its 
proceedings.159  A  director  cannot,  according  to  many  of  the  decided 
cases,  be  removed  by  a  majority  of  the  stockholders  themselves,160  un- 
less the  power  to  remove  is  given  by  the  charter  or  by-laws.161  It  is 
said  that  to  allow  a  majority  of  the  stockholders  to  remove  the  direct- 
ors at  will  would,  to  a  very  considerable  extent,  nullify  the  well-set- 
tled rule  that  the  discretion  of  the  directors  cannot  be  controlled  by 
the  stockholders;  but  this  line  of  reasoning  is  not  very  satisfactory. 
We  can  see  no  sufficient  reason  why  the  power  of  removal  may  not  be 
vested  in  those  who  actually  own  the  corporation  and  are  primarily 
and  principally  interested,  nor  can  we  avoid  the  conclusion  that  some 
of  the  courts  have  been  misled  by  the  early  decisions  regarding  chari- 
table corporations.  The  rules  which  apply  to  charitable  corporations 
cannot  apply  in  all  their  vigor  to  business  corporations  such  as  rail- 
way companies.  It  is  reasoned  in  other  cases  that  the  interests  of 
shareholders  may  be  protected  without  the  exercise  of  this  power, 
since  the  directors,  being  trustees  for  the  stockholders,  may  be  re- 
moved by  the  court  for  an  abuse  of  their  powers,  upon  application  to 


159  Some  of  the  courts  hold  that  a 
director  cannot  be  prevented  from 
examining    corporate    records    and 
books,  but  may  secure  an  examina- 
tion by  mandamus,  although  the  op- 
posing directors  regard  him  as  act- 
ing in  opposition  to  the  corporate 
rights  and  interests.    People  v.  Mott, 
1  How.  Pr.   (N.  Y.)   247;   People  v. 
Throop,  12  Wend.  (N.  Y.)  183.    But 
we  believe  that  there  may  be  ex- 
treme cases  where  a  director  can  be 
denied  the  right  of  inspection.  State 
v.  Einstein,  46  N.  J.  L.  479. 

160  Imperial,  &c.  Co.  v.  Hampson,  L. 
R.  23  Ch.  Div.  1,  7;  State  v.  Bryce 
7  Ohio  (2d  pt.)  82;  Powers  v.  Blue 
&c.  Ass'n,  86  Fed.  705;  Johnston  v. 
Jones,  23  N.  J.  Eq.  216.     But  see 
Bayless  v.  Orne,  Freem.  Ch.  (Miss.) 
161,  176;   Adamantine  Brick  Co.  v. 
Woodruff,  4  McArthur  (D.  C.)  318; 
Burr  v.   McDonald,   3   Gratt.    (Va.) 
215,  224,  holding  that  the  director's 


right  to  his  office  being  forfeited  by 
his  misconduct,  he  may  be  removed 
by  the  stockholders. 

161  Mr.  Taylor  says:  "The  by-laws 
may,  and  to  avoid  controversy,  cer- 
tainly should  provide  for  removals 
from  office,"  citing  Hunter  v.  Sun 
Mut.  Ins.  Co.  26  La.  Ann.  13;  Tay- 
lor Priv.  Corp.  (5th  ed.)  §  649.  The 
general  laws  of  a  number  of  the 
states  provide  for  the  removal  of 
directors  from  office.  Stimson  Am. 
Stat.  (1892)  §  8048.  By-laws  of 
a  corporation  providing  that  when 
any  director  shall  die,  resign,  neg- 
lect to  serve,  or  remove  out  of 
the  county,  the  board  may  proceed 
'to  supply  the  vacancy,  do  not  au- 
thorize a  director  to  be  ousted  by  a 
vote  of  the  board  of  directors  on 
the  ground  of  ineligibility.  Com- 
monwealth v.  Detwiller,  131  Pa.  St. 
614,  18  Atl.  990,  7  L.  R.  A.  357,  28 
Am.  &  Eng.  Corp.  Cas.  669. 


DIRECTORS. 


390 


it  by  the  parties  in  interest,  and  hence  the  stockholders  should  not  be 
invested  with  power  of  removal.162  Where  power  is  given  to  the 
stockholders  by  the  charter  or  by-laws  to  remove  directors  for  a  rea- 
sonable cause,  the  court  will  not,  ordinarily,  inquire  into  the  suffi- 
ciency of  a  cause  upon  which  they  have  acted,163  nor  will  it  interfere 
to  control  the  actions  of  the  directors  under  such  conditions,  but  will 
leave  the  stockholders  to  depose  them  in  case  they  do  not  perform 
their  duties  properly.164 

§272.  Compensation  of  directors. — We  have  elsewhere  treated  in 
a  general  way  of  the  compensation  of  corporate  officers,165  and  we 
shall  not  again  discuss  the  general  subject.  It  may  be  said  by  way  of 
preface  that,  ordinarily,  directors  are  not  entitled  to  compensation  for 
services  rendered  in  the  capacity  of  directors  unless  provision  is  made 
for  the  payment  of  compensation  b y  the  charter  or  by-laws,  nor  will 
a  contract  to  pay  for  such  services  be  implied.  Where,  however,  a 
director  performs  services  under  a  contract  that  are  clearly  beyond 
the  range  of  his  official  duties  he  is  entitled  to  such  compensation,  in 
the  absence  of  anything  to  the  contrary,  as  a  stranger  performing 
similar  services  would  be  entitled  to  receive.166  Unless  the  compen- 


162  Ward  v.  Davidson,  89  Mo.  445,  1 
S.  W.  846.  Making  use  of  his  posi- 
tion to  further  his  private  gains,  or 
ceasing  to  hold  the  requisite  num- 
ber of  shares,  will  cause  a  director 
to  cease  to  hold  his  office  in  Eng- 
land. Companies  Clauses,  Act  of 
1845,  8  Viet.  Ch.  16,  §  86. 

163Inderwick  v.  Snell,  2  Macn.  & 
G.  216. 

164  Moses  v.  Tompkins,  84  Ala.  613, 
622,  4  So.  763;  Hattersley  v.  Earl  of 
Shelburne,  10  Week.  R.  881,  31  L.  J. 
Ch.   873.     See,  also,  Hedges  v.   Pa- 
quett,  3  Oreg.  77;   Neal  v.  Hill,  16 
Cal.  145,  76  Am.  Dec.  508. 

165  Ante,  §  230. 

166  Jackson   v.  New  York  Central 
R.   Co.   2   Thompson   &  C.    (N.   Y.) 
653;  New  York,  &c.  R.  Co.  v.  Ketch- 
urn,   27   Conn.   170;    Shackelford   v. 
New   Orleans,   &c.   R.   Co.   37   Miss. 
202;   Lafayette,  &c.  R.  Co.  v.  Chee- 


ney,  87  111.  446;  Hodges  v.  Rutland, 
&c.  R.  Co.  29  Vt.  220.  A  director 
who  performs  services  for  the  cor- 
poration at  the  request  of  the  board 
of  directors  is  entitled  to  recover, 
on  an  implied  contract,  what  the 
services  are  reasonably  worth,  so 
far  as  the  amount  has  not  been  fixed 
by  resolution  of  the  board.  Ten 
Eyck  v.  Pontiac,  &c.  R.  Co.  74  Mich. 
226,  41  N.  W.  905,  3  L.  R.  A.  378,  16 
Am.  St.  633.  A  director  who,  inde- 
pendently of  his  duties  as  director, 
performs  services  for,  and  furnishes 
materials  to,  the  corporation,  which 
are  necessary  and  proper,  has  the 
same  right  as  other  persons  to  re- 
cover upon  an  implied  contract  for 
such  services  and  materials.  Greens- 
boro, &c.  Turnp.  Co.  v.  Stratton, 
120  Ind.  294,  22  N.  E.  247.  To  enti- 
tle him  to  pay  there  must  have  been 
an  expectation  at  the  time,  on  the 


391 


COMPENSATION   OF  DIRECTORS. 


18 


sation  is  fixed  by  resolution  or  by-law  before  the  services  are  rendered, 
a  director  is,  as  a  rule,  not  entitled  to  pay  for  his  services.167  The  fact 
that  a  director  expected  to  be  paid  for  his  services  will  not  alter  the 
rule,168  and  it  has  been  held  that  a  subsequent  promise  to  pay  for 
them  is  ineffective  for  lack  of  consideration.169  The  compensation 
which  has  been  fixed  by  the  board  may  be  increased  by  a  vote  of  the 
board  during  his  term,  and  will  entitle  him  to  such  increased  com- 


part of  the  corporation,  to  pay  there- 
for. Gill  v.  New  York  Cab  Co.  48 
Hun  (N.  Y.)  524,  16  N.  Y.  S.  236. 
In  Shackelford  v.  New  Orleans,  &c. 
R.  Co.  37  Miss.  202,  it  was  held  that 
attendance  on  the  board  meetings 
is  the  only  service  which  a  director 
will  be  presumed  to  render  gratui- 
tously. In  Rogers  v.  Hastings,  &c. 
R.  Co.  22  Minn.  25,  it  was  held  that 
a  director  who  rendered  special  serv- 
ices as  attorney  and  land  commis- 
sioner at  the  request  of  the  other 
directors  might  recover  therefor. 
The  question  whether  or  not  the 
services  rendered  were  special,  so 
that  he  is  entitled  to  pay  therefor, 
depends  upon  whether  they  were 
such  as  could  be  rendered  by  a  per- 
son Other  than  a  director.  Henry 
v.  Rutland,  &c.  R.  Co.  27  Vt.  435. 
And  a  director  may  recover  for 
services  rendered  by  him  as  agent 
of  the  company  at  its  request,  but 
not  in  his  character  as  director. 
Chandler  v.  Monmouth  Bank,  13  N. 
J.  L.  255.  But  it  has  been  held  that 
a  director  cannot,  in  the  absence 
of  contract,  claim  a  commission  for 
the  sale  of  the  corporation  bonds. 
Hodges  v.  Rutland,  &c.  R.  Co.  29  Vt. 
220.  And  that  he  cannot  claim  pay 
for  services  as  managing  director. 
Bolt  &  Iron  Co.,  Re,  14  Onta.  R.  211, 
19  Am.  &  Eng.  Corp.  Cas.  165.  And 
that  even  a  director  who  serves 
without  compensation  cannot  re- 
cover a  reward  offered  by  the  corpo- 
ration for  the  recovery  of  stolen 


property  and  the  detection  of  the 
thief,  since  he  only  did  his  duty  if 
he  accomplished  both.  Stacy  v. 
State  Bank,  5  111.  (4  Scam.)  91;  Col- 
lins v.  Godefroy,  1  Barn.  &  Adol.  950. 

167  Kilpatrick    v.     Penrose    Ferry 
Bridge  Co.  49  Pa.  St.  118,  88  Am. 
Dec.  497;  New  York,  &c.  R.  Co.  v. 
Ketchum,  27  Conn.  170;  Hodges  v. 
Rutland,  &c.  R.  Co.  29  Vt.  220;  Cole- 
man  v.  Second  Ave.  R.  Co.  38  N.  Y. 
201.     It  is  presumed  that  a  stock- 
holder, not  a  director  of  the  corpo- 
ration, who  assumes  the  duties  of 
the  office  and  performs  them  with- 
out any  agreement  or  provision  for 
compensation,  performs  the  official 
services    gratuitously.      Mather    v. 
Eureka  Mower  Co.  118  N.  Y.  629,  23 
N.  E.  993.    An  officer  of  a  corpora- 
tion, in  order  to  recover  compensa- 
tion for  his  services,  must  show  that 
he  is  an  officer  de  jure.    Waterman 
v.  Chicago  &  I.  R.  Co.  34  111.  App. 
268,  affirmed  in  139  111.  658,  29  N.  E. 
689,  15  L.  R.  A.  418,  32  Am.  St.  228. 

168  New  York,  &c.  R.  Co.  v.  Ketch- 
am,  27  Conn.  170. 

169  Maux  Ferry  G.  R.  Co.  v.  Brane- 
gan,   40    Ind.    361;    Loan    Assn.    v. 
Stonemetz,  29  Pa.  St.  534;   Dunston 
v.  Imp.  Gas  Co.  3  B.  &  Ad.  125.    He 
may  receive  pay  for  services  ren- 
dered before  he  became  a  director, 
under  a   resolution  passed   by  the 
other  members  of  the  board.  Branch 
Bank   v.   Collins,   7   Ala.   95;    New 
York,    &c.    R.    Co.    v.   Ketchum,    27 
Conn.  170. 


§  273] 


DIRECTORS. 


392 


pensation  for  all  services  thereafter  rendered.170  But  while  it  is  com- 
petent for  the  board  to  fix  the  compensation  to  be  given  to  directors 
as  well  as  that  of  other  officers  and  agents/71  unless  the  by-laws  or 
statute  expressly  provide  otherwise,  a  director  may  also  fill  another 
office  of  the  corporation;172  yet  where  a  director  fills  such  other  office, 
he  will  be  entitled  only  to  such  compensation  therefor  as  is  fixed  or 
agreed  upon  before  the  services  are  rendered.173 

§  273.   Directors — Relation  of  to  stockholders — Preliminary. — The 

directors  of  a  railroad  company  occupy  fiduciary  relation  to  the  stock- 
holders. The  relation  is  essentially  one  of  trust  and  confidence;  but 
directors  are  not  trustees  in  the  strict  or  technical  sense,  since  they  do 
not  hold  the  legal  title  to  the  corporate  property  and  may  in  some  cases 
deal  with  the  corporation  where  their  own  individual  interests  are  con- 
cerned. They  are,  however,  trustees  in  the  sense  in  which  the  term 
"trustees"  is  often  used.  The  courts  and  text  writers  generally  speak 
of  them  as  trustees,  and  correctly  so ;  but  the  use  of  the  term  trustees 
seems  to  have  misled  some  judges  and  writers,  for  they  have  applied 
stricter  rules  to  directors  than  authority  sanctions  or  principle  war- 
rants. In  the  sense  in  which  the  term  "trustees"  is  used  in  reference  to 
the  functions  and  duties  of  persons  occupying  fiduciary  relations 
directors  are  trustees  in  all  that  term  implies  and  are  subject  to  the 
rules  which  govern  that  class  of  persons,  but  (they  are  not  trustees  in 


170  It  having  been   understood  by 
the  board  of  directors  of  a  corpora- 
tion that  its  officers  were  to  be  paid 
for  their  services,   the  board   may 
afterwards  fix  and  pay  a  reasonable 
sum.     Stewart  v.   St.  Louis,  &c.  R. 
Co.  41  Fed.  736. 

171  Hodges  v.  Rutland,  &c.  R.  Co. 
29  Vt.  220. 

172  A  director  may  also  be  treas- 
urer.   Sargent  v.  Webster,  54  Mass. 
497,  46  Am.  Dec.  743. 

173  Holder  v.  Lafayette,  &c.  R.  Co. 
71  111.  106,  22  Am.  R.  89,  where  the 
director  served  as  treasurer.     Rog- 
ers v.  Hastings,  &c.  R.  Co.  22  Minn. 
25,  where  he  served   as  secretary. 
It  has  been  held  that  the  action  of 
the  board  of  directors  of  a  corpora- 
tion in  providing  that  the  salary  of 


the  president  should  be  fixed  by  him 
and  another  director,  who  together 
owned  nearly  all  the  stock,  and  that 
the  contract  was  ratified  by  the 
board  of  directors,'  is  such  an  exer- 
cise of  the  board's  authority  to  fix 
his  salary  as  to  constitute  a  contract 
on  which  he  can  recover.  Bagaley 
v.  Pittsburgh  &  L.  S.  Iron  Co.  146 
Pa.  St.  478,  23  Atl.  837.  We  think 
that  the  case  referred  to  is  well  de- 
cided, for  the  reason  that  there  was 
an  effective  ratification  of  the  acts 
of  the  president  and  the  director 
authorized  to  act  in  conjunction 
with  him,  but  if  it  were  not  for  the 
element  of  ratification  we  should 
think  there  could  be  no  recovery  in 
such  a  case. 


393 


DIEECTORS    CONSIDERED    TRUSTEES. 


[§  274 


the  same  sense  as  persons  are  who  hold  the  legal  title  to  property  for 
the  benefit  of  other  persons,  nor  are  they  trustees  for  third  persons 
who  deal  with  the  company.174 

§  274.  Directors  considered  trustees. — It  is  held  in  a  very  great 
number  of  cases  that  a  director  occupies  the  position  of  a  trustee  for 
the  stockholders,175  and  as  such  is  prohibited  from  making  use  of  his 
position  or  of  the  knowledge  acquired  by  reason  of  holding  the  same 
to  promote,  either  directly  or  indirectly,  his  private  advantage  at  the 
expense  of  the  corporation.  The  rule  governing  trustees  generally, 
which  prohibits  them  from  using  trust  property  for  their  own  profit, 
applies  to  directors.  Directors  are  bound  to  exercise  the  utmost  good 
faith,176  but  are  not  absolutely  prohibited  from  dealing  with  the  cor- 
poration. Directors  are  bound  to  exercise  their  powers  to  promote  the 
corporate  interests  and  it  is  a  breach  of  duty  for  them  to  make  use  of 
their  powers  to  injure  the  corporate  interests  or  impair  corporate 


174  In  Briggs  v.  Spaulding,  141  U. 
S.   132,   11   Sup.   Ct.   924,  the  court 
said:     "Bank    directors    are    often 
styled    'trustees,'    but   not    in    any 
technical   sense.     The   relation   be- 
tween the  corporation  and  them  is 
rather  that  of  principal  and  agent; 
certainly  so  far  as  creditors  are  con- 
cerned the  relation  is  that  of  con- 
tract  and   not  of  trust.     But,  un- 
doubtedly, under  circumstances  they 
may  be  treated  as  occupying  the  po- 
sition   of    trustees    to    cestui    que 
trust."     Spering  Appeal,  71  Pa.  St. 
11,  10  Am.  R.  684.    See,  also,  Beach 
v.  Miller,  130  111.  162,  22  N.  E.  464, 
17  Am.  St.  291,  and  note;  McCourt 
v.  Singers,  145  Fed.  103. 

175  Robinson  v.  Smith,  3  Paige  (N. 
Y.)    222,  24  Am.  D<*c.  212;   Stewart 
v.  Lehigh  Valley  R.  Co.  38  N.  J.  L. 
505;   European,  &c.  R.  Co.  v.  Poor, 
59  Me.  277;  Blake  v.  Buffalo  Creek 
R.  Co.  56  N.  Y.  485;  Ward  v.  Salem 
St.  R.  Co.  108  Mass.  332;  Covington, 
&c.  R.  Co.  v.  Bowler,  9  Bush  (Ky.) 
468;    San   Francisco,   &c.   R.   Co.   v. 
Bee,  48  Cal.  398;  Paine  v.  Lake  Erie 
R.  Co.  31  Ind.  283;    Great  Luxem- 


bourg R.  Co.  v.  Magnay,  25  Beav. 
586;  Aberdeen  R.  Co.  v.  Blakie,  1 
Macq.  461;  Koehler  v.  Black  River 
Falls  Co.  2  Black  (U.  S.)  715;  Mich- 
igan \ir  Line  R.  Co.  v.  Mellen,  44 
Mich.  321,  6  N.  W.  845;  Verplanck 
v.  Mercantile,  &c.  Co.  1  Edw.  Ch.  84 ; 
Simons  v.  Vulcan,  &c.  Co.  61  Pa.  St. 
202,  100  Am.  Dec.  628;  Bradbury  v. 
Barnes,  19  Cal.  120;  Hale  v.  Repub- 
lican, &c.  Co.  8  Kans.  466;  Koehler 
v.  Black  River,  &c.  Co.  2  Black.  (U. 
S.)  715;  York,  &c.  Co.  v.  Hudson,  16 
Beav.  485;  Imperial,  &c.  Assn.  v. 
Coleman,  L.  R.  6  H.  L.  189;  Albion, 
&c.  Co.  v.  Martin,  1  Ch.  Div.  580; 
Bennett's  Case,  5  DeGex,  M.  &  G. 
284;  Williams  v.  Page,  24  Beav.  654; 
Memphis,  &c.  R.  Co.  v.  Woods,  88 
Ala.  630,  7  So.  108,  16  Am.  St.  81. 

176  See  cases  in  preceding  note. 
The  fact  that  a  person  has  relatives 
,  on  the  board  of  directors  of  a  cor- 
poration will  not  defeat  his  valid 
claim  against  the  corporation.  Rol- 
lins v.  Shaver  Wagon  &  C.  Co.  80 
Iowa  380,  45  N.  W.  1037,  20  Am.  St. 
427. 


§  275] 


DIRECTORS. 


rights.  They  are  guilty  of  a  breach  of  trust  if  they  make  use  of  cor- 
porate property  or  funds  for  their  individual  gain.177  A  director  can- 
not, without  an  inexcusable  breach  of  trust,  place  himself  in  a  position 
which  will  render  him  unable  to  exercise  his  powers  for  the  promotion 
of  the  corporate  welfare.178  Directors  are  under  a  strict  obligation  to 
exercise  care  and  diligence  to  preserve  the  property  and  money  of  the 
company.  They  have  no  right  to  make  gifts  of  corporate  property,179 
nor  to  allow  unjust  or  illegal  claims  to  be  enforced  against  the  com- 
pany.180 

§  275.  Directors  as  trustees — Illustrative  cases. — As  we  have  said  in 
another  place,  directors  are  considered  as  trustees  of  the  corporation 
and  its  shareholders,  but  not  of  third  persons.181  The  scope  and  ap- 
plication of  the  general  doctrine  is  better  shown  by  reference  to  the 
adjudged  cases  than  by  general  statements,  and  we  shall  refer  to  some 
of  the  many  decisions  of  the  court  upon  the  subject.  Directors  may, 
in  good  faith,  and  for  a  fair,  valuable  consideration,  sell  corporate 
property  to  one  of  their  number,  but  such  a  transaction  will  be  closely 
scrutinized  and  if  not  entirely  fair  and  free  from  fraud  will  be  set 
aside.182  A  director  cannot  purchase  property  for  the  corporation,  treat 
it  as  a  purchase  by  himself  and  charge  the  corporation  a  profit.183  The 


177  Ward  v.  Davidson,  89  Mo.  445, 
1   S.   W.   846;    Wardell  v.   Railroad 
Co.  103  U.  S.  651;  Cook  v.  Sherman, 
20    Fed.    167,   and    note;    Smith    v. 
Smith,   3    Des.   Eq.    (S.   Car.)    557; 
Goodin    v.    Cincinnati,    &c.    Co.    18 
Ohio  St.  169;    Morawetz  Corp.  182, 
183;  Peirce  Railroads,  36. 

178  Attaway  v.  Third  Nat.  Bank,  93 
Mo.  485,  5  S.  W.  16.    Primarily  the 
breach  of  duty  by  a  director  is  a 
wrong   inflicted    upon   the    corpora- 
tion, but  a  breach  of  duty  may  also 
be  injurious  to  third  persons;  thus 
where  a  director  sells  his  influence 
in  such  a  way  as  to  give  one  cred- 
itor of  the  corporation  an  advantage 
over  its  other  creditors,  his  action 
is  unlawful.     Berryman  v.   Cincin- 
nati, &c.  R.  Co.  14  Bush  (Ky.)  755; 
Bliss  v.  Matteson,  45  N.  Y.  22. 

179  St.  Louis,  &c.  Co.  v.  Partridge, 


8  Mo.  App.  580.  See  Williams  v. 
Page,  24  Beav.  654;  Minor  v.  Me- 
chanics' Bank,  1  Pet.  (U.  S.)  46; 
Brown  v.  De  Young,  167  111.  549,  47 
N.  E.  863;  McCullough  v.  Ford,  &c. 
Co.  213  Pa.  St.  110,  62  Atl.  521. 

^Lowndes  v.  Garnett,  &c.  Co.  33 
L.  J.  Ch.  418.  See,  also,  Young  v. 
Naval,  &c.  Society,  74  L.  J.  K.  B. 
302  (1905),  1  K.  B.  687. 

^Briggs  v.  Spaulding,  141  U.  S. 
132,  11  Sup.  Ct.  924;  Landis  v.  Sea 
Isle,  &c.  Co.  (N.  J.  Eq.)  31  Atl.  755. 

182  Mish  v.  Main,  81  Md.  36,  31  Atl. 
799.    See,  also,  Millsap  v.  Chapman, 
76  Miss.  942,  26  So.  369,  71  Am.  St. 
547,  and  note. 

183  Blair,    &c.    Co.    v.    Walker,    50 
Iowa  376;    McElhenny's  Appeal,   61 
Pa.   St.   188;    Averill  v.  Barber,   53 
Hun  (N.  Y.)  636,  6  N.  Y.  S.  255;  Si- 
mons v.  Vulcan  Oil  Co.  61  Pa.  St. 


395 


DIRECTORS  AS  TRUSTEES — ILLUSTRATIVE   CASES. 


[§   275 


decisions  authorize  the  conclusion  that  directors  may  engage  in  a  com- 
peting business  on  their  individual  account,184  and  this  doctrine,  if 
kept  within  reasonable  limits,  we  regard  as  sound,  but,  as  we  believe, 
a  director  cannot  engage  in  a  competing  business  if  the  necessary  and 
natural  effect  of  his  engaging  in  that  business  is  to  impair  his  power 
to  discharge  his  duty  to  the  company  of  which  he  is  a  director,  or  to 
detract  from  his  fidelity  to  that  company.  The  doctrine  of  the  case 
referred  to  is  one  to  be  limited,  not  extended,  and  if  it  appears  in  such 
a  case  that  the  director  is  in  any  way  using  his  official  position  to  the 
injury  of  the  company  or  its  business,  for  the  advancement  of  his  own 
business  or  that  of  a  rival  of  his  company  of  which  he  is  a  director,  a 
stockholder  should  be  awarded  relief,  for  it  is  certainly  the  duty  of  the 
director  to  do  all  that  he  reasonably  can  to  promote  the  interests  of  the 
company  of  which  he  is  such  officer.185  It  has  been  adjudged  that  an 
order  of  a  board  of  directors  awarding  compensation  to  one  of  their 
number  is  voidable  where  it  required  the  vote  of  the  director  to  make 
the  order,186  but  we  suppose  it  is  competent  to  provide  compensation 
where  the  services  are  rendered  outside  of  the  duties  of  the  director 
and  the  order  is  adopted  by  a  sufficient  vote,  exclusive  of  that  of  the 
interested  director.  Contracts  between  directors  that  they  should  have 
a  percentage  upon  all  money  secured  by  means  of  a  bond  of  indemnity 
executed  by  them,  providing  against  the  future  indebtedness  of  the 
company  are  voidable.187  A  director  cannot  rightfully  enter  into  any 


202,  98  Am.  Dec.  215;  Getty  v.  Dev- 
lin, 54  N.  Y.  403;  Benson  v.  Hea- 
thorn,  1  Y.  &  C.  326;  Rice's  Appeal, 
79  Pa.  St.  168;  'Great  Luxembourg 
R.  Co.  v.  Magnay,  25  Beav.  586.  See, 
generally,  European,  &c.  R.  Co.  v. 
Poor,  59  Me.  277;  Gifford  v.  New 
Jersey  R.  Co.  10  N.  J.  Eq.  171;  Ste- 
vens v.  Rutland,  &c.  R.  Co.  29  Vt. 
545;  Ware  v.  Grand  Junction,  &c. 
Co.  2  Russ.  &  M.  470;  Dodge  v. 
.Woolsey,  18  How.  (U.  S.)  331. 

^Barr  v.  Pittsburg,  &c.  Co.  51 
Fed.  33.  See,  also,  Barr  v.  Pitts- 
burg,  &c.  Co.  40  Fed.  412;  Lagarde 
v.  Anniston,  &c.  Co.  126  Ala.  496, 
28  So.  199. 

185  Keokuk,  &c.  Co.  v.  Davidson,  95 
Mo.  467,  8  S.  W.  545;  Perry  v.  Tus- 
caloosa,  &c.  Co.  93  Ala.  364,  9  So. 


217;  Blake  v.  Buffalo,  &c.  Co.  56  N. 
Y.  485;  Huffman,  &c.  R.  Co.  v.  Cum- 
berland, &c.  Co.  16  Md.  456;  Cum- 
berland, &c.  Co.  v.  Sherman,  30 
Barb.  (N.  Y.)  553;  Cumberland,  &c. 
Co.  v.  Parish,  42  Md.  598;  Union 
Bank  v.  Jones,  4  La.  Ann.  236; 
Paine  v.  Lake  Erie,  &c.  Co.  31  Ind. 
283;  Gallery  v.  National,  &c.  Bank, 
41  Mich.  169,  2  N.  W.  193,  32  Am.  R. 
149 ;  Fitzgerald  v.  Fitzgerald,  &c.  Co. 
44  Neb.  463,  62  N.  W.  899.  See,  also, 
Ritchie  v.  McMullen,  79  Fed.  522,  25 
C,  C.  A.  50. 

189  Wickersham  v.  Crittenden,  106 
Cal.  327,  39  Pac.  602.  See,  also, 
Thomas  v.  Bonnville  R.  Co.  109  U.  S. 
522,  3  Sup.  Ct.  315. 

187  Butler  v.  Cornwall  Iron  Co.  2? 
Conn.  335. 


DIRECTORS. 


396 


engagement  or  contract  which  is  prejudicial  to  the  corporation  or  its 
shareholders,  since  his  duty  requires  of  him  that  he  shall  exercise  his 
powers  for  the  promotion  of  the  corporate  interests,188  but  this  general 
rule  does  not  go  to  the  extent  of  interdicting  him  for  making  an  open, 
fair  and  honest  contract  with  the  corporation,  although  such  a  con- 
tract may  yield  him  a  personal  benefit.  A  well  considered  case  holds 
that  the  purchase  of  a  railroad  by  one  of  the  directors  without  the  con- 
sent of  the  company  will  be  set  aside  upon  re-payment  to  the  director 
of  the  money  expended  by  him  in  making  the  purchase.189  Directors 
cannot  rightfully  make  unjust  or  unfair  discrimination  in  favor  of 
particular  stockholders.190  The 'cases  generally  assert  that  directors 
cannot  buy  claims  against  the  corporation  at  less  than  their  face,  and 
recover  the  full  .value  of  the  corporation,191  but  we  think  this  rule  is 
subject  to  exceptions,  for  if  the  purchase  is  openly,  honestly  and  fairly 
made  with  the  full  knowledge  of  the  corporation,  we  can  see  no  reason 
why  it  may  not  be  enforced,  but  if  there  be  any  concealment,  fraud 
or  deception,  the  director  should  not  at  the  utmost  be  allowed  to  re- 
cover anything  more  than  the  amount  actually  paid  for  the  claims.192 


188  Woodstock    Iron    Co.    v.    Rich- 
mond, &c.  Co.  129  U.  S.  643,  9  Sup. 
Ct.  402;  citing  Linder  v.  Carpenter, 
62  111.  309;   St.  Louis,  &c.  Railroad 
Co.  v.  Mathers,  71  111.  592,  22  Am.  R. 
122;  Holladay  v.  Patterson,  5  Oreg. 
177;   Pacific  Railroad  Co.  v.  Seely, 
45  Mo.  212,  100  Am.  Dec.  369;   Ra- 
cine, &c.  Bank  v.  Ayres,  12  "Wis.  570; 
Fort  Edward,  &c.  Plank  Road  Co.  v. 
Payne,  15  N.  Y.  583.    It  may  not  be 
improper  to  observe  that  a  contract 
by  which  any  person  undertakes  to 
do  an  act  forbidden  by  public  policy 
is  voidable,  and  that  the  fact  that 
persons   who   enter   into   such   con- 
tracts  are   directors   of   a   railroad 
company    is    not    important    where 
public  policy  is  violated,  but  the  po- 
sition of  director  sometimes  creates 
the   public  policy,   for  it   is  public 
policy  not  to  permit  corporate  offi- 
cers to  make  contracts  which  may 
tempt  or  influence  them  to  betray 
their  trusts. 

189  Covington,  &c.  R.  Co.  v.  Bowler, 


9  Bush  (Ky.)  468.  See  Bill  v.  West- 
ern Union  Tel.  Co.  16  Fed.  14; 
Jones  v.  Arkansas,  &c.  Co.  38  Ark. 
17 ;  Bent  v.  Priest,  10  Mo.  App.  543 ; 
Dorris  v.  French,  4  Hun  (N.  Y.) 
292. 

190  Chase  v.  Vanderbilt,   62  N.  Y. 
307. 

191  McDonald  v.  Haughton,  70  N.  C. 
393;    Brewster  v.   Stratman,   4   Mo. 
App.   41;    Holladay  v.   Patterson,  5 
Oreg.    177;     Holladay    v.    Davis,    5 
Oreg.   40;    Duncomb  v.  New  York, 
&c.  R.  Co.  84  N.  Y.  190. 

182  Analogous  cases  sustain  the 
statement  of  the  text.  Smith  v. 
Lansing,  22  N.  Y.  520;  Ashurst's 
Appeal,  60  Pa.  St.  290;  Chester  v. . 
Dickerson,  54  N.  Y.  1,  13  Am.  R. 
550;  Getty  v.  Devlin,  54  N.  Y.  403. 
Seymour  v.  Spring  Forest,  &c.  Ass'n, 
144  N.  Y.  333,  39  N.  E.  365,  holds, 
and,  as  we  think,  correctly,  that 
there  are  cases  in  which  evidences 
of  corporate  Indebtedness  may  be 
bought  by  directors. 


397  DIRECTORS — DEALINGS    WITH    CORPORATION.  [§'   276 

Directors  have  no  general  right  to  loan  the  credit  of  the  company,  or 
to  issue  mere  accommodation  paper  in  the  name  of  the  company,  where 
no  consideration  is  yielded  the  company,193  except  in  cases  where  the 
act  of  incorporation  empowers  them  to  do  so,  or,  perhaps,  where  from 
long  usage  the  power  may  be  inferred.  Contracts  entered  into  by  di- 
rectors prejudicial  to  corporate  interests,  or  for  the  sole  purpose  of 
enabling  them  to  retain  control  of  the  corporate  affairs,  are  voidable.194 
Directors  cannot,  of  course,  enter  into  combinations  with  other  per- 
sons for  the  purpose  of  securing  to  such  persons  or  themselves  a  gain, 
profit  or  advantage  at  the  expense  of  the  corporation.195  It  is  a 
familiar  rule,  illustrated  by  cases  much  too  numerous  for  citation,  that 
all  dealings  between  directors  and  the  corporations  are  scrutinized 
with  great  care  and  avoided,  if  there  be  any  undue  advantage  taken  by 
the  directors,  or  any  concealment  or  deception,  and  this  general  rule 
applies  to  dealings  between  two  corporations  in  cases  where  the  di- 
rectors of  one  are  also  directors  of  the  other.196 

§276.  Directors — Dealings  with  corporation. — Directors  are  not, 
under  all  circumstances,  prohibited  from  dealing  with  the  company 
of  which  they  are  the  representatives.  If  there  is  entire  good  faith 
and  no  taint  of  fraud,  a  transaction  with  the  company  will  generally 
be  sustained.197  Contracts  made  by  a  director  with  the  company, 

193  Hutchinson  v.   Sutton,  &c.  Co.  226;   Boerum  v.  Schenck,  41  N.  Y. 

57  Fed.  998.  182;   Hoyle  v.  Pittsburg,  &c.  Co.  54 

184  Northern,  &c.  Co.  v.  Concord  R.  N.  Y.  314,  13  Am.  R.  595. 

Co.  50  N.  H.  166;  Bliss  v.  Matteson,  ^  Paine  v.  Lake  Erie,  &c.  Co.  31 

45  N.  Y.  22.  Ind.  283;  Polar  Star  Lodge  v.  Polar 

195  Jackson   v.  Ludeling,  21  Wall.  Star  Lodge,  16  La.  Ann.  76;  Abbot 

(U.  S.)  616;  Nelson  v.  Luling,  62  N.  v.  American,  &c.  Co.  33   Barb.    (N. 

Y.    645.      See,    generally,    Drury   v.  Y.)  578.    See,  also,  Wardell  v.  Union 

Cross,  7  Wall.  (U.  S.)  299;  Cook  v.  Pac.  R.  Co.  103  U.   S.  631;    Bill  v. 

Berlin,   &c.   Mill   Co.   43   Wis.   433;  Western   Un.   Tel.   Co.  16   Fed.   14; 

Fuller  v.   Dame,   18   Pick.    (Mass.)  Memphis,  &c.  R.  Co.  v.  Woods,   88 

472;    Stark  Bank  v.  United  States,  Ala.  630,  7  So.  108,  7  L.  R.  A.  605, 

&c.  Co.  34  Vt.  144 ;  Andrews  v.  Pratt,  16  Am.  St.  81 ;  Pearson  v.  Concord 

44  Cal.  309;  San  Diego  v.  San  Diego,  R.  Corp.  62  N.  H.  537,  13  Am.  St. 

&c.  R.  Co.  44  Cal.  106;  Richardson  590;  Parker  v.  Nickerson,  112  Mass. 

v.  Green,  133  U.  S.  30,  10  Sup.  Ct.  195. 

280;   McMurtry  v.  Montgomery,  &c.  M7  Wardell  v.  Railroad  Co.  103  U. 

Co.  86  Ky.  206,  5  S.  W.  570;  Dun-  S.   651;    Ryan  v.   Railroad   Co.   21 

comb  v.  New  York,  &c.  Co.  88  N.  Y.  Kans.  365;    Koehler  v.   Iron  Co.   2 

1;  Twin  Lick,  &c.  Co.  v.  Marbury,  91  Black.     (U.    S.)     715;     Michoud    v. 

U.  S.  587;   Harts  v.  Brown,  77  111.  Girod,  4  How.  (U.S.)  502;  Hotel  Co. 


§  276] 


DIRECTORS. 


398 


which  upon  close  scrutiny  appear  to  be  entirely  fair,  open  and  honest, 
will  be  upheld  by  the  courts.198  The  weight  of  authority  is  that  such 
contracts  are  not  void,  nor  always  even  voidable,199  although  there  is 
conflict  of  authority.  It  is  held  by  some  of  the  courts  that,  while  ex- 
ecutory, such  contracts  are  voidable  at  the  instance  of  the  corpora- 
tion,200 or  of  a  dissenting  stockholder.201  Contracts  with  directors 
may,  as  a  rule,  be  set  aside  upon  very  slight  grounds,  at  the  suit  of  any 
one  injured  thereby.202  Some  of  the  cases  hold  that  voidable  cont/acts 


v.  Wade,  97  U.  S.  13;  Van  Cott  v. 
Van  Brunt,  82  N.  Y.  535;  Densmore 
Oil  Co.  v.  .Densmore,  64  Pa.  St.  43. 
See  Bristol,  &c.  Co.  v.  Probasco,  64 
Ind.  406;  Greensboro,  &c.  Co.  v. 
Stratton,  120  Ind.  294,  22  N.  E.  247; 
Ward  v.  Polk,  70  Ind.  309;  Rogers 
v.  Hastings  R.  Co.  22  Minn.  25; 
Santa  Clara,  &c.  Co.  v.  Meredith,  49 
Md.  389,  33  Am.  R.  264;  Chandler 
v.  Monmouth  Bank,  1  Green  (N.  J.) 
255;  Shackelford  v.  New  Orleans, 
&c.  R.  Co.  37  Miss.  202;  New  Orle- 
ans, &c.  Co.  v.  Brown,  36  La.  Ann. 
138,  51  Am.  R.  5;  Cheeney  v.  La- 
fayette, &c.  R.  Co.  68  111.  570,  18 
Am.  R.  584;  Henry  v.  Rutland,  &c. 
R.  Co.  27  Vt.  435.  But  contracts  with 
a  director  must  be  entirely  free 
from  fraud.  Parker  v.  Nickerson, 
137  Mass.  487;  Hotel  Co.  v.  Wade,  97 
U.  S.  13. 

188  European,  &c.  R.  Co.  v.  Poor,  59 
Me.  277;  Stark  Bank  v.  U.  S.  Pot- 
tery Co.  34  Vt.  144;  Ashurst's  Ap- 
peal, 60  Pa.  St.  290. 

199  Claflin  T.  South  Carolina  R.  Co. 
8  Fed.  118;  Sims  v.  Street  R.  Co. 
37  Ohio  St.  556;  Central,  &c.  Rail- 
road Co.  v.  Claghorn,  1  Speers'  Eq. 
(S.  C.)  546;  Stratton  v.  Allen,  16 
N.  J.  Eq.  229;  Hallam  v.  Indianola 
Hotel  Co.  56  Iowa  178,  9  N.  W.  Ill; 
Stewart  v.  St.  Louis,  &c.  Co.  41  Fed. 
736. 

^Munson  v.  Syracuse,  &c.  R.  Co. 
103  N.  Y.  58,  18  N.  E.  355;  Aberdeen 
R.  Co.  v.  Blakie,  1  Macq.  461. 


201  Ward  v.  Salem  St.  Railway,  108 
Mass.  332;  Flint,  &c.  R.  Co.  v.  Dew- 
ey,  14  Mich.  477;  York,  &c.  R.  Co.  v. 
Hudson,   16   Beav.   485;    Wardell  v. 
Railroad  Co.  103  U.   S.   651;   Little 
Rock,  &c.  R.  Co.  v.   Page,  35  Ark. 
304;  Houston,  &c.  R.  Co.  v.  Van  Al- 
styne,  56  Tex.  439;  Duncomb  v.  New 
York,  &c.  R.  Co.  84  N.  Y.  190.  Where 
there  was  no  fraud  a  sale  by  a  di- 
rector of  property  to  a  corporation, 
which  is  approved  by  the  board  of 
directors  and  ratified  by  the  stock- 
holders,   will    not    be    held    invalid 
simply  because  the  sale  was  made 
for  a  sum  greatly  in  excess  of  the 
cost  of  the  property  to  the  director. 
Stewart  v.  St.  Louis,  &c.  R.  Co.  41 
Fed.  736.    In  the  case  cited  the  court 
said,  speaking  of  the  directors,  that 
"When  the  sale  to  the  company  was 
made  they   did  hold   a  position   of 
trust,  and  were  bound  in  their  offi- 
cial action  to  faithfully  and  honest- 
ly execute  their  duties,  and  not  to 
make  a  deal  where  their  personal 
interest    should    be    served    at    the 
expense  of  the  company  they  repre- 
sented." 

202  Twin  Lick  Oil  Co.  v.  Marbury, 
91  U.   S.   587,  and  numerous  cases 
cited.    It  is  held  that  a  purchase  by 
a  corporation  will  not  be  set  aside 
because  of  the  interest  of  one  of  the 
directors,    where    the    complaining 
stockholder  has  suffered  no  damage. 
Hill  v.  Nisbet,  100  Ind.  341.    A  con- 
tract made  by  the   directors   with 


399 


DIRECTORS — DEALINGS   WITH   CORPORATION. 


[§   276 


with  .a  director  may  be  ratified  by  acquiescence.203  It  is  also  held  that 
if  the  director  has  done  anything  toward  executing  the  contract,  it 
cannot  be  avoided  by  the  corporation  without  restoration  to  him  of 
what  the  corporation  received  under  it.204  Where  they  act  in  entire 
good  faith,  and  the  transaction  is  open  and  fair,  directors  may  pur- 
chase the  corporate  property.205  It  has  been  adjudged  that  they  may 
even  purchase  the  corporate  indebtedness,  and  enforce  a  judicial  sale 
of  the  property  to  themselves,  if  they  have  acted  in  good  faith  and 
given  the  stockholders  a  full  opportunity  to  make  advances  to  relieve 
the  corporation  from  embarrassment,  and  they  have  refused  to  do  so.206 
Where  a  director  has  necessarily  expended  money  in  good  faith  for 
the  corporation,  he  is  usually  entitled  to  be  reimbursed.207  So  a  di- 


two  of  their  number,  when  only  four 
were  present,  is  invalid.  Ailing  v. 
Wenzell,  27  111.  App.  511. 

203  Kelley  v.  Newburyport,  &c.  R. 
Co.  141  Mass.  496,  6  N.  E.  745;  Union 
Pac.  R.  Co.  v.  Credit  Mobilier,  135 
Mass.  367;  Ashurst's  Appeal,  60  Pa. 
St.  290.  Generally  a  party  who 
seeks  to  avoid  a  voidable  contract 
must  act  with  promptness.  Sey- 
mour v.  Spring  Forest  Cemetery 
Ass'n,  144  N.  Y.  .333,  39  N.  E.  365,  26 
L.  R.  A.  859. 

M4Duncomb  v.  New  York,  &c.  R. 
Co.  84  N.  Y.  190,  88  N.  Y.  1.  If  the 
officers,  directors  and  stockholders 
consent  to  a  contract  between  the 
corporation  and  a  director  and  keep 
the  property  thus  acquired,  the  con- 
tract will  not  be  voidable  merely 
because  made  with  a  director.  Bat- 
telle  v.  Northwestern  Cement  & 
Concrete  Pavement  Co.  37  Minn.  89, 
33  N.  W.  327. 

205  Ellis  v.  Boston,  &c.  R.  Co.  107 
Mass.  1 ;  Kitchen  v.  St.  Louis,  &c.  R. 
Co.  69  Mo.  224;  Buell  v.  Bucking- 
ham, 16  Iowa  284,  85  Am.  Dec.  516; 
Little  Rock,  &c.  R.  Co.  v.  Page,  35 
Ark.  304.  See  Hoyle  v.  Plattsburgh, 
&c.  R.  Co.  54  N.  Y.  314,  13  Am.  R. 
595.  A  purchase  by  a  director  of  a 
corporation,  without  an  order  of  the 
board  of  directors,  of  property  of 


the  corporation  in  satisfaction  of  his 
own  debt,  is  ratified  if  the  corpora- 
tion takes  up,  cancels  and  retains 
the  notes  held  by  him.  Beach  v. 
Miller,  130  111.  162,  22  N.  E.  464,  17 
Am.  St.  291,  28  Am.  &  Eng.  Corp. 
Cas.  468.  But  in  order  that  such  a 
transaction  may  repel  an  assault  by 
a  stockholder  or  creditor  prejudiced 
thereby  it  must  Le  entirely  free 
from  fraud.  Courts  are  reluctant  to 
permit  the  purchase  of  corporate 
property  by  any  of  the  corporate 
officers  and  scrutinize  such  transac- 
tions very  carefully.  Slade  v.  Van 
Vechten,  11  Paige  (N.  Y.)  21;  Mun- 
son  v.  Syracuse,  &c.  Co.  103  N.  Y. 
50,  8  N.  E.  355. 

200  Harts  v.  Brown,  77  111.  226.  See, 
also,  Patterson  v.  Portland  Smelting 
Works,  35  Oreg.  96,  56  Pac.  407.  But 
he  can  neither  buy  nor  sell  against 
the  wish  of  the  corporation  or  the 
stockholders,  excepting  by  judicial 
process  in  pursuance  of  a  fair  con- 
tract made  with  their  approbation, 
since  he  is  a  trustee,  and  no  trustee 
can  purchase  of  himself  nor  sell  to 
h'imself  over  the  objections  of  his 
cestui  que  trust.  Pearson  v.  Con- 
cord R.  Co.  62  N.  H.  537,  13  Am.  St. 
590,  and  numerous  cases  cited. 

20T  Rogers  v.  Hastings,  22  Minn. 
25;  Missouri  R.  Co.  v.  Richards,  8 


§  277] 


DIRECTORS. 


400 


rector  may  loan  money  to  the  corporation,  where  it  is  needed  for  its 
benefit,  if  he  act  fairly  and  openly,  and  may  purchase  the  corporate 
property  at  a  public  sale,  under  a  trust  deed  given  to  secure  it.208  Di- 
rectors acting  in  good  faith  are  in  many  cases  entitled  to  the  same 
rights  as  other  creditors.209  But  in  making  purchases  or  sales  for  the 
corporation,  they  cannot  directly  or  indirectly  speculate,  to  the  injury 
of  the  company,  for  their  own  advantage.210  It  is  held  that  contracts 
with  railroad  directors,  whereby  they  undertake,  for  a  compensation 
given  to  themselves,  to  alter  or  establish  their  road,  depots  or  works 
so  as  to  promote  private  interests,  are  void,  as  contravening  public 
policy.211  Such  cases  belong  to  the  class  which  equity  writers  char- 
acterize as  cases  of  constructive  fraud. 

§  277.    Directors — Termination  of  fiduciary  relations. — The  fidu- 
ciary relation  may,  of  course,  be  terminated  by  resignation,  removal 


Kans.  101.  Delivery  of  corporate 
stock  and  execution  of  a  mortgage 
on  corporate  property  by  a  board  of 
directors,  in  payment  of  corporate 
indebtedness,  is  not  rendered  void 
by  the  fact  that  several  directors 
became  guarantors  for  further  ad- 
vances to  the  corporation  after  its 
credit  had  been  exhausted,  and 
which  were  to  be  paid  by  the  deliv- 
ery of  the  stock.  Taylor  County  v. 
Baltimore  &c.  R.  Co.  35  Fed.  161. 

:os  Saltmarsh  v.  Spaulding,  147 
Mass.  224,  17  N.  E.  316;  Twin  Lick 
Oil  Co.  v.  Marbury,  91  U.  S.  587. 
See,  also,  Richardson  v.  Green,  133 
U.  S.  30,  10  Sup.  Ct.  280;  Taylor 
County  Court  v.  Baltimore,  &c.  R. 
Co.  35  Fed.  161.  But  if  he  attempts 
to  take  an  undue  advantage,  his 
mortgage  cannot  be  enforced.  Sut- 
ter  St.  R.  Co.  v.  Baum,  66  Cal.  44,  4 
Pac.  916.  A  director  of  a  railroad 
may  properly  own  its  bonds  and 
may  enforce  payment  in  case  of  de- 
fault by  foreclosure.  Duncomb  v. 
New  York,  &c.  R.  Co.  84  N.  Y.  190, 
88  N.  Y.  1;  Harpending  v.  Munson, 
91  N.  Y.  650.  An  officer  or  agent  of 
the  corporation,  capable  of  becom- 
ing its  creditor,  may  enforce  the  lia- 


bility of  creditors  notwithstanding 
his  relation  to  the  corporation.  Hall 
v.  Klinck,  25  S.  C.  348,  60  Am.  R. 
505. 

S09  Claflin  v.  South  Carolina  R.  Co. 
8  Fed.  (4  Hughes  12)  118.  A  stock- 
holder, and  even  a  director,  may  be- 
come a  creditor  of  a  corporation  in 
absence  of  fraud.  Borland  v.  Ha- 
ven, 37  Fed.  394. 

210  Manufacturers'    Sav.    Bank    v. 
Big  Muddy  Iron  Co.  97  Mo.  38,  10  S. 
W.  865;  Port  v.  Russell,  36  Ind.  60, 
10  Am.  R.  5;   Wayne  Pike  Co.  v. 
Hammons,  129   Ind.  368,  27  N.  E. 
487. 

211  Union  Pac.  R.  Co.  v.  Durant,  1 
Cent.  L.  J.   581;    Pacific  R.  Co.  v. 
Seely,  45  Mo.  212,  100  Am.  Dec.  369; 
Bestor  v.  Wathen,  60  111.  138.    It  is 
the  duty  of  a  director  to  manage 
the  corporate  business  for  the  profit 
of  the  stockholders,  and  he  cannot 
so  deal  with  its  property  as  to  make 
profit    for    himself.       Schetter    v. 
Southern  Oregon  Co.  19  Oreg.  192, 
24  Pac.  25;  Pearson  v.  Concord  R. 
Corp.  62  N.  H.  537,  13  Am.  St.  590; 
Hart  v.  Brockway,  57  Mich.  189,  23 
N.  W.  725. 


401  DIRECTORS — LIABILITY  OF — GENERALLY.  [§   278 

from  office,  or  the  like.  It  may  also  be  terminated  by  operation  of  law. 
So,  too,  conditions  may  so  change  as  to  sever  the  relation  and  leave 
the  director  as  free  to  act  as  if  the  relation  had  never  existed.212 

§  278.  Directors — Liability  of — Generally. — In  considering  the 
personal  liability  of  directors,  it  is  important  to  keep  in  mind  the  dis- 
tinction, heretofore  mentioned,  between  the  duties  of  the  directors  to 
the  corporation  and  its  share  holders,  and  their  duties  to  third  per- 
sons.213 As  to  the  corporation  they  are,  as  we  have  said,  trustees,  but 
as  to  third  persons  they  are  not  trustees,  simply  because  of  their  official 
relation  to  the  corporation  and  its  stockholders,  although  they  may 
doubtless  become  such  in  particular  instances.214  Where  there  is  a 
breach  of  duty  in  the  discharge  of  duties  owing  to  the  corporation 
there  is  a  breach  of  trust,  but  as  to  third  persons  a  breach  of  duty  is 
not  always  a  breach  of  trust.  From  the  doctrine  that  there  is  an  essen- 
tial difference  between  the  duty  to  the  corporation  and  the  duty  to 
third  persons,  consequences  of  importance  result.  It  is  obvious  that 
there  may  be  a  liability  to  the  corporation  or  stockholders,  where  there 
would  be  none  to  third  persons,  and  that  the  evidence  required  in  the 
one  class  of  cases  is  very  different  from  that  required  in  the  other 
class.  So,  too,  the  duty  in  the  one  class  of  cases  is  stricter  than  in  the 
other,  and  the  obligation  to  exercise  good  faith  much  higher.  Some 
of  the  cases  discriminate  between  officers  to  whom  compensation  is 
paid,  and  those  who  receive  no  pay  for  their  services,215  but  where 
persons  undertake  to  serve  a  business  corporation,  such  as  a  railway 

212  The  entire  plant  and  assets  of  Reid,  Murdock  &  Co.  159  Ind.  614, 
a  corporation,  having  been  sold  un-  64  N.  E.  870,  59  L.  R.  A.  199,  where 
der  an  assignment  for  the  benefit  of  the    authorities    on   both   sides   are 
creditors,  a  stockholder,  who  was  a  cited  in  the  prevailing  and  in  the 
director   and   the   treasurer   of  the  dissenting  opinions, 
corporation,  is  no  longer  a  trustee        21*  Wilkinson  v.  Bauerle,  41  N.  J. 
or  in  any  fiduciary  relation  to  the  Eq.  635,  7  Atl.  514.     See  Loverin  v. 
corporation,  which  will  prevent  him  McLaughlin,  161  111.  417,  44  N.  E.  99. 
from  taking  an  assignment  to  him-        **  Austin  v.  Daniels,  4  Denio   (N. 
self  of  corporate  debts,  which  he  has  Y.)    299;    Commercial  Bank  v.  Ten 
paid    personally,    and    participating  Eyck,  48  N.  Y.  305;  East  New  York, 
with  the  other  creditors  in  the  dis-  &c.  Co.  v.  Elmore,  5  Hun    (N.  Y.) 
tribution  of  the  fund.     Hammond's  214;  Pangborn  v.  Citizens',  &c.  Assn. 
Appeal,  123  Pa.  St.  503,  16  Atl.  419.  35    N.    J.   Eq.    341;    First   National 

213  Ante,  §  273;   Briggs  v.  Spauld-  Bank  v.  Reed,  36  Mich.  263;   Beach 
ing,  141  U.  S.  132,  11  Sup.  Ct.  924.  Railways,    §  486;     Taylor    Corpora- 
See,  as  to  preferring  themselves  as  tions  (5th  ed.),  §  618. 

creditors,  Nappanee  Canning  Co.  v. 
ELL.  RAILROADS — 26 


§•  279]  DIRECTORS.  402 

company,  it  seems  to  us  they  are  under  an  obligation  to  the  corpora- 
tion and  stockholders,  to  exercise  at  least  ordinary  care  and  diligence, 
whether  their  services  are  or  are  not  paid  for  by  the  corporation.  It 
is  no  doubt  true  that  in  determining  whether  ordinary  care  and  dili- 
gence has  been  exercised,  it  is  proper  to  consider  the  time  and  atten- 
tion that  directors  are,  under  the  circumstances  of  the  particular  case, 
bound  to  give  the  corporate  affairs,  but  this  does  not  lead  to  the  con- 
clusion that  the  directors  may  be  guilty  of  negligence,  and,  neverthe- 
less, be  exonerated  from  liability,  for  the  failure  to  exercise  ordinary 
care  and  diligence  is  negligence.  Whether  ordinary  care  and  diligence 
has  been  exercised  must  usually,  but  not  always,  be  a  question  of  fact 
to  be  determined  by  the  jury,  under  the  instructions  of  the  court.216 
It  may  be  said,  by  the  way,  that  it  is  only  just  and  natural  that  officers 
who  are  paid  for  devoting  their  time  and  attention  to  the  corporate 
affairs,  should  be  held  to  a  higher  degree  of  care  and  diligence,  than 
those  who  serve  without  compensation,  or  those  who  undertake  to  give 
only  a  part  of  their  time  and  services  to  the  corporation,  but  this  does 
not  authorize  the  conclusion  that  any  corporate  officer,  whether  paid 
or  not  paid  for  his  services,  may  neglect  the  duties  he  has  assumed, 
and  yet  not  be  held  liable  for  the  consequences  of  his  negligence.  The 
effect  to  be  ascribed  to  the  fact  that  no  compensation  is  paid  is  that 
it  is  in  all  cases  an  important  factor  in  determining  whether  ordinary 
diligence  was  exercised,  and  in  many  cases  a  controlling  one. 

§  279.  Directors — Liability  in  matter  of  contract. — Substantially 
the  same  rules  that  apply  to  corporate  officers  and  agents  generally,  re- 

218  Spering's  Appeal,  71  Pa.  St.  11,  cepting  the  position  of  director  of 
10- Am.  R.  684;  Hun  v.  Gary,  82  N.  a  business  corporation  men  do  so 
Y.  65,  37  Am.  R.  546,  citing  Scott  knowing  that  corporate  affairs  re- 
v.  De  Peyster,  1  Edw.  Ch.  513,  543;  quire  time  and  attention  as  well  as 
Hodges  v.  New  England,  &c.  Co.  1  the  exercise  of  reasonable  business 
R.  I.  312,  53  Am.  Dec.  624;  Liquida-  care  and  diligence,  and  they,  there- 
tors,  &c.  v.  Douglas,  22  Sess.  Cases  fore,  impliedly,  at  least,  undertake 
(2d  series)  (Scotch)  447,  32  Scotch  to  exercise  that  diligence  and  care. 
Jur.  212;  Charitable  Corporation  v.  In  regard  to  corporate  affairs  as 
Sutton,  2  Atk.  405;  Litchfield  v.  well  as  in  all  other  matters  the  ques- 
White,  7  N.  Y.  438,  57  Am.  Dec.  534.  tion  of  negligence  or  no  negligence 
It  seems  to  us  that  there  is  an  essen-  must,  in  a  very  great  measure,  de- 
tial  difference  between  cases  where  pend  upon  the  facts  of  the  particu- 
persons  serve  as  directors  of  a  char-  lar  case.  First  National  Bank  v. 
itable  corporation  and  cases  where  Ocean  National  Bank,  60  N.  Y.  278, 
they  assume  the  duties  of  directors  19  Am.  R.  181,  and  authorities  cited, 
of  a  business  corporation.  In  ac- 


403 


DIEECTORS — LIABILITY  IX 'MATTER  OF   CONTRACT.       [§   279 


specting  personal  liability  in  matters  of  contract,  govern  cases  where  a 
personal  liability  is  sought  to  be  imposed  upon  the  directors  of  a  rail- 
road company.  The  familiar  general  rule  is  that  where  an  officer  or 
agent  enters  into  a  contract  for  the  corporation,  in  its  name  and  by  its 
authority,  his  principal  alone  is  bound  and  he  incurs  no  personal  lia- 
bility. If  the  agent  exceeds  his  authority  he  may  incur  a  personal  lia- 
bility. So,  if  an  agent  executes  the  contract  in  his  own  name  he  may 
be  bound  to  the  person  with  whom  he  contracts.217  The  general  doc- 
trine is  that  directors,  so  long  as  they  act  within  the  scope  of  their 
powers,  bind  the  corporation  and  it  alone;  yet  their  acts  done  in  ex- 
cess of  such  powers  may  in  some  cases  bind  them  personally.218  As 
we  have  elsewhere  said,  directors  are  not  liable  for  the  consequences  of 
mistakes  which  they  may  make,  however  gross,  so  long  as  they  act  in 
good  faith  and  with  reasonable  care,219  and  keep  within  the  scope  of 
their  powers.220  It  is  often  said  that  the  directors  are  liable  for  any 
loss  resulting  from  their  acts  if  they  exceed  or  abuse  their  powers; 
but  this  is,  perhaps,  rather  a  broad  statement  of  the  rule  and  is  not  to 
be  taken  without  some  qualification.221 


m  Vincent  v.  Chapman,  10  Gill  & 
J.  (Md.)  279;  Mott  v.  Hicks,  1 
Cowen  (N.  Y.)  513;  Johnson  v.  Gib- 
son, 78  Ind.  282. 

218  Smith  v.  Poor,  3  Ware  (U.  S.) 
148;    Land  Credit  Co.  v.  Lord  Fer- 
moy,  L.  R.  8  Eq.  7.    See,  also,  Inter- 
national Contract  Co.,  In  re,  L.  R.  6 
Ch.  App.  525;  County  Palatine  Loan 
and  Discount  Co.,  In  re,  L.  R.  9  Ch. 
App.  691. 

219  As  where  they  are  misled  by 
counsel  whom  they  have  employed. 
Spering's  Appeal,  71  Pa.  St.  11,  10 
Am.  R.  684;  Van  Dyck  v.  McQuade, 
86  N.  Y.  38.     The  measure  of  care 
and    diligence   required   of   the   di- 
rectors of  a  corporation  is  generally 
such  as  a  prudent  man  exercises  in 
his  own  affairs,  but  must  be  deter- 
mined in  each  case  in  view  of  all 
the    circumstances.      Horn     Silver 
Min.  Co.  v.  Ryan,  42  Minn.  196,  44 
N.  W.  56,  28  A.  &  E.  Corp.  Cas.  657. 

220  Percy  v.  Millaudon,  8  Martin  N. 


S.  (La.)  68;  Hodges  v.  New  Eng- 
land Co.  3  R.  I.  9;  Dunn  v.  Kyle,  14 
Bush  (Ky.)  134;  Vance  v.  Phoenix 
Ins.  Co.  4  Lea  (Tenn.)  385. 

221  National  Exchange  Bank  v.  Sib- 
ley,  71  Ga.  726;  Cole  v.  Cassidy,  138 
Mass.  437,  52  Am.  R.  284;  Paddock 
v.  Fletcher,  42  Vt.  389;  Morgan  v. 
Skiddy,  62  N.  Y.  319.  Directors  who 
vote  for  a  resolution  to  illegally  is- 
sue and  negotiate  notes  of  the  cor- 
poration, incur  a  personal  liability 
to  the  corporation  where  such  notes 
come  into  the  hands  of  bona  fide 
purchasers.  Metropolitan  Elev. ,  R. 
Co.  v.  Kneeland,  120  N.  Y.  134,  24 
N.  E.  381,  8  L.  R.  A.  253,  17  Am.  St. 
619.  Directors  of  a  company  which 
has  received  the  assets  of  another 
company  and  has  assumed  its  debts, 
who  misapply  the  assets  of  the  old 
company,  thereby  render  themselves 
individually  liable  to  its  creditors. 
Nat.  Bank  of  Jefferson  v.  Texas  In- 
vest. Co.  74  Tex.  421,  12  S.  W.  101. 


280] 


DIRECTORS. 


404 


§280.  Directors — Errors  of  judgment. — Where  directors  act  in 
good  faith  and  with  reasonable  care  and  diligence,  not  going  beyond 
the  scope  of  their  authority,  they  are  not.  personally  liable  for  losses 
that  may  occur  although  they  may  not  have  wisely  exercised  their  dis- 
cretion or  may  have  erred  in  judgment.  They  are  required  to  act  in 
good  faith  and  to  exercise  reasonable  care  and  diligence,  but  their 
duty  imposes  upon  them  no  higher  or  greater  obligations.  Mistake  of 
judgment  or  bad  business  management  is  not  of  itself  sufficient  to 
create  a  personal  liability.222 

§  281.  Directors — Liability  for  negligence. — We  have  elsewhere 
said  that  directors  are  bound  to  exercise  ordinary  or  reasonable  care 
and  diligence  in  the  discharge  of  their  duties;  that  the  failure  to  do 
so  is  negligence,  but  that  what  shall  be  deemed  negligence  depends, 
as  a  rule,  upon  the  facts  of  the  particular  case.  At  this  place  our  pur- 
pose is  to  direct  attention  to  some  of  the  cases  enforcing  and  applying 
the  doctrines  stated.  A  director  is  personally  liable  for  any  acts  of  the 
board  of  which  he  is  a  member  constituting  culpable  negligence,223  or 
amounting  to  a  fraudulent  breach  of  trust,224  unless  he  can  show  that 
he  sought  to  prevent  such  action,  if  present  when  the  action  was 
taken,225  or  that  he  labored  to  avert  its  injurious  consequences  after 
it  came  to  his  knowledge.226 


222  Hun  v.   Gary,   82  N.   Y.   65,  37 
Am.   R.  546;    Excelsior,  &c.  Co.  v. 
Lacey,  63  N.  Y.  422;   Spering's  Ap- 
peal, 71  Pa.  St.  11,  10  Am.  R.  684; 
Overend  v.  Gurney,  L.  R.  4  Ch.  701; 
Overend  v.  Gibb,  L.  R.  5  H.  L.  480; 
Turquand  v.  Marshall,  L.  R.  4  Ch. 
376;  Vance  v.  Phoenix,  &c.  Co.  4  Lea 
(Tenn.)    385;    Godbold    v.    Branch 
Bank,  &c.  11  Ala.  191,  46  Am.  Dec. 
211;   Citizens',  &c.  Assn.  v.  Coriell, 
34   N.   J.   Eq.   383;    Charitable   Cor- 
poration   v.     Sutton,    2    Atk.    400; 
Percy  v.  Millaudon,  8  Mart.  N.  S. 
(La.)  68. 

223  Beal  v.  Osborne,  72  Cal.  305,  13 
Pac.  871;  Myer  v.  Caperton,  87  Ky. 
306,  8   S.  W.  885,  12  Am.   St.  488; 
Cady  v.  Sanford,  53  Vt.  632;   Sper- 
ing's Appeal,  71  Pa.  St.  11,  10  Am. 
R.  684;    Marshall  v.  Farmers',  &c. 
Bank,  85  Va.  676,  8  S.  E.  586,  2  L. 


R.  A.  534,  17  Am.  St.  84,  and  note 
reviewing  authorities.  Directors  of 
a  corporation  are  personally  liable 
for  permitting  the  corporate  funds 
or  property  to  be  wasted  or  lost  by 
inexcusable  negligence  or  inatten- 
tion to  the  duties  they  assume  in 
accepting  the  office  of  director. 
Horn  Silver  Min.  Co.  v.  Ryan-,  42 
Minn.  196,  44  N.  W.  56,  28  Am.  & 
Eng.  Corp.  Gas.  657. 

224  Sims  v.  Street  R.  Co.  37  Ohio 
St.  556;  Colquitt  v.  Howard,  11  Ga. 
556;   Smith  v.  Poor,  40  Me.  415,  63 
Am.  Dec.  672;  Hazard  v.  Durant,  11 
R.  I.  195. 

225  Unless,   being  present  through 
only  part  of  the  session,  he  had  no 
knowledge  of  the  facts.  Land  Credit 
Co.  v.  Fermoy,  L.  R.  5  Ch.  763. 

220  Metropolitan    R.    Co.    v.    Knee- 
land,  120  N.  Y.  134,  24  N.  E.  381,  8 


405 


FRAUD   OST  THIRD  PERSONS. 


[§  "282 


§  282.  Directors — Fraud  on  third  persons. — Directors  who  make 
false  and  fraudulent  representations  of  fact,  thereby  causing  loss  to 
innocent  third  persons  who  act  upon  the  faith  of  the  truth  of  the 
representations,  are  personally  liable  to  such  persons.227  It  is  essential 
to  a  recovery  in  such  cases  that  it  be  proved  by  the  plaintiff  that  the 
representations  were  false.  But  it  is  held,  with  good  reason  and  upon 
authority,  that  it  is  not  necessary  that  the  plaintiff  should  show 
that  the  representations  were  made  with  intent  to  defraud.228  The 
representations  may  be  made  in  various  forms.  The  form  in  which 
they  are  made  is  not  regarded  as  material,  for  if  they  were  made  and 
did  result  in  defrauding  a  right-doing  third  person  he  is  entitled  to 
recover.  The  question  has  arisen  in  many  forms ;  thus,  where  the  di- 
rectors knowingly  issued  fraudulent  stock  or  bonds,  they  were  held  to 
be  individually  liable  to  any  purchaser  or  subsequent  transferee  in 
good  faith  and  without  notice  of  the  fraudulent  character  of  the  stock 
or  bonds.229  So,  the  making  of  false  and  fraudulent  statements  as  to 


L.  R.  A.  253,  17  Am.  St.  619;  Black 
v.  Delaware,  &c.  Canal  Co.  22  N.  J. 
Eq.  130,  420;  Percy  v.  Millaudon,  3 
La.  568;  Shea  v.  Mabry,  1  Lea 
(Tenn.)  319. 

227  Tyler  v.  Savage,  143  U.  S.  79, 
12  Sup.  Ct.  340;  Tate  v.  Bates,  118 
N.  Car.  287,  24  S.  E.  482,  54  Am.  St. 
719;  Salmon  v.  Richardson,  30  Conn. 
360,  79  Am.  Dec.  255;  Prescott  v. 
Haughey,  65  Fed.  R.  653.  In  the 
last  case  cited,  Baker,  J.,  delivered 
a  strong  and  well-reasoned  opinion, 
in  the  course  of  which  it  was  said: 
"The  fraudulent  representations 
charged  in  the  complaint,  if  made 
under  color  of  their  office,  were  en- 
tirely outside  of  the  official  duties 
of  the  directors.  Neither  the  law, 
nor  the  obligations  of  their  office 
made  it  any  part  of  their  duty  to 
utter  and  publish  false  and  fraudu- 
lent statements  and  reports  in  re- 
gard to  the  condition  of  the  bank. 
The  tort  for  which  they  are  sued 
was  committed  in  their  private  and 
personal  capacity,  because  the  law 
does  not  confer  upon  such  officers 


any  authority  to  commit  frauds  of 
the  character  complained  of.  These 
directors  have  used  their  official  po- 
sition to  enable  them  to  perpetrate 
a  fraud  on  the  plaintiff  entirely  out- 
side of  the  legitimate  scope  of  their 
duties."  The  court  discriminated 
between  the  case  before  it  for  judg- 
ment and  that  of  Bailey  v.  Mosher, 
11  C.  C.  A.  304,  63  Fed.  488. 

228  Scale  v.  Baker,  70  Tex.  283,  7  S. 
W.  742,  8  Am.  St.  592. 

229  Hornblower  v.  Crandall,  78  Mo. 
581;    Bruff  v.  Mali,  36   N.   Y.   200; 
National  Exch.  Bank  v.   Sibley,   71 
Ga.    726.      Acts    16th    Gen.    Assem. 
Iowa,  c.   123,   §   6,  provides  that  if 
the    directors    of    any    railroad    of 
three-feet     gauge     receiving    taxes 
voted  in  aid  thereof  under  the  act 
shall  vote  to  mortgage  or  incumber 
the  road  for  more  than  $16,000  per 
mile,  they,  or  those  voting  in  the 
affirmative,  shall  be  liable  to  each 
stockholder   in    an    amount    double 
the  par  value  of  his  stock,  if  the 
stock  is  rendered  less  valuable  there- 
by.   Under  this  statute  it  was  held 


§'  282] 


DIRECTORS.. 


40G 


the  value  of  the  stock  or  condition  of  the  business  of  the  corporation, 
or  other  matters  peculiarly  within  their  knowledge,230  will  render  the 
directors  liable  to  the  parties  to  whom  they  were  made  and  who  acted 
upon  them  for  all  damages  which  they  sustain  thereby.  Actionable 
false  and  fraudulent  representations  may  be  made  in  a  prospectus231 
or  report232  officially  issued,  and,  as  a  general  rule,  all  persons  into 
whose  hands  such  prospectus  or  statement  may  come,  have  a  right  to 
rely  upon  them  and  to  hold  the  directors  personally  responsible  for 
losses  sustained  by  reason  of  acting  upon  a  belief  in  their  truth.238  As 
a  general  rule  only  those  directors  who  participated  in  the  fraud  are 
personally  liable,234  and  to  entitle  a  plaintiff  to  recover,  such  partici- 
pation or  at  least  knowledge  and  acquiescence  therein  must  be 
proved,235  since  the  court  will  not,  in  the  absence  of  evidence,  indulge 
the  presumption  that  a  director  knows  of  the  frauds  of  his  associates. 
The  authorities  are  numerous  upon  the  general  question  and  support 
the  general  statement  of  the  opening  sentence  of  this  section.236  In 


that  persons  receiving  shares  for 
taxes  voted  and  paid  after  a  mort- 
gage for  more  than  $16,000  per  mile 
had  been  executed  and  recorded 
could  not  recover  against  the  di- 
rectors who  voted  the  same.  Walker 
v.  Birchard,  82  Iowa  388,  48  N.  W. 
71. 

^Seale  v.  Baker,  70  Tex.  283,  7 
S.  W.  742,  8  Am.  St.  592,  and  note; 
Morgan  v.  Skiddy,  62  N.  Y.  319; 
Vreeland  v.  New  Jersey,  &c.  Co.  29 
N.  J.  Eq.  188.  If  the  statements  be 
as  to  matters  of  law  and  mere  opin- 
ion, the  directors  are  not  bound. 
New  Brunswick,  &c.  R.  Co.  v.  Cony- 
bear,  9  H.  L.  Gas.  711;  Rashdall  v. 
Ford,  L.  R.  2  Eq.  750;  Morgan  v. 
Skiddy,  62  N.  Y.  319. 

231  Morgan  v.  Skiddy,  62  N.  Y.  319; 
United     Society    v.    Underwood,     9 
Bush  (Ky.)  609,  15  Am.  R.  731. 

232  Salmon  v.  Richardson,  30  Conn. 
360,   79   Am.   Dec.   255;    Warren   v. 
Para,  &c.  Co.  166  Mass.  97,  44  N.  E. 
112. 

233  Peek  v.  Gurney,  L.  R.  6  H.  L. 
377;  Vreeland  v.  N.  J.  Stone  Co.  29 


N.  J.  Eq.  188.  The  rule  stated  would 
not  apply  if  the  persons  into  whose 
hands  such  instruments  came  knew 
that  the  statements  were  not  true, 
or  if  they  were  guilty  of  such  neg- 
ligence as  would,  under  the  ordinary 
rules  of  law,  prevent  a  recovery  for 
a  loss  caused  by  fraudulent  repre- 
sentations. 

^Cargill  v.  Bower,  L.  R.  10  Ch. 
Div.  502. 

^Arthur  v.  Griswold,  55  N.  Y. 
400. 

238  United  Society  v.  Underwood, 
72  Ky.  609,  15  Am.  R.  731;  Graves 
v.  Bank,  73  Ky.  23,  19  Am.  R.  50; 
Bartholomew  v.  Bentley,  15  Ohio 
659,  45  Am.  Dec.  596;  Cross  v. 
Sackett,  6  Abb.  Pr.  (N.  Y.)  247; 
Cazeaux  v.  Mali,  25  Barb.  (N.  Y.) 
578;  Morgan  v.  Skiddy,  62  N.  Y. 
319;  Johnson  v.  Gorlett,  3  C.  B.  (N. 
S.)  569;  Clarke  v.  Dickson,  6  C.  B. 
(N.  S.)  452;  Peek  v.  Deny,  L.  R.  37 
Ch.  Div.  541,  585;  Delano  v.  Case, 
121  111.  247,  12  N.  E.  676,  2  Am.  St. 
81;  Neall  v.  Hill,  16  Cal.  145,  76  Am. 
Dec.  508;  Marshall  v.  Bank,  85  Va. 


407 


DIRECTORS — FRAUD   OX    THIRD   PERSONS. 


[§    282 


many  of  the  states  the  directors  are  by  statute  made  personally  liable 
for  corporate  debts  created  beyond  their  subscribed  capital  stock,237 
and  are  also  made  liable  for  debts  in  case  they  declare  and  pay  div- 
idends unlawfully.238  The  making  of  a  report  as  to  the  business  and 
financial  condition  of  a  railroad  corporation  which  is  false  in  any 
material  representation  renders  the  officers  signing  it  liable  for  all 
debts  of  the  corporation  contracted  while  they  are  such  officers  thereof 
in  Arkansas,  Texas  and  Nevada ;  and  renders  them  liable  to  a  penalty 
in  Michigan ;  and  making  such  a  report  is  a  misdemeanor  in  Nevada 
and  Minnesota.239 


676,  8  S.  E.  586,  2  L.  R.  A.  534, 17  Am. 
St.  84;  Wallace  v.  Bank,  89  Tenn. 
630,  15  S.  W.  448,  24  Am.  St.  625; 
Salmon  v.  Richardson,  30  Conn.  360, 
79  Am.  Dec.  255;  Morawetz  Corp. 
(2d  ed.)  §  573;  Taylor  Corp.  (5th 
ed.)  §  616;  Cooley  Torts  (3rd  ed.), 
578,  579.  See,  generally,  Clark  v. 
Edgar,  84  Mo.  106,  54  Am.  R.  84; 
Nat.  Exchange  Bank  v.  Sibley,  71 
Ga.  726;  Peck  v.  Cooper,  112  111.  192, 
54  Am.  R.  231;  Wyandotte  v.  Corri- 
gan,  35  Kans.  21;  Peek  v.  Gurney, 
Law  R.  6  H.  L.  377. 

^Stimson  Am.  Stat.  (1892) 
$  8232;  Cal.  Civ.  Code,  §  309,  making 
directors  of  corporations  individu- 
ally -liable  for  debts  created  beyond 
their  subscribed  capital  stock,  was 
held  applicable  to  all  the  subscribed 
capital  stocks,  irrespective  of  the 
mode  of  disposition,  and  whether 
paid  in  or  not.  But  the  debts  re- 
ferred to  did  not  include  capital 
stock  paid  for  corporate  property. 
Moore  v.  Lent,  81  Cal.  502,  22  Pac. 
875. 


^Stimson  Am.  Stat.  (1892) 
§§  8161,  8634.  Other  states  make 
the  directors  liable  to  a  penalty. 
Stimson  Am.  Stat.  (1892)  §§  8161, 
8634. 

^Stimson  Am.  Stat.  (1892) 
§  8544.  See  Niles  v.  Dodge,  70  Ind. 
147;  State  v.  Cox,  88  Ind.  254;  Fair- 
banks, &c.  Co.  v.  Macleod,  8  Colo. 
App.  190,  45  Pac.  282;  Lehman  v. 
Knapp,  48  La.  1148,  20  So.  674.  See, 
generally,  Stone  v.  Kellogg,  62  111. 
App.  444;  Rose  v.  Eclipse,  &c.  Co. 
60  Mo.  App.  28;  Greenville,  &c.  Co. 
v.  Reis,  54  Ohio  549,  44  N.  E.  271; 
Solomon  v.  Bates,  118  N.  C.  311,  24 
S.  E.  478,  54  Am.  St.  725.  Rights 
of  directors  under  statutes  prefer- 
ring claims  of  laborers.  Consoli- 
dated, &c.  Co.  v.  Keystone,  &c.  Co. 
54  N.  J.  309,  35  Atl.  157.  As  to  who 
are  proper  parties  where  the  right 
to  the  office  of  director  is  involved, 
see  Dusenbury  v.  Looker,  110  Mich. 
58,  67  N.  W.  986. 


CHAPTER  XIII. 


EXECUTIVE  AND  MINISTERIAL  OFFICERS   AND  AGENTS. 


Sec. 

283.  President — Generally. 

284.  President — Incidental    powers 

•of. 

285.  President — Implied  powers. 

286.  President — P  o  w  e  r  s    implied 

from  grant  of  authority  by 
the  board  of  directors. 

287.  President — Influence  of  usage. 

288.  President — Apparent     author- 

ity. 

289.  President — Ratification  of  un- 

authorized acts. 

290.  President — Dealings  with  cor- 

poration. 

291.  President — Relation   to   share- 

holders. 

292.  Treasurer — Generally. 


Sec. 

293.  Treasurer  —  Duties  —  Liabili- 

ties. 

294.  Treasurer — Care  of  corporate 

funds. 

295.  Secretary. 

296.  Managing  agents. 

297.  Superintendent. 

298.  Superintendent — General    con- 

clusion. 

299.  Intermediate  agents. 

300.  Intermediate     agents  — Agent 

for  one  purpose  not  for  an- 
other. 

301.  Intermediate  agents  and  serv- 

ants distinguished. 

302.  Conductors. 

303.  Station  agents. 


§  283.  President — Generally. — Eailroad  companies  are  generally 
required  to  elect  a  president,1  who  is,  ordinarily,  the  chief  executive 
officer  of  the  company.2  It  can  hardly  be  said  that  the  powers  and 
duties  of  a  president  of  a  railway  company  are  prescribed  and  defined 
by  the  general  principles  of  law,  for,  as  a  rule,  recourse  must  be  had  to 
the  act  of  incorporation  or  to  the  corporate  by-laws  to  ascertain  what 


1  The  president  must  be  chosen  by 
the  body  to  which  the  act  of  incor- 
poration grants  the  right  to  elect. 
An  election  by  the  stockholders, 
where  the  charter  requires  the 
board  of  directors  to  elect,  is  a  nul- 
lity. Walsenburg,  &c.  Co.  v.  Moore, 
5  Colo.  App.  144,  38  Pac.  60. 

*  Provision  is  often  made  for  the 
election  of  a  vice-president,  but,  as 
a  rule,  he  only  acts  in  the  absence 


of  the  president,  although  active, 
independent  duties  may  be  required 
of  him,  if  the  company  so  desires, 
and  no  provision  of  the  charter  for- 
bids. .Colman  v.  West  Virginia,  &c. 
Co.  25  W.  Va.  148;  Chicago,  &c.  Co. 
v.  James,  22  Wis.  194;  Chicago,  &c. 
Co.  v.  James,  24  Wis.  388;  Richards 
v.  Osoeola,  79  Iowa  707,  45  N.  W, 
204. 


408 


409 


PRESIDENT GENERALLY. 


[§'   283 


these  powers  and  duties  are.  Some  of  the  cases  hold  that  he  has  no 
greater  powers  by  virtue  of  his  office  than  any  other  director  except 
that  he  is  the  presiding  officer  at  the  meetings  of  the  board  of  direct- 
ors.3 It  seems  to  us,  however,  that  the  powers  of  the  president  are 
greater  and  more  comprehensive  than  those  of  an  individual  director, 
for  he  may  act  for  the  company  in  ordinary  business  affairs,  and  this 
an  individual  director  cannot  do;  but  the  president  cannot,  of  course, 
effectively  exercise  powers  which  belong  to  the  board  of  directors.  We 
think  it  may  be  safely  said  that  in  ordinary  routine  business  matters 
the  president  may  act  for  the  company  unless  his  powers  are  so  cir- 
cumscribed and  limited  by  the  act  of  incorporation  or  the  corporate 
by-laws  as  to  exclude  the  operation  of  the  general  rules  of  law.  We 
know  that  the  authorities  are  in  conflict  upon  this  question,  but  we 
believe  that  the  trend  of  modern  authority  is  strongly  in  favor  of  the 
conclusion  we  have  stated.  Some  of  the  decisions  contain  loose  general 
statements  that  cannot  justly  be  regarded  as  authoritative,  but  must 
be  taken  to  be  mere  dicta.  There  is,  however,  a  sharp  conflict  in 
the  authorities  which  it  is  not  possible  to  reconcile.4  While  the 
president  of  a  railroad  may,  as  we  believe,  act  for  the  corporation  in 


'Dabney  v.  Stevens,  10  Abb.  Pr. 
(N.  S.)  39;  Adriance  v.  Roome,  52 
Barb.  (N.  Y.)  399;  Risley  v.  Indi- 
anapolis, &c.  1  Hun  (N.  Y.)  202; 
Titus  v.  Cairo,  &c.  R.  Co.  37  N.  J. 
L.  98.  See,  generally,  Chicago,  &c. 
Co.  v.  James,  22  Wis.  194;  Hodges 
v.  Rutland,  &c.  29  Vt.  220;  Bacon 
v.  Mississippi,  &c.  Co.  31  Miss.  116; 
Templen  v.  Chicago,  &c.  Co.  73  Iowa 
548,  35  N.  W.  634,  34  Am.  &  Eng. 
R.  Cas.  107. 

4  Sustaining  the  doctrine  of  the 
text.  Sherman,  &c.  Co.  v.  Swigart, 
43  Kans.  292,  23  Pac.  569,  19  Am.  St. 
137;  Mitchell  v.  Deeds,  49  111.  416,  95 
Am.  Dec.  621;  Washburn  v.  Nash- 
ville, &c.  Co.  3  Head  (Tenn.)  638, 
75  Am.  Dec.  784;  Chicago,  &c.  Co.  v. 
Coleman,  18  111.  297,  68  Am.  Dec. 
544;  Blen  v.  Bear  River,  &c.  Co.  20 
Cal.  602,  81  Am.  Dec.  132;  Ceeder  v. 
Loud,  &c.  Co.  86  Mich.  541,  49  N.  W. 
575,  24  Am.  St.  134;  Oakes  v. 
Cattaraugus,  &c.  Co.  143  N.  Y.  430, 


38  N.  E.  461,  26  L.  R.  A.  544; 
Thomas  v.  City,  &c.  Bank,  40  Neb. 
501,  58  N.  W.  943,  24  L.  R.  A.  263; 
Los  Angeles,  &c.  Co.  v.  Los  Angeles, 
106  Cal.  156,  39  Pac.  535;  Hawley  v. 
Gray  Bros.  &c.  Co.  106  Cal.  337,  39 
Pac.  609;  Gray  v.  Waldron,  101 
Mich.  612,  60  N.  W.  288.  Contra, 
Lyndon,  &c.  Co.  v.  Lyndon,  &c.  Inst. 
63  Vt.  581,  25  Am.  St.  783;  Wait  v. 
Nashua,  &c.  Association,  66  N.  H. 
581,  23  Atl.  77,  14  L.  R.  A.  356,  49 
Am.  St.  630,  34  Cent.  L.  J.  119; 
Mount  Sterling,  &c.  Co.  v.  Looney, 
1  Mete.  (Ky.)  550,  71  Am.  Dec.  491; 
Brooklyn,  &c.  Co.  v.  Slaughter,  33 
Ind.  185.  A  valuable  article,  rich 
in  authority,  by  Judge  Seymour  D. 
Thompson,  in  39  Cent.  L.  J.  200, 
presents  both  sides  of  the  question 
very  fully.  Copious  notes  will  be 
found  in  Wait  v.  Nashua,  &c.  Assn. 
14  L.  R.  A.  256,  and  in  Templen  v. 
Chicago,  &c.  73  Iowa  548,  35  N.  W. 
634,  34  Am.  &  Eng.  R.  Cas.  107. 


§    284]        EXECUTIVE   AND   MINISTERIAL   OFFICERS   AND   AGENTS.       410 

ordinary  matters  of  routine  business,  he  is  merely  an  officer  and  not  the 
corporation.5  He  cannot  perform  the  duties  of  the  board  of  direc- 
tors, nor  can  he  perform  those  conferred  upon  other  corporate  offi- 
cers by  the  act  of  incorporation  or  the  by-laws,  neither  can  he  ef- 
fectively perform  acts  outside  of  the  ordinary  business  affairs  or  trans- 
actions of  the  company.6 

§  284.  President — Incidental  powers  of. — As  indicated  in  the  pre- 
ceding section,  our  opinion  is  that  the  president  of  a  railroad  company 
possesses  incidental  powers  of  considerable  scope  in  all  cases,  except, 
perhaps,  in  those  where  the  act  of  incorporation  or  the  by-laws  so 
clearly  and  fully  prescribe  and  define  his  powers  as  to  exclude  all  irn- 
plied  power.  The  rule  applied  to  charitable  corporations  cannot,  it 
seems  to  us,  be  applied  to  railway  companies,  so  that  the  cases  laying 
down  the  law  as  to  the  powers  of  the  president  of  educational,  literary, 
benevolent  corporations,  or  the  like,  ought  not  to  be  unqualifiedly  ac- 
cepted as  authoritatively  declaring  the  law  applicable  to  the  presidents 
of  railroad  companies.  Judges  know  ex  officio  that  in  the  conduct  and 
management  of  railway  companies  there  are  matters  requiring  daily  at- 
tention and  that  of  those  matters  disposition  must  be  made  promptly 
and  effectively  without  calling  together  the  board  of  directors  for  for- 
mal action.  So,  too,  it  is  a  matter  of  judicial  knowledge  that  railroad 
companies  are  often  consolidated,  that  interests  of  great  magnitude  are 
combined,  that  many  miles  of  railroad  are  placed  under  one  manage- 
ment, and  that  directors  often  reside  far  apart  and  far  distant  from  the 
principal  office.  In  view  of  these  considerations,  and  others  which  might 
be  suggested,  it  is  but  reasonable  and  natural  to  hold  that  in  many 
respects  the  powers  of  the  chief  executive  or  ministerial  officers  of  a 
railroad  company  are  more  comprehensive  than  those  of  a  corporation 
of  a  different  nature,  such  as  a  manufacturing,  mining  or  banking 
company,  although  in  other  respects,  as  the  borrowing  of  money,  or  the 

5Bi-Spool,  &c.  Co.  v.  Acme,  &c.  Co.  Dec.  116;  Bliss  v.  Kaweah,  &c.  Co. 

153  Mass.  404,  26  N.  E.  991.  65    Cal.    502,    4    Pac.    507;    Leggett 

"Bleu  v.  Bear  River,  &c.  Co.  20  v.  New  Jersey,  &c.  Co.  1  N.  J.  Eq. 
Cal.  602,  81  Am.  Dec.  132;  Siebe  v.  541,  23  Am.  Dec.  728.  See,  also,  Yel- 
Joshua,  &c.  Co.  86  Cal.  390,  25  Pac.  low  Jacket,  &c.  Min.  Co.  v.  Steven- 
14;  Castle  v.  Belfast,  &c.  Co.  72  Me.  son,  5  Nev.  224;  Allentown  First 
167;  Risley  v.  Indianapolis,  &c.  Co.  Nat.  Bank  v.  Hoch,  89  Pa.  St.  324, 
1  Hun  (N.  Y.)  202;  Walworth  33  Am.  R.  769.  The  doctrine  is  car- 
County  Bank  v.  Farmers',  &c.  Co.  ried  very  far  in  the  case  of  Asher 
14  Wis.  325;  Crump  v.  United  States,  v.  Sutton,  31  Kans.  286,  1  Pac.  535. 
&c.  Co.  7  Gratt.  (Va.)  352,  56  Am. 


411  PRESIDENT IMPLIED   POWERS.  [§    285 

like,  they  are  not  so  comprehensive  as  those  of  a  president  of  a  cor- 
poration of  that  class.  It  is  safe,  at  all  events,  to  affirm  that  the  presi- 
dent of  a  railroad  company  does  possess  implied  or  incidental  powers, 
and  that  his  powers  extend  beyond  those  expressly  conferred  upon  him 
by  the  board  of  directors.  He  may  do  many  acts  without  direct  or  ex- 
press authority  from  the  board  of  directors  of  the  company. 

§  285.  President — Implied  powers. — It  is  difficult  in  some  cases  to 
determine  what  powers  the  president  possesses  as  incident  to  the  office 
bestowed  upon  him,  or  as  implied  from  the  general  nature  of  the  au- 
thority conferred  upon  him  by  the  company.  A  contract  of  an  unusual 
character,  as,  for  instance,  a  contract  for  the  construction  of  the  road, 
he  has  no  implied  power  to  make,  since  that  is  a  contract  of  an  extraor- 
dinary character,  at  least  it  is  one  beyond  the  range  of  ordinary  cor- 
porate business.7  He  cannot  rightfully  sell  all  the  personal  property 
of  the  corporation,  nor,  perhaps,  any  very  considerable  part  of  it,  un- 
less authorized  by  the  board  of  directors;8  but  we  venture  to  affirm, 
notwithstanding  some  decisions  to  the  contrary,  that  he  may  sell  par- 
ticular articles  of  personal  property  without  express  authority  from  the 
board,  as,  for  example,  a  car  or  a  locomotive.  The  president  does  not 
merely  by  virtue  of  his  office,  possess  authority  to  dispose  of  all  of  the 
assets  of  the  company,  for  such  an  act  is  one  beyond  the  scope  of  his 
authority.9  Some  of  the  cases  assert  that  the  president  cannot  pur- 
chase property  for  the  corporation,10  but  we  think  that  he  may  within 
reasonable  limits  purchase  property  required  for  use  in  the  ordinary 
course  of  the  corporate  business,  but  that  the  authority  to  purchase  is 
a  limited  one.  The  president,  under  ordinary  circumstances,  has  no 
implied  power  to  release  parties  from  liability  to  the  corporation.11 

7  Griffith  v.  Chicago,  &c.  R.  Co.  74  98;  Asher  v.  Button,  31  Kans.  286, 

Iowa  85,  36  N.  W.  901;  Templin  v.  1  Pac.  535.    As  suggested  in  the  pre- 

Chicago,  &c.  R.  Co.  73  Iowa  548,  35  ceding  section,  we  are  inclined  to 

N.  W.  634;   Risley  v.  Indianapolis,  think  that  cases  such  as  those  cited 

&c.  R.  Co.  1  Hun  (N.  Y.)  202;  Cen-  in  this  note  cannot  apply  with  full 

tral,  &c.  Co.  v.  Condon,  67  Fed.  84.  force  to  railroad  companies. 

See  Fitzgerald  v.  Fitzgerald,  &c.  Co.  » Titus  v.  Cairo,  &c.  Co.  37  N.  J. 

41  Neb.  374,  62  N.  W.  899.  I/.  98,  102.    See  McCullough  v.  Moss, 

"Walworth  County  Bank  v.  Farm-  5  Denio  (N.  Y.)  567. 

ers',  &c.  Co.  14  Wis.  325;   Bliss  v.  10  Bliss  v.  Kaweah,  &c.  Co.  65  Cal. 

Kaweah,  &c.  Co.  65  Cal.  502,  4  Pac.  502,  4  Pac.  507;  Blen  v.  Bear  River, 

507;  Fulton  Bank  v.  New  York,  &c.  &c.  Co.  20  Cal.  602,  81  Am.  Dec.  132. 

Co.  4  Paige  (N.  Y.)  127.    See,  also,  u  Risley  v.  Indianapolis,  &c.  Co.  1 

Titus  v.  Cairo,  &c.  R.  Co.  37  N.  J.  L.  Hun  (N.  Y.)  202;  Soper  v.  Buffalo, 


§   285]       EXECUTIVE  AND  MINISTERIAL   OFFICERS  AND  AGENTS.       412 


Authority  to  mortgage  the  corporate  property  cannot  be  implied,  but 
must  be  conferred  by  the  board  of  directors  or  by  that  branch  of  the 
corporate  government  in  which  power  to  authorize  the  execution  of 
mortgages  is  lodged.12  Unless  otherwise  provided  in  the  act  of  incor- 
poration or  by-laws,  the  president  of  a  railroad  company  has  a  general 
supervision  and  authority  over  the  subject  of  employing  and  discharg- 
ing corporate  agents  and  servants.13  There  is  a  conflict  of  authority 
upon  the  question  as  to  whether  he  has  the  power  to  commence  an  ac- 
tion on  behalf  of  the  company;14  but,  for  our  part,  we  can  see  no  suffi- 
cient reason  why  he  may  not  do  so  in  ordinary  cases.  He  may  employ 
counsel  to  defend  an  action  or  suit  against  the  company.15  He  has  no 
implied  power  to  bind  the  company  by  consenting  to  the  appointment 
of  a  receiver,16  nor  has  he  power  to  make  an  assignment  of  the  cor- 
porate assets  for  the  benefit  of  creditors.17 


&c.  Co.  19  Barb.  (N.  Y.)  310;  Miller 
v.  Rutland,  &c.  Co.  36  Vt  452. 

12  Luse  v.   Isthmus,  &c.   R.   Co.   6 
Oreg.  125,  25  Am.  R.  506;   England 
v.  Dearborn,  141  Mass.  590,  6  N.  E. 
837.     See,  generally,  Davis  v.  Rock 
Creek,  &c.  Co.  55  Cal.  359,  36  Am. 
R.  40;  Alta,  &c.  Co.  v.  Alta  Mining 
Co.  78  Cal.  629,  21  Pac.  373;  Jesup 
v.  City  Bank,  14  Wis.  331. 

13  Arapahoe,  &c.  Co.  v.  Stevens,  13 
Colo.  534,  22  Pac.  823. 

"Recamier,  &c.  Co.  v.  Seymour, 
2"  4  N.  Y.  St.  54,  5  N.  Y.  S.  648;  Col- 
man  v.  West  Virginia,  &c.  Co.  25  W. 
Va.  148;  Bright  v.  Metairie,  &c. 
Assn.  33  La.  Ann.  58;  Reno,  &c.  Co. 
v.  Leete,  17  Nev.  203,  30  Pac.  702; 
Davis  v.  Memphis,  &c.  R.  Co.  22 
Fed.  883;  American,  &c.  Co.  v.  Oak- 
ley, 9  Paige  (N.  Y.)  496,  38  Am. 
Dec.  561;  Wetherbee  v.  Fitch,  117 
111.  67,  7  N.  E.  513;  Oakley  v.  Work- 
ingmen's,  &c.  Soc.  2  Hilt.  (N.  Y.) 
487;  Potter  v.  New  York,  &c.  Co.  44 
Hun  (N.  Y.)  367;  Ashuelot,  &c.  Co. 
v.  Marsh,  1  Gush.  (Mass.)  507; 
Globe  Works  v.  Wright,  106  Mass. 
207;  White  v.  Westport,  &c.  Co.  1 
Pick.  (Mass.)  215,  11  Am.  Dec.  168; 
Bailey  v.  Snyder,  61  111.  App.  472. 


15  Sarimento  v.  Davis  Boat,  &c.  Co. 
105  Mich.  300,  63  N.  W.  205,  55  Am. 
St.  446;  Wetherbee  v.  Fitch,  117  111. 
67,  7  N.  E.  513. 

"Walters  v.  Anglo-Saxon,  &c.  Co. 
50  Fed.  316. 

17  Asher  v.  Sutton,  31  Kans.  286,  1 
Pac.  535;  Gibson  v.  Goldthwaite,  7 
Ala.  281,  42  Am.  Dec.  592;  Hallo- 
well,  &c.  Bank  v.  Hamlin,  14  Mass. 
178;  Luse  v.  Isthmus,  &c.  R.  Co.  6 
Oreg.  125,  25  Am.  R.  506.  The  presi- 
dent of  an  ordinary  private  corpo- 
ration may  be  authorized  by  the 
governing  board  to  make  an  assign- 
ment. Vanderpoel  v.  Gorman,  140 
N.  Y.  563,  35  N.  E.  932,  24  L.  R.  A. 
548,  37  Am.  St.  601.  For  cases  de- 
claring and  enforcing  the  general 
doctrine  as  to  the  implied  powers 
of  a  president  of  a  corporation,  see 
Smith  v.  Smith,  62  111.  493;  Bank 
of  Healdsburg  v.  Bailhache,  65  Cal. 
327,  4  Pac.  106;  Rhodes  v.  Webb,  24 
Minn.  292;  Northern  Central,  &c.  R. 
Co.  v.  Bastian,  15  Md.  494;  Indian- 
apolis, &c.  Co.  v.  St.  Louis,  &c.  R. 
Co.  26  Fed.  140;  Duncomb  v.  New 
York,  &c.  Co.  88  N.  Y.  1,  13  Am.  & 
Eng.  R.  Cas.  84;  Stow  v.  Wyse,  7 
Conn.  214,  18  Am.  Dec.  99;  Chicago, 


413  POWERS   IMPLIED   FROM  GRANT   OF  AUTHORITY.  [§'  286 

§  286.  President — Powers  implied  from  grant  of  authority  by  the 
hoard  of  directors. — It  seems  proper,  in  order  to  prevent  a  possible 
misunderstanding,  that  we  should  say,  by  way  of  explanation,  that  in 
discussing  the  incidental  and  implied  powers  of  the  president  we  have 
had  reference  only  to  the  powers  incident  to  the  office  bestowed  upon 
him,  and  to  those  implied  from  the  nature  of  the  office  itself.  The 
board  of  directors  may  materially  extend  the  powers  of  the  president 
and  invest  him  with  authority  much  beyond  that  inherent  in  the  office 
of  president.18  "Where  the  directors  rightfully  invest  the  president  with 
a  principal  power,  he  takes  it  with  all  the  incidental  powers  essential 
to  a  proper  exercise  of  the  principal  power  conferred  upon  him.19 

§  287.  President — Influence  of  usage. — The  usage  of  a  railway 
company  is  an  important  factor  in  determining  the  power  of  its  presi- 
dent. The  president  may  often  be  invested  with  authority  by  corporate 
usage.  It  is  not  possible  to  lay  down  any  definite  rules  upon  this  sub- 
ject, but  it  may  be  safely  said  that  long  continued  usage  may  confer 
authority  upon  the  president  much  greater  than  that  inherent  in  his 
office  and  essentially  greater  than  that  expressly  conferred  upon  him 
by  the  board  of  directors  or  the  stockholders  of  the  corporation.20 

&c.  n.  Co.  v.  James,  24  Wis.  388;  Stockton,  &c.  R.  Co.  130  Cal.  100,  62 

Greig  v.   Riordan,   99   Cal.    316,   33  Pac.  267. 

Pac.  913;  Nichols  v.  Scranton,  &c.  "Baker  v.  Cotter,  45  Me.  236; 
Co.  137  N.  Y.  471,  33  N.  E.  561;  Rowland  v.  Myer,  3  N.  Y.  290 ;  Hatch 
Oakes  v.  Cattaraugus,  &c.  Co.  143  v.  Coddington,  95  U.  S.  48;  Irwin 
N.  Y.  430,  38  N.  E.  461;  Crowly  v.  v.  Bailey,  8  Biss.  (U.  S.)  523.  But 
Genesee,  &c.  Co.  55  Cal.  273 ;  Jour-  the  implied  power  is  only  such  as  is 
dan  v.  Long  Island  R.  Co.  115  N.  Y.  necessary  to  effectuate  the  principal 
380,  22  N.  E.  153;  Sherman,  &c.  Co.  power.  Second,  &c.  R.  Co.  v.  Mehr- 
v.  Swigart,  43  Kans.  292,  23  Pac.  bach,  17  Jones  &  S.  (N.  Y.)  267. 
569,  19  Am.  St.  137,  2  Lewis  Am.  R.  *  Minor  v.  Mechanics'  Bank,  1  Pet. 
&  Corp.  158.  (U.  S.)  46;  Mount  Sterling,  &c.  R. 
"Smith  v.  Smith,  62  111.  493,  496;  Co.  v.  Looney,  58  Ky.  550,  71  Am. 
Seeley  v.  San  Jose,  &c.  Co.  59  Cal.  Dec.  491;  Northern  Cent.  R.  Co.  v. 
22;  Lee  v.  Pittsburgh,  &c.  Co.  56  Bastian,  15  Md.  494;  Walker  v.  De- 
How.  Pr.  (N.  Y.)  373;  Castle  v.  troit,  &c.  Co.  47  Mich.  338,  11  N.  W. 
Belfast,  &c.  Co.  72  Me.  167;  Mitchell  187;  Merchants',  &c.  Bank  v.  Citi- 
v.  Deeds,  49  111.  416,  95  Am.  Dec.  ze*ns',  &c.  Co.  159  Mass.  505,  34  N. 
621;  Lucky,  &c.  Co.  v.  Abraham,  26  E.  1083,  38  Am.  St.  453.  See,  gen- 
Oreg.  282,  38  Pac.  65;  Hawly  v.  erally,  Moyer  v.  East  Shore,  &c.  Co. 
Gray  Bros.  &c.  Co.  103  Cal.  337,  39  41  S.  C.  300,  19  S.  E.  651,  25  L.  R. 
Pac.  609;  State  v.  Heckart,  62  Mo.  A.  48,  44  Am.  St.  709;  Bell  v.  Han- 
App.  427.  See,  also,  McCormick  v.  over,  &c.  Bank,  57  Fed.  821;  Mining 


§   288]        EXECUTIVE  AND  MINISTERIAL  OFFICERS  AND  AGENTS.       414 


§  288.  President — Apparent  authority. — The  authority  with  which 
the  corporation  ostensibly  invests  its  president  is  as  to  persons  dealing 
in  good  faith  and  without  notice  of  his  actual  authority,  the  authority 
which  he  possesses ;  but  it  is  not  his  authority  in  cases  where  the  per- 
son dealing  with  him  has  notice  of  his  actual  authority.21  The  question 
in  such  cases  is  as  to  the  ostensible  authority  with  which  the  president 
has  been  invested,  not  as  to  the  authority  actually  conferred  upon  him. 
In  most  cases  the  question  as  to  whether  the  president  has  been  clothed 
with  authority  to  perform  the  act  upon  which  the  claims  or  corporate 
liability  is  based  is  one  of  fact.  Where  the  persons  dealing  with  the 
president  has  notice  that  the  president  is  acting  for  himself,  or  knows 
that  the  business  he  is  engaged  in  is  not  corporate  business,  the  cor- 
poration is  not  bound.22 

§  289.  President — Ratification  of  unauthorized  acts. — The  acts  of 
the  president,  like  those  of  any  other  agent,  although  beyond  the  scope 
of  his  authority,  may,  of  course,  be  ratified  by  the  corporation.23.  There 
is,  it  is  barely  necessary  to  suggest,  no  doubt  as  to  the  general  rule  that 
unauthorized  acts  may  be  ratified,  but  it  is  not  always  easy  to  say  what 


Co.  y.  Anglo  Californian  Bank,  104 
U.  S.  194;  Martin  v.  Webb,  110  U. 
S.  7,  3  Sup.  Ct.  428 ;  Western,  &c.  Co. 
v.  Bayne,  11  Hun  (N.  Y.)  166. 

21  The  rule  upon  this  subject  is 
substantially  the  same  whether  the 
agent  of  the  corporation  be  the  pres- 
ident or  some  other  agent.  Manhat- 
tan, &c.  Co.  v.  Forty-second,  &c.  R. 
Co.  139  N.  Y.  146,  34  N.  E.  776;  Bank 
of  Batavia  v.  New  York,  &c.  R.  Co. 
106  N.  Y.  195,  12  N.  E.  433,  60  Am. 
R.  440;  Fifth  Ave.  Bank  v.  Forty- 
second,  &c.  R.  Co.  137  N.  Y.  231,  33 
N.  E.  378,  19  L.  R.  A.  331,  33  Am. 
St.  712. 

22 Stone  v.  Hayes,  3  Denio  (N.  Y.) 
575;  Bentley  v.  Columbia,  &c.  Co.  17 
N.  Y.  421;  Claflin  v.  Farmers',  &c. 
Bank,  25  N.  Y.  293;  Wilson  v.  Met- 
ropolitan, &c.  R.  Co.  120  N.  Y.  145, 
24  N.  E.  384,  17  Am.  St.  625;  Moores 
v.  Citizens'  Nat.  Bank,  111  U.  S.  156, 
4  Sup.  Ct.  345;  Farrington  v.  South. 


Boston  R.  Co.  150  Mass.  406,  23  N. 
E.  109,  5  L.  R.  A.  849,  15  Am.  St. 
222;  Manhattan,  &c.  Co.  v.  Forty- 
second,  &c.  R.  Co.  139  N.  Y.  146,  151, 
34  N.  E.  776. 

23  Olcott  v.  Tioga  R.  Co.  27  N.  Y. 
546,  84  Am.  Dec.  298;  Pixley  v. 
Western  Pac.  R.  Co.  33  Cal.  183,  91 
Am.  Dec.  623;  Pittsburgh,  &c.  R.  Co. 
v.  Woolley,  12  Bush  (Ky.)  451; 
Southgate  v.  Atlantic,  &c.  R.  Co.  61 
Mo.  89.  When  the  president  of  a 
corporation  executes,  in  its  behalf 
and  within  the  scope  of  its  charter, 
a  contract  which  requires  the  con- 
currence of  the  board  of  directors, 
and  the  board,  having  full  knowl- 
edge of  his  act,  does  not  dissent 
within  a  reasonable  time,  it  will  be 
presumed  to  have  ratified  the  con- 
tract. Pittsburgh,  &c.  Co.  v.  Keo- 
kuk,  &c.  Co.  131  U.  S.  371,  9  Sup. 
Ct.  770. 


415          PRESIDENT DEALINGS  WITH  CORPORATION.       [§  290 

will  be  deemed  a  ratification.24   Acts  clearly  and  entirely  beyond  the 
corporate  power  cannot  be  ratified. 

§  290.  President — Dealings  with  corporation. — Essentially  the 
same  rules  apply  to  transactions  by  the  president  with  the  corporation 
as  those  which  govern  transactions  between  the  corporation  and  the 
directors.  The  president  acts  in  a  fiduciary  capacity,  and  is  bound  to 
exercise  the  utmost  good  faith  in  dealing  with  the  corporation.  He 
may  deal  with  it,  but  his  course  must  be  open,  honest  and  fair  or  else 
the  courts  will  set  the  transaction  aside  or  hold  him  responsible  in 
damages  at  the  suit  of  one  having  a  right  to  invoke  judicial  assist- 
ance.25 

§  291.  President — Relation  to  shareholders. — In  our  judgment  the 
president  is  a  trustee  for  the  shareholders,  although  he  may  not  be  a 
trustee  in  the  full  sense  of  the  term.26  He  unquestionably  occupies 
fiduciary  relations  to  the  stockholders  of  the  corporation.  While  the 
cases  generally  concede  that  a  fiduciary  relation  exists  between  him  and 
the  shareholders,  yet  they  discriminate  between  the  relationship  and 
that  of  one  who  is  in  the  strict  sense  a  trustee.27  It  has  been  held  that 

24  Jourdan  v.  Long  Island,  &c.  R.  Smith  v.  Hurd,  53  Mass.  371,  46  Am. 
Co.    115   N.   Y.   380,   22   N.   E.   153;  Dec.  690;  Carpenter  v.  Danforth,  52 
Gutta  Percha,  &c.  Co.  v.  Village  of  Barb.   (N.  Y.)    581.     See,  generally,- 
Ogalla,  40  Neb.  775,  59  N.  W.  513,  Johnson  v.   Laflin,   5   Dill.    (U.   S.) 
42  Am.  St.  696;  Alabama,  &c.  Co.  v.  65;    Deaderick   v.    Wilson,    8    Baxt. 
South,  &c.  R.  Co.  84  Ala.  570,  3  So.  (Tenn.)    108;    Gilbert's  Case,  L.  R. 
286,  5  Am.  St.  401;  Dorenbecker  v.  5  Ch.  App.  559;   Heman  v.  Britton, 
Columbia  C.  L.  Co.  21  Oreg.  573,  28  14  Mo.  App.   121;    Crowell  v.  Jack-- 
Pac.  899,  28  Am.  St.  766;   Currie  v.  son,  53   N.  J.  L.   656,  23  Atl.  426; 
Bowman,  25  Oreg.  364,  35  Pac.  848;  Perry  v.  Pearson,  135  111.  218,  25  N. 
Taylor  v.  Albemarle,  &c.  Co.  105  N.  E.  636;  Scott  v.  De  Pyster,  1  Edw. 
C.  484,  10  S.  E.  897;  Chateau  v.  Al-  Ch.  513.    Several  of  the  cases  cited 
len,  70  Mo.  290.  hold   that   the    president   may    buy 

25  Ante,  §  276;  Baker  v.  Harpster,  stock  of  the  shareholder,  and  if  he 
42  Kans.  511,  22  Pac.  415;   Bensiek  does  not  actually  mislead  the  per- 
v.  Thomas,  66  Fed.  104;   Krohn  v.  son  with  whom  he  deals  the  sale 
Williamson,  62  Fed.  869;   Bristol  v.  will  be  valid.     If,  however,  there  is 
Scranton,   63   Fed.   218;    Bristol  v.  'a    positive     misrepresentation    the 
Scranton,    57    Fed.    70,    and    cases  transaction  will  be  voidable.     Fish 
cited.  v.  Budlong,  10  R.  I.  525;  Prewett  v. 

28  Board  v.  Reynolds,  44  Ind.  509,  Trimble,  92  Ky.  176,  17  S.  W.  356, 
15  Am.  R.  245.  36  Am.  St.  586. 

27  Allen  v.   Curtis,   26   Conn.   456; 


§   292]        EXECUTIVE  AND  MINISTERIAL  OFFICERS   AND  AGENTS.       416 

as  the  powers  of  the  president  are  so  limited  the  same  person  may  fill 
the  office  of  president  of  two  distinct  corporations,  and  such  identity 
does  not  of  itself  invalidate  dealings  between  the  two  corporations,28 
but  we  suppose  that  this  doctrine  is  to  be  taken  with  some  qualification, 
for  no  officer  can  rightfully  accept  a  position  that  requires  of  him  acts 
adverse  to  the  corporation  he  represents. 

§  292.  Treasurer — Generally. — The  treasurer  of  a  railway  com- 
pany is,  as  a  rule,  the  officer  who  has  custody  of  its  funds,  upon  whom 
warrants  are  drawn,  and  by  whom  corporate  funds  are  disbursed.  The 
authority  of  the  treasurer  is  generally  prescribed  by  the  charter  or  de- 
fined by  the  corporate  by-laws.  He  necessarily  possesses  some  incidental 
authority,  but  it  is  narrow  in  its  scope.  He  has  no  general  implied 
power  to  purchase  property  for  the  company,  nor  has  he  implied  power 
to  sell  corporate  property,  neither  has  he  implied  power  to  borrow 
money  on  the  credit  of  the  corporation.29  The  corporation  may  enlarge 
the  authority  of  the  treasurer,  and  usage  may  so  extend  the  scope  of 
his  authority  as  to  carry  it  beyond  that  which  is  inherent  in  the  office 
itself.  By  continued  usage  the  powers  of  the  treasurer  may  be  enlarged, 
and  he  may  bind  the  corporation  by  acts  performed  within  the  scope 
of  the  agency  created  or  sanctioned  by  usage.30  It  has  been  held  that 
drafts  accepted  by  the  treasurer  are  presumed  to  be  properly  ac- 
cepted.31 The  treasurer,  unless  specially  authorized,  or  unless  author- 
ized by  usage,  cannot  bind  a  railway  corporation  by  the  acceptance  of 
accommodation  drafts.  As  we  have  said,  the  treasurer  has  no  general 
authority  to  borrow  money  for  the  company,  and  it  is  held  that  even 
though  he  borrows  money,  which  is  used  for  the  purposes  of  the  cor- 
poration, the  lender  cannot  recover  it  from  the  corporation,  where  it 
appears  that  it  was  used  instead  of  other  money  which  the  treasurer 
had  embezzled,  and  that  the  primary  object  in  borrowing  it  was  to  con- 
ceal his  default.32  There  is,  it  is  obvious,  an  essential  difference  be- 

28  Leathers  v.  Janney,  41  La.  Ann.  34 ;   Page  v.  Fall  River,  &c.  R.  Co. 
1120,  6  So.  884,  6  L.  R.  A.  661.  31    Fed.    257;    Merchants'    Bank   v. 

29  Craft  v.  South  Boston,  &c.  Co.  State  Bank,  10  Wall.  (U.  S.)  604. 
150  Mass.  207,  22  N.  E.  920,  5  L.  R.  31  Credit  Co.  v.  Howe,  &c.  Co.  54 
A.  641;  Chemical  National  Bank  v.  Conn.  357,  8  All.  472,  1  Am.  St.  123. 
Wagner,  93  Ky.  525,  20  S.  W.  535,  But  we  suppose  that  this  presump- 
40  Am.  St.  206.     See,  also,  Taylor  tion  is  at  most  a  rebuttable  one. 

v.  Taylor,  74  Me.  582 ;    Stevens  v.  sz  Craft  v.  South  Boston  R.  Co.  150 

Carp  River,  &c.  Co.  57  Mich.  427,  24  Mass.  207,  22  N.  E.  920,  5  L.  R.  A. 

N.  W.  160.  641. 
"•Lester  v.  Webb,  1  Allen  (Mass.) 


417  TREASURER — DUTIES LIABILITIES.  [§'   293 

tween  the  authority  of  the  treasurer  of  a  trading  corporation  in  the 
habit  of  borrowing  money  for  corporate  use  and  the  treasurer  of  a  rail- 
road company,  and  the  authority  of  the  treasurer  of  a  trading  corpora- 
tion in  this  respect  is  broader  and  less  limited  than  that  of  a  railroad 
company.33  The  treasurer  of  a  corporation  has  no  power  as  such  to 
confess  judgment  for  it,34  nor,  as  a  rule,  can  he  conduct  litigation  for 
the  corporation.  It  is  held,  however,  that  he  has  authority  to  compro- 
mise a  disputed  claim  which  he  is  authorized  to  collect.35  While  the 
general  rule  is  that  the  treasurer,  by  virtue  of  his  office,  has  no  author- 
ity to  conduct  litigation  for  the  corporation,  yet  such  authority  may  be 
implied  in  particular  instances ;  thus,  if  a  promissory  note  is  placed  in 
his  hands  for  collection,  he  may  cause  suit  to  be  brought  upon  it.36 
Unless  the  authority  to  execute  accommodation  paper  is  specially 
conferred  upon  the  treasurer  or  is  vested  in  him  by  usage,  he  cannot 
bind  the  corporation  by  the  execution  of  such  paper.37  General  au- 
thority to  act  for  the  corporation  may,  if  not  forbidden  by  the  charter, 
be  conferred  on  the  treasurer,  and  where  such  authority  is  conferred 
his  acts  within  its  scope  will  bind  the  corporation.38 

§  293.  Treasurer — Duties — Liabilities. — The  treasurer,  it  is  obvi- 
ous, occupies  a  fiduciary  relation  toward  the  corporation,  and  is  pro- 
hibited from  making  use  of  his  position  to  further  his  own  interests. 
He  cannot  rightfully  do  any  act  adverse  to  the  interests  of  the  com- 
pany. The  rule  stated  is  applied  with  much  strictness  by  some  of  the 
courts.  Thus,  it  is  held  that  he  has  no  authority  to  pay  himself  a  claim 
he  holds  against  it,  unless  the  claim  has  been  approved  and  its  payment 
authorized  by  the  corporation.39  The  authorities  recognize  his  right  to 
deal  with  the  corporation,  but  they  require  that  in  all  his  dealings  with 
the  corporation  he  shall  exercise  the  utmost  good  faith. 

83  Craft  v.  South  Boston  R.  Co.  150  w  Usher  v.  Raymond  Skate  Co.  163 

Mass.  207,  22  N.  E.  920,  5  L.  R.  A.  Mass.  1,  39  N.  E.  416. 

641.     See   Merchants',   &c.   Bank  v.  Tarmelee   v.   Associated,   &c.   11 

Citizens',  &c.  Co.  159  Mass.  505,  34  Misc.  363,  32  N.  Y.  S.  149.    In  Hotch- 

N.  E.  1083,  38  Am.  St.  453.  kiss,  &c.  Co.  v.  Union,  &c.  Bank,  68 

M  Stevens  v.  Carp  River,  &c.  Co.  Fed.  76,  it  is  held  that  notice  to  the 

57  Mich.  427,  24  N.  W.  160.  treasurer,   given   while   engaged   in 

35  Gafford  v.  American,  &c.  Co.  77  transacting  business  for  the  corpo- 

lowa  736,  42  N.  W.  550.  ration,  is  notice  to  the  principal. 

88  North    Brookfield,   &c.    Bank   v.  w  Wayne    Pike   Co.   v.    Mammons, 

Flanders,   161   Mass.   335,   37  N.  E.  129  Ind.  368,  27  N.  E.  487;  Aberdeen 

307.  R.  Co.  v.  Blakie,  1  Macq.  461;  Peter- 
borough R.  Co.  v.  Wood,  61  N.  H. 

ELL.  RAILROADS — 27  418. 


§   294]       EXECUTIVE  AND  MINISTERIAL   OFFICERS   AND   AGENTS.       418 

§294.  Treasurer — Care  of  corporate  funds. — The  treasurer  is 
bound  to  exercise  ordinary  care,  prudence  and  diligence  in  protecting 
and  preserving  the  corporate  funds  placed  in  his  charge.  He  is  not 
absolutely  responsible  for  the  loss  of  corporate  funds,  but  will  be  ex- 
onerated if  it  appears  that  he  exercised  reasonable  care,  prudence  and 
diligence,40  and  if,  without  his  fault  or  negligence,  they  are  lost,  stolen 
or  destroyed,  he  cannot  be  held  accountable  ;41  but  the  loss  falls  upon 
his  principal.  This  general  rule  applies  to  cases  where  the  money  is 
deposited  for  the  company  in  a  bank  which  the  treasurer  has  reason  to 
believe  is  sound,  but  which  subsequently  fails.  It  has  been  held  that 
where  a  railroad  company  was  notified  by  its  treasurer  of  his  expected 
absence,  with  a  request  that  remittances  be  made  to  the  firm  of  which 
he  was  a  member,  and  remittances  were  made  accordingly  to  the  firm, 
and  reports  to  stockholders  made  that  funds  were  in  the  hands  of  such 
firm  as  "financial  agents,"  the  act  of  the  treasurer  in  selecting  the 
place  of  deposit  was  ratified,  and  he  was  absolved  from  liability  in  that 
regard  ;42  but  we  suppose  that  in  such  a  case  it  devolves  upon  the  treas- 
urer to  show  that  he  acted  with  reasonable  prudence  and  in  good  faith. 

§  295.  Secretary. — The  secretary  of  a  railroad  company  has  by 
virtue  of  his  office  very  limited  powers  indeed,  so  far  as  concerns  the 
conduct  of  the  active  business  of  the  corporation.  In  the  matter  of 
making  contracts  he  has,  perhaps,  some  implied  or  incidental  author- 
ity, but  it  is  very  narrowly  circumscribed.  He  certainly  has  no  gen- 
eral authority  to  make  contracts  for  the  company,43  but  contracts 
made  by  him  may  be  so  ratified  as  to  bind  the  company.44  He  has  no 
authority  to  bind  the  corporation  by  executing  evidences  of  indebted- 
ness;45 nor,  indeed,  by  any  ordinary  business  contracts.  He  may,  of 
course,  be  invested  by  the  board  of  directors  with  power  to  contract,4* 

"New  York,  &c.  R.  Co.  v.  Dixon,  App.  Div.   (N.  Y.)   522,  73  N.  Y.  S. 

114  N.  Y.  80,  21  N.  E.  110;  Mowbray  313. 
v.  Antrim,  123  Ind.  24,  23  N.  E.  858.         «  Holden  v.  Phelps,  141  Mass.  456, 

41  Mowbray  v.  Antrim,  123  Ind.  24,  5   N.   R   815.     See,  also,   Jewett  v. 
28,  23  N.  E.  858;  Wayne  Pike  Co.  v.  West     Somerville,    &c.     Bank,     175 
Hammons,  129  Ind.  368,  379,  27  N.  Mass.  54,  52  N.  E.  1085,  73  Am.  St 
E.  487.  259;   Gregory  v.  Lamb,  16  Neb.  205, 

42  New  York,  &c.  R.  Co.  v.  Dixon,  20  N.  W.  248.     It  was  held  in  Mo- 
114  N.  Y.  80,  21  N.  E.  110.  shannon,  &c.  Co.  v.  Sloan,  109  Pa.  St. 

43Blanding  v.  Davenport,  &c.  Co.  532,  7  Atl.  102,  that  the  secretary 

88  Iowa  225,  55  N.  W.  81.  has  no  authority  to  release  a  debtor. 

44  Nebraska,  &c.  Co.  v.  Bell,  58  Fed.  48  Jefferson  v.  Hewitt,  103  Cal.  624, 

326.  See,  also,  Hess  v.  Sloane,  66  37  Pac.  638.  See,  generally,  Mer- 


419  MANAGING  AGENTS.  [§   296 

but  in  such  a  case  the  source  of  his  power  is  the  action  of  the  board 
and  not  the"  office  of  secretary.  Where  the  secretary  has  power  .to  bind 
the  company  and  he  acts  within  the  scope  of  his  power,  the  same  gen- 
eral rules  as  to  the  effect  of  admissions  and  declarations  apply  that 
prevail  in  other  cases  of  agency.47 

§  296.  Managing  agents. — There  is  a  class  of  agents  called  "gen- 
eral managers/'  "superintendents,"  or  the  like,  whose  powers  and  au- 
thority are  very  broad  and  comprehensive.  They  are  not  in  strict- 
ness corporate  officers  except  where  made  so  by  the  charter  or  by-laws ; 
but  their  powers  are  really  more  extensive  in  many  respects  than  those 
of  some  of  the  chief  officers  of  the  corporation.  A  general  manager 
or  superintendent  cannot,  of  course,  exercise  the  powers  or  functions 
devolved  upon  the  directors  or  other  officers  of  the  corporation,48  but 
in  conducting  the  actual  business  of  the  corporation  he  exercises  very 
broad  and  comprehensive  authority.  The  name  or  designation  be- 
stowed upon  a  managing  agent  does  not  necessarily  determine  the 
scope  of  his  authority,  but,  within  limits,  indicates  in  a  general  way 
the  nature  of  his  authority.  As  we  have  elsewhere  said  the  scope  of 
his  authority  is  ordinarily  a  question  of  fact  to  be  determined  from 
the  evidence  in  the  particular  case.49  We  think,  however,  that  where  a 
railroad  company  holds  out  an  agent  as  general  manager  or  superin- 
tendent, the  courts  may  take  judicial  notice  of  the  general  scope  of 
his  authority,  but  that  the  precise  nature  of  his  authority  must,  as  a 
general  rule,  be  determined  from  the  facts  and  circumstances  of  the 
case  in  which  the  question  arises.60 

chants',  &c.  Bank  v.  Hervey,  &c.  Co.  could  make  the  appellant  a  common 

45  La.  Ann.  1214,  14  So.  139;   Ne-  carrier  for  hire  and  the  appellee  a 

braska,  &c.  Co.  v.  Bell,  58  Fed.  326,  passenger." 

7  C.  C.  A.  253;  Moore  v.  H.  Gaus,  "Ante,  §  211.    Gamacho  v.  Hamil- 

&c.  Co.  113  Mo.  98,  20  S.  W.  975;  ton  Co.  73  N.  Y.  St.  457,  37  N.  Y.  S. 

Famous  Shoe,  &c.  Co.  v.  Eagle,  &c.  725. 

Works,  51  Mo.  App.  66.  M  See,     generally,     Trephagen     v. 

47  Kraniger  v.  People's  &c.  Assn.  South  Omaha,  69  Neb.  577,  96  N.  W. 
60  Minn.  94,  61  N.  W.  904.  248;    Ceeder    v.    Loud,    &c.    Co.    86 

48  In   the   case  of   Evansville,   &c.  Mich.  541,  49  N.  W.  575,  24  Am.  St. 
Co.  v.  Barnes,  137  Ind.  306,  36  N.  E.  -134;    Green  Co.  v.  Blodgett,  55  111. 
1092,  the  court  held  that  a  super-  App.  556,  159  111.  169,  42  N.  E.  176, 
intendent   of    construction    had    no  50  Am.  St.   146;    St.  Louis,  &c.  R. 
authority  to  open  the  road  for  the  Co.  v.  Grove,  39  Kans.  731,  18  Pac. 
carriage  of  passengers,  saying,  "The  958;    Langan  v.   Great  Western  R. 
board   of  directors   and   the  estab-  Co.  30  L.  T.  (N.  S.)  173. 

lished  rules  of  the  company  alone 


§   297]       EXECUTIVE  AND  MINISTERIAL   OFFICERS  AND  AGENTS.       420 

§  297.  Superintendent. — The  actual  authority  of  a  superintendent 
or  general  manager  of  a  railroad  or  one  of  its  divisions  depends  in  a 
great  degree  upon  the  provisions  of  the  charter  and  by-laws  and  the 
resolutions  passed  by  the  board  of  directors  relative  to  such  employ- 
ment. As  between  the  company  and  persons  having  knowledge  of  the 
terms  of  his  employment,  he  will,  as  a  general  rule,  be  held  to  have 
only  such  powers  as  have  been  thereby  expressly  or  impliedly  con- 
ferred upon  him.51  But  as  to  persons  having  no  notice  of  his  actual 
authority  the  rule  is  otherwise,  for  as  to  such  persons  he  will  be 
deemed  to  have  the  authority  evidenced  by  the  indicia  of  authority 
with  which  the  corporation  has  invested  him.52  Where  the  duties  of 
the  office  have  not  been  defined,  but  the  superintendent  is  simply 
given  general  authority  to  manage  the  business  of  the  corporation, 
he  will  ordinarily  be  held  to  have  such  powers  as  appertain  to  the 
office  by  usage  of  the  company  by  which  he  is  employed,53  and  other 
companies  of  a  similar  character.54  But  it  is  essential  in  order  to 
make  the  corporation  liable  for  the  acts  of  a  general  superintendent 
or  general  manager  that  the  acts  be  performed  in  transacting  the 
business  of  the  corporation.55  The  superintendent  of  a  railroad  com- 
pany, clothed  with  general  power  and  authority  in  regard  to  the 
management  of  trains,  is  held  to  be  the  immediate  representative  and 
executive  officer  of  the  corporation,  and  his  negligent  and  improper 
order,  which  causes  an  injury,  renders  the  company  liable  as  much 
as  if  it  had  emanated  directly  from  the  directors  themselves  in  their 

61 A  director  of  a  corporation,  con-  Y.   S.   44;    Merrill  v.  Hurley,   6   S. 

tracting  with  another  director  of  the  Dak.  592,  62  N.  W.  958,  55  Am.  St. 

corporation    concerning    the    corpo-  859. 

rate  property,  who  is  also  business  5301cott  v.  Tioga,  &c.  R.  Co.  27  N. 

manager  with  enumerated  and  lim-  Y.  546,  84  Am.  Dec.  298.     See,  gen- 

ited  powers,  is  chargeable  with  no-  erally,  Ecker  v.  Chicago,  &c.  Co.  8 

tice  of  any  defect  in  the  manager's  Mo.  App.  223,  1  Am.  &  Eng.  R.  Gas. 

authority    to    make    said    contract.  357;    Madison,   &c.   Co.  v.   Norwich, 

Schetter  v.  Southern  Oregon  Co.  19  &c.  Society,  24  Ind.  457;   Mayall  v. 

Oreg.  192,  24  Pac.  25.     See,  general-  Boston,  &c.  Co.  19  N.  H.  122,  49  Am. 

ly,  Walrath  v.  Champion,  &c.  Co.  63  Dec.  149;    Sarimento  v.   Davis,  &c. 

Fed.  552;  Smith  v.  Co-operative,  &c.  Co.  105  Mich.  300,  63  N.  W.  205,  55 

Ass'n,  12  Daly  (N.  Y.)  304.  Am.  St.   446;   Matson  v.  Alley,  141 

52  We  have  considered  in  another  111.  284,  31  N.  E.  419. 

connection  the  authority  of  manag-  "Louisville,  &c.  R.  Co.  v.  McVay, 

ing  agents,  such  as  superintendents  98  Ind.  391,  398,  49  Am.  R.  770. 

and  the  like.    Ante,  §  222.    See,  gen-  M  Cosh   Murray   Co.    v.    Adair,    9 

erally,  Railway,  &c.  Co.  v.  Lincoln,  Wash.  686,  38  Pac.  749. 
&c.  Bank,  82  Hun   (N.  Y.)   8,  31  N. 


421  SUPERINTENDENT.  [§'   297 

official  capacity.56  In  his  dealings  with  third  persons  a  superintend- 
ent, like  any  other  agent,  will  be  held  to  have  power  to  bind  the  cor- 
poration within  the  limits  of  his  apparent  authority.  And  it  is  held 
that  a  general  manager  should  be  presumed  to  have  the  general  control 
and  direction  of  all  matters  connected  with  the  operation  of  the 
railroad  which  the  term  indicates  until  the  contrary  is  shown.57  Ac- 
cordingly, a  railroad  company  is,  it  has  been  held,  liable  for  the  serv- 
ices of  an  attorney  retained  by  its  general  manager  to  attend  to  its 
legal  business,  unless  the  attorney  knew  or  might  have  known  by  using 
ordinary  diligence  that  the  manager  had  no  authority  to  employ 
him.58  It  was  held  in  another  case  that  a  railroad  superintendent  may 
bind  the  company  by  issuing  a  circular  offering  a  general,  standing 
reward  for  the  arrest  of  train  wreckers,  although  no  special  authority 
to  do  so  has  been  granted  him  by  the  directors.59  A  railroad  com- 
pany has  power,  for  the  protection  of  its  property,60  to  offer  a  general, 
standing  reward  for  the  arrest  of  train  wreckers,  and  it  may  well  be 
held  that  a  superintendent  invested  with  the  general  authority  per- 
taining to  that  position  may  bind  the  company  by  offering  a  reward 
for  the  detection  of  persons  who  injure  or  destroy  the  property  of 
the  company.61  In  one  case  the  court  presumed  that  the  general 
superintendent  had  authority  to  contract  for  fencing  the  company's 
road  ;62  in  another,  that  he  acted  by  the  company's  authority  in  deny- 
ing an  owner  the  right  to  remove  his  property  from  the  company's 
premises  ;63  in  another  it  was  held  that  he  has  authority  to  withdraw 
a  notice  to  terminate  a  lease  of  the  company's  property;64  and  in 
another  case  it  was  held  that  he  may  bind  the  company  by  his  declara- 

MWashburn   v.   Nashville,   &c.   R.  39  Kans.  731,  18  Pac.  958.    See,  also, 

Co.  40  Tenn.  638,  75  Am.  Dec.  784.  Ceeder  v.   Loud,   &c.   Co.    86    Mich. 

57  Sacalaris  v.  Eureka,  &c.  R.  Co.  541,  49  N.  W.  575,  24  Am.  St.  134. 

18  Nev.  155,  1  Pac.  835,  51  Am.  R.  B8  Central  R.  &  Bkg.  Co.  v.  Cheat- 

737;  Louisville,  &c.  R.  Co.  v.  McVay,  ham,  85  Ala.  292,  4  So.  828,  7  Am. 

98  Ind.  391,  399,  49  Am.  R.  770;  Sax  St.  48. 

v.  Detroit,  &c.  R.  Co.  125  Mich.  252,  60Ricord  v.  Central  Pacific  R.  Co. 

84  N.  W.  314,  315,  84  Am.  St.  572,  15  Nev.  167;  American  Express  Co. 

citing  text.    A  promissory  note,  in-  v.  Patterson,  73  Ind.  430. 

dorsed   by   a   manager,   must  have  w  Toledo,  &c.  Co.  v.  Rodrigues,  47 

been  previously  authorized  or  sub-  111.  188,  95  Am.  Dec.  484. 

sequently  ratified  as  evinced  by  gen- '  8Z  New  Albany,  &c.  R.  Co.  v.  Has- 

eral   course   of  business  or  resolu-  kell,  11  Ind.  301. 

tion  in  order  to  render  a  business  «"  Giles  v.  Taff  Vale  R.  Co.  2  E.  & 

corporation   liable   upon    it.     Hunt-  B.  822. 

ington  v.  Attrill,  118  N.  Y.  365.  M  Patrick  v.  Richmond,  &c.  R.  Co. 

68  St.  Louis,  &c.  R.  Co.  v.  Grove,  93  N.  C.  422. 


§   298]       EXECUTIVE  AND  MINISTERIAL  OFFICERS  AND  AGENTS.       422 

tions  relative  to  the  purchase  of  fuel  for  the  use  of  its  locomotives.65 
We  think  the  ruling  in  the  case  last  cited  is  correct,  because  such 
a  contract  is  one  made  in  the  course  of  the  ordinary  business  of  the 
company;  but  the  authority  to  make  such  contracts  may  be  specially 
conferred  upon  some  other  officer  or  agent,  and  in  that  event  it  could 
not  be  rightfully  exercised  by  the  superintendent.  The  decisions  gen- 
erally go  upon  the  principle  that  the  corporation  cannot  deny  the 
general  authority  of  one  whom  it  holds  out  as  a  general  agent.  But  a 
superintendent's  or  manager's  authority  usually  extends  only  to  the 
management  of  the  ordinary  business  of  the  corporation,  and  it  is 
accordingly  held  that  a  sale  of  the  property  of  a  railroad  corporation 
by  the  superintendent,  unauthorized  by  the  directors,  passes  no  title.66 
Necessarily  the  question  as  to  whether  the  superintendent  is  held  out 
as  possessing  the  authority  asserted  must  be  a  question  of  fact  in 
most  instances,  so  that  no  general  rule  can  be  laid  down  as  to  the 
extent  of  his  authority ;  but  it  may  be  safely  said  that  he  has  no  im- 
plied authority  to  make  unusual  or  extraordinary  contracts. 

§298.  Superintendent — General  conclusion. — Decisions  as  to  the 
authority  of  such  officers,  as  managers  and  superintendents,  depend 
so  much  upon  the  circumstances  of  the  particular  cases  and  there  is 
such  a  wide  range  in  the  duties  which  the  superintendents  of  different 
roads  are  required  to  perform,  and  in  the  powers  which  they  are  per- 
mitted to  exercise,  that  no  definite  rule  as  to  the  precise  extent  of 
their  authority  can  be  safely  stated.  It  is  safe  to  say,  however,  that 
the  authority  of  such  an  officer  will  be  extended  by  implication  to 
cover  a  very  broad  field  where  it  is  necessary  to  protect  the  interests 
of  innocent  parties  dealing  with  him,  but  not  in  favor  of  persons 
having  knowledge  of  the  real  extent  of  his  powers  and  duties.  The 
courts  cannot,  of  course,  invest  him  with  authority,  but  they  can 
adjudge  what,  under  the  facts  of  the  particular  case,  is  the  authority 
conferred  upon  him  by  the  company.  The  nature  of  the  business  of 
conducting  and  managing  a  railroad  is  a  matter  of  which  the  courts 
take  judicial  notice  in  a  general  way,  and  if  they  do  take  judicial  no- 
tice of  such  a  matter  they  must  of  necessity  take  notice  that  some 
general  ministerial  agent  is  required  who  can  actively  supervise  and 
manage  the  ordinary  details  of  the  operation  of  the  road.67  We  do 

"Sacalaris  v.  Eureka,  &c.  R.  Co.  62   N.  H.   502.     See,  also,  Stow  v. 

18  Nev.  155,  1  Pac.  835,  51  Am.  R.  Wyse,  7  Conn.  214,  18  Am.  Dec.  99. 
737.  OT  Courts   take   judicial   notice   of 

"  Bowen  v.  Mt.  Washington  R.  Co.  the  hazardous  nature  of  the  busi- 


423  INTERMEDIATE  AGENTS.  [§  299 

not,  however,  mean  to  be  understood  as  saying  that  courts  will  take 
judicial  notice  of  the  scope  of  the  superintendent's  authority  in  a 
particular  case  or  where  it  is  asserted  to  embrace  a  subject  not  clearly 
within  the  general  scope  of  the  authority  of  that  class  of  agents. 

§  299.  Intermediate  agents. — In  order  to  perform  its  duty  to  the 
public  and  properly  conduct  its  corporate  affairs  it  is  necessary  that 
a  railroad  company  should  have  general  implied  power  to  appoint 
intermediate  agents,  and  the  courts  recognize  the  existence  of  this 
power  and  hold  railroad  companies  responsible  for  the  acts  of  such 
agents  when  performed  within  the  scope  of  their  authority  or  within 
the  line  of  their  duty.  It  is  only,  however  to  a  very  limited  extent 
that  the  courts  can  judicially  know  the  nature  of  the  authority  of 
such  subordinate  agents.  In  most  cases  the, nature  and  extent  of  their 
authority  is  to  be  determined  as  a  question  of  fact  from  the  evidence 
in  the  particular  case,  but,  as  we  believe,  the  courts  may  in  some  cases 
take  judicial  notice  of  the  general  and  ordinary  authority  of  subordi- 
nate agents.  We  have  elsewhere  referred  to  cases  showing  the  nature 
of  the  authority  of  subordinate  agents.68 

§  300.  Intermediate  agents — Agent  for  one  purpose  not  for  an- 
other.— It  may  happen  that  a  person  may  be  a  corporate  agent  for  one 
purpose  and  yet  not  for  another.  Thus,  a  foreman  may  be  an  agent  for 
the  purpose  of  hiring  and  discharging  section  men,  but  as  to  work 
on  the  track  be  a  mere  servant.69  It  is  obvious  that  the  person  assum- 

ness   of    operating    railway   trains,  R.  737;    Sax  v.  Detroit,  &c.  R.  Co. 

and  of  the  authority  of  a  superin-  125  Mich.  252,  84  N.  W.  314,  84  Am. 

tendent  in  relation  to  such  matters.  St.  572;  1  Elliott  Ev.  §  72. 
Union  Pac.  R.  Co.  v.  Winterboth-  ""Ante,  §§  220,  221,  222. 
am,  52  Kans.  433,  34  Pac.  1052,  *  Justice  v.  Pennsylvania  Co.  130 

59   Am.   &   Eng.  R.   Gas.   75,  citing  Ind.  321,  30  N.  E.  303.    We  do  not, 

Union  Pac.  Co.  v.  Beatty,  35  Kans.  at  this  place,  enter  upon  a  consid- 

265,  10  Pac.  845,  57  Am.  R.  160,  26  eration   of   the    vexed    question    of 

Am.  &  Eng.  R.  Cas.  84;  Pacific  Rail-  whether  the  authority  to  hire  and 

road  Co.  v.  Thomas,  19  Kans.  256;  discharge,    constitutes    the    person 

Railroad   Co.  v.   Beecher,   24  Kans.  clothed     with     that     authority     an 

228;  Cincinnati,  &c.  Railroad  Co.  v.  agent    for    all    purposes    connected 

Davis,  126  Ind.  99,  25  N.  E.  878,  9  L.  with  his  line  of  service  under  his 

R.  A.  503,  44  Am.  &  Eng.  R.  Cas.  contract   of   employment,    but   else- 

459.     See,   also,   Louisville,   &c.   R.  where  consider  that  question.     See 

Co.  v.  McVay,  98  Ind.  391,  49  Am.  Mealman  v.  Union  Pac.  R.  Co.  37 

R.  770;  Sacalaris  v.  Eureka,  &c.  R.  Fed.  189,  2  L.  R.  A.  192,  and  notes. 
Co.  18  Nev.  155,  1  Pac.  835,  51  Am. 


§    301]        EXECUTIVE   AND   MINISTERIAL   OFFICERS   AND  AGENTS.       424 

ing  to  act  as  an  agent  is  only  an  agent  when  performing  the  duties  of 
an  agent,  and  in  performing  other  duties  is  a  servant  or  employe, 
although  he  may  be  acting  in  all  he  does  under  a  contract  of  employ- 
ment. The  acts  of  a  servant  or  employe  are  in  many  respects  essen- 
tially different  from  those  of  an  agent,  and  this  difference,  as  we  shall 
hereafter  show,  leads  to  important  results. 

§  301.  Intermediate  agents  and  servants  distinguished. — The  ad- 
judged cases  distinguish  between  subordinate  agents  and  servants,  and 
the  distinction  often  becomes  one  of  importance.  It  is  very  difficult, 
indeed  it  is  impossible,  in  the  present  state  of  the  authorities,  to  accu- 
rately discriminate  between  agents  and  servants.  It  is,  perhaps,  safe 
to  say  that  when  a  duty  personal  to  the  master  is  intrusted  to  an  em- 
ploye, the  employe  is  as  to  that  duty  an  agent,  although  as  to  other 
duties  he  may  be  a  servant ;  if,  however,  the  duty  is  not  one  personal 
to  the  employer  the  relationship  between  employer  and  employe  is 
ordinarily  not  that  of  principal  and  agent,  but  is  that  of  master  and 
servant.  The  employer  may,  of  course,  by  custom  and  usage,  confer 
authority  upon  a  servant  beyond  that  appertaining  to  such  relation, 
but  ordinarily  a  servant  has  no  authority  to  make  contracts  for  the 
master. 

§  302.  Conductors. — The  authority  of  the  conductor  ordinarily  ex- 
tends to  the  control  of  the  movements  of  his  train,  and  to  the  imme- 
diate direction  of  the  movements  of  the  employes  engaged  in  operating 
the  train,  and  he  is,  to  a  great  extent,  the  representative  of  the  com- 
pany in  such  dealings  as  it  may  be  necessary  for  the  passengers  to 
have  with  it  while  en  route.  Consequently  the  company  is  liable  to 
passengers,  and,  in  some  cases,  to  third  persons  if  he  fails  to  take 
proper  precautions  to  guard  against  injury  from  any  defects  in  cars, 
engines,  or  equipments,  which  are  discoverable,70  or  permits  employes 
to  move  the  cars  in  such  a  manner  as  to  cause  an  injury,71  or  is  guilty 
of  any  improper  or  unfair  conduct  toward  the  passengers  in  his 
charge.72  It  is  responsible  for  his  acts  done  in  the  line  of  his  em- 

70  Mad  River,  &c.  R.  Co.  v.  Barber,  n  Ranch  v.  Lloyd,  31  Pa.  St.  358, 

5    Ohio    St.    541,    67    Am.    Dec.    312.  72  Am.  Dec.  747. 

Ordinarily  the  conductor  is,  accord-  T2As  where  he  exacts  illegal  fare, 

ing  to  the  weight  of  authority,  a  fel-  Porter  v.  New  York  Central  R.  Co. 

low  servant  of  other  employes  en-  34  Barb.    (N.  Y.)   353.     Or  assaults 

gaged  in  the  management  and  op-  a  passenger,  Ramsden  v.  Boston,  &c. 

eration  of  trains.  R.  Co.  104  Mass.  117,  6  Am.  R.  200; 


425  CONDUCTORS.  [§'  302 

ployment,  although  they  were  done  wilfully73  and  in  direct  opposition 
to  the  instructions  and  orders  of  his  employers.74  His  authority  does 
not,  ordinarily,,  extend  to  making  contracts  on  behalf  of  the  company, 
but  there  may  be  cases  of  urgent  emergency  where  he  may  make  a 
contract  for  the  company.  He  is  to  administer  the  rules  of  the  com- 
pany rather  than  make  contracts  for  it.  It  has  been  held  that,  acting 
under  a  general  authority,  he  may,  in  his  discretion,  relax  or  apply 
these  rules  within  reasonable  bounds,  according  to  circumstances,75 
but  this  doctrine,  as  it  seems  to  us,  is  one  to  be  cautiously  applied 
and  kept  within  strict  limits,  for  there  is  certainly  no  general  author- 
ity to  alter  or  suspend  the  established  rules  and  regulations  of  the 
company.  The  establishment  or  alteration  of  rules  and  regulations  is 
not,  ordinarily,  within  the  authority  of  a  conductor,  since  it  is  his 
duty  to  obey  and  carry  into  effect  the  rules  and  regulations  of  the 
company.  As  we  have  said,  the  conductor  has  no  general  authority 
to  make  contracts  on  behalf  of  the  company,  but  he  may  in  rare  cases 
of  necessity,  when  circumstances  demand  it,  bind  the  company  by 
such  contracts  as  are  clearly  necessary  to  enable  him  to  carry  out  his 
prescribed  duties.76  In  order  that  contracts  made  by  him  shall  be  ob- 
ligatory upon  the  company  they  must  be  made  to  enable  him  to  per- 
form the  duties  required  of  him  and  must  not  relate  to  collateral  mat- 
ters nor  be  outside  of  the  line  of  the  duty  assigned  him.  Thus,  he  may, 
where  other  provision  has  not  been  made,  employ  mechanics  to  repair 
a  break  of  the  cars  or  machinery  which  must  be  repaired  before  the 
train  can  proceed  to  its  destination,  and  may  engage  men  and  teams 
to  render  the  roadway  or  bridges  secure  for  the  passage  of  his  train, 

Craker  v.  Chicago,  &c.  R.  Co.  36  Wis.  259,  52  Am.  St.  579;  New  York,  &c. 

657,  17  Am.  R.  504;    Jeffersonville,  R.  Co.  v.  Winter's  Adm'r,  143  U.  S. 

&c.  R.  Co.  v.  Rogers,  38  Ind.  116,  10  60,  70,  12  Sup.  Ct  356. 

Am.  R.  103.  78Terre  Haute,  &c.  R.  Co.  v.  Mc- 

73  Jeffersonville  R.  Co.  v.  Rogers,  Murray,  98  Ind.  358,  49  Am.  R.  752; 
38  Ind.  116,  10  Am.  R.  103;  Craker  Goff  v.  Toledo,  &c.  Co.  28  111.  App. 
v.  Chicago,  &c.  R.  Co.  36  Wis.  657,  529.     In  Wright  v.  Glens  Falls,  &c. 
17  Am.  R.  504.  R.  Co.  24  App.  Div.  (N.  Y.)   617,  48 

74  Porter  v.  New  York  Central  R.  N.  Y.  S.  1026,  it  is  held  that  a  street 
Co.  34  Barb.  (N.  Y.)  353.  car   conductor   may   bind   the   com- 

75  O'Donnell  v.  Allegheny  Valley  R.  pany  by  his  statement  of  the  rate  of 
Co.  59  Pa.  St.  239,  98  Am.  Dec.  336.  fare  made  by  a  prospective  passen- 
See,   also,   on   the   general   subject,  ger  before  taking  passage  so  as  to 
Carroll  v.  New  York,  &c.  R.  Co.  1  entitle    the    passenger    to    recover 
Duer    (N.   Y.)    571;    Vedder  v.  Fel-  when    ejected     for    not    paying    a 
lows,   20  N.   Y.   126;    Thompson  v.  higher  rate.    See  post,  §§  1594,  1637. 
Truesdale,  61  Minn.  129,  63  N.  W. 


302]       EXECUTIVE  AND  MINISTERIAL   OFFICERS  AND  AGENTS.       426 


when  weakened  or  partially  swept  away  by  unforeseen  causes ;  but  in 
such  cases  the  authority  to  contract  does  not  exist  unless  there  is  an 
urgent  necessity  for  immediate  action.  It  is  the  necessity  which  con- 
fers authority,  not  simply  the  position  of  conductor.77  Doubtless  he 
may,  in  case  of  the  sudden  death  or  disability  of  the  engineer,  engage 
a  competent  engineer  to  take  the  train  to  a  point  where  another  engi- 
neer in  the  employ  of  the  company  can  be  obtained,  if  such  employ- 
ment be  an  urgent  necessity  and  required  to  avoid  disaster  or  serious 
injury  to  the  company.  It  has  been  held  that  the  conductor  has  author- 
ity, when  the  regular  brakeman  is  sick  or  absent,  and  the  proper  and 
safe  management  of  the  train  so  requires,  to  supply  the  place  of  the 
sick  or  absent  brakeman,  and  render  the  substitute  so  employed  an 
employe  of  the  company  for  the  time  being,78  but  we  suppose  this  doc- 
trine can  only  apply  in  very  rare  cases,  for,  as  a  general  rule,  a  con- 
ductor has  no  authority  to  employ  agents  or  servants  for  the  com- 
pany. The  authority  of  the  conductor  to  enter  into  contracts  for  the 
company  is  created  by  the  necessity  for  the  exercise  of  such  authority, 
and  as  soon  as  the  emergency  is  past  the  authority  usually  termi- 
nates.79 In  one  of  the  decided  cases  it  seems  to  be  held  that  a  con- 
ductor may  bind  the  company  by  a  contract  to  carry  a  passenger  to  a 
particular  place  on  the  line  of  the  road,80  and  if  the  case  is  to  be  un- 
derstood as  so  deciding  we  think  it  must  be  regarded  as  unsound ;  if, 
however,  it  is  to  be  regarded  as  deciding  that  the  place  was  one  at 


"Terre  Haute,  &c.  R.  Co.  v.  Me- 
Murray,  98  Ind.  358,  49  Am.  R.  752. 
See  ante,  §  221a. 

78  Sloan  v.  Central  Iowa  R.  Co.  62 
Iowa  728,  16  N.  W.  331;  Georgia 
Pacific  R.  Co.  v.  Propst,  83  Ala.  518, 
3  So.  764,  85  Ala.  203,  4  So.  711,  90 
Ala.  1,  7  So.  635.  On  the  second 
appeal  of  this  case  it  was  held  that 
evidence  that  the  plaintiff,  a  night 
watchman,  was  riding  to  his  home 
on  the  train,  when,  one  of  the  brake- 
men  being  sick,  the  conductor  asked 
plaintiff  to  make  a  coupling  for  him, 
did  not  show  such  a  necessity  as 
conferred  upon  the  conductor  an  au- 
thority to  employ  the  brakeman,  nor 
did  it  show  any  employment  at  all, 
either  with  or  without  authority. 
We  suppose  that  the  right  to  em- 


ploy a  brakeman  exists  only  in  cases 
of  urgent  necessity,  for  the  author- 
ity to  employ  agents  or  servants  is 
no  part  of  a  conductor's  general  au- 
thority. If  there  is  no  emergency 
there  is  no  authority  to  employ 
servants,  and  it  is  only  in  very  rare 
and  exceedingly  clear  cases  that 
such  authority  can  exist.  Church  v. 
Chicago,  &c.  Co.  50  Minn.  218,  52 
N.  W.  647;  Jewell  v.  Grand  Trunk 
Railway,  55  N.  H.  84. 

78  Louisville,  &c.  R.  Co.  v.  Smith, 
121  Ind.  353,  22  N.  E.  775,  6  L.  R. 
A.  320,  and  authorities  cited.  Ante, 
§  222,  note  99. 

80  Hull  v.  East  Line,  &c.  R.  Co.  66 
Tex.  619,  28  Am.  &  Eng.  R.  Cas.  221. 
But  see  Ohio,  &c.  R.  Co.  v.  Hatton, 
60  Ind.  12. 


427  STATION  AGENTS.  [§  303 

which  the  conductor  was  authorized  to  stop  the  train  if  he  so  elected, 
then  we  think  that  the  decision  correctly  declares  the  law.  In  our 
judgment  a  conductor  has  no  authority  to  stop  trains  at  places  not 
provided  for  by  the  rules  or  time  schedules  of  the  company,  unless  a 
discretion  as  to  stopping  is  vested  in  him.  The  safety  of  the  public, 
as  well  as  the  interests  of  the  railroad  company,  requires  that  stops 
should  be  made  only  at  places  authorized  by  the  company.  The  con- 
ductor has  no  general  authority  to  designate  the  places  where  the 
trains  shall  stop,  and  he  cannot  bind  the  company  by  a  contract  to 
stop  at  a  certain  place  unless  he  is  authorized  to  stop  at  that  place  by 
the  rules,  regulations  or  custom  of  the  company.  We  have  at  this  place 
merely  outlined  the  authority  and  duties  of  a  conductor  as  we  have 
treated  of  his  duties  and  powers  with  regard  to  passengers  in  the  dis- 
cussion of  the  subject  of  the  duties  and  liabilities  of  a  railroad  com- 
pany as  a  carrier  of  passengers.81 

§  303.  Station  agents. — It  is  held  that  the  courts  cannot  take  ju- 
dicial notice  of  the  powers  of  a  station  agent,82  but  we  suppose  they 
may  in  a  very  general  way  take  notice  of  the  authority  of  such  an 
agent.  They  certainly  do  take  notice  that  he  has  no  authority  to 
change  the  rules  of  the  company  as  to  the  places  where  trains  shall 
stop  to  discharge  passengers.83  Proof  of  his  general  authority  to  make 
contracts  for  the  shipment  of  freight  over  the  line  of  a  railroad  is 
sufficient  evidence  from  which  to  infer  his  authority  to  contract  with 
reference  to  all  the  necessary  and  ordinary  details  of  the  business.84 

81  Judicial  notice  has  been  taken  149 ;  Illinois,  &c.  Co.  v.  Jonte,  13  111. 
in  a  general  way  as  to  the  ordinary  App.  424;   Brown  v.  Louisville,  &c. 
authority  of  a  conductor.    Condran  Co.  36  111.  App.  140;  Merchants',  &c. 
v.  Chicago,  &c.  R.  Co.  67  Fed.  522,  Co.  v.  Joesting,  89  111.  152;  London, 
523;  1  Elliott  Ev.  §  72.  Ac.  R.  Co.  v.  Bartlett,  7  H.  &  N.  400; 

82  Wood  v.  Chicago,  &c.  R.  Co.  59  Lewis  v.  Great  Western,  &c.  Co.  5 
Iowa   196,   13.  N.   W.   99.     But   see  H.  &  N.  867;    Squire  v.  New  York, 
Brown  v.  Minneapolis,  &c.  R.  Co.  31  &c.  Co.  98  Mass.  239;  Congar  v.  Ga- 
Minn.  553,  18  N.  W.  834.  lena,  &c.  R.  Co.  17  Wis.  477.     It  is 

83  White  v.  Evansville,  &c.  R.  Co.  held  in  Marsh  v.  Chicago,  &c.  Co.  79 
183  Ind.  480,  33  N.  E.  273.  Iowa  332,   44   N.    W.    562,   that   an 

84  Blodgett  v.  Abbot,  72  Wis.  516,  agent  having  authority  to  make  spe- 
40  N.  W.  491,  7  Am.  St.  873;  Wood  cial  rates  may  agree  to  give  a  re- 
v.  Chicago,  &c.  R.  Co.  68  Iowa  491,  bate.    It  is  held  in  the  Province  of 
27  N.  W.  473,  56  Am.  R.  861.    See,  Ontario  that  a  station  agent  is  an 
generally,    Mayall    v.    Boston,    &c.  "officer"  within  the  meaning  of  a 
Railroad,  19  N.  H.  122,  49  Am.  Dec.  statute  providing  that  "any  of  the 


§  303]   'EXECUTIVE  AND  MINISTERIAL  OFFICERS  AND  AGENTS.   428 


His  admissions  and  declarations,  made  within  the  scope  of  his  author- 
ity, are,  of  course,  binding  upon  the  company,  like  those  of  any  other 
agent ;  but  it  is  held  to  be  error  in  an  action  for  a  penalty  for  delay 
in  shipping  local  freight  to  admit  the  declarations  of  a  station  agent 
whose  agency  is  unconnected  with  the  through  freight  business,  to  the 
effect  that  the  company  during  a  certain  season  used  most  of  its  cars 
in  transporting  through  freight.85  His  general  authority  being  es- 
tablished, it  has  been  held  that  he  will  be  held  to  possess  authority 
to  bind  the  company  by  a  contract  to  furnish  cars  by  a  certain  day,8* 
or  to  carry  the  freight  to  its  destination  and  deliver  it  within  any  rea- 
sonable time  agreed  upon87  or  to  deliver  goods  at  an  unusual  place 
upon  its  own  line.88  But  in  the  absence  of  a  custom  authorizing  it, 
an  undertaking  by  a  station  agent  at  the  request  of  the  consignee 
after  a  car  has  reached  its  destination  to  deliver  it  at  another  place 
or  to  another  person  has  been  held  to  be  nothing  more  than  a  personal 
accommodation  on  the  part  of  the  agent,  not  rendering  the  company 
liable.89  Where  he  is  given  charge  of  the  depot  building  and  station 
grounds  it  has  been  held  that  he  may  make  reasonable  rules  for  the 
regulation  of  persons  having  business  to  transact  with  the  company, 
and  may  exclude  persons  who  refuse  to  conform  to  such  regulations, 
and  others  who  come  to  the  station  for  purposes  of  their  own  not 
connected  with  the  company's  business.90  And  station  agents  will,  in 


officers"  of  a  body  corporate  may  be 
examined  touching  the  matters  in 
question  in  an  action,  at  least  where 
the  action  is  based  upon  a  contract 
executed  by  such  station  agent  on 
behalf  of  the  company.  Ramsay  v. 
Midland  R.  Co.  (Ont.)  16  Am.  & 
Eng.  R.  Cas.  594. 

85  Branch  v.  Wilmington,  &c.  R. 
Co.  88  N.  Car.  573. 

88  Wood  v.  Chicago,  &c.  R.  Co.  68 
Iowa  491,  27  N.  W.  473,  56  Am.  R. 
861;  Easton  v.  Dudley,  78  Tex.  236, 
14  S.  W.  583.  See,  also,  Stoner  v. 
Chicago,  &c.  R.  Co.  109  Iowa  551,  80 
N.  W.  569;  Gulf,  &c.  R.  Co.  v.  Irvine 
(Tex.  Civ.  App.),  73  S.  W.  540.  But 
not  to  furnish  cars  at  another  sta- 
tion. Gulf,  &c.  R.  Co.  v.  Hodge,  10 
Tex.  Civ.  App.  543,  30  S.  W.  829; 
Voorhees  v.  Chicago,  &c.  R.  Co.  71 
Iowa  735,  30  N.  W.  29,  60  Am.  R. 


823.  Provided  the  shipper  has  no 
actual  knowledge  of  a  defect  in  the 
agent's  authority  which  prevents 
him  from  making  such  a  contract 
that  shall  bind  the  company.  Har- 
rison v.  Missouri  Pac.  R.  Co.  74  Mo. 
364,  41  Am.  R.  318. 

87Deming  v.  Grand  Trunk  R.  Co. 
48  N.  H.  455,  2  Am.  R.  267.  See, 
also,  Harrell  v.  Wilmington,  &c.  R. 
Co.  106  N.  Car.  258,  11  S.  E.  286. 

88  Southern    Express    Co.    v.    Mc- 
Veigh, 20  Gratt.  (Va.)  264;  Phillips 
v.  North  Carolina  R.  Co.  78   N.  C. 
294;   Mann  v.  Birchard,  40  Vt.  326, 
94  Am.  Dec.  398;   Webber  v.  Great 
Western  R.  Co.  3  H.  &  C.  771. 

89  Melbourne  v.  Louisville,  &c.  R. 
Co.  88  Ala.  443,  6  So.  762. 

90  Commonwealth  v.  Power,  7  Met. 
(Mass.)  596,  41  Am.  Dec.  465. 


429 


STATION   AGENTS. 


[§'  303 


general,  be  held  to  have  such  additional  powers  as  may  be  conferred 
upon  them,  either  expressly  or  by  implication  from  the  usual  course 
of  business.  A  station  agent  may  bind  his  principal  within  the  limits 
of  his  apparent  authority,  even  though  that  authority  is  restricted  by 
secret  instructions,  which  are  unknown  to  the  other  contracting  party.91 
The  court  will  not,  however,  presume  that  the  agent  had  authority 
to  bind  the  company  by  contract  for  carriage  beyond  its  own  line,92 
since  a  common  carrier  is  not  required  to  deliver  goods  at  a  point  be- 
yond its  line.93  Where  a  station  agent  signed  receipts  furnished  in 


"Wood  v.  Chicago,  &c.  R.  Co.  68 
Iowa  491,  27  N.  W.  473,  56  Am.  R. 
861;  Pruitt  v.  Hannibal,  &c.  R.  Co. 
62  Mo.  527,  where  it  is  held  that  no- 
tice of  restrictions  upon  the  agent's 
authority  must  be  conveyed  to  the 
public  in  such  a  manner  as  to  au- 
thorize the  inference  that  shippers 
are  apprised  of  them.  See,  also, 
Harrison  v.  Kansas  City,  &c.  R.  Co. 
50  Mo.  App.  332;  Lake  Shore,  &c. 
Co.  v.  Foster,  104  Ind.  293,  4  N.  E. 
20,  54  Am.  R.  319;  Brooke  v.  New 
York,  &c.  Co.  108  Pa.  St.  529,  1  Atl. 
206,  56  Am.  R.  235;  Johnson  v.  Cen- 
tral Vt.  R.  Co.  56  Vt.  707,  19  Am.  & 
Eng.  R.  Cas.  169;  Southern  Express 
Co.  v.  Womack,  1  Heisk.  (Tenn.) 
256.  See,  also,  Newport  News,  &c. 
R.  Co.  v.  Mercer,  96  Ky.  475,  29  S. 
W.  301;  International,  &c.  R.  Co.  v. 
True,  23  Tex.  Civ.  App.  523,  57  S. 
W.  977.  In  Illinois  Cent.  R.  Co.  v. 
Bryant,  70  Miss.  665,  12  So.  592,  it 
is  held  that  where  it  has  been  the 
custom  for  a  station  agent  to  re- 
ceive notice  of  the  assignment  of 
the  wages  of  employes,  notice  to 
such  agent  is  notice  to  the  company. 
See  Memphis,  &c.  Co.  v.  Koch,  28 
Kans.  565,  9  Am.  &  Eng.  R.  Cas.  429. 
As  to  when  notice  to  station  agent 
is  notice  to  the  company,  see  Mer- 
rill v.  American,  &c.  Co.  62  N.  H. 
514;  Wells  v.  American,  &c.  Co.  44 
Wis.  342;  Great  Western,  &c.  Co.  v. 
Wheeler,  20  Mich.  419. 


82  Cummins  v.  Dayton,  &c.  R.  Co. 
(Ind.  Super.  Ct,  Marion  Co.)  9  Am. 
&  Eng.  R.  Cas.  36;  Grover  &  Baker, 
&c.  Co.  v.  Missouri  Pacific  R.  Co.  70 
Mo.  672,  35  Am.  R.  444;   Coates  v. 
Chicago,  &c.  R.  Co.  8  S.  Dak.  173,  65 
N.  W.  1067;  Hoffman  v.  Cumberland, 
&c.  R.  Co.  85  Md.  391,  37  Atl.  214; 
Marmonstein  v.  Pennsylvania  R.  Co. 
68  N.  Y.  St.  172,  34  N.  Y.  S.  97. 

83  Burroughs  v.  Norwich,  &c.  Co. 
100  Mass.  26;   Wait  v.  Albany,  &c. 
Co.  5  Lans.  (N.  Y.)  475;  Pittsburgh, 
&c.  R.  Co.  v.  Morton,  61   Ind.   539, 
574,  28  Am.  R.  682;    Cobb  v.  Iowa 
Central  R.  Co.  38  Iowa  601;   Pied- 
mont Mfg.  Co.  v.  Columbia,  &c.  R. 
Co.  19  S.  C.  353;  People  v.  Chicago, 
&c.  R.  Co.  55  111.  95,  8  Am.  R.  631; 
Grover  &  Baker,  &c.  Co.  v.  Missouri 
Pac.  R.  Co.  70  Mo.  672,  35  Am.  R. 
444;   Erie  R.  Co.  v.  Wilcox,  84  111. 
239,    25    Am.    R.    451;     Oxlade    v. 
North  Eastern  R.  Co.  15  C.  B.   (N. 
S.)  680;  Grover,  &c.  Co.  v.  Missouri 
Pac.    R.    Co.    70    Mo.    672,    35    Am. 
R.   444.     See,   generally,  as   to  au- 
thority    of    agents    authorized    to 
make  contracts  respecting  transpor- 
tation   of    passengers    and    goods, 
Houston,  &c.  R.  Co.  v.  Hill,  63  Tex. 
381^  51  Am.  R.  642;   Missouri  Pac. 
Co.  v.  Finley,  38  Kans.  550,  16  Pac. 
951;  Medbury  v.  New  York,  &c.  Co. 
26    Barb.    (N.    Y.)    564;    Michigan, 
&c.  R.  Co.  v.  Day,  20   111.   375,  71 
Am.  Dec.  278;   Riley  v.  New  York, 


303]        EXECUTIVE  AND  MINISTERIAL  OFFICERS  AND  AGENTS.       430 


blank  by  a  shipper,  by  the  terms  of  which  the  corporation  undertook 
to  forward  and  deliver  the  goods  to  the  order  of  the  consignee  at  points 
on  a  connecting  line,  but  it  appeared  that  he  acted  without  special 
authority  and  without  the  knowledge  of  the  corporation  in  so  doing, 
and  that  the  agent  had  been  furnished  with  blank  forms  of  receipts 
by  the  company,  by  which  it  was  provided  that  in  case  of  loss  or  dam- 
age of  the  goods  the  corporation  only  should  be  responsible  in  whose 
actual  custody  the  goods  should  be  at  the  time,  the  company  was  held 
not  liable  for  a  loss  occurring  on  a  connecting  line.94  But  the  author- 
ity of  a  station  agent  to  make  contracts  for  the  carriage  of  goods  over 
connecting  lines  may  be  shown  by  evidence  that  such  was  the  usual 
course  of  business,95  since  the  company  is  bound  by  the  acts  of  its 
agents  which  it  has  permitted  for  a  length  of  time  without  objection. 
There  is  no  doubt  of  the  authority  of  a  railroad  company  to  enter  into 
a  valid  contract  of  this  character.96  A  local  station  agent  has  no  au- 


&c.  R.  Co.  34  Hun  (N.  Y.)  97; 
Borden  v.  Richmond,  &c.  Co.  113 
N.  C.  570,  18  S.  E.  392,  37  Am. 
St.  632;  Angle  v.  Mississippi,  &c.  R. 
Co.  18  Iowa  555;  Mulligan  v.  North- 
ern, &c.  R.  Co.  4  Dak.  315,  29  N.  W. 
659. 

"Burroughs  v.  Norwich,  &c.  R. 
Co.  100  Mass.  26,  1  Am.  R.  78. 

85Grover  &  Baker,  &c.  Co.  v.  Mis- 
souri Pac.  R.  Co.  70  Mo.  672.  See, 
also,  Faulkner  v.  Chicago,  &c.  R.  Co. 
99  Mo.  App.  421,  73  S.  W.  927;  Gulf, 
&c.  R.  Co.  v.  Cole,  8  Tex.  Civ.  App. 
635,  28  S.  W.  391;  Bigelow  v.  Chi- 
cago, &c.  R.  Co.  104  Wis.  109,  88  N. 
W.  95.  Where  a  local  agent  of  a 
railroad  company  was  authorized  to 
make  a  special  contract  for  trans- 
porting a  lot  of  corn  from  Illinois 
to  Boston,  but  had  no  authority  to 
contract  for  the  return  of  a  part  of 
the  freight  charged,  it  was  held  that 
the  company  should  not  be  allowed, 
after  having  availed  itself  of  the 
benefits  of  the  contract,  to  repudiate 
an  agreement  for  the  return  of 
freight  charges  which  he  had  intro- 
duced into  the  contract.  Toledo,  &c. 


R.  Co.  v.  Elliott,  76  111.  67.  Where 
it  is  shown  that  a  station  agent 
was  in  the  habit  of  receiving  goods 
for  carriage  over  connecting  lines, 
and  was  in  possession  of  the  com- 
pany's stamp  to  be  used  upon  re- 
ceipts, which  he  issued  for  such 
goods,  and  that  the  company  took 
possession  of  the  goods  and  caused 
them  to  be  shipped,  with,  at  least, 
a  presumptive  knowledge  of  the 
terms  of  the  receipt  given,  the 
agent  will  be  presumed  to  have  au- 
thority to  contract  for  the  shipment 
of  goods  over  a  connecting  line. 
Hansen  v.  Flint,  &c.  R.  Co.  73  Wis. 
346,  41  N.  W.  529,  9  Am.  St.  791. 

96  Ohio,  &c.  R.  Co.  v.  McCarthy,  96 
U.  S.  258;  Feital  v.  Middlesex  R.  Co. 
109  Mass.  398,  12  Am.  R.  720;  Mil- 
nor  v.  New  York,  &c.  R.  Co.  53  N. 
Y.  363;  Morse  v.  Brainerd,  41  Vt. 
550;  Nashua  Lock  Co.  v.  Worcester, 
&c.  R.  Co.  48  N.  H.  339;  Perkins  v. 
Portland,  &c.  R.  Co.  47  Me.  573,  74 
Am.  Dec.  507;  Wheeler  v.  San  Fran- 
cisco, &c.  R.  Co.  31  Cal.  46,  89  Am. 
Dec.  147;  Candee  v.  Pennsylvania  R. 
Co.  21  Wis.  582,  94  Am.  Dec.  566; 


431 


STATION   AGENTS. 


[§    303 


thority,  generally,  to  contract  to  furnish,  cars  to  shippers  at  stations 
other  than  that  at  which  he  is  stationed,97  since  his  authority,  real 
or  apparent,  extends  only  to  the  control  of  the  company's  business  at 
his  own  station.98  He  has  no  such  authority  over  the  company's  trains 
as  will  enable  him  to  make  a  binding  contract  for  the  carriage  of 
freight  on  a  passenger  train.90  It  is  no  part  of  his  duties  to  assign 
seats  to  passengers  upon  a  train,  hence  it  has  been  held  that  the  com- 
pany is  not  bound  by  directions  given  by  a  station  agent  to  a  passen- 
ger to  ride  in  a  dangerous  place  outside  the  car.100  He  cannot  make 
a  binding  contract  with  the  company  on  his  own  behalf  without  giv- 
ing the  company  an  opportunity  to  ratify  or  disaffirm  it  after  being 
put  in  possession  of  the  fact  of  his  interest.101  So,  he  cannot  bind 
the  company  by  a  contract  for  the  services  of  an  assistant  to  perform 
a  part  of  the  duties  of  his  office  without  express  authority,  since 
such  a  contract,  by  lessening  the  duties  devolving  upon  him,  would 
indirectly  benefit  the  agent  himself.102  Upon  the  same  principle,  the 
railroad  company  cannot  be  held  liable  for  the  failure  of  its  station 
agent  to  perform  duties  which  he  undertakes  in  pursuance  of  his 


Baltimore,  &c.  R.  Co.  v.  Brown,  54 
Pa.  St.  77;  Stewart  v.  Erie,  &c. 
Trans.  Co.  17  Minn.  372;  Cincinnati 
R.  Co.  v.  Pontius,  19  Ohio  St.  221; 
Wilby  v.  West  Cornwall  R.  Co.  2 
Hurl.  &  N.  703.  And  general  freight 
agents  have  been  held  presumed  to 
have  this  power.  Burtis  v.  Buffalo, 
&c.  Co.  24  N.  Y.  274;  Farmers,  &c. 
Co.  v.  Northern  Pac.  R.  Co.  120  Fed. 
873.  And  see,  generally,  as  to  pow- 
ers such  agents  may  he  presumed 
to  have,  Fremont,  &c.  R.  Co.  v.  New 
York,  &c.  R.  Co.  66  Neb.  159,  92  N. 
W.  131;  St.  Louis,  &c.  R.  Co.  v.  El- 
gin, &c.  Co.  175  111.  557,  51  N.  E.  911, 
67  Am.  St.  238;  Missouri,  &c.  R.  Co. 
v.  Wells,  24  Tex.  Civ.  App.  304,  58 
S.  W.  842;  Baker  v.  Chicago,  &c.  R. 
Co.  91  Minn.  118,  97  N.  W.  650.  But 
see  Converse  v.  Norwich,  &c.  Trans. 
Co.  33  Conn.  166. 

»T  Missouri  Pac.  R.  Co.  v.  Stults, 
11  Kans.  752,  3  Pac.  522;  Gulf,  &c. 
R.  Co.  v.  Hodge,  10  Tex.  Civ.  App. 
543,  30  S.  W.  829. 


88Voorhees  v.  Chicago,  &c.  R.  Co. 
71  Iowa  735,  30  N.  W.  29,  60  Am.  R. 
823. 

""Elkins  v.  Boston,  &c.  R.  Co.  3 
Fost.  (N.  H.)  275. 

100  Little  Rock,  &c.  R.  Co.  v.  Miles, 
40  Ark.  298,  48  Am.  R.  10. 

101Pegram  v.  Charlotte,  &c.  R.  Co. 
84  N.  Car.  696,  37  Am.  R.  639,  where 
the  station  agent  negotiated  for  an 
excursion  train  to  be  run  for  his 
benefit  to  a  Fourth  of  July  celebra- 
tion, and  the  court  held  that,  his  in- 
terests in  the  matter  being  adverse 
to  those  of  the  company,  he  was 
bound,  by  reason  of  his  fiduciary 
relation  toward  the  company,  to  dis- 
close all  material  facts  which  would 
influence  it  in  making  the  contract, 
including  the  fact  that  it  was  made 
for  his  own  benefit,  and  his  failure 
to  do  so  would  prevent  him  from 
enforcing  the  contract. 

102  Willis  v.  Toledo,  &c.  R.  Co.  72 
Mich.  160,  40  N.  W.  205. 


§   303]       EXECUTIVE  AND  MINISTERIAL   OFFICERS   AND  AGENTS.       432 


employment  by  a  third  person  as  an  agent  for  the  purchase  and  ship- 
ment of  goods.  The  law  does  not  favor  double  agencies.103  If  he 
ships  his  own  goods  at  a  higher  rate  than  is  allowed  by  law,  he  cannot 
maintain  an  action  to  recover  the  overcharges  paid,  since  he  himself 
acted  as  the  instrument  by  which  the  wrong  was  done  and  was,  there- 
fore, a  party  to  the  wrong  of  which  he  complains.104  Where  the  station 
agent  performs  an  act  that  is  beyond  the  power  of  the  railroad  cor- 
poration itself,  the  corporation  is  not  necessarily  bound  thereby.  It 
has  even  been  held  (erroneously,  as  we  think)  where  a  station  agent 
caused  the  arrest' of  a  shipper  for  refusing  to  pay  the  return  charges 
for  a  horse  that  the  company  was  not  liable  to  an  action  for  false  im- 
prisonment, since  the  company  had  no  authority  to  arrest  for  non- 
payment of  charges  for  carriage,  and  could  not  be  held  to  have  con- 
ferred such  authority  upon  the  agent.105  While  the  railroad  company 
is,  ordinarily,  liable  to  third  persons  for  the  fraudulent  conduct  of  the 
station  agent  within  the  line  of  his  employment,  it  is  not  so  liable 
to  persons  having  knowledge  of  the  fraud.  Accordingly,  if  a  station 
agent  issues  a  bill  of  lading  for  goods  not  placed  in  his  possession  and 
delivers  it  to  a  person  acting  in  collusion  with  him,  the  railroad  is  not 
bound.  It  is  held  by  many  of  the  courts  that  as  a  bill  of  lading  is  not 
a  negotiable  instrument  a  fraudulent  bill  is  void  even  in  the  hands 
of  an  innocent  third  person  who  has  been  induced  to  advance  money 
upon  the  faith  of  it.106  But  a  number  of  courts  hold  the  railroad  com- 


103  Sumner  v.  Charlotte,  &c.  R.  Co. 
78  N.  C.  289.     See,  also,  Mulligan  v. 
Northern  Pac.  R.  Co.  4  Dak.  315,  29 
N.  W.  659;  Coleman  v.  Richer,  2  El. 
&  Bl.  750,  75  E.  C.  L.  750. 

104  Steever    v.    Illinois    Central    R. 
Co.  62  Iowa  371,  17  N.  W.  595,  con- 
struing Chapter  68,  Acts  1874. 

105Poulton  v.  London,  &c.  R.  Co. 
L.  R.  2  Q.  B.  534.  But  see  Gulf  R. 
Co.  v.  James,  73  Tex.  12,  10  S.  W. 
744,  15  Am.  St.  743,  where  the  gen- 
eral manager  made  an  arrest  not 
authorized  by  the  charter,  and  the 
company  was  held  liahle.  And  if 
the  agent  had  authority  to  make  ar- 
rests under  any  circumstances,  the 
company  may  be  held  liable  where 
he  used  his  power  without  justifica- 
tion. Goff  v.  Great  Northern  R.  Co. 
30  L.  Jour.  Q.  B.  148. 


106  Friedlander  v.  Texas,  &c.  R.  Co. 
130  U.  S.  416,  9  Sup.  Ct.  570,  in 
which  Fuller,  C.  J.,  speaking  for  the 
court,  says:  "The  law  can  punish 
roguery,  but  cannot  always  protect 
the  purchaser  from  loss,  and  so 
fraud  perpetrated  through  the  de- 
vice of  a  false  bill  of  lading  may 
work  injury  to  an  innocent  party, 
which  cannot  be  redressed  by  a 
change  of  victims."  Baltimore,  &c. 
R.  Co.  v.  Wilkens,  44  Md.  11,  22  Am. 
R.  26;  Stone  v.  Wabash,  &c.  R.  Co. 
9  Brad.  (111.)  48.  See  Grant  v.  Nor- 
way, 2  Eng.  L.  &  Eq.  337;  Fellows 
v.  Steamer  R.  W.  Powell,  16  La. 
Ann.  316,  79  Am.  Dec.  581;  Dean  v. 
King,  22  Ohio  St.  118;  Louisiana 
Nat.  Bank  v.  Laveille,  52  Mo.  380; 
Lake  Shore,  &c.  Co.  v.  Foster,  104 
Ind.  293,  4  N.  E.  20,  54  Am.  R.  319; 


433 


STATION   AGENTS. 


[§    303 


pany  liable  in  such  a  case,  upon  the  ground  that  it  is  the  natural  and 
necessary  expectation  of  a  carrier  issuing  bills  of  lading  that  they 
will  pass  freely  from  one  to  another  and  advances  be  made  upon  their 
faith,  that  the  carrier  has  no  right  to  believe,  and  never  does  believe, 
that  their  effect  is  limited  to  the  person  to  whom 'they  are  first  and 
directly  issued,107  and  that  it  is  estopped  to  deny  the  facts  set  out  in 
a  bill  of  lading  issued  by  its  accredited  agent  to  the  injury  of  one  who 
has  been  misled  thereby.108  There  is  some  reason  for  the  doctrine  de- 


National  Bank  v.  Chicago,  &c.  R. 
Co.  44  Minn.  224,  46  N.  W.  342,  560, 
20  Am.  St.  566;  Sioux  City,  &c.  R. 
Co.  v.  First  National  Bank,  10  Neb. 
556,  7  N.  W.  311,  35  Am.  R.  488.  In 
Bank  of  N.  Y.  &c.  v.  American,  &c. 
Co.  143  N.  Y.  559,  38  N.  E.  713,  it 
is  held  that  a  by-law  of  a  corpora- 
tion authorizing  an  officer  to  sign 
warehouse  receipts  does  not  confer 
upon  him  authority  to  sign  a  receipt 
for  his  own  property. 

107  Bank  of  Batavia  v.  New  York, 
&c.  R.  Co.  106  N.  Y.  195,  12  N.  E. 
433,  60  Am.  R.  440;  Armour  v.  Mich- 
igan Cent.  R.  Co.  65  N.  Y.  Ill,  22 
Am.  R.  603;  Wichita  Savings  Bank 
v.  Atchison,  &c.  R.  Co.  20  Kans.  519. 
In  this  latter  case  the  court  says: 
"The  custom  of  grain  dealers  is  to 
buy  of  the  producer  his  wheat, 
corn,  barley,  etc.,  then  deliver  the 
same  to  the  railroad  company  for 
shipment  to  market.  The  railroad 
company  issues  to  the  shipper  its 
bill  of  lading.  The  shipper  takes 
his  bill  of  lading  to  a  bank,  draws 
a  draft  upon  his  commission  mer- 
chant or  consignee  against  the  ship- 
ment, and  attaches  his  bill  of  lading 
to  the  draft.  Upon  the  faith  of  the 
bill  of  lading  and  without  further 
inquiry  the  bank  cashes  the  draft, 
and  the  money  is  thus  obtained  to 
pay  for  the  grain  purchased,  or  to 
purchase  other  shipments.  In  this 
way  the  dealer  realizes  at  once  the 
greater  value  of  his  consignments, 
ELL.  RAILROADS — 28 


and  need  not  wait  for  the  returns 
of  the  sale  of  his  grain  to  obtain 
money  to  make  other  purchases.  In 
this  way  the  dealer  with  a  small 
capital  may  buy  and  ship  extensive- 
ly; and  while  having  a  capital  of  a 
few  hundred  dollars  only,  may  buy 
for  cash  and  ship  grain  valued  at 
many  thousands.  This  mode  of 
transacting  business  is  greatly  ad- 
vantageous both  to  the  shipper  and 
the  producer.  It  gives  the  shipper 
who  is  prudent  and  posted  as  to 
the  markets  almost  unlimited  op- 
portunities for  the  purchase  and 
shipment  of  grain,  and  furnishes  a 
cash  market  for  the  producer  at  his 
own  door.  It  enables  the  capitalist 
and  banker  to  obtain  fair  rates  of 
interest  for  the  money  he  has  to 
loan,  and  insures  him,  in  the  way 
of  bills  of  lading,  excellent  security. 
It  also  furnishes  additional  business 
to  railroad  companies,  as  it  facili- 
tates and  increases  shipments  to 
the  markets.  A  mode  of  doing  busi- 
ness so  beneficial  to  so  many  classes 
ought  to  receive  the  favoring  recog- 
nition of  the  courts  to  aid  its  con- 
pnuance."  See,  also,  Brooke  v.  New 
York,  &c.  Co.  108  Pa.  St.  529,  1  Atl. 
206,  56  Am.  R.  235;  Dean  v.  Driggs, 
137  N.  Y.  274,  33  N.  E.  326,  19  L.  R. 
A.  302,  33  Am.  St.  721. 

108  Brooke  v.  New  York,  &c.  R.  Co. 
108  Pa.  St.  529,  1  Atl.  206,  56  Am.  R. 
235;  St.  Louis,  &c.  R.  Co.  v.  Larned, 
103  111.  293;  Coventry  v.  Great  East- 


303]       EXECUTIVE  AND  MINISTERIAL   OFFICERS  AND  AGENTS.       434: 


clared  in  the  cases  last  referred  to,  for  the  act  of  the  station  agent  in 
such  cases  in  issuing  the  bill  of  lading  must  cause  loss  either  to  his  em- 
ployer or  to  some  third  person,  and  as  the  employer  "trusted  most  it 
must  suffer  most."  The  maxim  that,  "where  one  of  two  innocent  per- 
sons must  suffer  loss  by  the  fraud  of  a  third  person,  he  who  put  it  in 
the  power  of  the  third  to  commit  the  fraud  must  bear  the  loss"  seems 
applicable  to  such  cases.  Analogous  cases — those  where  warehouse  re- 
ceipts were  issued — give  some  support  to  the  decisions  under  immedi- 
ate mention.108  But  the  weight  of  authority  is  to  the  effect  that  the 
company  is  not  bound  where  no  goods  were  received.110 


ern  R.  Co.  L.  R.  11  Q.  B.  Div.  776. 
Sioux  City,  &c.  R.  Co.  v.  First  Nat. 
Bank,  10  Neb.  556,  7  N.  W.  311,  35 
Am.  R.  488,  where  the  leading  cases 
holding  the  contrary  are  very  fully 
reviewed.  In  this  case,  Maxwell,  C. 
J.,  speaking  for  the  court,  says: 
"All  the  testimony  shows  that  the 
bills  of  lading  in  controversy  were 
issued  by  an  authorized  agent  of  the 
railroad  company,  and  that  he  not 
only  had  authority  to  issue  such 
bills,  but  it  was  one  of  the  duties 
imposed  upon  him.  As  against  an 
innocent  purchaser  of  the  bills,  it 
will  not  do  to  say  that  the  agent  had 
authority  to  issue  bills  of  lading  du- 
ly signed,  only  in  cases  where  ship- 
ments were  made,  and  no  authority 
where  shipments  were  not  made. 
The  company  itself  has  invested  its 
own  agent  with  the  authority  to 
issue  bills  of  lading,  and  when  duly 
issued  they  are  not  the  bills  of  the 
agent,  but  of  the  railroad  company. 
The  representation,  therefore,  thus 
made  in  the  bills  that  the  company 
has  received  a  certain  quantity  of 
grain  for  shipment,  is  a  representa- 
tion to  any  one  who,  in  good  faith 
relying  thereon,  sees  fit  to  make  ad- 
vances on  the  same.  If  these  rep- 


resentations are  false,  who  should 
bear  the  loss?  The  party  who  ap- 
pointed, placed  confidence  in,  and 
gave  authority  to  make  the  bills,  or 
the  one  that  in  good  faith,  relying 
thereon,  purchased  or  advanced 
money  on  the  same?  *  *  *  The 
case  presents  every  element  neces- 
sary to  constitute  an  estoppel  in 
pais,  a  representation  made  with 
full  knowledge  that  it  might  be  act- 
ed upon,  and  subsequent  action  in 
reliance  thereon,  by  which  the  de- 
fendants in  error  would  lose  the 
amount  advanced  if  the  representa- 
tion is  not  made  good.  This  princi- 
ple was  entirely  overlooked  in  Grant 
v.  Norway,  and  the  cases  following 
it." 

109Babcock  v.  People's  Bank,  118 
Ind.  212,  20  N.  E.  732;  Preston  v. 
Witherspoon,  109  Ind.  457,  9  N.  E. 
585,  58  Am.  R.  417;  Planters',  &c. 
Co.  v.  Merchants',  &c.  Bank,  78  Ga. 
574,  3  S.  E.  327;  Neil  v.  Hill,  1 
Wool.  (U.  S.  C.  C.)  96;  Whitlock  v. 
Hay,  58  N.  Y.  484;  Stewart  v.  Phe- 
nix  Ins.  Co.  9  Lea  (Tenn.)  104; 
Cowdrey  v.  Vanderburgh,  101  U.  S. 
572. 

110  See  post,  §§  1416,  1419. 


CHAPTER  XIV. 

DIVIDENDS. 


Sec.  Sec. 

304.  Rights  of  stockholders— Divi-    312. 

dends. 

305.  When     dividend     belongs    to    313. 

stockholder — Assignment. 

306.  To  whom  dividend  should  be    314. 

paid. 

307.  Rights  of  life  tenant  and  re-    315. 

mainder  man  —  Apportion- 
ment of  dividends. 

308.  Duties  of  life  tenant — Trans-    316. 

fers. 

309.  Dividend   is   not  property   of    317. 

the  corporation  —  Rights  of 
creditors  and  stockholders.      318. 

310.  Dividend    is    irrevocable — Ac-    319. 

tions  concerning.  320. 

311.  Demand — Necessity  and  effect    321. 

of. 


Declaration  of  dividend  dis- 
cretionary with  directors. 

Power  to  borrow  money  or  de- 
clare stock  dividend. 

Remedies  for  abuse  of  discre- 
tion. 

Limitations  upon  authority  to 
declare  a  dividend — Suits  to 
reclaim. 

Dividends  should  be  paid  out 
of  the  profits. 

Enjoining  payment  of  divi- 
dends. 

Personal  liability  of  directors. 

Dividends  payable  in  scrip. 

Stock  dividends. 

Dividends  payable  without  dis- 
crimination. 


§  304.  Eights  of  stockholders — Dividends. — A  stockholder  has  no 
legal  right  to  the  property  or  undistributed  profits  of  the  corpora- 
tion 51  he  has  merely  a  right  to  participate,  to  a  certain  extent,  in  the 
management  of  the  company  and  to  share  in  the  distribution  of  what- 
ever property  may  remain  after  payment  of  its  debts  upon  dissolu- 
tion,2 together  with  the  further  right,  which  constitutes  the  principal 
inducement  to  become  a  shareholder,  of  sharing  in  the  distribution, 
which  is  made  at  longer  or  shorter  intervals  of  time  in  all  prosperous 
companies,  of  the  profits  arising  from  the  business  which  the  cor- 
poration is  organized  to  transact.3  When  a  corporate  profit  has  been 

1  Jones  v.  Terre  Haute  R.  Co.  57  Co.  v.  Board,  99  Ala.  1,  14  So.  490, 

N.  Y.  196;  Burroughs  v.  N.  C.  R.  Co.  '42  Am.  St.  17. 

67  N.  C.  376,  12  Am.  R.  611;  Lock-  2Burrall  v.  Bushwick  R.  Co.  75  N. 

hart  v.  Van  Alstyne,  31  Mich.  76,  78,  Y.  211,  216. 

18  Am.  R.  156;   Goodwin  v.  Hardy,  'Forbes  v.  Memphis,  &c.  R.  Co.  2 

57  Me.  143;  Granger  v.  Bassett,  98  Woods    (U.  S.)   323,  331;   Plimpton 

Mass.  462;  Commercial  Fire  Ins.  Co.  v.  Bigelow,  93  N.  Y.  592,  599. 

435 


§  305] 


DIVIDENDS. 


436 


ascertained,  declared,  ordered  and  set  aside  by  the  proper  corporate 
authorities  to  be  paid  to  the  stockholders  on  demand  or  at  a  fixed 
time,  it  is  termed  a  dividend.4  A  resolution  ascertaining  the  amount 
of  the  corporate  profits,  and  declaring  them  payable  to  the  stock- 
holders, is  a  declaration  of  a  dividend,  even  though  it  leaves  the  time 
of  payment  to  be  fixed  afterward  by  the  directors.5 

§  305.    When  dividend  belongs  to  stockholder — Assignment. — The 

dividend  belongs  to  the  holder  of  the  shares  at  the  time  it  is  declared,6 
and  so  soon  as  it  is  due  it  becomes  his  absolute  property.7  If  the  divi- 


*Chaffee  v.  Rutland  R.  Co.  55  Vt. 
110;  Lockhart  v.  Van  Alstyne,  31 
Mich.  76,  18  Am.  R.  156;  Webb  v. 
Earle,  L.  R.  20  Eq.  556;  Hyatt  v.  Al- 
len, 56  N.  Y.  553,  15  Am.  R.  449; 
Mobile,  &c.  R.  Co.  v.  Tennessee,  153 
U.  S.  486,  14  Sup.  Ct.  968;  Alsop  v. 
De  Koven,  107  111.  App.  190.  "A 
dividend  is  that  portion  of  the  prof- 
its and  surplus  funds  of  the  corpora- 
tion which  has  been  actually  set 
apart  by  a  valid  resolution  of  the 
board  of  directors,  or  by  the  share- 
holders at  a  corporate  meeting,  for 
distribution  among  the  shareholders 
according  to  their  respective  inter- 
ests, in  such  a  sense  as  to  become 
segregated  from  the  property  of  the 
corporation,  and  to  become  the 
property  of  the  shareholders  distrib- 
utively."  2  Thomp.  Corp.  §  2126, 
citing  King  v.  Paterson,  &c.  R.  Co. 
29  N.  J.  L.  82. 

5  March  v.  Eastern  R.  Co.  43  N.  H. 
515;  King  v.  Paterson,  &c.  R.  Co.  29 
N.  J.  L.  82  and  504;  Simpson  v. 
Moore,  30  Barb.  (N.  Y.)  637;  Foote, 
Appellant,  22  Pick.  (Mass.)  299; 
Earp's  Appeal,  28  Pa.  St.  368;  De 
Gendre  v.  Kent,  L.  R.  4  Eq.  Gas.  283. 
But  where  the  time  of  payment  is 
not  fixed,  it  has  been  held  that  a  bill 
in  equity  is  the  appropriate  and 
only  remedy.  Scott  v.  Eagle,  &c.  Co. 
7  Paige  (N.  Y.)  198;  Pratt  v.  Pratt, 
Read  &  Co.  33  Conn.  446. 


6  Wright  v.  Tuckett,  1  Johns.  &  H. 
(Eng.  Ch.)  266;  Bright  v.  Lord,  51 
Ind.  272,  19  Am.  R.  732;  Hopper  v. 
Sage,  112  N.  Y.  530,  20  N.  E.  350,  8 
Am.    St.    771;    Boardman    v.    Lake 
Shore,  &c.  R.  Co.  84  N.  Y.  157,  178; 
Central  R.  &c.  Co.  v.  Papot,  59  Ga. 
342;   Baltimore  City  Pass.  R.  Co.  v. 
Sewell,  35  Md.  238,  6  Am.  R.  402; 
note  in  45  L.  R.  A.  392.     All  divi- 
dends declared  previous  to  the  death 
of   the   stockholder,   and   remaining 
unpaid,  go  to  his  administrator,  even 
though  not  yet  payable.   Kernochan, 
In  re,  104  N.  Y.  618,  11  N.  E.  149; 
De  Gendre  v.  Kent,  L.  R.  4  Eq.  283. 

7  Jermain  v. ,  Lake   Shore,   &c.   R. 
Co.  91  N.  Y.  483;  King  v.  Paterson, 
&c.  R.  Co.  29  N.  J.  L.  82  and  504; 
Keppel's  Adm'r  v.  Petersburg  R.  Co. 
Chase's  Dec.    (U.  S.)    167;    Scott  v. 
Central  R.  Co.  of  Ga.  52  Barb.    (N. 
Y.)   45;   1  Beach  Priv.  Corp.  §  599; 
Purdy's    Beach    Priv.    Corp.    §    441. 
Where,  however,  the  fact  that  a  div- 
idend has  been  voted  by  directors 
is  not  made  public  or  communicated 
to  the  stockholders,  and  no  fund  is 
set  apart  for  payment,  the  vote  may 
be  rescinded.     Ford  v.  East  Hamp- 
ton Rubber-Thread  Co.  158  Mass.  84, 
32  N.  E.  1036,  20  L.  R.  A.  65,  35  Am. 
St.  462.    A  potential  right  to  a  divi- 
dend is  not  a  debt  until  the  dividend 
is   declared.     Lockhart  v.   Van  Al- 
styne, 31  Mich.  76,  18  Am.  R.  156; 


437 


TO   WHOM  DIVIDEND  SHOULD  BE   PAID. 


[§'  306 


dend  be  made  payable  on  a  day  subsequent  to  that  on  which  it  is  de- 
clared, the  stockholder  may,  between  the  time  it  is  declared  and  the 
time  it  becomes  payable,  assign  and  transfer  either  the  stock8  or  the 
dividend9  without  affecting  his  title  to  the  other,  although  a  devise 
of  the  dividends  without  qualification  has  been  held  to  carry  with  it 
the  stocks  themselves.10  The  fact  that  a  dividend  was  earned  before 
a  transferee  purchased  his  stock  will  not  affect  his  title  to  dividends 
declared  after  such  purchase.11  He  is  entitled  to  all  dividends  de- 
clared while  he  owns  it.12  A  sale  of  shares  of  stock,  including  all  divi- 
dends due  or  to  become  due  thereafter,  has  also  been  held  to  include 
a  stock  dividend.13 


§306.  To  whom  dividend  should  be  paid. — The  general  rule  is 
that  in  cases  of  periodical  payments  due  at  intervals,  and  not  falling 
due  from  day  to  day,  there  can  be  no  apportionment.14  Owning  an 
option  to  purchase  stock  does  not  entitle  the  vendee  to  dividends  de- 
clared before  he  has  closed  the  bargain  and  while  he  still  has  the  right 


London,  &c.  Co.,  Re,  L.  R.  5  Eq.  519; 
Stevens  v.  South  Devon,  &c.  R.  Co. 
9  Hare  313.  It  then  becomes  a  debt 
due  from  the  corporation.  Wheeler 
v.  Northwestern,  &c.  Co.  39  Fed.  347. 

8  Wright  v.  Tuckett,  1  Johns.  &  H. 
(Eng.  Ch.)  266;  Hill  v.  Newicha- 
wanick  Co.  71  N.  Y.  593;  Wheeler 
v.  Northwestern,  &c.  Co.  39  Fed. 
347;  Ohio  City  v.  Cleveland,  &c.  R. 
Co.  6  Ohio  St.  489.  Contra,  Bur- 
roughs v.  North  Carolina  R.  Co.  67 
N.  C.  376,  12  Am.  R.  611.  In  Ken- 
nedy v.  First  Nat.  Bank,  115  N.  C. 
223,  20  S.  E.  375,  it  was  held  that 
where  a  widow,  to  whom  dividends 
were  bequeathed  during  her  life  or 
widowhood,  with  remainder  over  to" 
her  daughter,  consented  to  the  trans- 
fer of  the  certificate  of  stock  to  the 
daughter,  she  waived  all  claim  to 
the  dividend. 

•Brundage  v.  Brundage,  60  N.  Y. 
544;  Black  v.  Homersham,  L.  R.  4 
Exch.  Div.  24;  Curry  v.  Woodward, 
44  Ala.  305.  See,  also,  Cook  v.  Mon- 


roe, 45  Neb.  349,  63  N.  W.  800,  11 
Nat.  Corp.  R.  5. 

10  Collier  v.  Collier,  3  Ohio  St.  369. 

"Central  R.  &c.  Co.  v.  Papot,  59 
Ga.  342;  Ryan  v.  Leavenworth,  &c. 
Co.  21  Kans.  365,  403;  Jermain  v. 
Lake  Shore,  &c.  R.  Co.  91  N.  Y. 
483;  March  v.  Eastern  R.  Co.  43  N. 
H.  515.  See,  also,  Nickals  v.  New 
York,  &c.  R.  Co.  15  Fed.  575. 

"Bailey  v.  Railroad  Co.  22  Wall. 
(U.  S.)  604,  637;  March  v.  Eastern 
R.  Co.  43  N.  H.  515;  Jones  v.  Terre 
Haute,  &c.  R.  Co.  57  N.  Y.  196; 
Goodwin  v.  Hardy,  57  Me.  143.  If 
he  acquires  it  by  devise  he  takes  all 
dividends  declared  after  the  death 
of  his  testator.  Phelps  v.  Farmers', 
&c.  Bank,  26  Conn.  269.  See  note  in 
45  L.  R.  A.  393. 

13  Rose  v.  Barclay,  191  Pa.  St.  594, 
'43  Atl.  385,  45  L.  R.  A.  392,  and 
note. 

"Clapp  v.  Astor,  2  Edw.  Ch.  (N. 
Y.)  379.  See  note  in  45  L.  R.  A. 
396. 


§    306]  DIVIDENDS.  438 

to  either  purchase  or  refuse  the  stock,15  although  an  absolute  purchase 
of  stock  to  be  delivered  at  the  seller's  option  will  entitle  the  purchaser 
to  all  dividends  declared  after  entering  into  the  original  contract  of 
purchase.16  And  where  an  offer  to  sell  shares  is  accepted  before  revo- 
cation, it  has  been  held  that  the  acceptor  may  claim  all  dividends  de- 
clared after  the  date  of  the  offer,17  for  the  bargain  is  presumed  to 
have  been  made  with  reference  to  the  value  of  the  shares  at  the  time 
the  offer  was  made.  The  corporation  may  generally  pay  the  dividend 
to  the  person  in  whose  name  the  stock  is  registered  upon  the  books 
of  the  company18  without  inquiry,19  and  it  will  be  protected  even 
though  he  has  transferred  the  shares.20  But  where  the  corporation  has 
due  notice  of  a  transfer,  it  should  pay  the  money  only  to  the  trans- 
feree,21 and  it  seems  that  it  may  properly  do  so,  even  though  he  has 
not  yet  been  registered  as  a  stockholder.22  If  a  stockholder  dies,  his 
administrator  is  the  proper  party  to  receive  dividends  on  his  stock,23 
for  dividends  declared  before,  though  payable  after  the  owner's  death, 
belong  to  the  estate,  even  as  against  the  devisees  of  the  stock.24  His 
heirs,  it  is  said,  can  only  claim  the  dividends  after  they  have  pro- 
cured the  shares  to  be  transferred  to  themselves.25  Where  the  cor- 
poration closed  its  transfer  books  some  days  before  the  declaration  of 
a  dividend,  parties  who  applied  for  and  where  refused  registry  while 
the  books  remained  closed  were  held  entitled  to  the  dividend  when 

15  Bright  v.  Lord,  51  Ind.  272,  19  35  Ohio  St.  483;  Bell  v.  Lafferty,  1 

Am.  R.  732.  Pennypacker  (Pa.  Sup.  Ct.)  454. 

18Currie  v.  White,  45  N.  Y.  822;  21  Jones  v.  Terre  Haute,  &c.  R.  Co. 

Black  v.  Homersham,  L.  R.  4  Exch.  57  N.  Y.  196,  205;  Timberlake  v. 

Div.  24.  See,  also,  Phinizy  v.  Mur-  Shippers,  &c.  Co.  72  Miss.  323,  16 

ray,  83  Ga.  747,  10  S.  E.  358,  6  L.  R.  So.  530;  note  in  45  L.  R.  A.  397; 

A.  426,  20  Am.  St.  342.  Robinson  v.  National  Bank,  95  N.  Y. 

"Harris  v.  Stevens,  7  N.  H.  454.  637,  where  the  corporation  had  im- 

But  see  Hopper  v.  Sage,  112  N.  Y.  properly  refused  to  register  a  trans- 

530,  20  N.  E.  350,  8  Am.  St.  771.  fer. 

18  Brisbane  v.  Delaware,  &c.  R.  Co.  M 1  Cook  Stock  and  Stockholders, 
94  N.  Y.  204;   Cook  v.  Monroe,  45  §  540.     See,  also,  Gemmell  v.  Davis, 
Neb.  349,  63  N.  W.  800,  11  Nat.  Corp.  75  Md.  546,  23  Atl.  1032,  32  Am.  St. 
R.  5;   Cleveland,  &c.  R.  Co.  v.  Rob-  412. 

bins,  35   Ohio   St.  483;    Gemmell  v.  ^  Brisbane  v.  Delaware,  &c.  R.  Co. 

Davis,  75  Md.  546,  23  Atl.  1032,  32  94  N.  Y.  204. 

Am.  St.  412.  24  De  Gendre  v.  Kent,  L.  R.  4  Eq. 

19  Jones  v.  Terre  Haute,  &c.  R.  Co.  283;   Kernochen,  Re,  104  N.  Y.  618, 
29  Barb.   (N.  Y.)   353;   Northrop  v.  11  N.  E.  149. 

Newton,  &c.  Turnp.  Co.  3  Conn.  544.        m  State  v.  New  Orleans,  &c.  R.  Co. 

20  Cleveland,  &c.  R.  Co.  v.  Robbins,    30  La.  Ann.  308. 


439         LIFE  TENANT  AND   REMAINDERMAN — APPORTIONMENT.    [§   307 


declared.26  If  the  corporation  should  pay  a  dividend  to  a  person  as  a 
stockholder,  although  he  may  have  wrongfully  held  the  stock,  one 
claiming  to  be  the  real  owner  of  the  stock,  but  not  an  admitted  stock- 
holder, cannot  establish  his  right  thereto  in  the  first  instance,  it  seems, 
by  an  action  against  the  stockholder  to  recover  such  dividend,  as  for 
money  had  and  received.  His  action  to  recover  the  dividend  could  only 
be  maintained  against  the  corporation,  if  it  could  be  maintained  at 
all,  and  he  cannot  follow  the  assets  into  the  hands  of  others  without 
first  establishing  his  rights  as  a  creditor  of  the  corporation.27 

§  307.  Bights  of  life  tenant  and  remainderman — Apportionment 
of  dividends. — An  ordinary  cash  dividend  declared  during  the  exist- 
ence of  the  life  tenancy  goes,  presumptively  at  least,  to  the  life  ten- 
ant ;28  but  where  stock  is  held  in  trust  for  a  life  tenant  with  remainder 
over,  the  rule  has  been  laid  down  that  all  dividends  declared  from 
profits  earned  during  the  tenancy  belong  to  the  life  tenant,29  while 
extraordinary  dividends  amounting  only  to  a  distribution  of  a  portion 


28  Jones  v.  Terre  Haute,  &c.  R.  Co. 
57  N.  Y.  196,  205;  Robinson  v.  Na- 
tional Bank,  95  N.  Y.  637.  Where 
the  corporation  is  authorized  by 
statute  or  by  charter  to  close  its 
books  under  such  circumstances,  the 
holding  would,  perhaps,  be  different. 
If  the  corporation  refuses  to  trans- 
fer stock  to  a  purchaser  upon  ap- 
plication regularly  made,  it  has  been 
held  that  he  may  maintain  a  suit 
against  it  for  a  dividend  due  on  his 
stock,  without  first  compelling  a 
transfer  of  stock  to  him  by  a  pro- 
ceeding in  equity.  Hill  v.  Atoka, 
&c.  Co.  (Mo.  Sup.),  21  S.  W.  508. 
This  case  was  afterward  reversed, 
however,  by  the  court  in  bane,  upon 
other  grounds.  The  decision  revers- 
ing it  is  found  in  124  Mo.  153,  25  S. 
W.  926. 

27  Peckham  v.  Van  Wagenen,  83  N. 
T.  40,  38  Am.  R.  392,  distinguishing 
LeRoy  v.  Globe  Ins.  Co.  2  Edw.  Ch. 
(N.  Y.)  657,  and  Le  Blanc,  In  re,  75 
N.  Y.  598.  See,  however,  Cook  v. 


Monroe,  45  Neb.  349,  63  N.  W.  800, 
11  Nat.  Corp.  R.  5. 

28  Richardson  v.  Richardson,  75 
Me.  570,  46  Am.  R.  428;  Millen  v. 
Guerrard,  67  Ga.  284,  44  Am.  R.  720; 
Bates  v.  MacKinley,  31  Beav.  280; 
2  Thomp.  Corp.  §§  2193,  2201.  See, 
also,  "The  rule  in  Minot's  Case,"  by 
Judge  Corliss,  in  33  Alb.  L.  Jour. 
106;  De  Koven  v.  Alsop,  205  111.  309, 
63  L.  R.  A.  587. 

^Earp's  Appeal,  28  Pa.  St.  368; 
Biddle's  Appeal,  99  Pa.  St.  278; 
Oliver's  Estate,  136  Pa.  St.  43,  20 
Atl.  527,  9  L.  R.  A.  421,  20  Am.  St. 
894.  If  the  last  preceding  dividend 
was  made  at  a  regular  and  reason- 
able time,  before  a  cash  dividend  de- 
clared after  the  life  estate  arose,  it 
will  be  given  to  the  life  tenant,  re- 
gardless of  the  time  when  it  was 
earned.  Richardson  v.  Richardson, 
75  Me.  570,  46  Am.  R.  428;  Jermain 
v.  Lake  Shore,  &c.  R.  Co.  91  N.  Y. 
483;  Barclay  v.  Wainewright,  14  Ves. 
66. 


§  307] 


DIVIDENDS. 


440 


of  the  invested  capital,30  or  a  distribution  of  profits  earned  or  accumu- 
lated before  the  tenancy  arose,31  belong  to  the  remainderman.  This 
rule  is  followed,  either  in  whole  or  in  part,  in  most  of  the  states,  of 
the  American  union,32  and  can  be  objected  to,  it  is  said,  only  be- 
cause of  the  difficulty  in  applying  it.33  In  Massachusetts,34  Georgia,35 


"oyinton's  Appeal,  99  Pa.  St.  434, 
44  Am.  R.  116;  Heard  v.  Eldredge, 
109  Mass.  258,  12  Am.  R.  687;  Gif- 
ford  v.  Thompson,  115  Mass.  478; 
Wheeler  v.  Perry,  18  N.  H.  307. 

31  Pennsylvania  Co.  v.  Dovey,   64 
Pa.  St.  260;   Moss's  Appeal,  83  Pa. 
St.    264,    24    Am.    R.    164;    Smith's 
Estate,  140  Pa.  St.  344,  21  Atl.  438, 
23  Am.  St.  237. 

32  See  Cook  Stock  and  Stockhold- 
ers, §  554;  Van  Doren  v.  Olden,  19 
N.    J.   Eq.    176,    97    Am.    Dec.    650; 
Kernochan,  In  re,  104  N.  Y.  618,  11 
N.  E.  149;   Peirce  v.  Burrough,  58 
N.  H.  302;   Kite  v.  Kite's  Devisees, 
2  Ry.  &  Corp.  L.  J.  (Ky.)  568;  Kite 
v.  Kite,  93  Ky.  257,  20  S.  W.  778,  19 
L.  R.  A.  173,  40  Am.  St.  189;  Gilkey 
v.   Paine,   80   Me.  319,  14  Atl.  205; 
Smith's  Estate,  140  Pa.  St.  344,  21 
Atl.   438,   23  Am.   St.   237;    Cobb  v. 
Fant,   36   S.   Car.   1,  14   S.  E.   959; 
Spooner  v.  Phillips,  62  Conn.  62,  24 
Atl.  524,  16  L.  R.  A.  461;  De  Koven 
v.  Alsop,  205  111.  309,  68  N.  E.  930, 
63  L.  R.  A.  587.    The  rule  seems  to 
be  somewhat  unsettled  in  New  York. 
Compare  Goldsmith  v.  Swift,  25  Hun 
(N.  Y.)  201;  Warren,  In  re,  33  N.  Y. 
St.  584,  11  N.  Y.  S.  787;   Clarkson 
v.  Clarkson,  18  Barb.   (N.  Y.)   646; 
Simpson   v.   Moore,   30    Barb.    637; 
Riggs  v.  Cragg,  89  N.  Y.  479,  and 
Kernochan,  In  re,  104  N.  Y.  618,  11 
N.   E.  149.     See,  also,  McLouth  v. 
Hunt,  154  N.  Y.  179,  48  N.  E.  548, 
39  L.  R.  A.  230;  Lowry  v.  Farmers', 
&c.  Co.  172  N.  Y.  137,  64  N.  E.  796. 

33  See   Earp's   Appeal,    28   Pa.    St. 
368.    In  33  Alb.  L.  Jour.  427,  Judge 
Corliss    lays    down    the    following 


rules  upon  this  subject:  "1.  If  the 
dividend  is  made  up  of  profits,  the 
dividend  goes  to  the  life  tenant,  ir- 
respective of  the  form  in  which  it 
is  declared.  2.  The  life  tenant  is 
entitled  to  all  dividends,  whether  in 
cash  or  in  stock,  declared  during  the 
existence  of  his  interest,  whether 
they  consist  of  profits  which  have 
accrued  subsequently  to  the  vesting 
of  the  life  estate,  or  in  part  of  earn- 
ings of  the  corporation  which  had 
accumulated  at  the  time  of  the  devo- 
lution upon  the  life  tenant  of  his 
interest  in  the  property.  3.  That  in 
so  far  as  any  dividend  consists  of 
money,  derived  from  an  increase  in 
the  value  of  the  corporation  prop- 
erty, or  is  derived  from  any  source 
other  than  the  net  earnings  of  the 
company,  the  life  tenant  can  claim 
no  interest  therein.  4.  That  not 
only  is  it  beyond  the  power  of  the 
corporation  to  bind  the  life  tenant 
by  dividing  net  earnings  in  the  form 
of  capital  stock,  but  the  life  tenant 
can  always  show  the  true  nature 
and  source  of  the  dividend,  in  spite 
of  any  act  or  declaration  to  the  con- 
trary; and  that,  on  the  other  hand, 
the  remainderman  may  prove  that 
a  dividend  which  apparently  be- 
longs to  the  life  tenant  is  in  fact  the 
property  of  the  remainderman." 

34  Minot  v.  Paine,  99  Mass.  101,  96 
Am.  Dec.  705;  Daland  v.  Williams, 
101  Mass.  571;  New  England  Trust 
Co.  v.  Eaton,  140  Mass.  532,  4  N.  E. 
69,  54  Am.  R.  493.  But  see  Davis 
v.  Jackson,  152  Mass.  58,  25  N.  E. 
21,  23  Am.  St.  801. 

""Milieu  v.  Guerrard,  67  Ga.  284, 


441         LIFE   TENANT   AND  REMAINDERMAN APPORTIONMENT.     [§    307 

Rhode  Island,38  and  the  District  of  Columbia,37  the  courts  decline 
to  look  beyond  the  action  of  the  directors  in  declaring  the  dividend, 
to  ascertain  who  is  entitled  to  it,  but  hold,  in  general,  that  a  divi- 
dend payable  in  money  shall  be  regarded  as  income,  and  given  to 
the  life  tenant,  while  a  dividend  payable  in  stock  shall  be  regarded 
as  capital  and  given  to  the  remainderman,38  since  it  is  thought 
unwise  to  attempt  to  ascertain  how  the  corporation  came  by  the 
funds  out  of  which  either  cash  or  stock  dividends  are  declared,39 
and  since  a  stock  dividend  does  not,  as  a  rule,  increase  the  in- 
terest of  the  shareholders  in  the  property  of  a  corporation,  but 
merely  dilutes  their  shares  and  is  only  a  new  evidence  of  their 
interests.40  For  this  reason  it  is  held  that  such  a  dividend  gen- 
erally constitutes  capital  rather  than  income,  and  goes  to  the  re- 
mainderman.41 It  has  also  been  held  that  new  shares  of  preferred 
stock  issued  in  double  the  amount  of  the  old  shares,  but  at  one-half 
the  rate  of  interest,  in  compromise  of  claims  of  the  holders  for  back 
and  unpaid  dividends,  constitute  capital  and  not  income  as  between 
the  life  tenant  and  remainderman.*2  A  strict  adherence  to  this  rule 
would  so  clearly  be  productive  of  hardship  and  injustice  that  some 
modifications  have  been  engrafted  upon  it  in  Massachusetts,  where  it 
was  first  announced,  and  it  is  held  that  the  court  will  take  into  con- 
sideration the  whole  character  of  the  property  and  the  transaction, 
with  due  regard  to  all  the  facts  preceding,  attending,  and  resulting 
from  the  declaration  of  the  dividend,  in  order  to  determine  whether 
the  dividend  rightfully  belongs  to  the  owner  of  the  stock  or  to  the 
owner  of  the  income.43  Accordingly,  it  is  held  that  a  dividend  payable 
in  stock  purchased  with  the  surplus  earnings  of  the  corporation  be- 
longs absolutely  to  the  life  tenant,44  and  that  a  cash  dividend  of  forty 

44  Am.  R.  720,  construing  Code  Ga.  41  Terry  v.  Eagle  Lock  Co.  47  Conn. 

§  2256.  141;    Spooner  v.   Phillips,  62  Conn. 

36  Parker  v.  Mason,  8  R.  I.  427;  Pe-  62,  24  Atl.  524,  16  L.  R.  A.  461,  and 
tition  of  Brown,  14  R.  I.  371,  51  Am.  note;    Millen    v.    Guerrard,    67    Ga. 
R.  397.  292;    Greene  v.  Smith,  17  R.  I.  28, 

37  Gibbons  v.  Mahon,  4  Mackey  (D.  19  Atl.  1081;  De  Jtoven  v.  Alsop,  205 
C.)  130,  54. Am.  R.  262.  111.  309,  63  L.  R.  A.  587. 

""Minot  v.  Paine,  99  Mass.  101,  96  "Mills  v.  Britton,  64  Conn.  4,  29 

Am.  Dec.  705.     See,  also,  De  Koven  Atl.  231,  24  L.  R.  A.  536. 

v.  Alsop,  205   111.  309,  63  L.  R.  A.  43  Daland   v.   Williams,   101   Mass. 

587.  571;  Rand  v.  Hubbell,  115  Mass.  461, 

39  Boston,  &c.  R.  Co.  v.  Common-  15  Am.  R.  121. 

wealth,  100  Mass.  399.  "Leland  v.  Hayden,  102  Mass.  542, 

40  Gibbons  v.  Mahon,  136  U.  S.  549, 
10  Sup.  Ct.  1057. 


§•  307]  DIVIDENDS.  442 

per  cent,  for  the  payment  of  which  no  fund  is  provided,  but  which 
is  declared  to  be  receivable  in  payment  for  shares  of  stock  issued  under 
a  power  to  increase  the  capital  stock,  is  virtually  a  stock  dividend,  and 
must  go  to  the  remainderman,45  as  must  also  the  compensation  paid 
to  the  corporation  for  a  part  of  its  real  estate  taken  by  right  of  emi- 
nent domain,  and  distributed  to  the  stockholders  as  a  cash  dividend.46 
In  England,  the  courts  originally  followed  the  rule  that  regular  cash 
dividends  belong  to  the  life  tenant  as  income,  while  extraordinary  divi- 
dends, or  bonuses,  belong  to  the  remainderman,47  but  the  tendency 
at  the  present  time  seems  to  be  to  hold  the  action  of  the  corporation 
conclusive,  so  that,  if  it  declares  even  an  extraordinary  dividend 
during  the  existence  of  the  life  tenancy,  it  goes  to  the  life  tenant, 
and  if  it  treats  the  earnings  as  capital  they  will  not  go  to  the  life 
tenant.48  A  bonus,  however,  which  is  paid  from  profits  that  have  been 
fraudulently  retained  to  the  prejudice  of  the  rights  of  the  life  tenant, 
will  be  given  to  him  as  income  deferred.49  The  rules  to  which  we 
have  referred  are  those  announced  by  the  courts  in  their  endeavor  to 
accomplish  justice  in  the  absence  of  any  statute  authorizing  an  ap- 
portionment, and  in  the  absence  of  any  clearly  expressed  intention 
on  the  part  of  the  grantor  or  testator.  Where  the  intent  of  the  grantor 
or  testator  is  clearly  apparent,  it  will  control,  and  the  courts  will  be 
guided  by  it.50  In  case  the  life  tenant  dies  before  a  dividend  is  de- 
clared, the  general  rule  is  that  it  cannot  be  apportioned,  but  belongs 
wholly  to  the  remainderman.51  But  in  England52  and  in  several  states 

^Daland  v.  Williams,   101  Mass.  635;  Reed  v.  Head,  6  Allen  (Mass.) 

571.  174;  Clarkson  v.  Clarkson,  18  Barb. 

48  Heard   v.    Eldredge,    109    Mass.  (N.  Y.)  646;  Millen  v.  Guerrard,  67 

258,  12  Am.  R.  687.  Ga.  284,  44  Am.  R.  720;  Thomson's 

4TBrander    v.    Brander,    4    Vesey  Appeal,  89  Pa.   St.  36;   Gibbons  v. 

800;   Paris  v.  Paris,  10  Vesey,  Jr.,  Mahon,  136  U.  S.  549,  10  Sup.  Ct 

185;    Irving  v.  Houstoun,  4   Paton  1057;  Bushee  v.  Freeborn,  11  R.  I. 

Scotch    H.    of    L.    521;    Murray   v.  149. 

Glasse,  17  Jur.  816.  "King  v.  Follett,  3  Vt.  385;  Gran- 

48Bouch  v.  Sproule,  L.  R.  12  App.  ger  v.  Bassett,  98  Mass.  462;  Brun- 

Cas.  385,  397;  Barton's  Trust,  In  re,  dage  v.  Brundage,  60  N.  Y.  544,  551; 

L.  R.  5  Eq.  238;  Price  v.  Anderson,  Pearly  v.  Smith,  3  Atk.  260  (1745); 

15  Sim.  473;  Ellis  v.  Bar-field,  64  L.  Scholefield  v.  Redfern,   2   Drew.   & 

T.  R.  625.    But  see  Sugden  v.  Als-  Sm.  173;  Quinn  v.  Madigan,  65  N. 

bury,  63  L.  T.  R.  576.  H.    8,    17    Atl.    976.      But   compare 

49Maclaren  v.  Stainton,  L.  R.  11  Johnson  v.  Bridgewater,  &c.  Co.  14 

Eq.   382;    Dale  v.   Hayes,  40  L.   J.  Gray  (Mass.)  274. 

Chan.     244;     Edmondson    v.    Cros-  M33    and    34   Viet.    Ch.   35,    §    2; 

thwaite,  34  Beav.  30.  Beavan  v.  Beavan,  53  L.  T.  R.  245. 

M  Bouch,  In  re,  L.  R.  29  Chan.  Div. 


443 


DUTIES  OF  LIFE  TENANT — TRANSFERS. 


[§   308 


in  this  country,53  dividends  are  made  apportionable  by  statute,  while 
in  one  or  two  states  there  is  a  tendency  to  hold  dividends  apportion- 
able at  common  law.54  The  worth  or  value  of  a  privilege  accorded  to 
shareholders  of  taking  new  shares  upon  an  increase  of  the  capital 
stock,  belongs  to  the  remainderman,55  but  the  income  from  the  money 
received  upon  the  sale  of  such  a  privilege,  or  from  the  stock  which  is 
taken  by  the  trustee  under  such  a  privilege  for  the  benefit  of  the  trust, 
belongs,  it  seems,  to  the  life  tenant.56 

§308.  Duties  of  life  tenant — Transfers. — The  calls  which  are 
made  during  the  continuance  of  his  estate  must,  generally,  be  paid  by 
the  life  tenant,57  who  must  also  keep  down  taxes  on  the  stock.58  He  is 
not  entitled  to  have  the  stock  transferred  to  him  on  the  corporate 
books,59  and  the  corporation  may  be  held  liable  to  the  remainderman 
for  enabling  the  life  tenant  to  dispose  of  the  shares  to  his  injury.60 
But  the  life  tenant  may  hold  the  administrator  permitting  a  trans- 
fer61 or  the  corporation  making  it62  (where  it  has  notice  of  the  trust) 
liable  for  his  interest  in  shares  transferred  in  fraud  of  his  rights. 

§  309.  Dividend  is  not  property  of  the  corporation — Rights  of 
creditors  and  stockholders. — From  the  time  a  dividend  becomes  due 
it  ceases  to  be  a  part  of  the  property  of  the  corporation.63  The  creditors 


83  Stimson  Am.  Law  (1886),  §  2027. 

84  Rutledge,  Ex  parte,  1  Harper's 
Eq.    (S.   C.)    65,  14  Am.   Dec.   696; 
Wilson's   Appeal,    108    Pa.    St.    344. 
See,  also,  Smith's  Estate,  140  Pa.  St. 
344,  21  Atl.  438,  23  Am.  St.  237. 

65  Atkins  v.  Albree,  94  Mass.  359; 
Brinley  v.  Grou,  50  Conn.  66,  47  Am. 
R.  618;  Biddle's  Appeal,  99  Pa.  St. 
278;  Goldsmith  v.  Swift,  25  Hun  (N. 
Y.)  201;  Sanders  v.  Bromley,  55  L. 
T.  R.  (N.  S.)  145;  Kernochan,  In  re, 
104  N.  Y.  618,  11  N.  E.  149;  Kite  v. 
Kite,  93  Ky.  257,  20  S.  W.  878,  19 
L.  R.  A.  173,  40  Am.  St.  189.  But 
see  Wiltbank's  Appeal,  64  Pa.  St. 
256,  3  Am.  R.  585. 

88  Moss's  Appeal,  83  Pa.  St.  264,  24 
Am.  R.  164;  1  Cook  Stock  and  Stock- 
holders, §  559,  and  cases  cited  in 
preceding  note. 


"Box's  Trusts,  Re,  9  L.  T.  (N.  S.) 
372.  But  the  testator's  estate  is  lia- 
ble for  a  call  which  becomes  due  the 
day  after  his  death.  Emery  v.  Wa- 
son,  107  Mass.  507. 

88  Citizens'  Mut.  Ins.  Co.  v.  Lott,  45 
Ala.  185;  Webb  v.  Burlington,  28  Vt. 
188. 

89  Collier  v.  Collier,  3  Ohio  St.  369; 
State  v.  Robinson,  57  Md.  486. 

90  Caulkins  v.  Memphis,  &c.  Co.  85 
Tenn.  683,  4  S.  W.  287,  4  Am.  St. 
786. 

"Keeney  v.  Globe  Mill  Co.  39 
Conn.  145. 

82  Stewart  v.  Firemen's  Ins.  Co.  53 
Md.  564. 

83  But   until   the   dividend    is   de- 
clared,  corporate  profits  belong  to 
the  corporation  and  may  be  seized 
by  its   creditors.     Curry  v.   Wood- 


309] 


DIVIDENDS. 


444 


of  the  corporation  cannot  claim  it  in  preference  to  the  stockholder,6* 
even  though  the  corporation  may  have  become  insolvent  after  the 
money  was  in  good  faith  set  apart  with  which  to  pay  it,  but  before  it 
was  actually  paid.65  Where  a  sufficient  surplus  is  on  hand  with  which 
to  pay  the  dividend  at  the  time  it  is  declared,  but  before  it  is  due 
this  surplus  is  swept  away  by  fraud  of  one  of  the  officers,  or  by  other 
unforeseen  circumstances,  it  has  been  held  that  the  corporation  may 
be  restrained  from  paying  dividends  out  of  its  other  funds.66  And 
where  no  specific  fund  is  set  apart  for  the  payment  of  dividends,  a 
shareholder  who  has  not  claimed  or  received  his  money  before  the 
corporation  becomes  insolvent,  has,  it  seems,  but  a  claim  against  the 
corporation,  to  be  enforced  like  those  of  other  creditors.67  A  specific 
fund  deposited  in  bank  for  the  payment  of  dividends  which  have  been 
lawfully  declared,  cannot  be  reclaimed  by  the  corporation  or  by  a 
receiver,68  but  can  be  used  only  for  that  purpose,  though  it  will  be 
and  remain  at  the  risk  of  the  corporation  until  a  reasonable  time  after 
notice  is  given  to  the  stockholder.69  If  the  bank  fails  after  such  a  rea- 
sonable time  has  elapsed,  the  loss  will  fall  upon  the  stockholder.70 

§  310.     Dividend  is  irrevocable — Actions  concerning. — A  dividend 
once  legally  declared  cannot  be  revoked,71  unless,  perhaps,  where  no 


ward,  44  Ala.  305;  Hyatt  v.  Allen, 
56  N.  Y.  553,  15  Am.  R.  449;  Rand 
v.  Hubbell,  115  Mass.  461,  474,  15 
Am.  R.  221. 

"Van  Dyck  v.  McQuade,  86  N.  Y. 
38;  New  Hampshire  Sav.  Bank  v. 
Richey,  121  Fed.  956,  58  C.  C.  A. 
294. 

65  As  where  a  great  fire  rendered 
an  insurance  company  insolvent.  Le 
Roy  v.  Globe  Ins.  Co.  2  Edw.  Ch. 
(N.  Y.)  657. 

""Fawcett  v.  Laurie,  1  Dr.  &  Sm. 
192. 

67  Lowne  v.  American  Fire  Ins.  Co. 
6  Paige  (N.  Y.)  482;  Curry  v.  Wood- 
ward, 44  Ala.  305. 

68  Le  Blanc,  Matter  of,  14  Hun  (N. 
Y.)    8;   Beers  v.  Bridgeport  Spring 
Co.   42   Conn.   17.     The  stockholder 
may  follow  the  fund. 

"King  v.  Paterson,  &c.  R.  Co.  29 
N.  J.  L.  82  and  504. 


70  King  v.  Paterson,  &c.  R.  Co.  29 
N.  J.  L.  82  and  504. 

"Beers  v.  Bridgeport  Spring  Co. 
42  Conn.  17.  See,  also,  Armant  v. 
New  Orleans,  &c.  R.  Co.  41  La.  Ann. 
1020,  7  So.  35.  But  it  has  been  held 
that  where  dividends  have  been  im- 
properly and  unlawfully  paid  they 
may  be  reclaimed.  Lexington,  &c. 
Co.  v.  Page,  17  B.  Mon.  (Ky.)  412, 
66  Am.  Dec.  165;  Slayden  v.  Seip, 
25  Mo.  App.  439,  446.  See,  also,  Mc- 
Kusick  v.  Seymour,  &c.  Co.  48  Minn. 
172,  50  N.  W.  1116.  And  the  right 
to  reclaim  a  dividend  paid  by  an 
insolvent  corporation  passes  to  its 
assignee  if  the  terms  of  the  assign- 
ment are  sufficiently  comprehensive. 
Main  v.  Mills,  (U.  S.)  98;  Lexing- 
ton, &c.  Co.  v.  Page,  17  B.  Mon. 
(Ky.)  412,  66  Am.  Dec.  165. 


445 


DIVIDEND  IS  IRREVOCABLE — ACTIONS   CONCERNING.       [§    310 


fund  has  been  set  apart,  and  the  declaration  is  rescinded  before  it  is 
made  public,  and  before  the  time  fixed  for  the  payment  of  the  divi- 
dend.72 It  becomes  a  debt  due  from  the  corporation  which  may  be 
enforced  by  action  at  law,73  like  any  other  debt.  But  only  the  owner 
of  the  stock  can  maintain  an  action  for  this  cause.  Mere  possession 
of  the  certificate,  or  even  a  special  property  therein,  is  not  always 
enough.74  Such  an  action  should,  ordinarily,  be  brought  against  the 
corporation  as  such,  and  not  against  the  corporate  officers,75  and  should 
be  preceded  by  a  demand  for  payment.76  But  a  stockholder  cannot,  as 
a  rule  at  least,  sue  for  profits  until  a  dividend  has  been  declared,77 
even  though  the  dividends  have  been  guaranteed  to  the  corporation 
by  another  corporation  which  has  leased  the  road.78  The  mere  fact 


™  Ford  v.  Easthampton,  &c.  Co.  158 
Mass.  84,  32  N.  E.  1036,  20  L.  R. 
A.  65,  35  Am.  St.  462. 

73  Coey  v.  Belfast,  &c.  R.  Co.  Irish 
R.   2  C.  L.  112;    King  v.  Paterson, 
&c.   R.   Co.   29  N.  J.   L.   504;    West 
Chester,  &c.  R.  Co.  v.  Jackson,   77 
Pa.  St.  321;  Ohio  City  v.  Cleveland, 
Ac.  R.  Co.  6  Ohio  St.  489;   State  v. 
Baltimore,  &c.  R.  Co.  6  Gill   (Md.) 
363;    Jones  v.  Terre  Haute,  &c.  R. 
Co.  57  N.  Y.  196;  Keppel's  Adm'r  v. 
Petersburg  R.  Co.  Chase's  Dec.   (U. 
S.)  167;  Dalton  v.  Midland  Counties 
R.  Co.  13  C.  B.  474;   Southwestern, 
&c.  R.  v.  Martin,  57  Ark.  355,  21  S. 
W.  465.    But  see  Fawcett  v.  Laurie, 
1  Drew.  &  Sm.  192,  as  to  the  case  of  a 
loss  of  all  the  profits  after  the  divi- 
dend is  declared  and   before  it  is 
paid. 

74  Dow  v.  Gould,  &c.   Min.  Co.  31 
Cal.  629.     See,  also,  Berford  v.  New 
York  Iron  Mine,  56  N.  Y.  Super.  Ct. 
R.  236,  4  N.  Y.  S.  836. 

"French  v.  Fuller,  23  Pick. 
(Mass.)  108;  Smith  v.  Poor,  40  Me. 
415,  63  Am.  Dec.  672.  But  where 
the  treasurer  retained  dividends  un- 
der claim  that  he  was  the  owner  of 
the  shares,  an  action  against  him 
individually  was  sustained.  Wil- 
liams v.  Fullerton,  20  Vt.  346.  But 


see  Peckham  v.  Van  Wagenen,  83  N. 
Y.  40,  38  Am.  R.  392. 

78  State  v.  Baltimore,  &c.  R.  Co.  6 
Gill  (Md.)  363;.  King  v.  Paterson, 
&c.  R.  Co.  29  N.  J.  L.  504;  Bank  of 
Louisville  v.  Gray,  84  Ky.  565 ;  Scott 
v.  Central  R.  &c.  Co.  of  Ga.  52  Barb. 
(N.  Y.)  45,  where  a  letter  of  in- 
quiry was  held  an  insufficient  de- 
mand. The  suit  has  been  held  a 
sufficient  demand  of  itself.  Keppel 
v.  Petersburg  R.  Co.  Chase's  Dec. 
(U.  S.)  167;  Robinson  v.  National 
Bank,  &c.  95  N.  Y.  637. 

"Beveridge  v.  New  York,  &c.  R. 
Co.  112  N.  Y.  1,  19  N.  E.  489,  2  L.  R. 
A.  648. 

78Flagg  v.  Manhattan  R.  Co.  10 
Fed.  413,  21  Am.  Law  Reg.  (U.  S.) 
775;  Beveridge  v.  New  York,  &c.  R. 
R.  Co.  112  N.  Y.  1,  19  N.  E.  489,  2 
L.  R.  A.  648;  Harkness  v.  Manhat- 
tan R.  Co.  54  N.  Y.  Super.  Ct.  174. 
And  it  has  been  held  that  an  agree- 
ment to  pay  a  shareholder  a  certain 
specified  dividend  each  year  is  ultra 
vires  and  cannot  be  enforced.  Ele- 
vator Co.  v.  Memphis,  &c.  R.  Co.  85 
Tenn.  703,  4  Am.  St.  798.  But  see 
Taft  v.  Hartford,  &c.  R.  Co.  8  R.  I. 
310,  5  Am.  R.  575,  and  ante,  §§  81, 
82. 


£  311] 


DIVIDENDS. 


446 


that  profits  may  have  arisen  from  the  transaction  of  the  corporate 
business  gives  him  no  absolute  right  to  an  immediate  distribution 
thereof  in  the  way  of  dividends.79  If  suits  be  brought  by  different 
parties  to  recover  the  same  dividend,  the  corporation  may  require 
them  to  interplead.80  The  corporation  cannot  defend  against  a  suit 
for  such  a  dividend,  on  the  ground  that  it  had  no  legal  authority  to 
declare  a  dividend,  where  dividends  have  been  paid  to  a  majority  of 
the  stockholders  and  are  retained  by  them.81  But  where  the  corpora- 
tion has  a  lien  on  the  shares  for  a  debt  due  it  from  the  stockholder, 
it  may  set  up  the  debt  by  way  of  set-off  or  counter-claim.82 

§  311.  Demand — Necessity  and  effect  of. — Interest  can  only  be  re- 
covered from  the  time  of  a  demand  and  refusal  to  pay  the  dividend 
after  it  has  been  declared  and  becomes  due,83  and  the  statute  of  limi- 


"Beveridge  v.  New  York  El.  R. 
Co.  112  N.  Y.  1,  19  N.  E.  489,  2  L.  R. 
A.  648 ;  Phelps  v.  Farmers',  &c.  Bank, 
26  Conn.  269;  Minot  v.  Paine,  99 
Mass.  101,  96  Am.  Dec.  705.  See, 
also,  Gordon  v.  Richmond,  &c.  R. 
Co.  78  Va.  501. 

80  Salisbury  Mills  v.  Townsend,  109 
Mass.  115. 

81Stoddard  v.  Shetucket  Foundry 
Co.  34  Conn.  542.  And  where  the 
minutes  of  the  meeting  at  which  the 
dividend  was  alleged  to  have  been 
declared  showed  that  a  resolution 
declaring  a  dividend  was  offered  and 
seconded,  but  failed  to  show  its 
adoption,  it  was  held  competent  to 
prove  that  the  dividend  was  really 
declared  by  proof  that  each  officer 
'of  the  company  had  acted  on  the 
assumption  that  the  resolution  had 
been  adopted,  and  that,  in  accord- 
ance therewith,  every  stockholder, 
with  the  exception  of  plaintiff,  had 
received  his  pro  rata  share  of  the 
dividend.  Southwestern,  &c.  R.  Co. 
v.  Martin,  57  Ark.  355,  21  S.  W.  465. 

82  King  v.  Paterson,  &c.  R.  Co.  29 
N.  J.  L.  504.  It  is  held  that  a  lien 
upon  dividends  may  still  exist  after 
the  lien  upon  shares  is  taken  away 


by  statute.  Hagar  v.  Union  Nat. 
Bank,  63  Me.  509.  It  is  held  that 
no  such  lien  can  be  claimed  upon 
dividends  due  the  estate  of  a  de- 
ceased shareholder.  Merchants' 
Bank  v.  Shouse,  102  Pa.  St.  488 ; 
Brent  v.  Bank,  &c.  2  Cranch  C.  C. 
(U.  S.)  517.  Nor  can  a  set-off  be 
claimed  where  the  shares  have  been 
assigned,  with  the  knowledge  of  the 
corporation,  before  the  declaration 
of  the  dividend.  Gemmell  v.  Davis, 
75  Md.  546,  23  Atl.  1032,  32  Am.  St. 
412. 

^Keppels  v.  Petersburg  R.  Co. 
Chase's  Dec.  (U.  S.)  167;  Boardman 
v.  Lake  Shore,  &c.  R.  Co.  84  N.  Y. 
157,  187;  State  v.  Baltimore,  &c.  R. 
Co.  6  Gill  (Md.)  363,  387;  Phila- 
delphia, &c.  R.  Co.  v.  Cowell,  28  Pa. 
St.  329,  70  Am.  Dec.  128.  A  different 
rule  is  applied  to  dividends  on  pre- 
ferred stock  not  paid  when  due.  See 
Boardman  v.  Lake  Shore,  &c.  R.  Co. 
84  N.  Y.  157.  And  it  has  been  said 
that  in  New  York  interest  is  not 
dependent  on  demand.  Prouty  v. 
Michigan  Southern,  &c.  R.  Co.  1 
Hun  (N.  Y.)  655,  657;  Adams  v. 
Port  Plain  Bank,  36  N.  Y.  255. 


447 


DECLARATION  DISCRETIONARY  WITH   DIRECTORS. 


[§    312 


tation  will  only  run  from  that  time.84  So,  it  has  been  held  in  Louisiana 
that  prescription  will  not  run  against  a  person  who  is  ignorant  of  his 
right  to  dividends,  except  from  the  date  when  he  learns  of  his  sup- 
posed claim  and  makes  a  demand,  since  dividends  are  payable  only 
on  demand,  and  cannot  be  said  to  be  due  until  demanded.85  A  demand 
is  sufficient  if  made  upon  the  bank  or  person  through  whom  the  divi- 
dend is  payable.86 

§  312.    Declaration  of  dividend  discretionary  with  directors. — In 

general,  the  determination  of  the  question  whether  a  dividend  shall  be 
declared  rests  in  the  discretion  of  the  directors,87  and  they  may  invest 
the  profits  to  properly  extend  or  develop  the  business,88  or  to  provide 


84  State  v.  Baltimore,  &c.  R.  Co.  6 
Gill  (Md.)  363;  Philadelphia,  &c.  R. 
Co.  v.  Cowell,  28  Pa.  St.  329,  70  Am. 
Dec.  128. 

"Armant  v.  New  Orleans,  &c.  R. 
Co.  41  La.  Ann.  1020,  7  So.  35.  This 
was  a  case  in  which  a  company,  on 
reorganization,  was  granted  a  new 
charter  providing  that  dividends 
not  claimed  within  three  years 
should  be  forfeited,  and  an  old 
stockholder  who  did  not  know  of 
his  rights  nor  of  the  reorganization 
was  held  not  to  be  affected  by  this 
provision,  until,  being  apprised  of 
his  rights  and  liabilities,  he  asserted 
his  claim  to  dividends  by  making  a 
demand. 

86  King  v.  Paterson,  &c.  R.  Co.  29 
N.  J.  L.  504. 

"Howell  v.  Chicago,  &c.  Co.  51 
Barb.  (N.  Y.)  378;  Ely  v.  Sprague, 
Clarke  Ch.  (N.  Y.)  351;  Barnard  v. 
Vermont,  &c.  R.  Co.  7  Allen  (Mass.) 
512;  Chaffee  v.  Rutland  R.  Co.  55 
Vt.  110;  Field  v.  Lamson,  &c.  Co. 
162  Mass.  388,  38  N.  E.  1126,  27  L. 
R.  A.  136;  Browne  v.  Monmouth- 
shire R.  &c.  Co.  13  Beav.  32;  Mc- 
Lean v.  Pittsburgh,  &c.  Co.  159  Pa. 
St.  112,  28  Atl.  211;  State  v.  Balti- 
more, &c.  R.  Co.  6  Gill  (Md.)  363; 
Hunter  v.  Roberts,  83  Mich.  63,  47 


N.  W.  131,  9  R.  &  Corp.  L.  J.  90, 
31  Am.  &  Eng.  Corp.  Gas.  349.  The 
discretion  of  the  directors  in  con- 
trolling the  policy  of  the  corpora- 
tion as  to  the  payment  of  cash  divi- 
dends, if  honestly  exercised,  will  not 
be  interfered  with  by  the  courts. 
Zellerbach  v.  Allenberg,  99  Cal.  57, 
33  Pac.  786;  Excelsior,  &c.  Co.  v. 
Pierce,  90  Cal.  131,  27  Pac.  44.  But 
this  discretion  may  be  limited  by 
law  or  contract.  Park  v.  Grant  Lo- 
comotive Works,  40  N.  J.  Eq.  114,  3 
Atl.  162.  Compare  American  Wire 
Nail  Co.  v.  Gedge,  96  Ky.  513,  29  S. 
W.  353. 

88  Pratt  v.  Pratt,  33  Conn.  446; 
Durfee  v.  Old  Colony,  &c.  R.  Co.  5 
Allen  (Mass.)  230.  Where  a  divi- 
dend has  been  declared  and  partly 
paid,  the  corporation  cannot  defeat 
the  payment  of  the  rest  by  invest- 
ing the  remainder  of  the  profits  in 
permanent  improvements.  Beers  v. 
Bridgeport  Spring  Co.  42  Conn.  17; 
Miller  v.  Illinois  Central  R.  Co.  24 
Barb.  (N.  Y.)  312.  But  it  has  been 
held  that  a  dividend  may  be  de- 
clared for  a  fiscal  year  subsequent 
to  that  in  which  the  profits  were 
earned.  Mills  v.  Northern  R.  Co.  L. 
R.  5  Ch.  App.  Cas.  621. 


§  313] 


DIVIDENDS. 


448 


for  the  payment  of  future  indebtedness,  subject  only  to  the  rule  that 
they  must  act  in  good  faith  and  within  the  limits  of  the  corporate 
powers.89  In  England,  however,  they  are  required  by  statute  to  report 
the  condition  of  the  company  to  the  stockholders  and  to  be  guided 
by  their  determination  as  to  when  a  dividend  shall  be  declared.90 
Some  authorities  hold  that  the  company  should  increase  its  capital 
before  extending  its  business,  and  that  the  directors,  by  taking  its 
earnings  for  the  latter  purpose,  commit  a  gross  violation  of  duty ;  and 
that  in  case  the  earnings  have  been  so  used  by  them  they  should  in- 
crease the  capital  stock  and  issue  a  stock  dividend,91  or  borrow  as 
much  money  as  has  been  used  in  improvements  to  replace  the  profits 
which  have  been  improperly  diverted. 

§  313.    Power  to  borrow  money  or  declare  stock  dividend. — It  has 

been  held  that  the  company,  where  it  has  used  profits  for  improve- 
ments, may  lawfully  borrow  an  equivalent  sum  of  money  with  which 
to  pay  a  dividend,92  or  it  may,  when  it  has  authority  to  increase  its 
capital  stock,  declare  a  stock  dividend.93  The  corporation  may,  in 


""Karnes  v.  Rochester,  &c.  R.  Co. 
4  Abb.  Pr.  (N.  Y.)  N.  S.  107,  the 
court  saying:  "The  court  cannot 
undertake  to  say  judicially  that  the 
future  business  of  the  corporation 
will  be  prosperous;  nor  has  it  any 
right  to  postpone  the  rights  and 
claims  of  creditors  to  future  earn- 
ings and  accumulations,  even  if  it 
could  be  certain  they  would  accrue." 
Belfast,  &c.  R.  Co.  v.  Belfast,  77  Me. 
445;  Lord  v.  Brooks,  52  N.  H.  72; 
March  v.  Eastern  R.  Co.  43  N.  H. 
515.  This  rule  is  adhered  to  very 
strictly  where  holders  of  common 
stock  seek  to  have  a  dividend  de- 
clared, but  where  holders  of  pre- 
ferred stock  seek  to  enforce  their 
rights,  the  courts  sometimes  depart 
very  far  from  this  rule  in  their  ef- 
forts to  assist  them. 

90  8  Vic.  Ch.  16,  §  120.  See,  how- 
ever, Bond  v.  Barrow,  &c.  Co.  (1902) 
1  Ch.  353,  9  Manson  69,  71  L.  J.  Ch. 
246. 


81Hoole  v.  Great  Western  R.  Co. 
L.  R.  3  Ch.  App.  Gas.  262. 

92  Mills  v.  Northern  R.  &c.  Co.  L. 
R.    5    Chan.   App.    621.     See,   also, 
Great  Western  Min.  &c.  Co.  v.  Har- 
ris, 128  Fed.  321. 

93  Ohio   City  v.   Cleveland,  &c.   R. 
Co.  6  Ohio  St.  489 ;  Williams  v.  West- 
ern Union  Tel.   Co.   93   N.  Y.   162; 
Howell   v.   Chicago,   &c.   R.    Co.   51 
Barb.    (N.  Y.)    378;    Boston,  &c.  R. 
Co.    v.    Commonwealth,    100    Mass. 
399;    Gordon   v.   Richmond,   &c.   R. 
Co.  78  Va.  501;   Commonwealth  v. 
Pittsburg,  &c.  R.  Co.  74  Pa.  St.  83; 
State  v.  Baltimore,  &c.  R.  Co.  6  Gill 
(Md.)   363.     Such  a  dividend,  it  is 
said,  may  be  revoked  at  any  time 
before  certificates  are  issued.    Terry 
v.  Eagle  Lock  Co.  47  Conn.  141.    In 
England  such  a  dividend  is  held  to 
be  ultra  vires,  and  in  some  of  the 
states  it  is  prohibited  by  constitu- 
tional   provision.     Hoole    v.    Great 
Western  R.  Co.  L.  R.  3  Ch.  App. 
262. 


REMEDIES  FOE  ABUSE  OF  DISCRETION. 


[§    31-i 


general,  it  is  said,  borrow  money  to  pay  a  dividend  when  a  fair  esti- 
mate of  its  assets  and  liabilities  shows  an  excess  of  assets  equal  to  the 
amount  of  the  proposed  dividend,94  since  the  profits  of  the  corporation 
for  the  purpose  of  declaring  a  dividend  may  fairly  be  estimated  to 
consist  in  the  excess  of  its  cash  and  other  property  on  hand  over  its 
liabilities.95 

§  314.  Remedies  for  abuse  of  discretion. — The  usual  remedy  for 
an  abuse  of  discretion  in  using  the  profits  and  failing  to  declare  divi- 
dends is  by  electing  other  directors,96  and  the  court  will  take  into  ac- 
count the  fact  that  not  only  this  course,  but  also  that  of  disposing  of 
his  shares,  is  open  to  an  aggrieved  shareholder.97  But  still  a  court  of 
equity  will  exercise  a  supervisory  power  in  this  matter,  and  may,  at 
the  instance  of  any  shareholder,  compel  the  proper  authorities  to  de- 
clare and  pay  the  dividend,  in  cases  where  there  is  a  clear  abuse  of 
power  in  refusing  to  do  so.98  This  power  is  most  often  invoked  by 
the  holders  of  preferred  shares,  when  the  action  of  the  directors 
threatens  to  rob  them  of  their  preference.  Thus,  in  a  recent  case,99 
it  appeared  that  by  the  terms  of  the  subscription  contract  the  holders 
of  preferred  stock  in  the  defendant  company  were  entitled  to  a  divi- 


84  Stringer's  Case,  L.  R.  4  Ch.  475. 

•"Hubbard  v.  Weare,  79  Iowa  678, 
44  N.  W.  915;  Miller  v.  Bradish,  69 
Iowa  278. 

''Jermain  v.  Lake  Shore,  &c.  R. 
Co.  91  N.  Y.  483;  Karnes  v.  Roch- 
ester, &c.  R.  Co.  4  Abb.  (N.  Y.)  N. 
S.  107;  Chaff ee  v.  Rutland,  &c.  R. 
Co.  55  Vt.  110;  Barnard  v.  Vermont, 
&c.  R.  Co.  7  Allen  (Mass.)  512; 
Brown  v.  Monmouthshire,  &c.  R.  Co. 
13  Beav.  32,  15  Jur.  475. 

97  Barry  v.  Merchants'  Exchange 
Co.  1  Sandf.  Chan.  (N.  Y.)  280. 

83  Stevens  v.  South  Devon  R.  Co.  9 
Hare  313;  Brown  v.  Buffalo,  &c.  R. 
Co.  27  Hun  (N.  Y.)  342;  Boardman 
v.  Lake  Shore,  &c.  R.  Co.  84  N.  Y. 
157;  Hiscock  v.  Lacy,  9  Misc.  (N.  ' 
Y.)  578,  30  N.  Y.  S.  860;  Crichton 
v.  Webb  Press  Co.  113  La.  Ann.  167, 
36  So.  926,  67  L.  R.  A.  76.  But  not 
where  the  stockholder  waits  until 
after  the  corporation  has  become  in- 
ELL.  RAILROADS — 29 


solvent  before  bringing  his  suit. 
Scott  v.  Eagle  Fire  Ins.  Co.  7  Paige 
(N.  Y.)  198.  And  it  is  held  in  Mas- 
sachusetts that  no  equitable  relief 
can  be  granted  against  a  foreign 
corporation  having  neither  officers 
nor  place  of  business  in  that  state 
for  a  failure  to  declare  and  pay  divi- 
dends according  to  the  stipulations 
of  their  certificates  of  stock.  Willis- 
ton  v.  Michigan  Southern,  &c.  R. 
Co.  13  Allen  (Mass.)  400.  In  de- 
termining the  question  the  object  of 
the  corporation  and  the  condition 
of  its  affairs  will  be  considered. 
Fougeray  v.  Cord,  50  N.  J.  Eq.  185, 
24  Atl.  499.  Ordinarily,  however, 
the  directors  cannot  be  compelled, 
by  mandamus,  to  pay  a  dividend. 
People  v.  Central,  &c.  Co.  41  Mich. 
166. 

"Hazeltine  v.  Belfast,  &c.  R.  Co. 
79  Me.  411,  1  Am.  St.  330. 


§    315]  DIVIDENDS.  450 

dend  from  net  profits  each  year  during  which  they  were  earned,  but 
not  to  cumulative  dividends,  and  that  the  arrearages  of  one  year  were 
not  payable  out  of  the  earnings  of  subsequent  years.  It  was  held  that 
an  attempt  on  the  part  of  the  directors  to  accumulate  money  for  the 
payment  of  the  funded  indebtedness,  by  refusing  to  pay  any  dividends 
on  preferred  stock  through  a  long  term  of  years,  after  which  the  in- 
come from  the  road  might  be  expected  to  be  great  enough  to  pay  to 
the  holders  of  common  stock  the  same  dividends  that  holders  of  pre- 
ferred stock  would  be  entitled  to  receive,  was  unjustifiable  and  a  viola- 
tion by  the  directors  of  their  legal  duty,  and  the  court  ordered  the 
payment  of  a  dividend  to  the  preferred  shareholders  out  of  the  income 
for  the  current  year,  after  the  corporate  expenses  and  interest  on  the 
funded  debt  had  been  paid.100  But  one  who  is  not  a  stockholder  cannot 
obtain  a  decree  compelling  the  corporation  to  declare  and  pay  such 
dividends  as  shall  appear  upon  an  accounting  to  have  been  earned.101 

§  315.  Limitations  upon  authority  to  declare  a  dividend — Suits  to 
reclaim. — There  are  also  many  limitations  upon  the  legal  authority 
of  the  directors  to  declare  a  dividend.  In  Virginia,  it  is  held  that 
directors  who  have  failed  to  declare  dividends  at  the  time  fixed  by 
the  charter  cannot  declare  one  for  each  of  a  number  of  years  and  so 
reduce  the  size  of  the  dividends.102  A  valid  dividend  can  in  no  case 
be  declared  and  paid  when  the  corporation  is  insolvent,103  but  can 
only  be  lawfully  declared  when  sufficient  net  profits  have  been  earned 
to  pay  it.  And  if  payment  of  the  dividend  will  consume  any  portion 
of  the  capital  stock  of  the  company,  such  dividend  may  be  held 
fraudulent  and  void,104  and,  if  paid,  so  much  of  the  capital  as  was 

100  See,   also,    Richardson   v.    Ver-  shareholders   claimed   the   right  to 
mont,  &c.  R.  Co.  44  Vt.  613;  West  have  such  dividends  paid  to  them 
Chester,  &c.  R.   Co.  v.   Jackson,   77  as   would    equal   the    dividends    re- 
Pa.   St.  321;   Nickals  v.  New  York,  ceived  by  the  preferred   sharehold- 
&c.  R.  Co.  15  Fed.  575,  and  compare  ers  for  a  series  of  twelve  years  past, 
Williston  v.  Michigan  Southern  R.  before  any  further  payments  were 
Co.  13  Allen    (Mass.)   400;    Belfast,  made  to  the  preferred  shareholders. 
&c.  R.  Co.  v.  Belfast,  77  Me.  445.  103  Dividends  paid  when  the  com- 

101  Berford  v.  New  York  Iron  Mine,  pany  is  insolvent  may  be  recovered 
56  N.  Y.  Super.  Ct.  236,  4  N.  Y.  S.  back    from    the    stockholders.      Os- 
836.    And  a  stockholder  must  usual-  good  v.  Laytin,  3  Keyes  (N.  Y.)  521; 
ly  first  make  proper  application  to  Slayden  v.  Seip,  &c.  Co.  25  Mo.  App. 
the    directors.      Meeder    v.    Buffalo  439.     See,  also,  Taylor  v.  Common- 
Bill's  Wild  West  Co.  132  Fed.  280.  wealth,  25  Ky.  L.  374,  75  S.  W.  244. 

102  Gordon  v.  Richmond,  &c.  R.  Co.  10*  Chaffee  v.  Rutland,  &c.  R.   Co. 
78  Va.  501.    In  this  case  the  common  55  Vt.  110;   Elkins  v.  Camden,  &c. 


451 


AUTHORITY  TO   DECLARE   SUITS   TO  RECLAIM. 


[§    315 


consumed  in  the  payment  may  be  recovered  back105  by  suit  in  equity106 
brought  by  any  corporate  creditor  who  holds  a  judgment  against  the 
corporation  upon  which  an  execution  has  been  returned  unsatisfied.107 
So,  a  receiver  may  recover  money  paid  as  a  dividend  while  the  com- 
pany was  insolvent.108  And  it  has  been  held  that  the  directors  them- 
selves may  reclaim  dividends  which  have  been  illegally  declared  under 
a  misapprehension  of  the  right  to  declare  them,  and  which  have  been 
paid  to  the  shareholders.109  The  stockholder  is  bound  to  take  notice 
of  the  condition  of  the  corporation,110  and  it  has  been  held  that  his 
private  property  may  be  reached  in  such  an  action  by  the  creditors,1103 
even  though  he  was  in  reality  ignorant  of  the  fact  that  payment  of  his 
dividend  would  impair  the  capital  stock.  The  statute  of  limitations 
will  run  from  the  time  the  dividend  is  declared  in  favor  of  a  share- 
holder who  receives  such  a  dividend  in  good  faith  and  without  actual 


R.  Co.  36  N.  J.  Eq.  233;  Pittsburg, 
&c.  R.  Co.  v.  County  of  Allegheny, 
63  Pa.  St.  126;  Carpenter  v.  New 
York,  &c.  R.  Co.  5  Abb.  Pr.  (N.  Y.) 
277;  Lockhart  v.  Van  Alstyne,  31 
Mich.  76,  18  Am.  R.  156.  But  see 
Verner  v.  General,  &c.  Trust  (L.  R. 
1894),  2Ch.  239. 

105  Railroad  Company  v.  Howard,  7 
Wall.  (U.  S.)  392;  Finn  v.  Brown, 
142  U.  S.  56,  12  Sup.  Ct.  136;  John- 
son v.  Laflin,  5  Dill  (U.  S.)  65,  85, 
note;  Hastings  v.  Drew,  76  N.  Y.  9; 
McKusick  v.  Seymour,  &c.  Co.  48 
Minn.  172,  50  N.  W.  1116;  Heman 
v.  Britton,  88  Mo.  549;  Story's  Eq. 
Juris.  (13th  ed.)  §  1252.  The  cor- 
poration should  be  made  a  party  to 
the  bill.  First  Nat.  Bk.  &c.  v.  Smith, 
6  Fed.  215. 

108  The  creditor  should  file  a  bill  in 
the  nature  of  a  creditor's  bill  in  fa- 
vor of  himself  and  all  other  cred- 
itors that  may  choose  to  come  in 
and  share  the  expense  of  the  suit. 
Hastings  v.  Drew,  76  N.  Y.  9 ;  Bank 
of  St.  Mary's  v.  St.  John,  25  Ala. 
566;  First  Nat.  Bank  v.  Smith,  6 
Fed.  215. 

107  Cook  Stock  and  Stockholders, 
§  548.  But  creditors  of  an  insol- 


vent corporation  cannot,  ordinarily, 
require  the  stockholders  to  surren- 
der dividends  paid  by  it  when  it 
was  solvent.  Reid  v.  Eatonton  Co. 
40  Ga.  98,  2  Am.  R.  563;  Mercantile, 
&c.  Co.,  In  re,  L.  R.  4  Ch.  475;  Main 
v.  Mills,  6  Biss.  (U.  S.)  98. 

108Osgood  v.  Lay  ton,  3  Keyes  (N. 
Y.)  521.  Compare  Van  Duyck  v. 
McQuade,  86  N.  Y.  45. 

109  Lexington,  &c.  Co.  v.  Page,  56 
Ky.  412,  66  Am.  Dec.  165.    This  de- 
cision, however,  seems  questionable. 

110  Peterson  v.   Illinois,  &c.   Co.   6 
Bradw.    (111.)    257;    Clapp  v.  Peter- 
son, 104  111.   26;    Osgood  v.  Laytin, 
48  Barb.   (N.  Y.)   463;   Bank  of  St. 
Mary's  v.  St.  John,  25  Ala.  566. 

noa  Bartholomew  v.  Bentley,  15 
Ohio  659,  45  Am.  Dec.  596.  As  to 
the  stockholder's  liability  in  a  pro- 
ceeding by  creditor's  bills  to  reach 
dividends  paid  after  the  corpora- 
tion was  insolvent  or  in  contempla- 
tion of  insolvency,  see  Railroad  Co. 
v.  Howard,  7  Wall.  (U.  S.)  392;  Pa- 
cific R.  Co.  v.  Cutting,  Jr.  27  Fed. 
638;  Hastings  v.  Drew,  76  N.  Y.  9; 
Heman  v.  Britton,  88  Mo.  549;  Lex- 
ington, &c.  Ins.  Co.  v.  Page,  56  Ky. 
412,  66  Am.  Dec.  165. 


§    316]  DIVIDENDS.  452 

notice.111  If  compelled  to  pay  more  than  his  equitable  proportion  of 
such  a  debt,  the  stockholder  may  enforce  contribution  by  his  associ- 
ates;112 and  a  stockholder  who  became  possessed  of  his  shares  after 
such  a  dividend  was  paid  cannot  be  held  liable  in  such  a  suit.118  It 
has  also  been  held  that  he  is  not  liable  to  corporate  creditors  for  a 
dividend  received  by  him  in  good  faith  while  the  corporation  was 
solvent.114 

§  316.  Dividends  should  be  paid  out  of  the  profits. — The  rule  is 
often  stated  as  requiring  all  dividends  to  be  paid  out  of  the  net  profits 
of  the  company,  and  this  rule  is  generally  correct  when  net  profits 
are  interpreted  to  mean  that  portion  of  the  income  which  remains 
after  the  deduction  of  all  proper  charges  and  outlays,115  including 
interest,  and  the  like.116  But  the  corporation  is  not  required  to  be  ab- 
solutely free  from  debt  before  paying  dividends;117  indeed,  a  con- 
trary rule  would  prevent  almost  every  railroad  in  the  country  from 
paying  dividends.118  The  debts  which  the  company  is  authorized  to 
carry  while  paying  dividends  are  funded  debts,  and  others  of  that 
class.  Debts  owing  to  contractors,  and  money  due  to  bankers  and 
others  for  advances  made  to  aid  in  building  the  road,  must  usually  be 
defrayed  before  dividends  are  declared,119  though  these  debts  may, 
in  the  discretion  of  the  directors,  be  converted  into  funded  indebted- 

111  Lexington,  &c.  Ins.  Co.  v.  Page,  Co.  L.  R.  3  Ch.  App.  Cas.  337,  344, 

56  Ky.  412,  66  Am.  Dec.  165.  350. 

^Bartlett  v.  Drew,  57  N.  Y.  587.  ua  See  Mobile,  &c.  R.  Co.  v.  Ten- 

113Hurlbut  v.  Tayler,  62  Wis.  607.  nessee,  153  U.   S.  486,  14   Sup.  Ct. 

114  Great  Western,  &c.  Co.  v.  Har-  968.     Except  in  cases  where  a  por- 
ris,  128  Fed.  321,  63  C.  C.  A.  51.  tion   of   the   capital    is   distributed 

115  St.  John  v.  Erie  R.  Co.  22  Wall,  upon  a  reduction  of  capital   stock. 
(U.   S.)    136;   Miller  v.  Bradish,  69  See  Strong  v.  Brooklyn,  &c.  R.  Co. 
Iowa  278,  28  N.  W.  594.     See,  also,  93  N.  Y.  426. 

New  York,  &c.  R.  Co.  v.  Nickals,  119  UT  Mills  v.  Northern,  &c.  R.  Co.  L. 

U.  S.  296,  7  Sup.  Ct.  209.     The  net  R.  5  Ch.  App.  Cas.  621. 

profits  have  been  held  to  be  the  in-  U8  In  support  of  the  text  see,  also, 

come  remaining  after  the  payment  Belfast,  &c.  R.  Co.  v.  Belfast,  77  Me. 

of   operating   expenses,   and   before  445;  Hazeltine  v.  Belfast,  &c.  R.  Co. 

the  payment  of  interest.     Corry  v.  79  Me.  411,  1  Am.  St.  330;  Miller  v. 

Londonderry,   &c.   R.   Co.    29   Beav.  Bradish,  69  Iowa  278,  28  N.  W.  594. 

263.     But  it  is  doubted  if  interest  "*  Wood's  R.  Law,  168.     See,  also, 

on    debentures    can    be    charged    to  Bond  v.  Barrow,  &c.  Co.    (1902)    1 

capital,  and  the  fund  for  the  pay-  Ch.  353,  9  Manson  69,  71  L.  J.  Ch. 

ment     of     dividends     thereby     in-  246. 
creased.    Bloxam  v.  Metropolitan  R. 


453  ENJOINING   PAYMENT   OF   DIVIDENDS.  [§317 

ness  where  this  is  practicable.120  But  it  has  been  held  that  dividends 
must  ordinarily  be  paid  only  out  of  earnings,121  and,  unless  the  con- 
trary is  provided  by  charter  or  by  statute,  so,  as  a  general  rule,  must 
interest  upon  stock  when  it  is  allowed.122  Consequently,  it  is  unlawful 
for  a  company  which  has  not  yet  earned  any  income  to  declare  a  divi- 
dend upon  its  ordinary  stock  out  of  a  sum  of  money  paid  to  it  as 
penalty  and  interest  by  the  contractors,  upon  a  failure  to  complete 
the  company's  lines  according  to  agreement.123  An  absolute  agree- 
ment to  pay  interest  upon  stock,  where  it  is  not  expressly  authorized 
by  statute,  has  been  held  void,124  although  it  is  perfectly  competent 
in  this  country  for  a  railroad  company  to  contract  that  it  will,  when- 
ever the  surplus  earnings  shall  enable  it  to  do  so  out  of  such  earn- 
ings, pay  interest  on  the  stock  subscriptions  for  the  time  the  road  is 
building  and  until  it  is  ready  for  operation.125 

§  317.  Enjoining  payment  of  dividends. — An  injunction  will  not 
issue  at  the  instance  of  corporate  creditors  to  restrain  acts  tending  to 
decrease  the  corporate  assets  where  it  is  not  shown  that  the  remaining 
assets  will  be  insufficient  to  meet  the  corporate  liabilities.126  And  an- 
other company  claiming  the  right  of  distress  for  non-payment  of  toll 
charges  cannot  obtain  an  injunction  to  restrain  the  payment  of  divi- 
dends.127 The  fact  that  there  is  not  cash  actually  on  hand  or  at  the 
banker's  to  pay  the  proposed  dividend  in  full,128  or  that  certain  im- 
material errors  in  calculations  are  contained  in  an  account  honestly 
made  out  and  published  in  good  faith,129  is  not  sufficient  to  justify 

120  Belfast,  &c.  R.  Co.  v.  Belfast,  77  ^  Richardson  v.  Vermont,  &c.  R. 

Me.  445,  23  Am.  &  E.  R.  Cas.  736,  Co.  44  Vt.  613;  Cunningham  v.  Ver- 

740.  mont,  &c.  R.  Co.  12  Gray  (Mass.) 

^Bloxham  v.  Metropolitan  R.  Co.  411;  McLaughlin  v.  Detroit,  &c.  R. 

L.  R.  3  Ch.  App.  Cas.  337.  Co.  8  Mich.  100;  Ohio  City  v.  Cleve- 

122  Macdougall  v.  Jersey,  &c.  Co.  2  land,   &c.   R.   Co.   6   Ohio   St.   489; 
Hem.  &  M.  528;  Salisbury  v.  Metro-  Evansville,  &c.  R.  Co.  v.  Evansville, 
politan  R.  Co.  38  L.  J.  Ch.  249.  15  Ind.  395. 

123  Bloxham  v.  Metropolitan  R.  Co.  128  Mills  v.  Northern,  &c.  R.  Co.  L. 
L.  R.  3  Ch.  App.  Cas.  337.  R.  5  Chan.  621;   Lee  v.  Neuchatel, 

124  McLaughlin   v.   Detroit,   &c.   R.  &c.   Co.  58   L.  T.  R.  553.     But  see 
Co.  8  Mich.   100;   Pittsburg,  &c.  R.  Williams  v.  Boice,  38  N.  J.  Eq.  364. 
Co.  v.  Allegheny  Co.  63  Pa.  St.  126;  12T  South  Yorkshire  R.  Co.  v.  Great 
Painsville,  &c.   R.  Co.  v.  King,   17  Northern  R.  Co.  9  Exch.  55. 

Ohio  St.   534;    Troy,  &c.  R.  Co.  v.  "8  Stringer's  Case,  L.  R.  4  Chan. 

Tibbitts,  18  Barb.  (N.  Y.)  297.    See,  475. 

also,  National  Salt  Co.  v.  Ingraham,  ia>  Yool  v.  Great  Western  R.  Co.  20 

122  Fed.  40,  58  C.  C.  A.  356.     But  L.  T.  R.  (N.  S.)  74. 

see  ante,  §  86. 


§'  317] 


DIVIDENDS. 


454 


the  granting  of  an  injunction.  And  a  court  of  equity  will  not  restrain 
the  payment  of  a  dividend  merely  upon  the  ground  that  the  directors 
have  acted  in  violation  of  their  duties  to  the  public.130  An  injunc- 
tion will  not  be  granted,  it  seems,  to  restrain  payment  of  a  dividend 
already  declared  without  a  stronger  showing  than  is  required  to  re- 
strain the  declaration  of  the  dividend,131  though  the  fact  that  divi- 
dends have  been  declared  is  by  no  means  conclusive  of  the  fact  that 
they  must  be  paid.  It  is  generally  held  that  the  court  will  not,  in  a 
suit  brought  by  a  single  shareholder,  to  which  the  other  shareholders 
are  not  made  parties,  restrain  the  payment  of  dividends  which  have 
been  regularly  declared,  since  it  cannot,  in  their  absence,  interfere  with 
the  legal  right  which  the  stockholders  have  acquired  to  such  divi- 
dends.132 But  a  stockholder  may  file  a  bill  on  behalf  of  himself  and 
others  to  enjoin  the  threatened  declaration  of  a  dividend  out  of  the 
capital  stock.133  It  must  be  shown  that  a  fraud  is  being  perpetrated 
upon  citizens  of  the  state  in  which  the  suit  is  brought,  before  its 
courts  will  enjoin  the  declaration  of  a  dividend  by  a  corporation  of 
another  state.134  But  it  has  been  held  that  the  court  will  not  refuse  to 
restrain  the  corporation  from  paying  a  dividend  to  the  common  share- 
holders to  the  injury  of  resident  holders  of  preferred  shares  upon 
which  dividends  have  not  been  paid,  even  though  the  defendant  cor- 
poration has  its  domicile  in  another  state.135 


130  Browne    v.    Monmouthshire    R. 
&c.  Co.  13  Beav.  32;  Stevens  v.  South 
Devon  R.  Co.  9  Hare  313. 

131  Carpenter  v.  New  York,  &c.  R. 
Co.  5  Abb.  Pr.  (N.  Y.)  277;  Carlisle 
v.  Southeastern  R.  Co.  1  Macn.  &  G. 
689. 

132  Fawcet  v.  Laurie,  1  Drew.  &  Sm. 
192;  Carlisle  v.  Southeastern  R.  Co. 
1  Macn.  &  G.  689;  Carpenter  v.  New 
York,  &c.  R.  Co.  5  Abb.  Pr.  277. 

133  2  Beach   Private   Corporations, 
§   607;    Carlisle  v.   Southeastern  R. 
Co.  1  Macn.  &  G.  689,  14  Jur.  515; 
Fawcet  v.  Laurie,  1  Drew.  &  Sm.  192; 
MacDougall  v.  Jersey,  &c.  Co.  2  Hem. 
&  M.  528;    Bloxam  v.  Metropolitan 
R.  Co.  L.  R.  3  Ch.  337;  Salisbury  v. 
Metropolitan  R.  Co.  38  L.  J.  Ch.  249; 
Painsville,   &c.   R.   Co.   v.   King,   17 
Ohio    St.    534;    Carpenter    v.    New 
York,  &c.  R.  Co.  5  Abb.  Pr.  (N.  Y.) 


277.  See,  also,  March  v.  Eastern  R. 
Co.  40  N.  H.  548,  77  Am.  Dec.  732. 
But  the  bill  must  show  that  injury 
will  result  from  the  illegal  act. 
Chaffee  v.  Rutland  R.  Co.  55  Vt.  110; 
Carlisle  v.  Southeastern  R.  Co.  1 
Macn.  &  G.  689,  14  Jur.  515.  An  in- 
junction has  also  been  granted  to 
restrain  the  payment  of  a  dividend 
out  of  earnings  necessary  to  repair 
the  road.  Davidson  v.  Gillies,  1  Am. 
&  Eng.  R.  Cas.  595,  note.  See,  also, 
Dent  v.  London,  &c.  Co.  L.  R.  16 
Ch.  Div.  344,  1  Am.  &  Eng.  R.  Cas. 
592. 

134Howell  v.  Chicago,  &c.  R.  Co. 
51  Barb.  (N.  Y.)  378.  See,  also, 
Williston  v.  Michigan  Southern,  &c. 
R.  Co.  13  Allen  (Mass.)  400;  Ber- 
ford  v.  New  York,  &c.  Co.  56  N.  Y. 
Super.  Ct.  236,  4  N.  Y.  S.  836. 

13SProuty   v.   Michigan   Southern, 


455  PERSONAL  LIABILITY   OF  DIRECTORS.  [§    318 

§  318.  Personal  liability  of  directors. — In  addition  to  their  lia- 
bility as  stockholders,  the  directors  have  been  held  personally  liable 
to  refund  dividends  paid  out  of  the  capital  stock,136  at  least  where  they 
have  acted  wilfully  and  knowingly,187  and  they  have  been  denied  re- 
course upon  the  stockholders  who  took  the  dividends  in  good  faith.138 
It  has  been  said  that,  "Where  directors  order  dividends  to  be  paid 
where  no  profits  have  been  made,  without  expressly  saying  so,  a  gross 
fraud  is  practiced,  and  the  directors  are  not  only  civilly  liable  to  those 
whom  they  have  deceived  and  injured,  but  are  guilty  of  conspiracy, 
for  which  they  are  liable  to  be  prosecuted  and  punished."139  But  the 
better  rule  would  seem  to  be  that  they  are  not  liable  beyond  their  lia- 
bility as  stockholders,  where  they  have  acted  in  good  faith;140  or,  if 
they  are  held  liable,  they  may,  perhaps,  recover  what  they  have  paid 
in  an  action  against  the  stockholders.141  A  suit  to  enforce  this  lia- 
bility has  been  held  to  be  properly  brought  by  a  non-participating 
stockholder.142  But  a  stockholder  seeking  to  hold  the  directors  per- 
sonally liable  for  damages  which  he  has  sustained  by  reason  of  their 
fraud  and  mismanagement,  should  bring  his  suit  in  a  court  of  equity.143 
At  law,  in  the  absence  of  special  statute,  the  directors  are  responsible 
only  to  the  corporation.144  It  is,  however,  provided  by  statute  in  many 

&c.  R.  Co.  1  Hun  (N.  Y.)  655.  But  gested  that  such  a  suit  would  be 
see  Williston  v.  Michigan  Southern,  more  properly  brought  by  the  stock- 
Ac.  R.  Co.  13  Allen  (Mass.)  400.  holders,  or  by  the  corporation,  and 
^Gratz  v.  Redd,  4  B.  Mon.  (Ky.)  the  court  doubts  if  the  directors  can 
178,  194;  Hill  v.  Frazier,  22  Pa.  St.  be  held  liable  to  the  corporate  cred- 
320.  See,  also,  Evans  v.  Coventry,  itors,  but  it  may  well  be  doubted 
25  L.  J.  Ch.  489,  8  DeGex,  M.  &  G.  if  the  stockholders  retaining  their 
835;  National  Funds,  &c.  Co.,  In  re,  dividends  could  have  any  standing 
L.  R.  10  Ch.  Div.  118.  in  a  court  of  equity  to  prosecute 

137  Burnes  v.  Pennell,  2  H.  L.  Gas.  such  a  suit,  and  the  creditors  would 
497,  513.  seem   to   have  the   strongest  claim 

133  Exchange  Banking  Co.,  In  re,  L.  in  equity  to  some  remedy  for  an  im- 

R.  21  Chan.  Div.  519.  pairment  of  the  fund  upon  the  faith 

138  Lord    Campbell    in    Burnes    v.  of  which  the  debts  are  created. 
Pennell,  2  H.  L.  Gas.  497,  513.  143  Smith  v.  Kurd,  12  Met.  (Mass.) 

140  Excelsior  Pet.  Co.  v.  Lacey,  63  371;   Bishop  v.  Houghton,  1  E.  D. 

N.  Y.  422.  Smith  (N.  Y.)  566;  Sears  v.  Hotch- 

1U  Salisbury  v.  Metropolitan  R.  Co.  (kiss,  25  Conn.  171. 

22  L.  T.  R.  (N.  S.)  839.  144  Smith    v.    Poor,    40    Me.    415; 

142  Salisbury  v.  Metropolitan  R.  Co.  Evans  v.  Brandon,  53  Tex.  56 ;  Allen 

22  L.  T.  R.  (N.  S.)  839.    In  Lexing-  v.  Curtis,  26  Conn.  456,  65  Am.  Dec. 

ton,  &c.  R.   Co.  v.  Bridges,  46  Ky.  557.     And,  of  course,  a  stockholder 

556,  559,  46  Am.  Dec.  528,  it  is  sug-  who  has  received  a  dividend  wrong- 


§    319]  DIVIDENDS.  456 

of  the  states  that  the  directors  declaring  and  paying  any  dividend 
which  impairs  the  capital  stock  shall  be  individually  liable  for  the 
corporate  debts,145  or  for  some  other  stated  penalty,  such  as  double 
damages,  fine  or  imprisonment.  It  has  been  held  that  where  recovery 
is  had  from  a  director  as  a  wrong-doer  under  such  a  statute,146  he  can 
have  no  right  of  subrogation  as  against  the  corporation.147  And  a 
claim  based  on  such  a  statute148  against  a  director  who  has  acted  in 
good  faith,  may,  it  seems,  be  barred  by  laches.149 

§  319.  Dividends  payable  in  scrip. — Dividends  are  frequently  made 
payable  in  "scrip"  or  certificates  which  confer  upon  the  holder  certain 
rights,  which  are  set  out  in  the  certificates  themselves.  This  plan  is 
adopted  when  the  profits  of  the  company  are  in  the  shape  of  prop- 
erty which  has  yet  to  be  sold,  or  when  the  profits  are  being  used  in 
making  improvements  to  be  represented  by  a  stock  dividend,  which 
is  to  be  declared  at  some  time  in  the  future.  The  certificates  are  made 
redeemable  in  money,  stock,  bonds,  or  property,  either  at  a  fixed  time 
or  at  the  option  of  the  corporation150  or  of  the  holder,151  and,  being 
negotiable,  enable  the  stockholders  who  wish  to  do  so,  to  realize  at 
once  upon  the  dividend.  Sometimes  these  certificates  so  far  partake 
of  the  nature  of  certificates  of  stock  as  to  entitle  the  holder  to  divi- 
dends.152 But  the  issue  of  such  certificates  is  not  a  distribution  of 
the  surplus  from  which  the  corporation  expects  to  pay  them,  and  does 
not  transfer  the  title  to  that  surplus  to  the  holders  of  certificates.153 
The  company  may,  however,  distribute  the  property  of  which  its  sur- 
plus income  consists  among  its  stockholders  in  the  form  of  a  divi- 

fully  and  illegally  declared  will  not  15°  Brown  v.  Lehigh,  &c.  Co.  49  Pa. 

be  allowed  to  maintain  an  action  for  St.  270. 

his  own  benefit,  from  the  directors  151  Chaffee  v.  Rutland  R.  Co.  55  Vt. 

who  illegally  declared  it,  on  the  the-  110;   State  v.  Baltimore,  &c.  R.  Co. 

ory  of  a  breach  of  trust.     Wallace  6    Gill     (Md.)     363;     Brundage    v. 

v.  Lincoln  Savings  Bank,  89  Tenn.  Brundage,1  1   Th.  &  C.    (N.  Y.)    82, 

630,  24  Am.  St.  625.  affirmed,  60  N.  Y.  544. 

U5Stimson      Am.      Stat.      (1892)  152  Bailey  v.  Railroad  Co.  22  Wall. 

§§  8161,  8236,  8634.    See  Companies'  (U.  S.)  604.     It  usually  carries  no 

Act  of  1862  (Eng.),  §  165.  voting    power.      Commonwealth    v. 

146  Pennsylvania    Act    of    7th    of  Union,  &c.  Co.  192  Pa.  St.  507,  43 
April,  1849,  §  9.  Atl.  1010. 

147  Hill  v.  Frazier,  22  Pa.  St.  320.  15S  People  v.  Board  of  Assessors,  76 
118  Eng.    Companies'   Act   of   1862,    N.  Y.  202,  16  Hun  (N.  Y.)  196;  Com- 

§  165.  monwealth  v.  Pittsburg,  &c.  R.  Co. 

149  Mammoth  Copperopolis,  &c.,  In  74  Pa.  St.  83;  Bailey  v.  Railroad 
re,  50  L.  J.  Chan.  11.  Co.  22  Wall.  (U.  S.)  604. 


457 


STOCK  DIVIDENDS. 


[§    320 


dend,  where  it  is  susceptible  of  a  ratable  distribution;15*  or  it  may 
declare  a  dividend  payable  in  bonds  which  represent  earnings  used 
for  the  improvement  of  the  road.155 

§  320.  Stock  dividends. — If  the  earnings  of  the  company  have  been 
devoted  to  the  purchase  of  shares  of  stock  made  under  legislative  au- 
thority, the  shares  so  purchased  may  be  distributed  to  the  stockholders 
in  the  form  of  a  stock  dividend,156  unless  such  dividends  are  pro- 
hibited by  statute.  A  stock  dividend  has  been  defined  as  "the  issue  by 
a.  corporation,  as  a  dividend,  of  new  shares  which  have  been  paid  up 
by  the  transfer  from  the  surplus  or  profit  and  loss  account  to  the  ac- 
count representing  capital  stock  of  a  sum  equal  to  their  par  value.."157 
The  effect  of  such  a  dividend  is,  it  seems,  simply  to  change  the  form 
of  the  investment  of  the  stockholders  by  increasing  the  number  of 
shares  and  thereby  diminishing  the  value  of  each  without  affecting  the 
solvency  of  the  corporation  or  altering  the  aggregate  value  of  the' 
shares  or  interests  of  the  stockholders.158  It  may,  therefore,  be  made 
not  only  where  old  shares  have  been  purchased  by  the  corporation, 
but  also  where  the  corporation  is  authorized  to  increase  its  stock  and 
issue  new  shares  and  a  surplus  has  been  earned,  so  that  the  new  stock 
*,  represents  and  has  back  of  it  so  much  additional  capital  or  property 
which  the  directors  might  have  distributed  among  the  stockholders  or 
retained  for  future  use.159  Insomuch  as  the  stock  dividend  consist- 


1M  Scott  v.  Central  R.  &c.  Co.  52 
Barb.  (N.  Y.)  45,  where  the- divi- 
dends were  paid  in  Confederate 
money.  See,  also,  Merchant  v. 
Western,  &c.  Ass'n,  56  Minn.  327,  56 
N.  W.  327;  Williams  v.  Western  Un. 
Tel.  Co.  93  N.  Y.  162. 

155  Wood  v.  Lary,  47  Hun  (N.  Y.) 
550;  State  v.  Baltimore,  &c.  R.  Co.  6 
Gill  (Md.)  363. 

154  Commonwealth  v.  Boston,  &c.  R. 
Co.  142  Mass.  146,  7  N.  E.  716.  See, 
generally,  on  the  right  to  purchase 
its  own  shares,  note  to  Hall  v.  Hen- 
derson, 126  Ala.  449,  28  So.  531,  61  L. 
R.  A.  621;  Porter  v.  Plymouth  Gold 
Min.  Co.  29  Mont.  347,  74  Pac.  938, 
101  Am.  St.  569,  and  note.  But  the 
stockholders  have  no  right  to  claim 
a  pro  rata  share  of  such  stock  un- 


til it  is  ordered  to  be  divided  among 
them.  Wiltbank's  Appeal,  64  Pa.  St. 
256,  3  Am.  R.  585;  St.  John  v.  Erie 
R.  Co.  10  Blatch.  (U.  S.)  271;  Brad- 
ley v.  Holdsworth,  3  M.  &  W.  422. 

157  "Stock  Dividends  and  Their  Re- 
straint," 7  Am.  Bar  Assn.  268;  note 
to    Gordon's     Exrs.    v.     Richmond, 
&c.  R.  Co.  78  Va.  501,  22  Am.  &  Eng. 
R.  Cas.  33,  48. 

158  Williams  v.  Western  Union  Tel. 
Co.  93  N.  Y.  162;  Howell  v.  Chicago, 
&c.   R.   Co.   51   Barb.    (N.  Y.)    378; 
Terry  v.  Eagle  Lock  Co.  47  Conn. 
141;    Gibbons  v.   Mahan,  136  U.   S. 
549,  10  Sup.  Ct.  1057;  De  Koven  v. 
Alsop,  205  111.  309,  63  L.  R.  A.  587. 

158  Morawetz  Private  Corporations, 
§§  452,  453;  Rand  v.  Hubbell,  115 
Mass.  461,  15  Am.  R.  121;  Com- 


§•  320] 


DIVIDENDS. 


458 


ing  of  new  shares  virtually  takes  the  place  of  a  cash  dividend,  each 
shareholder  is,  ordinarily,  entitled  to  share  therein  to  the  same  extent 
as  if  it  were  paid  in  cash,  and  all  should,  therefore,  be  given  an  equal 
opportunity  to  take  their  proportionate  shares  of  the  new  stock  in  the 
first  instance.160  But  it  is  said  that  stockholders  in  railroads  and  other 
corporations,  whose  powers  and  duties  are  defined  by  statute,  have  no 
right  to  claim  shares  of  new  stock,  upon  any  terms,  in  preference  to 
others  desiring  to  become  owners  of  such  stock,  unless  this  privilege 
is  expressly  conferred  upon  them  in  some  manner  equivalent  to  a 
declaration  of  a  dividend.161  In  our  opinion,  however,  there  is  no 
good  reason  for  distinguishing  between  railroad  companies  and  other 
corporations  whose  stockholders  have  been  held  to  have  the  first  right 
to  take  the  new  shares,  unless  there  is  something  requiring  it  in  the 
charter,  statute,  or  by-laws  of  the  particular  corporation.162  And 
when  the  capital  stock  of  a  company  has  been  lawfully  reduced,  the 
property  thus  deducted  from  the  capital  may  be  distributed  as  a  divi- 
dend.163 Where  no  special  provision  is  made  to  the  contrary,  a  divi- 
dend is  presumed  to  be  payable  in  cash,  and  in  lawful  or  current 
money.164  And  a  company  cannot  show  that  a  dividend  was  payable 


monwealth  v.  Pittsburg,  &c.  R.  Co. 
74  Pa.  St.  83;  Kenton  Furnace,  &c. 
Co.  v.  McAlpin,  5  Fed.  737.  See, 
also,  Farwell  v.  Great  Western  Tel. 
Co.  161  111.  522,  44  N.  E.  891. 

160Morawetz  on  Private  Corpora- 
tions, §§  454,  455;  Jones  v.  Morrison, 
31  Minn.  140,  16  N.  W.  854;  Jones 
v.  Terre  Haute,  &c.  R.  Co.  57  N.  Y. 
196;  Dousman  v.  Wisconsin,  &c.  R. 
Co.  40  Wis.  418;  De  Koven  v.  Alsop, 
205  111.  309,  63  L.  R.  A.  587.  It  has 
been  held  that  the  corporation  may 
give  the  stockholders  the  privilege 
of  taking  new  stock,  when  the  capi- 
tal stock  is  increased,  at  par,  or  less 
than  par,  although  it  may  be  worth 
more.  Moss's  Appeal,  83  Pa.  St. 
264,  .24  Am.  R.  164;  Wiltbank's  Ap- 
peal, 64  Pa.  St.  256,  3  Am.  R.  585. 
As  to  the  rights  of  holders  of  pre- 
ferred stock,  see  Gordon's  Exrs.  v. 
Richmond,  &c.  R.  Co.  78  Va.  501,  22 
Am.  &  Eng.  R.  Gas.  33;  Phillips  v. 
Eastern  R.  Co.  138  Mass.  122. 


161  Wood  Railroads,  §  72;  Miller  v. 
Illinois  Cent.  R.  Co.  24  Barb.  (N. 
Y.)  312;  Curry  v.  Scott,  54  Pa.  St. 
270;  Ohio  Ins.  Co.  v.  Nunnemacher, 
15  Ind.  294. 

162 1  Rorer  Railroads,  208;  Gray  v. 
Portland  Bank,  3  Mass.  364,  3  Am. 
Dec.  156;  Cunningham's  Appeal,  108 
Pa.  St.  546;  Reese  v.  Bank  of  Mont- 
gomery Co.  31  Pa.  St.  78,  72  Am. 
Dec.  726;  State,  Page  v.  Smith,  48 
Vt.  266;  Eidman  v.  Bowman,  58  111. 
444,  11  Am.  R.  90. 

183  Strong  v.  Brooklyn,  &c.  R.  Co. 
93  N.  Y.  426,  435;  Parker  v.  Mason, 
8  R.  I.  427. 

1MEhle  v.  Chittenango  Bank,  24 
N.  Y.  548;  Scott  v.  Central  R.  &c. 
Co.  52  Barb.  (N.  Y.)  45,  where  the 
income  of  the  corporation  was  Con- 
federate money  only,  but  the  legal 
effect  of  the  resolution  was  held  to 
be  that  the  dividends  were  payable 
in  lawful  money  of  the  United 
States. 


459 


DIVIDENDS  PAYABLE  WITHOUT  DISCRIMINATION". 


[§    321 


only  in  bank  bills  passing  at  a  discount,  if  it  has  not  distinctly  said 
so  in  the  resolution  declaring  it.165 

§  321.  Dividends  payable  without  discrimination. — A  dividend 
must  be  payable  equally  to  all  stockholders  of  the  same  class,  and  the 
directors  cannot  discriminate  either  as  to  the  proportional  size  of  the 
dividends166  or  as  to  the  manner  or  time  of  payment,167  or  as  to  the 
medium  of  payment,  as  by  paying  a  part  of  the  stockholders  in  gold 
and  forcing  the  others  to  accept  depreciated  paper  at  its  face  value,168 
because  a  portion  of  the  stock  is  unpaid,169  or  because  certain  stock- 
holders own  a  greater  number  of  shares  than  others,170  or  because  the 
stock  held  by  part  of  the  stockholders  was  issued  after  that  held  by 
others,  even  though  it  was  not  issued  until  after  the  dividend  was 
earned,  provided  it  was  issued  before  the  dividend  was  declared.171 
The  stockholders  may  prevent  or  restrain  an  unequal  or  unfair  dis- 
tribution of  the  profits  of  the  company  by  bill  in  equity,172  or  they 


185  Ehle  v.  Chittenango  Bank,  24  N. 
Y.  548,  where  the  dividend  was  de- 
clared to  be  payable  in  "New  York 
state  currency." 

168  Ryder  v.  Alton,  &c.  R.  Co.  13  111. 
516;  Painesville,  &c.  R.  Co.  v.  King, 
17  Ohio  St.  534;  Howell  v.  Chicago, 
&c.  R.  Co.  51  Barb.  (N.  Y.)  378; 
Hale  v.  Republican  Riv.  Bridge  Co. 
8  Kan.  466;  State  v.  Baltimore,  &c. 
R.  Co.  6  Gill  (Md.)  363;  Jackson  v. 
Newark  Plank  Road  Co.  31  N.  J. 
Law  277;  Atlantic,  &c.  Tel.  Co.  v. 
Commonwealth,  3  Brewst.  (Pa.) 
366;  Harrison  v.  Mexican  R.  Co.  L. 
R.  19  Eq.  358;  Coey  v.  Belfast,  &c. 
R.  Co.  (Irish  R.)  2  C.  L.  112;  March 
v.  Eastern  R.  Co.  43  N.  H.  515. 
But  see,  as  to  preferred  stockhold- 
ers entitled  to  a  fixed  sum  per  an- 
num, Fidelity  Trust  Co.  v.  Lehigh, 
&c.  R.  Co.  215  Pa.  St.  610,  64  Atl. 
829;  Gardner,  &c.  Bank  v.  Taber- 
Prang,  &c.  Co.  189  Mass.  363,  75  N. 
E.  705. 

167  State  v.  Baltimore,  &c.  R.  Co.  6 
Gill  (Md.)  363;  Jones  v.  Terre 
Haute,  &c.  R.  Co.  57  N.  Y.  196. 


163  State  v.  Baltimore,  &c.  R.  Co.  6 
Gill  (Md.)  363;  Keppel's  Admr.  v. 
Petersburg,  &c.  R.  Co.  Chase's  Dec. 
(U.  S.)  167. 

189  Oakbank,  &c.  Co.  v.  Crum,  L.  R. 
8  App.  Cases  65;  Reese  v.  Bank,  &c. 
31  Pa.  St.  78,  72  Am.  Dec.  726.  But 
the  dividend  so  declared  may  gen- 
erally be  applied  by  the  corporation 
toward  extinguishing  the  sharehold- 
er's indebtedness  for  his  stock.  King 
v.  Paterson,  &c.  R.  Co.  29  N.  J.  L. 
504.  That  it  may  be  so  applied  by 
agreement,  see  Kenton,  &c.  Co.  v. 
McAlpin,  5  Fed.  737. 

170  State  v.  Baltimore,  &c.  R.  Co.  6 
Gill    (Md.)     363;     Jones    v.    Terre 
Haute,  &c.  R.  Co.  57  N.  Y.  196. 

171  Jones  v.  Terre  Haute  R.  Co.  57 
N.  Y.  196;  Jermain  v.  Lake  Shore, 
&c.  R.  Co.  91  N.  Y.  483;   Phelps  v. 
Farmers',  &c.  Bank,  26  Conn.  269. 

,172Luling  v.  Atlantic,  &c.  Ins.  Co. 
45  Barb.  (N.  Y.)  510;  Cratty  v. 
Peoria,  &c.  Ass'n,  219  111.  516,  76  N. 
E.  707.  In  case  of  a  fraudulent 
overissue  of  stock,  payment  of  divi- 
dends may  be  enjoined  until  it  is 


§   321]  DIVIDENDS.  460 

may,  perhaps,  sue  at  law  as  for  a  breach  of  the  implied  contract  to 
distribute  the  profits  ratably.178 

ascertained  who  are  the  true  holders        173  Such  an  action  was  sustained 

of    genuine    stock.     Underwood    v.  in  New  Jersey.    Jackson  v.  Newark 

New  York,  &c.  R.  Co.  17  How.  Pr.  Plank-Road  Co.  31  N.  J.  L.  277.  See, 

537.     See,  also,  Burnes  v.  Pennell,  also,  Hill  v.  Mining  Co.   (Mo.),  21 

2  H.  L.  Gas.  497;  Painesville,  &c.  R.  S.  W.  508. 
R.  Co.  v.  King,  17  Ohio  St.  534. 


CHAPTER  XV. 


CONSOLIDATION. 


Sec.  Sec. 

322.  Consolidation  must  be  author-    331. 

ized  by  legislature. 
322a.  What  is  sufficient  authority.        332. 

323.  Statutory  mode  must  be  pur- 

sued— Collateral  attack.  333. 

324.  Intention  to  consolidate — Dif- 

ference  between   succession    334. 
and  consolidation. 

325.  Right  of  majority  to  effect  con- 

solidation— When     minority    335. 
may    prevent  —  Release    of 
dissenting  subscribers. 
325a.  Right  to   condemn  shares  of    335a. 
dissenting  stockholder. 

326.  Statutory  provisions  for  con- 

solidation. 336. 

327.  Rights  of  old  stockholders  and 

their   relation    to   the   new    337. 
company. 

328.  Remedies  for  old  stockholders. 

329.  Consolidated  company  suc- 

ceeds to  rights  and  liabili-    338. 
ties  of  the  old  companies. ' 

330.  Special  privileges  and  immuni-     339. 

ties — When  they  pass  to  the 
new  company. 


When  special  privileges  do  not 
pass. 

Duties  and  obligations  of  new 
company. 

Liability  of  new  company  on 
old  contracts. 

Liability  of  new  company  for 
torts— Extent  of  liability— 
Generally. 

Constituent  companies  are 
usually  dissolved — When 
not. 

Duration  of  life  and  fran- 
chises of  consolidated  com- 
pany. 

Effect  of  consolidation  upon 
liens. 

De  facto  consolidation — Estop- 
pel— Liability  of  constituent 
companies  where  consolida- 
tion is  set  aside. 

Effect  of  consolidation  upon 
pending  suits. 

Consolidation  with  foreign 
corporations. 


§  322.  Consolidation  must  be  authorized  by  legislature. — In  the 
absence  of  legislative  authority  a  railroad  company  cannot  consolidate 
with  another  company  so  as  to  form  a  single  corporation,1  although 

1Clearwater  v.  Meredith,  1  Wall.  Co.  20  Ind.  492,  83  Am.  Dec.  329; 

(U.  S.)   25;  Pearce  v.  Madison,  &c.  Blatchford  v.  Ross,  5  Abb.  Pr.  N.  S. 

R.  Co.  21  How.  (U.  S.)  441;  Green-  (N.  Y.)   434,  54  Barb.   (N.  Y.)   42; 

ville,  &c.   Co.  v.  Planters',  &c.  Co.  New  York,  &c.  Canal  Co.  v.  Fulton 

70   Miss.   669,   13    So.    879,   35   Am.  Bank,  7  Wend.   (N.  Y.)   412;   Black 

St.  681;   Aspinwall  v.  Ohio,  &c.  R.  v.  Delaware,  &c.  Canal  Co.  24  N.  J. 

461 


§  322] 


CONSOLIDATION". 


462* 


the  legislature  may,  by  a  subsequent  act,  render  valid  an  unauthorized 
consolidation.2  Most  of  the  states,  however,  now  make  provision  for 
the  consolidation  of  railroad  companies  owning  roads  which  form  a 
continuous  or  connecting  line,3  while  some  of  the  states  permit  con- 
solidation wherever  the  two  consolidating  roads  connect  to  form  a 
continuous  line  by  means  of  an  intervening  railroad,  and  others  do 
not  require  any  connection  at  all  between  existing  roads  as  a  pre- 
requisite to  a  valid  consolidation  of  their  lines.4  This  general  au- 
thority, however,  is  subject  to  the  provisions  of  the  constitutions5  and 
laws6  of  many  of  the  states,  which  forbid  the  consolidation  of  com- 


Eq.  455;  Charlton  v.  Newcastle,  &c. 
R.  Co.  5  Jur.  N.  S.  1096;  note  to 
Wood  v.  City  of  Seattle  (Wash.),  52 
L.  R.  A.  369,  370.  See,  also,  Ashley 
v.  Ryan,  153  U.  S.  436,  14  Sup.  Ct. 
865;  Kavanagh  v.  Omaha  L.  Ass'n, 
84  Fed.  295;  Pingree  v.  Mich.  Cent. 
R.  Co.  118  Mich.  314,  76  N.  W.  635, 
643..  53  L.  R.  A.  274  (citing  text). 
But  if  one  company  is  given  power 
to  consolidate  with  any  other  it  may 
choose,  the  company  it  selects  is 
thereby  authorized  to  unite  with  it 
in  the  consolidation.  Prospect  Park, 
&c.  R.  Co.,  In  re,  67  N.  Y.  371. 

2  Bishop  v.  Brainerd,  28  Conn. 
289;  Mead  v.  New  York,  &c.  R.  Co. 
45  Conn.  199;  McAuley  v.  Columbus, 
&c.  R.  Co.  83  111.  348;  Mitchell  v. 
Deeds,  49  111.  416,  95  Am.  Dec.  621; 
Fisher  v.  Evansville,  &c.  R.  Co.  7 
Ind.  407,  413;  American  Loan  &c.  T. 
Co.  v.  Minnesota,  &c.  R.  Co.  157  111. 
641,  42  N.  E.  153;  Louisville  Trust 
Co.  v.  Louisville,  &c.  R.  Co.  75  Fed. 
433,  22  C.  C.  A.  378.  But  a  general 
law  authorizing  railroad  corpora- 
tions to  consolidate  their  roads, 
which  is  prospective  in  its  language 
and  terms,  will  not  be  construed  to 
have  a  retrospective  operation. 
Hatcher  v.  Toledo,  &c.  R.  Co.  62  111. 
477;  1  Rorer  Railroads,  591.  Infor- 
mal consolidation  has  been  held  val- 
idated by  subsequent  legislation. 
Mead  v.  New  York,  &c.  R.  Co.  45 


Conn.  199;    McCauley  v.  Columbus, 
&c.  R.  Co.  83  111.  348,  352. 

3  Stimson  Am.  Stat  (1892),  §8730. 
Two  or  more  railroad  corporations, 
whose  roads  form  a  continuous 
line,  may  enter  into  an  arrangement 
for  operating  both  roads  as  one 
and  thus  become  jointly  liable  for 
debts  incurred  in  borrowing  money 
to  be  used  in  furtherance  of  the 
business  of  such  line.  Chicago,  &c. 
R.  Co.  v.  Ayres,  140  111.  644,  30  N.  E. 
687. 

*  Stimson  Am.  Stat.  (1892),  §  8730. 
The  statutes  of  many  of  the  states 
also    authorize    consolidation    when 
the   roads   cross   or  .  intersect  each 
other. 

5  Stimson  Am.  Stat.  (1886),  §  467, 
citing  constitutions  of  Pennsylvania, 
Illinois,  Michigan,  Nebraska,  West 
Virginia,  Missouri,  Arkansas,  Texas, 
Colorado.  See,  also,  note  in  52  L.  R. 
A.  373,  374,  for  a  reference  to  con- 
stitutional provisions  and  decisions 
under  them. 

•  Stimson  Am.  Stat.  (1892),  §  8730. 
See,  also,  note  in  52  L.  R.  A.  376. 
A  railroad  need  not  necessarily  be 
parallel   to   or   connected   with   an- 
other road  in  order  to  be  a  "compet- 
ing road"  within  the  statute  forbid- 
ding the  consolidation  of  competing 
roads.    East  Line,  &c.  R.  Co.  v.  State, 
75  Tex.  434,  12  S.  W.  690.    The  Mis- 
souri  statute,  which  prohibits  any 


463      CONSOLIDATION   MUST   BE  AUTHORIZED  BY   LEGISLATURE.    [§    322 


panies  owning  or  operating  parallel  and  competing  lines.7  In  addi- 
tion to  the  powers  conferred  by  such  general  statutes,  authority  to  con- 
solidate is  sometimes  given  in  the  company's  charter,8  or  is  contained 
in  a  special  act  of  the  legislature  in  states  where  special  acts  are  not 
forbidden  by  the  constitution.9  A  state  has  a  right  to  prescribe  the 
conditions  upon  which  a  consolidation  may  be  had  under  its  laws,  and 
a  statute  requiring  the  payment  of  a  fee  upon  filing  an  agreement  of 
consolidation  is  not  unconstitutional  or  invalid  as  imposing  a  tax  on 
interstate  commerce.10 


railroad  company  within  the  state 
from  owning,  operating,  or  manag- 
ing any  other  parallel  or  competing 
railroad  within  the  state,  applies 
only  where  both  the  roads  are  situ- 
ated within  the  state,  and  where  the 
competition  is  of  some  practical  im- 
portance, such  as  is  liable  to  affect 
rates.  Kimball  v.  Atchison,  &c.  R. 
Co.  46  Fed.  888. 

7  In  West  Virginia  and  Maryland 
the  consolidation  of  such  companies 
is  forbidden  without  the  consent  of 
the  legislature,  and  in  Florida  the 
consent  of  the  railroad  commission 
is  required.  Stimson  Am.  Stat. 
(1892)  §  8730.  The  constitution  of 
Texas  forbids  consolidation  with 
any  other  railroad  company  organ- 
ized under  the  laws  of  another  state. 
Art.  10,  §  6.  In  New  Jersey,  consol- 
idation with  a  corporation  of  an- 
other state  can  only  be  effected  with 
the  consent  of  the  legislature.  N.  J. 
S.  (1886)  R's,  §  91.  Many  other 
states  also  forbid  the  consolidation 
of  parallel  and  competing  lines.  Ref- 
erences to  the  constitutions  and 
statutes  will  be  found  in  the  note 
in  52  L.  R.  A.  373,  376.  As  to  what 
are  and  what  are  not  competing 
lines,  see  Kimball  v.  Atchison,  &c. 
R.  Co.  46  Fed.  888;  People  v.  O'Brien, 
111  N.  Y.  1,  18  N.  E.  692,  2  L.  R.  A. 
255,  7  Am.  St.  684;  Leavenworth  v. 
Chicago,  &c.  R.  Co.  25  Fed.  219; 
Currier  v.  Concord,  &c.  R.  Co.  48  N. 


H.  321;  Illinois,  &c.  Trust  Co.  v. 
St.  Louis,  &c.  R.  Co.  217  111.  504,  75 
N.  E.  562,  and  authorities  cited  in 
preceding  note. 

8  Nugent  v.  Supervisors,  19  Wall. 
(U.  S.)  241;  Archer  v.  Terre  Haute, 
&c.  R.  Co.  102  111.  493.  See,  also, 
Bonnet  v.  First  Nat.  Bank,  24  Tex. 
Civ.  App.  613,  60  S.  W.  325. 

8R.  S.  111.  1889,  Ch.  114,  §§  3941 
and  196,  197;  Black  v.  Delaware,  &c. 
Canal  Co.  24  N.  J.  Eq.  455;  Fisher 
v.  Evansville,  &c.  R.  Co.  7  Ind.  407. 
Power  given  by  statute  to  one  rail- 
road to  consolidate  with  another 
has  been  held  to  authorize  any  other 
to  join  with  it.  Prospect  Park,  &c. 
R.  Co.,  In  the  Matter  of,  67  N.  Y. 
371;  Mitchell  v.  Deeds,  49  111.  416, 
95  Am.  Dec.  621.  A  law  prohibiting 
a  particular  railroad  company  from 
consolidating  with  any  parallel  or 
competing  line  does  not  violate  any 
contract  or  other  right  vested  in 
another  railroad  company,  author- 
ized generally  by  a  former  statute 
to  consolidate  with  any  connecting 
company,  the  company  prohibited 
not  yet  being  in  existence  at  the 
time  of  passage  of  the  prohibitory 
Statute  and  there  being  at  that  time 
no  contract  authorizing  such  consol- 
idation of  the  two  roads.  East  Line, 
&c.  R.  Co.  v.  Rushing,  69  Tex.  306. 

19  Ashley  v.  Ryan,  153  U.  S.  436,  14 
Sup.  Ct.  865,  affirming  49  O.  St.  504, 
31  N.  E.  721.  As  to  whether  the 


§  322a] 


CONSOLIDATION. 


464 


§  322a.  What  is  sufficient  authority. — The  power  of  a  state  to 
authorize  the  consolidation  of  corporations  of  its  own  creation  in  a 
proper  case  is  unquestioned,  in  the  absence  of  some  constitutional  limi- 
tation.11 And  it  has  been  held  that  a  consolidation  of  street  railway 
lines,  apparently  demanded  by  the  public  interests,  when  authorized 
by  law,  is  not  in  violation  of  a  provision  of  the  constitution  prohibiting 
monopolies,  trusts  and  combinations  for  the  purpose  of  fixing  prices 
or  limiting  production  or  regulating  transportation  of  any  product 
or  commodity.12  But  the  authority  to  consolidate  must  be  clearly  given 
and  cannot,  ordinarily,  be  implied.13  Thus  a  prohibition  of  the  con- 
solidation of  parallel  and  competing  lines  does  not  impliedly  authorize 
the  consolidation  of  lines  which  are  neither  parallel  nor  competing.14 
So,  authority  to  consolidate  with  another  line  cannot  be  inferred  from 
the  power  to  merely  "unite  or  connect"  therewith,  as  this  is  held  to 
mean  only  a  physical  union  or  mechanical  connection  of  the  tracks.15 


power  is  exhausted  by  one  consolida- 
tion, see  Taylor  v.  Atlantic,  &c.  R. 
Co.  57  How.  Pr.  (N.  Y.)  26;  Conti- 
nental Trust  Co.  v.  Toledo,  &c.  R. 
Co.  82  Fed.  642,  to  the  effect  that  it 
is  not,  and  Morrill  v.  Smith  County, 
89  Tex.  529,  36  S.  W.  56,  to  the  con- 
trary. 

"Ohio,  &c.  R.  Co.  v.  People,  123 
111.  467,  14  N.  E.  874. 

12  Wood  v.  Seattle.  23  Wash.  1,  62 
Pac.  135,  52  L.  R.  A.  369.  As  to 
whether  street  railroads  are  in- 
cluded in  the  general  acts  for  the 
consolidation  of  railroads,  see  Wash- 
ington Street,  &c.  R.  Co.,  Re,  115  N. 
Y.  442,  22  N.  E.  356;  Hestonville,  &c. 
R.  Co.  v.  Philadelphia,  89  Pa.  St. 
210;  Millvale  v.  Evergreen,  &c.  R. 
Co.  131  Pa.  St.  1,  18  Atl.  993,  7  L.  R. 
A.  369,  holding  that  they  are. 

"See  Greenville,  &c.  Co.  v.  Plant- 
ers', &c.  Co.  70  Miss.  669,  13  So.  879; 
American  Loan,  &c.  Co.  v.  Minne- 
sota, &c.  R.  Co.  157  111.  641,  42  N.  E. 
153;  Earle  v.  Seattle,  &c.  R.  Co.  56 
Fed.  909;  Erste  Sokolower,  &c.  v. 
First  United,  &c.  Verein,  32  Misc. 
(N.  Y.)  269,  66  N.  Y.  S.  356;  Central 
R.  Co.  v.  Collins,  40  Ga.  582;  Com- 


monwealth v.  Pennsylvania,  &c.  R. 
Co.  17  Phila.  (Pa.)  609;  Lauman  v. 
Lebanon  Valley,  &c.  R.  Co.  30  Pa. 
St.  42,  72  Am.  Dec.  685;  Morawetz 
Priv.  Corp.  §  940. 

"East  Line,  &c.  R.  Co.  v.  State, 
75  Tex.  434,  12  S.  W.  690. 

15  Louisville,  &c.  R.  Co.  v.  Ken- 
tucky, 161  U.  S.  677,  16  Sup.  Ct.  714. 
It  is  also  held  in  this  case  that  the 
constitution  may  forbid  the  consol- 
idation of  parallel  or  competing 
roads;  that  a  grant  of  authority  to 
purchase  and  hold  any  branch  road 
constructed  by  another  company  or 
to  receive  the  cars  of  other  roads 
and  agree  on  terms  does  not  author- 
ize either  a  consolidation  or  pur- 
chase of  parallel  and  competing 
roads  and  that  acquiescence  by  the 
state  in  several  purchases  of  branch 
roads  parallel  to  some  of  the  com- 
panies own  branches  cannot  be 
treated  as  a  binding  contemporane- 
ous construction  of  the  charter  so 
as  to  authorize  consolidation  with 
a  parallel  and  competing  road  con- 
necting the  principal  termini  of  the 
company. 


465  STATUTORY   MODE   EXCLUSIVE — COLLATERAL  ATTACK.     [§    323 

It  is  also  the  rule  that  both  of  the  consolidating  companies  must  be 
competent,  or,  in  other  words,  that  mere  general  authority  granted  to 
one  of  them  to  consolidate  is  not  sufficient  unless  the  particular  con- 
solidation is  authorized  or  both  companies  have  authority  to  make 
such  a  consolidation.16 


§  323.  Statutory  mode  must  be  pursued — Collateral  attack. — En- 
abling statutes  and  laws  providing  for  consolidation  are  construed  to 
authorize  a  consolidation  only  in  cases  where  the  companies  seeking  to 
combine  come  fairly  within  the  terms  of  the  statute.  And  a  statute 
which  provides  for  the  consolidation  of  companies  owning  lines  that 
have  been  so  constructed  as  to  admit  the  passage  of  cars  over  such  lines 
of  road  continuously  without  break  of  gauge  or  interruption,  does  not 
authorize  the  consolidation  of  companies  whose  roads  cannot  be  so 
combined  as  to  form  substantially  a  single  line  of  road.1T  But  stat- 
utes authorizing  the  consolidation  of  connecting  or  continuous  lines 
do  not  always  require  that  one  should  connect  with  the  other  at  its 
terminus.18  It  has  been  held  that  the  organization  of  a  railroad  com- 


18  St.  Louis,  &c.  R.  Co.  v.  Terre 
Haute,  &c.  R.  Co.  145  U.  S.  393,  12 
Sup.  Ct.  953;  Louisville,  &c.  R.  Co. 
v.  Kentucky,  161  U.  S.  677,  16  Sup. 
Ct.  714;  East  Line,  &c.  R.  Co.  v. 
Rushing,  69  Tex.  3C6,  6  S.  W.  834. 
See,  also,  Pennsylvania  R.  Co.  v. 
St.  Louis,  &c.  R.  Co.  118  U.  S.  290,  6 
Sup.  Ct.  1094;  Central  Transp.  Co. 
v.  Pullman's  Palace  Car  Co.  139  U. 
S.  24,  11  Sup.  Ct.  478;  Camden,  &c. 
R.  Co.  v.  May's  Landing,  &c.  Co.  48 
N.  J.  L.  530,  7  Atl.  523.  But  com- 
pare New  York,  &c.  R.  Co.  v.  New 
York,  &c.  R.  Co.  52  Conn.  274;  Pros- 
pect Park,  &c.  R.  Co.,  Re,  67  N.  Y. 
377. 

"State  v.  Atchison,  &c.  R.  Co.  24 
Neb.  143,  38  N.  W.  43,  8  Am.  St.  164; 
East  Line,  &c.  R.  Co.  v.  State,  74 
Tex.  434,  12  S.  W.  690;  Central  R. 
&c.  Co.  v.  Macon,  43  Ga.  646;  State 
v.  Vanderbilt,  37  Ohio  St.  590.  In 
the  latter  case  the  court  says:  "That 
the  mere  physical  ability  to  pass 
cars  from  one  road  to  the  other  sat- 
ET.L.  RAILROADS — 30 


isfies  the  statute  is  a  construction 
of  it  which  is  wholly  inadmissible, 
for  the  provision  requiring  such  con- 
nection would  be  without  meaning. 
In  imposing  that  restriction  upon 
consolidation,  the  legislature  in- 
tended, not  merely  that  the  physical 
fact  should  exist,  but  that  such  con- 
solidation should  only  be  made  for 
the  very  purpose  of  passing  freight 
and  passengers  over  both  lines,  or 
some  material  parts  thereof — not 
necessarily  in  a  direct  or  straight 
line,  but  continuously."  The  court 
cannot  know  judicially  that  roads 
sought  to  be  consolidated  would, 
if  completed,  form  a  continuous  line. 
Georgia  Pacific  R.  Co.  v.  Gaines,  88 
Ala.  377,  7  So.  382. 

-18Hancock  v.  Louisville,  &c.  R. 
Co.  145  U.  S.  409,  12  Sup.  Ct.  969; 
Wallace  v.  Long  Island  R.  Co.  12 
Hun  (N.  Y.)  460.  See,  also,  Buck 
v.  Seymour,  46  Conn.  156;  Hum- 
phreys v.  St.  Louis,  &c.  R.  Co.  37 
Fed.  730;  Union  Trust  Co.  v.  Illinois 


§'  323] 


CONSOLIDATION". 


466 


pany  with  the  view  of  ultimately  consolidating  upon  equitable  terms 
and  in  accordance  with  the  provisions  of  an  existing  statute  with  an- 
other already  in  existence,  is  not  contrary  to  public  policy,  and  a  rail- 
road corporation  organized  for  such  purpose  may,  with  a  view  to  ac- 
complishing such  consolidation  and  carrying  out  the  object  for  which 
it  was  created,  purchase  the  stock  of  such  other  road.19  Where  the 
statute  provides  for  the  mode  of  consolidation,  that  mode  must  be 
substantially,  if  not  strictly,  pursued,20  although  the  courts  will 
usually  presume  in  favor  of  the  validity  of  a  consolidation  in  the  ab- 
sence of  evidence  to  the  contrary,21  and  will  not  permit  it  to  be  ques- 


Mid.  R.  Co.  117  U.  S.  434,  6  Sup.  Ct. 
809 ;  Atchison,  &c.  R.  Co.  v.  Fletcher, 
35  Kans.  236,  10  Pac.  596;  Mayor, 
&c.  v.  Baltimore,  &c.  R.  Co.  21  Md. 
50. 

"Hill  v.  Nisbet,  100  Ind.  341.  It 
was  held  by  the  supreme  court  of 
Michigan  that  a  certain  statute  of 
that  state  authorized  a  railroad  com- 
pany to  purchase  the  stock  of  an- 
other company  for  the  purpose  of 
acquiring  its  road-bed  and  right  of 
way.  Dewey  v.  Toledo,  &c.  R.  Co.  91 
Mich.  351,  51  N.  W.  1063.  See  ante, 
§  95,  note  3,  on  page  142,  where 
the  provisions  of  the  statute  are 
quoted.  See,  also,  Market  St.  R.  Co. 
v.  Hellman,  109  Cal.  571,  42  Pac.  225. 
As  to  consolidation  of  uncompleted 
roads,  see  Livingston  County  v.  First 
Nat.  Bank,  128  U.  S.  102,  9  Sup.  Ct. 
18;  Bohmer  v.  Haffen,  161  N.  Y.  390, 
55  N.  E.  1047.  But  compare  Clarke 
v.  Omaha,  &c.  R.  Co.  4  Neb.  459. 

20  Pingree  v.  Michigan  Cent.  R.  Co. 
118  Mich.  314,  76  N.  W.  635,  643,  53 
L.  R.  A.  274  (quoting  text) ;  Rodgers 
v.  Wells,  44  Mich.  411;  Mansfield, 
&c.  R.  Co.  v.  Drinker,  30  Mich.  124; 
Peninsular  R.  Co.  v.  Tharp,  28  Mich. 
506;  Commonwealth  v.  Atlantic,  &c. 
R.  Co.  53  Pa.  St.  9;  State  v.  Vander- 
bilt,  37  Ohio  St.  590.  An  agreement 
for  consolidation  of  two  railroad 
companies,  duly  executed  after  the 


meetings  of  the  stockholders  of  both 
companies  had  been  held,  in  which 
the  consolidation  was  ordered,  is  not 
rendered  invalid  by  the  fact  that  it 
bears  date  prior  to  the  meetings. 
Wells  v.  Rodgers,  60  Mich.  525,  27 
N.  W.  671.  Substantial  compliance 
with  an  act  authorizing  consolida- 
tion is  sufficient.  County  of  Leaven- 
worth  v.  Chicago,  &c.  R.  Co.  25  Fed. 
219. 

21  Sparrow  v.  Evansville,  &c.  R. 
Co.  7  Ind.  369;  Farmers',  &c.  Co.  v. 
Toledo,  &c.  R.  Co.  67  Fed.  49,  55; 
Swartout  v.  Michigan,  &c.  Railroad 
Co.  24  Mich.  389.  See  Wells  v. 
Rodgers,  60  Mich.  525,  27  N.  W.  671. 
But  in  Georgia  Pacific  R.  Co.  v. 
Gaines,  88  Ala.  377,  7  So.  382,  the 
supreme  court  of  Alabama  held  that 
it  must  affirmatively  appear  that 
several  companies  consolidated  un- 
der the  laws  of  that  state  are  so 
joined  as  to  form  a  continuous  line, 
or  the  consolidated  company  can- 
not claim  to  succeed  to  the  rights 
of  the  constituent  companies.  See, 
also,  Georgia  Pac.  R.  Co.  v.  Wilks, 
86  Ala.  478;  Brown  v.  Dibble,  65 
Mich.  520,  32  N.  W.  656,  30  Am. 
&  Eng.  R.  Gas.  241.  In  Cameron  v. 
New  York,  &c.  Co.  133  N.  Y.  336,  31 
N.  E.  104,  it  is  held  that  where  pro- 
ceedings are  duly  begun  under  a 
statute  repealed  while  they  are  in 


467  INTENTION — SUCCESSION  AND   CONSOLIDATION   COMPARED.  [§   324 


tioned  collaterally,22  at  least  by  the  corporation  and  its  stockholders, 
where  it  assumes  to  act  as  a  consolidated  company  under  the  law  and 
issues  bonds  and  mortgages  as  such  without  any  objection  on  the  part 
of  the  state  or  the  stockholders.23  But  where  the  constitution  of  a  state 
provided  that  no  railroad  corporation  should  consolidate  its  stock, 
property,  franchises  or  earnings,  in  whole  or  in  part,  with  any  other 
railroad  company  owning  a  parallel  or  competing  line,  it  was  held 
that  the  word  "consolidate"  was  used  "in  the  sense  of  join  or  unite," 
and  that  the  constitution  could  not  be  evaded  by  substituting  a  lease 
instead  of  a  conveyance.24  The  case  just  referred  to  was  a  quo  war- 
ranto  proceeding  by  the  attorney-general  to  oust  the  lessor  company 
from  its  franchises,  and  the  court  held  that  they  were  subject  to  for- 
feiture, but  refused  to  decree  a  forfeiture  in  the  first  instance  and 
merely  declared  the  lease  void. 

§324.  Intention  to  consolidate — Difference  between  succession 
and  consolidation. — Where  a  general  power  to  consolidate  is  given 
without  any  specific  provision  as  to  the  terms  or  mode,  it  is  held  that 
the  companies  may  unite  upon  such  terms  and  in  such  mode  as  they 
choose,25  so  long  as  they  do  not  exceed  the  statutory  authority.  But  a 
clear  intention  to  consolidate,  together  with  the  performance  of  acts 


progress  they  may  be  concluded  un- 
der a  saving  clause  in  the  repealing 
act. 

22  Pittsburgh,  &c.  R.  Co.  v.  Roths- 
child, 26  Am.  &  Eng.  R.  Gas.  50. 
See,  also,  Wallace  v.  Loomis,  97  U. 
S.  146;  Dallas  Co.  v.  Huidekoper, 
154  U.  S.  654,  14  Sup.  Ct.  1190;  Ca- 
sey v.  Galli,  94  U.  S.  673.  A  de  facto 
consolidated  corporation  cannot  set 
up  the  illegality  of  the  consolidation 
to  defeat  a  recovery  against  it  upon 
the  contracts  of  one  of  its  constitu- 
ent companies.  Chicago,  &c.  R.  Co. 
v.  Putnam,  36  Kans.  121,  12  Pac. 
593.  Only  the  state  can  attack  the 
validity  of  a  consolidation,  appar- 
ently regular,  which  has  existed  and 
been  acted  upon  by  the  companies 
for  five  years.  Atchison,  &c.  R.  Co. 
v.  Board  Comrs.  Sumner  Co.  51 
Kans.  617,  33  Pac.  312.  See,  also, 


Bell  v.  Pennsylvania,  &c.  R.  Co.  (N. 
J.)  10  Atl.  741.  But  see,  as  to  right 
of  stockholder  in  the  original  cor- 
poration to  question  the  existence  of 
the  consolidated  corporation  when 
sued  on  his  subscription,  post,  §  307; 
1  Thomp.  Corp.  §§  357,  358. 

^Phinizy  v.  Augusta,  &c.  R.  Co. 
62  Fed.  678;  Farmers',  &c.  Co.  v. 
Toledo,  &c.  R.  Co.  67  Fed.  49.  See, 
also,  Ashley  v.  Supervisors,  60  Fed. 
55 ;  Close  v.  Glen  wood  Cemetery,  107 
U.  S.  466,  2  Sup.  Ct.  267;  Douglas  Co. 
v.  Bolles,  94  U.  S.  104;  Bradford  v. 
Frankfort,  &c.  R.  Co.  142  Ind.  383, 
40  N.  E.  741. 

24  State  v.  Atchison,  &c.  R.  Co.  24 
Neb.  143,  38  N.  W.  43,  8  Am.  St.  164, 
32  Am.  &  Eng.  R.  Gas.  388. 

^Dimpfel  v.  Ohio,  &c.  R.  Co.  9 
Biss.  (U.  S.)  127,  8  Rep.  641. 


§  324] 


CONSOLIDATION. 


468 


reasonably  appropriate  to  that  end,  must  be  shown  in  order  to  estab- 
lish a  consolidation,26  and  the  mere  purchase  by  one  railroad  corpora- 
tion of  the  franchise  and  property  of  another  at  a  sale  on  execution 
does  not  operate  to  make  the  purchaser  the  successor  by  consolidation 
of  the  purchased  road.27  A  consolidated  corporation  may  usually  be 
said  to  be  the  successor  of  the  original  or  constituent  companies,28  but 
succession  is  not  necessarily  consolidation,  and  a  corporation  may  have 
authority  to  become  the  successor  of  another  without  having  any  au- 
thority to  consolidate.  Succession  by  purchase,  or  in  any  other  manner 
than  by  consolidation,  is  usually  a  very  different  thing  from  the  latter 
and  gives  rise  to  different  rights  and  liabilities.29  So,  a  consolidation 


26 1  Thomp.  Corp.  §§  327,  328,  329; 
Shrewsbury,  &c.  R.  Co.  v.  Stour  Val- 
ley R.  Co.  21  Eng.  L.  &  Eq.  628.  See, 
also,  Hart  v.  Rensselaer,  &c.  R.  Co. 
8  N.  Y.  37,  59  Am.  Dec.  447.  The 
union  of  name,  officers,  business  and 
property  of  corporations  does  not, 
it  has  been  held,  change  their  dis- 
tinctive character  as  separate  corpo- 
rations. Nashua,  &c.  R.  Corp.  v. 
Boston,  &c.  R.  Corp.  136  U.  S.  356, 
10  Sup.  Ct.  1004,  42  Am.  &  Eng.  R. 
Gas.  688.  Nor  is  a  temporary  co- 
operation under  one  management  a 
consolidation.  Archer  v.  Terre 
Haute,  &c.  R.  Co.  102  111.  493,  7  Am. 
&  Eng.  R.  Cas.  249.  And  the  identi- 
ty of  the  stockholders,  or  the  fact 
that  one  of  the  corporations,  by 
means  thereof,  or  by  means  of  the 
ownership  of  the  stock  of  the  other, 
exercised  a  controlling  influence 
over  it,  does  not  make  either  the 
agent  of  the  other,  nor  merge  them 
into  one,  so  as  to  make  the  contract 
of  one  binding  upon  the  other,  where 
they  are  separately  organized  under 
distinct  charters.  Richmond,  &c. 
Const.  Co.  v.  Richmond,  &c.  R.  Co. 
68  Fed.  105;  Central  Trust  Co.  v. 
Bridges,  57  Fed.  753. 

"Gulf,  &c.  R.  Co.  v.  Newell,  73 
Tex.  334,  11  S.  W.  342,  15  Am.  St. 
788;  Gulf,  &c.  R.  Co.  v.  Morris,  67 
Tex.  692,  4  S.  W.  156;  Houston,  &c. 


R.  Co.  v.  Shirley,  54  Tex.  125 ;  Crane, 
&c.  Co.  v.  Fry,  126  Fed.  278.  But 
consolidation  by  purchase  may  be 
expressly  authorized.  Williamson 
v.  New  Jersey,  &c.  R.  Co.  26  N.  J. 
Eq.  398;  Eaton,  &c.  R.  Co.  v.  Hunt, 
20  Ind.  457.  See,  also,  Chicago,  &c. 
R.  Co.  v.  Ashling,  160  111.  373,  43  N. 
E.  373;  Chicago,  &c.  R.  Co.  v.  State, 
153  Ind.  134,  51  N.  E.  924,  where  all 
stock  of  one  company  is  purchased 
and  stock  of  other  company  is  issued 
in  exchange.  But  compare  Ex- 
change Bank  v.  Macon,  &c.  Co.  97 
Ga.  1,  25  S.  E.  326,  33  L.  R.  A.  800. 

28  United  States  v.  Southern  Pac. 
R.  Co.  14  Sawy.  (U.  S.)  620. 

28  See  Taylor  Priv.  Corp.  §  415- 
418;  Wait  Insolv.  Corp.  §  428.  The 
distinction  is  well  stated  in  Comp- 
ton  v.  Wabash,  &c.  R.  Co.  45  Ohio 
St.  592,  16  N.  E.  110,  18  N.  E.  380. 
See,  also,  Capital  Traction  Co.  v. 
Offutt,  17  App.  (D.  C.)  292;  Pingree 
v.  Michigan  Cent.  R.  Co.  118  Mich. 
314,  76  N.  W.  635,  53  L.  R.  A.  274 
(citing  text);  State  v.  Montana  R. 
Co.  21  Mont.  221,  53  Pac.  623,  45  L. 
R.  A.  271;  Pennison  v.  Chicago,  &c. 
R.  Co.  93  Wis.  344,  67  N.  W.  702; 
Conn  v.  Chicago,  &c.  R.  Co..  48  Fed. 
177;  Memphis,  &c.  R.  Co.  v.  Woods, 
88  Ala.  630,  7  So.  108,  7  L.  R.  A.  605, 
16  Am.  St.  81;  note  in  89  Am.  St. 
607-612;  note  in  52  L.  R.  A.  369. 


469 


BIGHTS   OF   MAJORITY  AND  MINORITY. 


[§    325 


in  the  strict  sense  is  to  be  distinguished  from  a  merger,30  reorganiza- 
tion/1 amalgamation32  or  lease.33 

§  325.  Right  of  majority  to  effect  consolidation — When  minority 
may  prevent — Release  of  dissenting  subscribers. — Where  the  law  un- 
der which  a  corporation  is  formed  provides  generally  for  its  consoli- 
dation with  other  companies,  such  consolidation  may  be  effected  at  the 
pleasure  of  the  majority  of  the  corporation.34  But  where  the  power  to 
consolidate  was  not  contained  in  the  charter  or  governing  law,  a  con- 
solidation cannot  be  effected  without  the  consent  of  all  the  stock- 
holders,35 even  though  the  legislature  may  have  passed  a  subsequent 


Thus,  the  successor  by  purchase  may 
acquire  the  property  free  from  debts 
and  liabilities  already  created. 
Hoard  v.  Chesapeake,  &c.  R.  123  U. 
S.  222,  8  Sup.  Ct.  74;  Pennsylvania 
Transp.  Co.'s  Appeal,  101  Pa.  St. 
576;  Cook  v.  Detroit,  &c.  R.  Co.  43 
Mich.  349,  5  N.  W.  390;  Hammond 
v.  Port  Royal,  &c.  R.  Co.  15  S.  Car. 
10,  and  16  S.  Car.  567.  And  while  it 
is  usually  bound  by  restrictions  on 
the  old  company,  it  does  not  always 
acquire  the  special  privileges  and 
franchises  of  the  old  company. 
Thus,  if  ar>  individual  purchaser  be- 
comes the  successor,  the  franchise  to 
be  a  corporation  may  not  pass  to 
him.  See  Chaffe  v.  Ludeling,  27  La. 
Ann.  607;  Pittsburgh,  Cin.  &c.  R. 
Co.  v.  Moore,  33  Ohio  St.  384,  31  Am. 
R.  543 ;  Campbell  v.  Marietta,  &c.  R. 
Co.  23  Ohio  St.  168;  Daniels  v.  St. 
Louis,  &c.  R.  Co.  62  Mo.  43;  Pennsyl- 
vania R.  Co.  v.  Sly,  65  Pa.  St.  205; 
Ragan  v.  Aiken,  9  Lea  (Tenn.)  609, 
42  Am.  R.  684. 

""Vicksburg,  &c.  Tel.  Co.  v.  Citi- 
zens' Tel.  Co.  79  Miss.  341,  30  So. 
725,  89  Am.  St.  656;  Atlantic,  &c.  R.' 
Co.  v.  Georgia,  98  U.  S.  359.  See, 
also,  Central,  &c.  R.  Co.  v.  State,  54 
Ga.  401;  Pingree  v.  Michigan  Cent. 
R.  Co.  118  Mich.  314,  76  N.  W.  635, 
53  L.  R.  A.  274  (citing  text);  Keo- 


kuk,  &c.  R.  Co.  v.  Missouri,  152  U. 
S.  301,  14  Sup.  Ct.  592. 

31  See  note  in  89  Am.  St.  609. 

32  See  note  in  89  Am.  St.  612.    The 
terms  are  sometimes  used  as  synony- 
mous, but  amalgamation  is  an   in- 
definite term  and  may  include  what 
is  not  strictly  a  consolidation. 

33  Mills  v.  Central  R.  Co.  41  N.  J. 
Eq.  1,  2  Atl.  453;   State  v.  Montana 
R.  Co.  21  Mont.  221,  53  Pac.  623,  45 
L.  R.  A.  271.    See,  also,  State  v.  Van- 
derbilt,   37   Ohio   St.   590;    Missouri 
Pac.  R.  Co.  v.  Owens,  1  Tex.  App. 
Civ.  Cas.  384.     But  a  consolidation 
sometimes  takes  the  form,  in  some 
respects,    of    a    lease,    purchase    of 
shares  or  the  like. 

34  Sparrow   v.    Evansville,   &c.    R. 
Co.  7  Ind.  369;  Bish  v.  Johnson,  21 
Ind.   299;    Atchison,   &c.    R.   Co.    v. 
Phillips  Co.  25  Kans.  261;  Cork,  &c. 
R.  Co.  v.  Paterson,  37  Eng.  L.  &  Eq. 
Rep.   398;    Mansfield,  &c.  R.   Co.  v. 
Stout,  26  Ohio  St.  241;   Nugent  v. 
Supervisors,  19  Wall.   (U.  S.)   241; 
Hale  v.  Cheshire  R.  Co.  161  Mass. 
443,  37  N.  E.  306. 

^Thomp.  Corp.  §  343.  See,  also, 
Chapman  v.  Mad  River,  &c.  R.  Co. 
6  Ohio  St.  119;  Botts  v.  Simpson- 
ville,  &c.  Co.  88  Ky.  54, 10  S.  W.  134, 
2  L.  R.  A.  594;  Illinois,  &c.  R.  Co. 
v.  Cook,  29  111.  237;  Indianola  R. 


325] 


CONSOLIDATION". 


470 


statute  authorizing  the  consolidation  of  all  railroad  companies,30  ex- 
cept, perhaps,  where  the  power  to  amend  was  reserved.37  In  other 
words,  there  must  usually  be  the  unanimous  consent  of  all  the  stock- 
holders, unless  the  right  to  consolidate  was  given  by  the  law  or  the 
"constating  instruments"  at  the  time  the  corporation  was  created.38 
If  a  consolidation  be  effected  under  legislative  authority  given  after 
subscriptions  are  made  but  without  the  consent  of  subscribers  who 
have  not  yet  paid  for  stock  in  the  original  companies,  the  consolidated 


Co.  v.  Fryer,  56  Tex.  609;  Clear- 
water  v.  Meredith,  1  Wall.  (U.  S.) 
24;  Gulf,  &c.  R.  Co.  v.  Newell,  73 
Tex.  334,  11  S.  W.  342.  Compare 
Lauman  v.  Lebanon  Valley  R.  Co. 
30  Pa.  St.  42,  72  Am.  Dec.  685.  The 
stockholder  may  be  estopped  by  his 
acquiescence  for  a  term  of  years  to 
deny  the  validity  of  a  consolidation 
effected  without  his  express  consent. 
Boston,  &c.  R.  Co.  v.  New  York,  &c. 
R.  Co.  13  R.  I.  260;  Bell  v.  Penn- 
sylvania, &c.,R.  Co.  (N.  J.)  10  Atl. 
741.  See,  also,  Atchison,  &c.  R.  Co. 
v.  Sumner  Co.  Com'rs,  51  Kans.  617, 
33  Pac.  312;  International,  &c.  R. 
Co.  v.  Bremond,  53  Tex.  96.  The 
consent  of  the  bondholders  and 
other  creditors  is  not  necessary  to 
a  consolidation.  2  Morawetz  Priv. 
Corp.  §  953. 

""McCray  v.  Junction  R.  Co.  9 
Ind.  358;  Sparrow  v.  Evansville,  &c. 
R.  Co.  7  Ind.  369;  Kean  v.  Johnson, 
9  N.  J.  Eq.  401;  Earle  v.  Seattle,  &c. 
R.  56  Fed.  909;  Alexander  v.  At- 
lanta, &c.  R.  Co.  108  Ga.  151,  33  S. 
E.  866.  And  it  has  been  held  that 
the  fact  that  the  legislature  has  re- 
served the  right  to  amend  or  repeal 
the  original  charter  does  not,  ordi- 
narily, give  it  a  right  to  authorize 
a  consolidation  against  the  will  of 
the  minority.  Mayor,  &c.  Knoxville 
v.  Knoxville,  &c.  R.  Co.  22  Fed.  758; 
Cross  v.  Peach  Bottom  R.  Co.  90  Pa, 
St.  392.  See,  also,  Rabe  v.  Dunlap, 
51  N.  J.  Eq.  40,  25  Atl.  959;  Black 


v.  Delaware,  &c.  Co.  24  N.  J.  Eq. 
455;  Kenosha,  &c.  R.  Co.  v.  Marsh, 
17  Wis.  13.  But  see  Pennsylvania 
College  Cases,  13  Wall.  (U.  S.)  190; 
Bishop  v.  Brainerd,  28  Conn.  289, 
and  authorities  cited  in  next  follow- 
ing note.  "Whether  or  not  the  legis- 
islature  can  authorize  the  consoli- 
dation of  a  corporation,  under  the 
general  power  reserved  to  alter  or 
annul  the  charter,  is  not  necessary 
to  be  decided.  It  is  certain  that  it 
cannot  be  done  when  it  affects  the 
right  of  stockholders,  by  increasing 
their  liability  as  such,  or  diminish- 
ing the  value  of  their  stock.  *  *  * 
The  act  in  this  case  is  void  unless 
made  by  the  unanimous  consent  of 
the  stockholders."  Botts  v.  Simp- 
sonville,  &c.  Co.  88  Ky.  54,  10  S.  W. 
134,  2  L.  R.  A.  594;  Blatchford  v. 
Ross,  54  Barb.  (N.  Y.)  42,  37  How. 
Pr.  (N.  Y.)  110.  But  see  Beal  v. 
New  York,  &c.  R.  Co.  41  Hun  (N. 
Y.)  172,  4  N.  Y.  S.  174. 

37  See  Market  St.  R.  v.  Hellman, 
109  Cal.  571,  42  Pac.  225;  Hale  v. 
Cheshire  R.  Co.  161  Mass.  443,  37  N. 
E.  307;  Hanna  v.  Cincinnati,  &c.  R. 
Co.  20  Ind.  30;  Pacific  R.  Co.  v.  Ren- 
shaw,  18  Mo.  210.  But  compare  last 
preceding  note,  and  see,  for  review 
of  cases  on  both  sides  of  the  ques- 
tion, the  note  in  52  L.  R.  A.  384- 
387. 

88  Earle  v.  Seattle,  &c.  R.  Co.  56 
Fed.  909,  912. 


471  CONDEMNING  SHARES   OF  DISSENTING   STOCKHOLDER.    [§'  325a 

company  cannot  enforce  such  subscriptions.39  It  has  also  been  held 
that  a  municipal  corporation  has  no  power  to  give  its  consent  to  or 
acquiesce  in  a  consolidation  by  which  the  enterprise  is  so  far  changed 
that  the  vote  authorizing  a  subscription  does  not  apply  to  the  road  of 
the  new  company.40  But  the  case  referred  to  has  been  distinguished, 
and  the  general  rule  is  that  if  a  municipal  corporation,  authorized  to 
make  the  subscription,  has  subscribed  for  stock  of  a  corporation  which 
at  the  time  was  empowered  to  consolidate  with  another  the  munici- 
pality will  not  be  released  by  such  authorized  consolidation  thereafter, 
and  its  bonds  issued  in  payment  are  not  rendered  invalid.41 

§  325a.    Right  to  condemn  shares  of  dissenting  stockholder. — An 

interesting  question  has  arisen  as  to  the  power  of  the  legislature  to 
authorize  the  condemnation  of  shares  of  a  dissenting  stockholder.  It 
is  evident  that,  if  this  power  does  not  exist  a  single  dissenting  stock- 
holder might,  in  some  instances,  seriously  interfere  not  only  with  the 
interests  of  the  majority  stockholders  but  also  with  the  public  inter- 
ests. If  there  is  due  process  of  law  and  just  compensation  it  would 
seem  that  there  is  no  valid  objection  to  the  enactment  of  such  a  law 
and  the  exercise  of  the  power  of  eminent  domain  in  such  a  case,  and 
so  it  has  been  held.  In  one  case  it  is  said :  "In  the  exercise  of  the  right 
of  eminent  domain  the  legislature  may  authorize  shares  in  corporations 
and  corporate  franchises  to  be  taken  for  public  use  upon  just  com- 
pensation. The  title  to  this  species  of  property  is  no  more  secure 
against  invasion,  where  the  public  use  requires  it,  than  is  the  owner- 
ship of  real  estate  under  this  paramount  right  in  the  public,  subject 
to  which  all  private  property  is  held."413  And  in  a  very  recent  case 
it  is  held  that  such  a  statute  is  valid  and  that  it  neither  grants  ex- 

^Booe  v.  Junction  R.  Co.  10  Ind.  New  Buffalo  v.  Iron  Co.  105  U.  S. 

93;  Harshman  v.  Bates  Co.  92  U.  S.  73;     Livingston    County    v.    Ports- 

569;    McCray  v.   Junction  R.   Co.  9  mouth  Bank,  128  U.  S.  102,  9  Sup. 

Ind.  358;  Clearwater  v.  Meredith,  1  Ct.  18;  Mayor  v.  Dennison,  69  Fed. 

Wall.    (U.   S.)    25;    1  Thomp.  Corp.  58;  Bates  County  v.  Winters,  112  U. 

§  75.    See  ante,  §§  43,  45.  S.   325,  5   Sup.   Ct.  157.     See  other 

40  State  v.   Nemaha   Co.   Kans.   10  authorities  in  note  to   Cantillon  v. 
Kans.  569.    See,  also,  Harshman  v.  Dubuque,  &c.  R.  Co.  78  Iowa  48,  42 
Bates  Co.  92  U.  S.  569;  Hamilton  Co.  .  N.  W.  613,  5  L.  R.  A.  278,  and  in 
v.  State,  115  Ind.  64,  4  N.  E.  589,  and  note  to  Morrison  v.  American  Snuff 
17  N.  E.  855;  Morrill  v.  Smith  Coun-  Co.  89  Am.  St.  629. 

ty,  89  Texas  529,  36  S.  W.  56.  "a  Black  v.   Delaware,  &c.   Canal 

41  Chicago,  &c.  R.   Co.  v.   Stafford     Co.  24  N.  J.  Eq.  455. 
County,  36  Kans.  121,  12  Pac.  593; 


326] 


CONSOLIDATION. 


472 


elusive  privileges  to  a  particular  set  of  men  nor  impairs  the  obligation 
of  a  contract  within  the  meaning  of  the  prohibition  in  the  constitu- 
tion.411' 

§  326.  Statutory  provisions  for  consolidation. — The  laws  of  the 
various  states  for  the  consolidation  of  railroad  companies  generally 
provide  that  an  agreement  for  a  consolidation  must  be  entered  into  by 
the  directors  of  the  several  companies42  and  ratified  by  a  vote  of  stock- 
holders.43 In  Indiana  the  statute  provides  that  any  railroad  corpora- 
tion in  that  state  may  consolidate  with  a  railroad  corporation  in  an 
adjoining  state  "upon  such  terms  as  may  be  by  them  mutually  agreed 
upon,  in  accordance  with  the  laws  of  the  adjoining  state,"  and  it  is 
held  that  this  does  not  require  that  the  meeting  of  the  stockholders 
to  act  upon  the  proposition  to  consolidate  shall  be  called  and  con- 
ducted in  accordance  with  the  laws  of  such  adjoining  state.44  The 
agreement  of  consolidation  as  entered  into  by  the  directors  and  rati- 
fied by  the  stockholders  is  usually  required  to  be  filed  with  the  secre- 
tary of  state,45  and  it  is  held  in  Ohio  that  until  this  is  done  the  con- 


"b  New  York,  &c.  R.  Co.  v.  Offield, 
77  Conn.  417,  59  Atl.  510,  affirmed  in 
(U.  S.)  27  Sup.  Ct.  72.  To  the  same 
effect  is  the  recent  case  of  Spencer 
v.  Seaboard  Air  Line  R.  Co.  137  N. 
Car.  107,  49  S.  E.  96,  1  L.  R.  A.  (N. 
S.)  604.  See,  also,  Gregg  v.  North- 
ern R.  Co.  67  N.  H.  452,  41  Atl.  271; 
Dickinson  v.  Consolidated  Traction 
Co.  114  Fed.  232.  But  such  a  statute 
is  not  to  be  unduly  extended  or  ap- 
plied so  as  to  deprive  the  stock- 
holder of  his  rights  without  proper 
proceedings,  due  process  of  law  and 
just  compensation.  See  Mowry  v. 
Indiana,  &c.  R.  Co.  4  Biss.  (U.  S.) 
73,  17  Fed.  Cas.  930;  Mills  v.  Cen- 
tral R.  Co.  41  N:  J.  Eq.  1,  2  Atl.  453; 
Rabe  v.  Dunlap,  51  N.  J.  Eq.  40,  25 
Atl.  959;  Lauman  v.  Lebanon  Val- 
ley R.  Co.  30  Pa.  St.  42,  49,  72  Am. 
Dec.  685;  short  note  on  the  subject 
in  3  Mich.  Law  Rev.  309. 

^Stimson  Am.  Stat.  (1892)  §  8731. 

"Stimson  Am.  Stat.  (1892)  §  8732. 
The  agreement  for  a  consolidation 


must  be  ratified  by  a  state  board  be- 
fore it  is  of  any  force  in  Michigan. 
Howell  Stat.  §  3344.  In  New  Hamp- 
shire application  must  be  made  to 
the  supreme  court,  which  may,  after 
notice  and  hearing,  authorize  the 
consolidation,  "if  the  public  good 
will  be  promoted  by  such  union." 
Pub.  Stat.  1892,  Ch.  156,  §  22.  Judge 
Thompson  says:  "The  statutes  gen- 
erally prescribe:  1.  An  agreement 
between  the  corporations  intending 
to  consolidate.  2.  Ratified  by  a  cer- 
tain majority,  generally  two-thirds 
of  the  stockholders  of  each  corpo- 
ration, at  a  duly  notified  meeting 
for  that  purpose.  3.  The  articles  of 
consolidation  thus  ratified,  properly 
authenticated,  are  filed  with  the  sec- 
retary of  state,  which  are  there- 
after evidence  of  the  consolidation 
in  all  courts."  Consolidation  of  Cor- 
poration, 31  Cent.  Law  Jour.  4,  5. 

"Bradford  v.  Frankfort,  &c.  Co, 
142  Ind.  383,  40  N.  E.  741. 

"Stimson's  Am.    (1892),   §  8732; 


473 


STATUTORY   PROVISIONS   FOR  CONSOLIDATION. 


[§   326 


solidation  is  not  actually  completed  so  as  to  effect  a  dissolution  of 
the  old  companies,  but  that  they  still  remain  competent  to  accept 
subscriptions  to  their  capital  stock  until  the  agreement  is  actually 
filed.46  The  supreme  court  of  Pennsylvania,  however,  holds  that  the 
consolidated  corporation  is  so  far  created  by  the  execution  of  an 
agreement  of  consolidation  by  the  constituent  corporations  that  a  valid 
subscription  to  its  stock  may  be  made  before  the  agreement  is  re- 
corded.47 And  in  a  recent  case  in  one  of  the  federal  courts  it  was 
held  that  where  the  agreement  was  recorded  in  the  office  of  the  secre- 
tary of  state  and  it  appeared  from  the  minutes  of  three  of  the  com- 
panies that  it  had  been  ratified  and  accepted  by  the  stockholders,  and 
the  new  company  assumed  and  exercised  for  several  years  entire 
charge  and  control  of  all  the  roads  without  objection,  this  was  suffi- 
cient to  show  an  acceptance  by  all  of  them,  although  the  minutes  of 
the  fourth  company  were  lost  and  although  the  agreement  did  not  have 
upon  it  the  certificates  of  the  several  secretaries  of  the  different  com- 
panies, which  the  statute  made  conclusive  evidence  of  such  accept- 


Trester  v.  Missouri  Pac.  R.  Co.  33 
Neb.  171,  49  N.  W.  1110.  See  article 
by  Judge  Thompson  in  31  Cent.  L. 
Jour.  5.  Notice  is  also  required  in 
some  states.  The  certificate  so  filed 
is  made  evidence  of  a  lawful  con- 
solidation by  a  statute  in  some 
states.  A  copy  of  the  articles  of 
consolidation  between  two  railroads, 
duly  certified  under  the  seal  of  the 
secretary  of  state,  is  prima  facie 
evidence  of  the  existence  of  the  con- 
solidated corporation.  East  St. 
Louis  C.  R.  Co.  v.  Wabash,  &c.  R. 
Co.  24  111.  App.  279.  A  certified  copy 
from  the  secretary  of  state's  office 
of  an  agreement  for  consolidation 
was  held  by  the  Supreme  Court  of 
the  United  States  to  be  conclusive 
evidence  of  the  consummation  of 
the  consolidation  of  corporations  in 
Missouri,  under  a  similar  statute, 
in  suits  between  the  consolidated 
company  and  individuals  or  other 
corporations.  Leavenworth  County 
v.  Chicago,  &c.  R.  Co.  134  U.  S.  688, 
10  Sup.  Ct.  708.  The  filing  of  the 


certificate  of  consolidation  may  be 
made  a  condition  precedent.  Com- 
monwealth v.  Atlantic,  &c.  R.  Co.  53 
Pa.  St.  9;  Peninsular  R.  Co.  v. 
Tharp,  28  Mich.  506.  But  see  Leav- 
enworth County  v.  Chicago,  &c.  R. 
Co.  134  U.  S.  688,  10  Sup.  Ct.  708. 
Other  steps  may  also  be  required  as 
condition  precedent.  Mansfield,  &c. 
R.  Co.  v.  Drinker,  30  Mich.  124. 

46  Mansfield,  &c.  R.  Co.  v.  Brown,. 
26  Ohio  St.  223.    See,  also,  State  v. 
Vanderbilt,  37  Ohio  St.  590. 

47  McClure  v.  People's  Freight  R, 
Co.  90  Pa.  St.  269.     The  provision 
requiring  each  company  to  file  with 
the  secretary  of  state  a  resolution 
accepting  the  provision  of  the  act 
under    which    the    two    companies 
have  consolidated  is  merely  direc- 
tory, and  a  disregard  of  it  will  not 

'invalidate  the  agreement  of  consoli- 
dation, if  all  other  provisions  of  the 
act  have  been  complied  with.  Leav- 
enworth County  v.  Chicago,  &c.  R. 
Co.  25  Fed.  219,  134  U.  S.  688,  10 
Sup.  Ct.  708. 


§•  327] 


CONSOLIDATION. 


474 


ance.48  Statutes  granting  permissive  authority  to  consolidate  often 
prescribe  conditions.49  A  statute  granting  railroad  companies  power 
to  consolidate,  but  coupling  the  grant  with  a  condition  or  proviso  that 
the  consolidated  company  shall  not  have  power  to  create  any  lien  which 
shall  be  valid  as  against  a  specified  class  of  creditors  is  not  in  violation 
of  a  constitutional  provision  that  statutes  shall  embrace  but  one  sub- 
ject, which  must  be  expressed  in  the  title.50 

§  327.  Eights  of  old  stockholders  and  their  relation  to  the  new 
company. — The  stockholders  of  the  constituent  corporations  cannot 
be  compelled  to  become  stockholders  of  the  new  corporation  without 
their  consent,  unless  otherwise  provided,  and  do  not  become  such,  as  a 
rule,  until  the  surrender  of  their  old  stock  in  exchange  for  new.51 
And,  although  the  old  corporation  may  be  dissolved  by  the  act  of 
consolidation  the  property  interests  of  its  stockholders  usually  remain 
unchanged  until  divested  by  their  own  act  or  in  some  manner  pro- 
vided by  law.52  Several  of  the  states,  however,  provide  for  the  pur- 
chase by  the  company  of  the  shares  of  stockholders  who  decline  to 
become  members  of  the  consolidated  company.53  And,  as  a  general 
rule,  unless  otherwise  provided  by  contract  or  the  governing  statute, 


48Phinizy  v.  Augusta,  &c.  R.  Co. 
62  Fed.  678.  As  to  proof  of  con- 
solidation, see  Columbus,  &c.  R.  Co. 
v.  Skidmore,  69  111.  566;  Common- 
wealth v.  Carroll,  145  Mass.  403,  14 
N.  E.  618;  Kinion  v.  Kansas  City, 
&c.  R.  Co.  39  Mo.  App.  382. 

49  See  Illinois  G.  T.  R.  Co.  v.  Cook, 
29  111.  237;  Adams  v.  Yazoo,  &c.  R. 
Co.  77  Miss.  194,  24  So.  200,  317,  28 
So.   956,  60  L.   R.  A.  33;    Houston, 
&c.  R.  Co.  v.  Shirley,  54  Tex.  125; 
Charlotte,  &c.  R.  Co.  v.  Glbbes,  27 
S.  Car.  385,  4  S.  E.  49. 

50  Frazier  v.  East  Tenn.  &c.  R.  Co. 
88  Tenn.  138,  12  S.  W.  537,  40  Am. 
&  Eng.  R.  Gas.  358. 

"Beach  Priv.  Corp.  §  351;  Purdy's 
Beach  Priv.  Corp.  §  1281;  State  v. 
Bailey,  16  Ind.  46,  79  Am.  Dec.  405; 
Gardner  v.  Hamilton,  &c.  Ins.  Co. 
33  N.  Y.  421.  See,  also,  Kohl  v. 
Lilienthal,  81  Cal.  378,  20  Pac.  401, 
22  Pac.  689,  6  L.  R.  A.  520;  Clear- 


water  v.  Meredith,  1  Wall.  (U.  S.) 
25;  Lauman  v.  Lebanon,  &c.  R.  Co. 
30  Pa.  St.  42,  72  Am.  Dec.  685. 

62  Philadelphia,  &c.  R.  Co.  v.  Cata- 
wissa  R.  Co.  53  Pa.  St.  20.  It  has 
been  held  in  Massachusetts  that  the 
holder  of  bonds  convertible  into  the 
stock  of  a  road  which  had  consoli- 
dated with  another  to  form  a  new 
corporation,  expressly  charged  with 
the  performance  of  its  obligations 
and  liabilities,  was  entitled  to  de- 
mand stock  in  the  new  corporation, 
as  for  the  purposes  of  this  contract 
the  old  corporation  continued  under 
the  new  name.  Day  v.  Worcester, 
&c.  R.  Co.  151  Mass.  302. 

wStimson  Am.  Stat.  (1892)  §  8732. 
But  this  does  not  prevent  a  resort 
to  the  courts  in  a  proper  case.  Lan- 
gan  v.  Francklyn,  20  N.  Y.  S.  404. 
See,  also,  as  to  right  to  arbitrate. 
Pittsburgh,  &c.  R.  Co.  v.  Garrett,  50 
Ohio  St.  405,  34  N.  E.  493. 


475 


REMEDIES   OF   OLD  STOCKHOLDERS. 


[§    328 


when  the  consolidation  is  duly  perfected  stockholders  in  the  old 
companies  become  stockholders  in  the  new,54  which  may  usually  en- 
force the  unpaid  subscriptions  to  the  stock  of  the  old  corporations.55 
But,  if  the  subscription  was  made  upon  a  valid  condition,  it  passes 
to  the  new  company  subject  to  such  condition.56 

§  328.  Remedies  of  old  stockholders. — As  elsewhere  stated,57  a  dis- 
senting stockholder  cannot  always  be  compelled  to  become  a  share- 
holder in  the  new  consolidated  company,  nor  held  liable  upon  his 
original  subscription,  and  he  may,  in  some  instances,  entirely  defeat 
or  prevent  the  consolidation.  Thus,  he  may  enjoin  an  ultra  vires  con- 
solidation,58 inimical  to  him,  at  least  until  his  interest  is  purchased 
or  secured.59  He  may,  however,  lose  the  right  to  enjoin  a  consolida- 
tion which  could  not  be  made  without  his  consent  by  acquiescence  or 


"Ridgway  Township  v.  Griswold, 
1  McCrary  (U.  S.)  151;  1  Thomp. 
Corp.  §  355.  In  Fee  v.  New  Orleans, 
&c.  Co.  35  La.  Ann.  413,  it  was  held 
that  a  stockholder  in  one  of  the  old 
companies  could  sue  the  consoli- 
dated company  for  stock  which  he 
was  entitled  to  in  exchange.  So, 
under  the  agreement  in  Anthony  v. 
American  Glucose  Co.  146  N.  Y.  407, 
41  N.  E.  23. 

55  Wells  v.  Rodgers,  60  Mich.  525, 
27  N.  W.  671;  Cooper  v.  Shropshire, 
&c.  R.  Co.  13  JUT.  443,  6  Eng.  R.  & 
Canal  Gas.  136;  Hanna  v.  Cincinnati, 
&c.  R.  Co.  20  Ind.  30;  Swartout  v. 
Michigan,  &c.  R.  Co.  24  Mich.  389; 
Pope  v.  Board  of  Com'rs,  51  Fed. 
769 ;  Nugent  v.  Supervisors,  19  Wall. 
(U.  S.)  241.  See,  also,  Hay  worth 
v.  Junction  R.  Co.  13  Ind.  348 ;  Mans- 
field, &c.  R.  Co.  v.  Drinker,  30  Mich. 
124.  But  compare  Sprague  v.  Illi- 
nois, &c.  R.  Co.  19  111.  174;  Ottawa, 
&c.  R.  Co.  v.  Black,  79  111.  262.  As 
to  when  this  cannot  be  done,  see 
ante,  §  325.  Here,  of  course,  we  re- 
fer to  a  consolidation  authorized  by 
charter  or  statute  at  the  time  the 
subscription  was  made.  See,  also, 


Sparrow  v.  Evansville,  &c.  R.  Co.  7 
Ind.  369;  Hanna  v.  Cincinnati,  &c. 
R.  Co.  20  Ind.  30;  Mansfield,  &c.  R. 
Co.  v.  Brown,  26  Ohio  St.  223. 

88 1  Thomp.  Corp.  §  360;  Mansfield, 
&c.  R.  Co.  v.  Pettis,  26  Ohio  St.  259. 

87  Ante,  §  325. 

88Charlton  v.  New  Castle,  &c.  R. 
R.  Co.  5  Jur.  (N.  S.)  1096;  Watson 
v.  Harlem,  &c.  Co.  52  How.  Pr.  (N. 
Y.)  348;  Nathan  v.  Tompkins,  82 
Ala.  437,  2  So.  747.  See,  also,  Ste- 
vens v.  Rutland,  &c.  R.  Co.  29  Vt. 
545;  Mowrey  v.  Indianapolis,  &c.  R. 
Co.  4  Biss.  (U.  S.)  78;  Botts  v. 
Simpsonville,  &c.  Co.  88  Ky.  54,  10 
S.  W.  134,  2  L.  R.  A.  594;  Mills  v. 
Central  R.  Co.  41  N.  J.  Eq.  1,  2  Atl. 
453;  1  Beach  Priv.  Corp.  §  356; 
Market  St.  R.  Co.  v.  Hellman,  109 
Cal.  571,  42  Pac.  225;  Rabe  v.  Dun- 
lap,  51  N.  J.  Eq.  40,  25  Atl.  959.  But 
not,  it  is  held,  on  the  ground  that 
one  of  the  constituent  companies 
was  illegally  organized.  Bell  v. 
Penn.  &c.  R.  Co.  (N.  J.)  10  Atl.  741. 

"Lauman  v.  Lebanon,  &c.  R.  Co. 
30  Pa.  St.  42,  72  Am.  Dec.  685;  State 
v.  Bailey,  16  Ind.  46,  79  Am.  Dec. 
405. 


§  329] 


CONSOLIDATION. 


laches.60  It  is  also  said  that  where  a  consolidation  is  wrongfully  ef- 
fected by  the  shareholders,  over  the  objection  of  a  dissenting  share- 
holder, who  has  partly  paid  for  his  stock,  the  consolidated  company 
is  liable  to  him  therefor,  but  he  cannot  sue  the  directors  personally 
for  damages.61  We  have  already  referred  to  the  general  rule  prohibit- 
ing collateral  attacks  upon  consolidated  corporations  as,  well  as  other 
corporations,  but  this  rule  ought  not,  it  seems  to  us,  to  be  applied  so 
as  to  prevent  a  subscriber  to  stock  in  one  of  the  original  corporations 
from  questioning,  under  certain  circumstances,  the  corporate  exist- 
ence or  title  of  the  new  consolidated  corporation  by  way  of  defense  to 
an  action  by  the  new  company  to  enforce  such  subscription.62 

§  329.  Consolidated  company  succeeds  to  rights  and  liabilities  of 
the  old  companies. — As  a  general  rule  the  consolidated  company  is 
vested  with  all  the  rights,  property,  privileges  and  franchises  of  the 
several  companies  of  which  it  is  formed,63  and  is  subject  to  the  debts 


*°Deaderick  v.  Wilson,  8  Baxt. 
(Tenn.)  108;  Zabriskie  v.  Hacken- 
sack,  &c.  R.  Co.  18  N.  J.  Eq.  178,  90 
Am.  Dec.  617;  Bell  v.  Pennsylvania, 
&c.  R.  Co.  (N.  J.)  10  Atl.  741;  1 
Beach  Priv.  Corp.  §  356;  Purdy's 
Beach  Priv.  Corp.  1272.  See,  also, 
Boston,  &c.  R.  Co.  v.  New  York,  &c. 
R.  Co.  13  R.  I.  260;  Rabe  v.  Dunlap, 
51  N.  J.  Eq.  40,  25  Atl.  959;  Drake 
v.  New  York,  &c.  Co.  26  App.  Div. 
(N.  Y.)  499,  50  N.  Y.  S.  826;  Hale 
v.  Cheshire  R.  Co.  161  Mass.  443,  37 
N.  E.  307;  Alton  R.  &c.  Co.  v.  May- 
field,  95  111.  App.  146;  Spencer  v. 
Seaboard  Air  Line  R.  Co.  137  N. 
Car.  107,  49  S.  E.  96,  1  L.  R.  A.  (N. 
S.)  604,  and  note. 

81  International,  &c.  R.  Co.  v.  Bre- 
mond,  53  Tex.  96 ;  Taylor  Priv.  Corp. 
§  536,  note  3.     See,  also,  Tanner  v. 
Lindell  R.  Co.  180  Mo.  1,  79  S.  W. 
155,  103  Am.  St.  534. 

82  See    Mansfield,    &c.    R.    Co.    v. 
Stout,  26  Ohio   St.  241;    Mansfield, 
&c.  R.  Co.  v.  Brown,  26  Ohio  St.  223; 
Tuttle  v.  Michigan  Air  Line  R.  Co. 
35  Mich.  247.     But  see  Ottawa,  &c. 
R.  Co.  v.  Black,  79  111.  262. 

«3Stimson      Am.       Stat.       (1892) 


§  8734;  note  to  Louisville,  &c.  R. 
Co.  v.  Boney,  117  Ind.  501,  20  N.  E. 
432,  3  L.  R.  A.  435;  Mt.  Pleasant  v. 
Beckwith,  100  U.  S.  514;  Crawfords- 
ville,  &c.  Co.  v.  Fletcher,  104  Ind. 
97,  2  N.  E.  243;  Chicago,  &c.  R.  Co. 
v.  Moffit,  75  111.  524;  Louisville,  &c. 
R.  Co.  v.  Blythe,  69  Miss.  939,  11  So. 
Ill,  16  L.  R.  A.  251,  30  Am.  St.  599. 
See,  also,  Birmingham,  &c.  Co.  v. 
Cunningham,  141  Ala.  470,  37  So. 
689;  1  Thomp.  Corp.  §  365,  et  seq.; 
1  Beach  Priv.  Corp.  §  342;  Purdy's 
Beach  Priv.  Corp.  1283;  Taylor 
Priv.  Corp.  §424.  State  v.  Maine 
Central  R.  Co.  66  Me.  488,  it  is  held 
that  where  a  new  corporation  is 
formed  by  the  consolidation  of  two 
or  more  previously  existing  corpora- 
tions, and  by  the  act  is  to  "have  the 
powers,  privileges  and  immunities 
possessed  by  each  of  the  corpora- 
tions," the  new  corporation  will 
have  only  the  privileges,  powers  and 
immunities  possessed  by  the  one  of 
such  corporations  having  the  fewest 
privileges,  powers  and  immunities, 
and  which  were  common  to  all.  But 
see  Natchez,  &c.  R.  Co.  v.  Lambert, 
70  Miss.  779,  13  So.  33. 


477 


EIGHTS  ON   SUCCESSION. 


[§    329 


and  liabilities  of  such  companies.64  The  statutes  generally  so  pro- 
vide,65 and  such  liability  usually  exists,  even  though  neither  the  stat- 
ute nor  the  agreement  of  consolidation  expressly  so  provides.66  But 
it  is  not  liable  for  a  penalty  incurred  by  the  lessee  of  one  of  the  con- 
stituent companies.67  Even  in  the  absence  of  express  statutory  pro- 
visions on  the  subject  the  property  and  franchises  of  the  old  com- 


"Stimson  Am.  Stat.  (1892) 
§  8734;  note  to  McMahan  v.  Morri- 
son, 79  Am.  Dec.  424,  426;  Louis- 
ville, &c.  R.  Co.  v.  Boney,  117  Ind. 
501,  20  N.  E.  432,  3  L.  R.  A.  435, 
and  note;  Beach  Priv.  Corp.  §  343; 
Purdy's  Beach  Priv.  Corp.  §  1288; 
Taylor  Priv.  Corp.  §  425.  See  Har- 
rison v.  Arkansas,  &c.  Co.  4  Mc- 
Crary  (U.  S.)  264;  Pullman  Car  Co. 
v.  Missouri  Pac.  Co.  115  U.  S.  587, 
6  Sup.  Ct.  194;  Thompson  v.  Abbott, 
61  Mo.  176;  Berry  v.  Kansas  City, 
&c.  R.  Co.  52  Kans.  759,  39  Am.  St. 
371;  Atlantic,  &c.  R.  Co.  v.  Johnson 
(Ga.),  56  S.  E.  483.  The  new 
company  cannot  aver  ignorance  of 
an  unrecorded  mortgage  given  by 
one  of  its  constituent  companies. 
Mississippi,  &c.  Co.  v.  Chicago,  &c. 
R.  Co.  58  Miss.  846.  See,  also, 
Bloxam  v.  Florida,  &c.  R.  Co.  35 
Fla.  625,  17  So.  902.  The  New  York 
statute  authorizing  the  consolida- 
tion of  railroad  companies,  and 
providing  that  all  debts  and  liabil- 
ities of  either  company,  except 
mortgages,  shall  attach  to  the  new 
corporation,  and  be  enforced  against 
it  and  its  property  to  the  same  ex- 
tent as  if  created  by  it,  allows  an 
action  against  the  new  company  on 
bonds  and  coupons  of  one  of  the 
former  companies,  though  secured 
by  a  mortgage  on  the  property  of 
the  original  debtor  corporation. 
Polhemus  v.  Fitchburg  R.  Co.  123 
N.  Y.  502,  26  N.  E.  3L  See  Plain- 
view  v.  Winona,  &c.  R.  Co.  36  Minn. 
505,  32  N.  W.  745.  Such  liability 
attaches  unless  there  is  a  special 


agreement  to  the  contrary.  Berry 
v.  Kansas  City,  &c.  R.  Co.  52  Kans. 
759,  774,  39  Am.  St.  371. 

"See  Stimson's  Am.  St.  (1892) 
§  8734;  note  in  89  Am.  St.  636; 
Kansas  City,  &c.  R.  Co.  v.  Langley, 
70  Kans.  453,  78  Pac.  858. 

48  "The  foundation  of  the  liability 
of  a  consolidated  corporation  may 
rest  on  a  statute  or  an  agreement, 
either  express  or  implied.  If  the 
statute  does  not  provide  that  the 
new  company  shall  assume  the 
debts  and  liabilities  of  the  consti- 
tuent companies,  and  there  is  no 
express  agreement  respecting  the 
same,  the  debts  of  the  original  com- 
panies follow  as  an  incident  of  the 
consolidation,  and  become  by  im- 
plication the  obligations  of  the  new 
corporation."  Berry  v.  Kansas  City, 
&c.  R.  Co.  52  Kan.  774,  36  Pac.  724, 
39  Am.  St.  381.  See,  also,  People  v. 
Louisville,  &c.  R.  Co.  120  111.  48,  10 
N.  E.  657;  State  v.  Baltimore,  &c. 
R.  Co.  77  Md.  489,  26  Atl.  865;  Chase 
v.  Michigan  Tel.  Co.  121  Mich.  631, 
80  N.  W.  717;  Shadford  v.  Detroit, 
&c.  R.  Co.  130  Mich.  300,  89  N.  W. 
960;  Thompson  v.  Abbott,  61  Mo. 
176;  Houston,  &c.  R.  Co.  v.  Shirley, 
54  Tex.  125;  Missouri  Pac.  R.  Co. 
v.  Owens,  1  Tex.  App.  Civ.  Cas.  384- 
386;  Langborne  v.  Richmond  R.  Co. 
91  Va.  369,  22  S.  E.  159;  National, 
&'c.  Works  v.  Oconto  City,  &c.  Co. 
105  Wis.  48,  81  N.  W.  125;  Tennes- 
see v.  Whitworth,  117  U.  S.  139,  6 
Sup.  Ct.  649. 

47  State   v.   Pittsburg,   &c.   R.   Co. 
135  Ind.  578,  35  N.  E.  700. 


329] 


CONSOLIDATION. 


478 


panies  will  usually  vest  in  the  new  corporation,68  and  it  will  succeed 
to  all  the  rights  of  each  of  such  companies,  and  may  compromise  and 
settle  a  claim  against  one  of  them  and  enforce  the  settlement  by  suit.69 
Where  the  law  under  which  the  corporation  was  organized  authorizes 
a  consolidation,  the  consolidated  company  may  recover  on  the  contracts 
of  subscription  given  to  the  original  companies,  since  the  subscrip- 
tions will  be  held  to  have  been  made  with  reference  to  the  law  as  it 
then  existed.70  The  consolidated  company  may  accept  a  continuing 


68  Meyer  v.  Johnston,  53  Ala.  237; 
Green  County  v.  Conness,  109  U.  S. 
104,  3  Sup.  Ct.  69;  South  Carolina 
R.  Co.  v.  Blake,  9  Rich.  L.  (S.  Car.) 
228;  Trester  v.  Missouri  Pac.  R.  Co. 
33  Neb.  171;  Zimmer  v.  State,  30 
Ark.  677;  Langhorne  v.  Richmond 
R.  Co,  91  Va.  369,  22  S.  E.  159; 
Trenton  St.  R.  Co.,  In  re  (N.  J.  Eq.), 
47  Atl.  819;  Southern  Pac.  R.  Co. 
v.  Poole,  32  Fed.  451;  Daniels  v. 
St.  Louis,  &c.  R.  Co.  62  Mo.  43; 
Baltimore  v.  Baltimore,  &c.  R.  Co. 
6  Gill  (Md.)  288,  48  Am.  Dec.  531; 
State  v.  Seaboard,  &c.  R.  Co.  52 
Fed.  450;  Cashman  v.  Brownlee,  128 
Ind.  266,  27  N.  E.  560.  In  this  latter 
case  it  is  held  that  where  land  is 
conveyed  in  fee  simple  to  a  rail- 
road company  and  afterward  the 
company  is  consolidated  with  an- 
other, and  further  consolidations 
take  place  from  time  to  time,  the 
new  companies  formed  by  the  suc- 
cessive consolidations  succeed  to  the 
said  real  estate,  and  may  recover 
it  from  the  grantor  or  those  to 
whom  he  afterward  transfers  it,  al- 
though he  has  remained  in  posses- 
sion of  the  premises  for  more  than 
twenty  years  after  the  conveyance 
was  made,  since  the  possession  of 
a  grantor  cannot  be  adverse  to  the 
title  of  his  grantee. 

88  Paine  v.  Lake  Erie,  &c.  R.  Co.  31 
Ind.  283.  The  consolidated  company 
may  collect  municipal  aid  voted  to 
one  of  the  companies  of  which  it  is 


formed,  where  the  consolidation 
was  authorized  at  the  time  it 
was  voted.  Scott  v.  Hansheer,  94 
Ind.  1;  Atchison,  &c.  R.  Co.  v.  Phil- 
lips Co.  25  Kans.  261;.  East  Lincoln 
v.  Davenport,  94  U.  S.  801.  See, 
also,  Pope  v.  Board  of  Com'rs,  51 
Fed.  769  (holding  in  accordance 
with  the  Indiana  decision  that  the 
tax  must  be  levied  and  collected  or 
there  is  no  legal  right  to  it).  The 
Pennsylvania  statute  governing  the 
consolidation  of  connecting  railroad 
companies  provides  that  the  new 
company  shall  possess  all  the  rights 
theretofore  vested  in  either  of  them; 
and  all  the  property  and  rights  of 
actions  shall  be  deemed  to  be  trans- 
ferred to  the  new  company.  It  was 
held  that  the  consolidated  company 
could  recover  on  an  indemnity  bond 
given  by  a  passenger  agent  to  one 
of  the  old  companies,  its  attorney, 
successors,  or  assigns,  prior  to  the 
act  of  consolidation,  where  such 
agent  continues  in  his  position  and 
discharges  substantially  the  same 
duties  as  before.  Pennsylvania,  &c. 
R.  Co.  v.  Harkins,  149  Pa.  St.  121, 

24  Atl.  175,  50  Am.  &  Eng.  R.  Cas. 
587.     The   new  company  may  law- 
fully use  a  patent  axle  box  which 
the  old  companies  were  licensed  to 
use.     Lightner  v.  Boston,  &c.  R.  Co. 
1  Lowell  (U.  S.)  338. 

70Bish   v.   Johnson,   21   Ind.   299; 
Atchison,  &c.  R.  Co.  v.  Phillips  Co. 

25  Kans.  261;  Nugent  v.  Supervisors, 


479 


SPECIAL   PRIVILEGES  AND  IMMUNITIES. 


[§   330 


offer  to  subscribe  made  to  one  of  the  original  companies,  and  may, 
when  authorized  to  do  so,  perform  any  conditions  annexed  to  a  sub- 
scription "given  to  such  company.71  A  valid  consolidation  or  a  right  as 
successor  may,  however,  be  required  to  be  shown  to  enable  the  con- 
solidated company  or  its  assignee  to  maintain  an  action  upon  the  con- 
tracts of  one  of  the  roads  out  of  which  it  was  formed.72  But  it  is 
sufficient,  in  pleading  such  a  consolidation,  to  show  the  organization 
of  the  original  companies  into  the  consolidated  company  by  a  given 
name  and  as  a  corporate  body  by  authority  of  law,  without  setting  out 
the  steps  taken  to  effect  the  same.73 

§  330.  Special  privileges  and  immunities — When  they  pass  to  the 
new  company. — Special  privileges  possessed  by  all  of  the  consolidat- 
ing companies  will  pass  to  the  new  company,  where  the  statute  provides 
that  it  shall  have  all  the  "franchises,  privileges  and  immunities  of  the 
constituent  companies."74  Thus,  it  has  been  held  that  an  exemption 
from  taxation  will  pass  to  the  new  company  so  far  as  the  property 
originally  covered  by  the  exemption  is  concerned.75  But,  in  the  ab- 


19  Wall.  (U.  S.)  25;  Bates  County 
v.  Winters,  112  U.  S.  325,  5  Sup.  Ct. 
157;  Scotland  County  v.  Thomas,  94 
U.  S.  682;  Mansfield,  &c.  R.  Co.  v. 
Stout,  26  Ohio  St.  241;  ante,  §  309. 

"Mansfield,  &c.  R.  Co.  v.  Brown, 
26  Ohio  St.  223. 

"Brown  v.  Dibble,  65  Mich.  520, 
32  N.  W.  656,  30  Am.  &  Eng.  R.  Cas. 
241.  After  a  railroad  company  has 
been  merged  by  consolidation  with 
another  railroad  company,  and  such 
new  corporation  is  carrying  on  a 
railway  business,  and  is  a  de  facto 
corporation,  the  existence  and  valid- 
ity of  the  corporation  can  only  be 
attacked  in  a  direct  proceeding 
brought  for  that  purpose;  such  a 
matter  will  not  be  the  subject  of  a 
collateral  attack  by  way  of  defeat- 
ing the  right  to  recover  on  bonds 
of  the  merged  railroad  subscribed 
to  by  a  county  in  aid  of  railroad  con- 
struction. Chicago,  &c.  R.  Co.  v. 
Putnam,  36  Kans.  121,  12  Pac.  593. 

"Collins  v.  Chicago,  &c.  R.  Co.  14 


Wis.  492.  In  pleading  the  consolida- 
tion of  two  railway  corporations  un- 
der the  statutes  of  another  state  it 
is  sufficient  to  set  out  a  copy  of  the 
statutes,  and  to  allege  that  their 
provisions  have  been  complied  with, 
and  the  consolidation  effected;  it  is 
not  necessary  to  set  out  the  steps 
taken  under  the  statutes,  such  steps 
being  evidence  of  the  consolidation. 
Rothschild  v.  Rio  Grande  W.  R.  Co. 
63  Hun  (N.  Y.)  632,  18  N.  Y.  S.  548. 

74  In  State  v.  Maine,  &c.  R.  Co.  66 
Me.  488,  it  was  held  that  the  consoli- 
dated company  took  only  such  privi- 
leges and  immunities  as  were  com- 
mon to  all  of  the  constituent  com- 
panies. It  could,  however,  doubtless 
be  given  all  that  any  one  of  them 
possessed. 

71  International,  &c.  R.  Co.  v.  An- 
derson Co.  59  Tex.  654;  Natchez,  &c. 
R.  Co.  v.  Lambert,  70  Miss.  779,  13 
So.  33.  Where  two  companies, 
whose  charters  exempt  their  capital 
stock  from  taxation,  consolidate  to 


§  330] 


CONSOLIDATION. 


480 


sence  of  such  a  provision,  it  seems  that  a  special  immunity  of  exemp- 
tion from  taxation  enjoyed  by  one  of  the  original  companies  will  not 
pass  to  the  consolidated  company.76  It  has  been  held  that  a  right  to 
take  land  for  a  right  of  way,77  or  to  borrow  money  or  mortgage  the 
road  as  security,78  or  to  charge  a  certain  rate  for  transportation,79  will 
pass  to  the  consolidated  company.  So,  it  has  been  held  that  the  right 
conferred  by  special  charter  upon  a  street  railway  company  to  operate 
a  street  railway  upon  all  or  any  of  the  streets  of  a  city,  survives  to  the 
company  in  which  it  is  merged  by  consolidation.80  And  where  the 


form  a  single  corporation,  it  has 
been  held  that  the  shares  of  stock 
of  such  consolidated  company  are 
not  subject  to  taxation.  Tennessee 
v.  Whitworth,  117  U.  S.  139,  6  Sup. 
Ct.  649,  affirming  State  v.  Whit- 
worth,  22  Fed.  75,  81.  See  Phila- 
delphia, &c.  R.  Co.  v.  Maryland,  10 
How.  (U.  S.)  376;  Tomlinson  v. 
Branch,  15  Wall.  (U.  S.)  460;  Cen- 
tral R.  &c.  Co.  v.  Georgia,  92  U.  S. 
665;  Chesapeake,  &c.  R.  Co.  v.  Vir- 
ginia, 94  U.  S.  718;  Atlantic,  &c.  R. 
Co.  v.  Georgia,  98  U.  S.  359;  State 
Treasurer  v.  Auditor-General,  46 
Mich.  224.  But  compare  State  v. 
Maine  Central  R.  Co.  66  Me.  488,  af- 
firmed in  96  U.  S.  499;  State  v.  Keo- 
kuk,  &c.  R.  Co.  99  Mo.  30,  12  S.  W. 
290,  6  L.  R.  A.  222;  Morgan  v. 
Louisiana,  93  U.  S.  217;  Railroad 
Co.  v.  Gaines,  97  U.  S.  697;  and  see 
authorities  cited  in  next  following 
note. 

76  See  ante,  §  63,  note  2;  Keokuk, 
&c.  R.  Co.  v.  Missouri,  152  U.  S.  301, 
14  Sup.  Ct.  592,  in  which  attention 
is  called  to  the  apparent  conflict  in 
the  decisions  of  the  Supreme  Court 
of  the  United  States.  In  Phoenix, 
&c.  Co.  v.  Tennessee,  161  U.  S.  174, 
16  Sup.  Ct.  471,  the  conflicting  au- 
thorities are  reviewed  and  the  con- 
clusion is  reached  that  the  weight 
of  authority  and  the  better  reason 
is  to  the  effect  that  the  word  "im- 
munity" or  "exemption"  must  be 
used  unless  the  legislative  intention 


to  pass  the  exemption  is  otherwise 
clearly  shown,  and  that  a  mere 
transfer  of  the  "privileges"  of  the 
constituent  companies  is  insufficient 
to  pass  the  exemption  from  taxation. 
But  the  question  as  to  whether  an 
exemption  survives  may  also  depend 
somewhat  upon  the  nature  and  ef- 
fect of  the  so-called  consolidation 
as  to  whether  it  does  or  does  not 
work  a  dissolution,  and  there  are 
some  cases  in  which  the  exemption 
from  taxation  was  held  to  pass,  al- 
though no  such  language  was  used 
as  that  which  seems  to  be  required 
according  to  the  decision  above  re- 
ferred to.  See  authorities  cited  in 
last  preceding  note;  also,  St.  Louis, 
&c.  R.  Co.  v.  Berry,  41  Ark.  509;  St. 
Louis,  &c.  R.  Co.  v.  Berry,  113  U. 
S.  465,  5  Sup.  Ct.  529;  Rochester  R. 
Co.  v.  Rochester  (U.  S.),  27  Sup. 
Ct.  469;  Natchez,  &c.  R.  Co.  v.  Lam- 
bert, 70  Miss.  779,  13  So.  33;  State 
v.  Woodruff,  36  N.  J.  L.  94;  Atlan- 
tic, &c.  R.  Co.  v.  Allen,  15  Fla.  637; 
note  in  89  Am.  St.  626. 

77  South  Carolina  R.  Co.  v.  Blake, 
9  Rich.  (S.  C.)  228. 

78  Mead  v.  New  York,  &c.  R.  Co.  54 
Conn.  199: 

78  Fisher  v.  New  York  Central,  &c. 
R.  Co.  46  N.  Y.  644.  But  see  Cov- 
ington,  &c.  Co.  v.  Sanford  (Ky.),  20 
S.  W.  1031. 

80  Citizens'  Street  R.  Co.  v.  Mem- 
phis, 53  Fed.  715. 


481 


WHEN   SPECIAL   PRIVILEGES   DO   NOT  PASS. 


[§   331 


officers  and  servants  of  a  company  are  exempt  from  jury  duty,  it  has 
likewise  been  held  that  the  officers  and  servants  of  the  company  into 
which  it  is  merged  by  consolidation  will  possess  the  same  privilege.81 

§331.  When  special  privileges  do  not  pass. — A  surrender  by  the 
companies  of  all  special  privileges  is  sometimes  made  the  condition  of 
a  grant  by  the  state  of  authority  to  consolidate,  in  which  case  the  new 
company  will  have  only  the  special  privileges  conferred  by  its  char- 
ter.82 And,  when  the  consolidation  under  the  law  giving  the  power  to 
consolidate  operates  in  effect  as  a  charter,  and  the  company  formed 
by  the  consolidation  is  a  new  corporation  organized  under  that  char- 
ter,83 no  special  privileges  or  exemptions  will  be  transmitted  to  the 
new  company  which  the  legislature  could  not  confer  at  the  time  the 
consolidation  was  effected.84  This  is  in  accordance  with  the  rule  an- 
nounced in  a  previous  section.85  And  it  has  been  held  by  the  Supreme 


81Zimmer  v.  State,  30  Ark.  677. 
See,  also,  Hawkins  v.  Small,  7  Baxt. 
(Tenn.)  193;  Tennessee  v.  Whit- 
worth,  22  Fed.  81. 

82  State  v.  Keokuk,  &c.  R.  Co.  99 
Mo.  30. 

83  The  consolidation  of  a  railroad 
corporation  with  companies  organ- 
ized under  the  laws  of  other  states 
is  not  an  incorporation  within  the 
meaning  of  laws  requiring  the  pay- 
ment of  an  organization  tax.     Peo- 
ple v.  New  York,  &c.  R.  Co.  129  N. 
Y.  474,  654,  29  N.  E.  959.    See  Opin- 
ion of  the  justices,  65  N.  H.  673,  to 
the  same  effect  as  to  the  union  of 
two  domestic  corporations. 

84  St.  Louis,  &c.  R.   Co.  v.  Berry, 
113  U.  S.  465,  5  Sup.  Ct.  529;   Keo- 
kuk, &c.  R.  Co.  v.  Missouri,  152  U.  S. 
301,  14  Sup.  Ct.  592;   State  v.  Keo- 
kuk, &c.  R.  Co.  99  Mo.  30,  6  L.  R.  A. 
222;  Keokuk,  &c.  R.  Co.  v.  Scotland 
Co.  41  Fed.  305.    In  these  cases  it  is 
held  that  the  corporation  formed  by 
a   consolidation    effected    after   the 
state  has  adopted  a  constitution  pro- 
hibiting the  legislature  from  grant- 
ing  any    exemption    from   taxation 
can  not  claim  the  benefit  of  an  ex- 

ELL.  RAILROADS — 31 


emption  previously  granted  to  the 
companies  of  which  it  is  composed. 
But  in  Citizens'  Street  R.  Co.  v. 
Memphis,  53  Fed.  715,  Judge  Ham- 
mond held  that  a  consolidation  did 
not  have  the  effect  to  destroy  the 
special  privileges  and  immunities 
held  by  the  consolidating  companies 
where  the  consolidation  was  effected 
under  a  law  passed  after  the  adop- 
tion of  a  constitution  providing 
"that  the  legislature  shall  have  no 
power  *  *  *  to  pass  any  law 
granting  to  any  individual  or  indi- 
viduals rights,  privileges,  immuni- 
ties or  exemptions  other  than  such 
as  may  be,  by  the  same  law,  extend- 
ed to  any  member  of  the  community 
who  may  be  able  to  bring  himself 
within  the  provisions  of  such  law. 
No  corporation  shall  be  created,  or 
its  powers  increased  or  diminished 
by  special  laws,  but  the  general  as- 
^embly  shall  provide  by  general 
laws  for  the  organization  of  all  cor- 
porations hereafter  created,  which 
laws  may  at  any  time  be  altered  or 
repealed." 
85  See  ante,  §  325. 


332] 


CONSOLIDATION". 


482 


Court  of  the  United  States,  in  a  recent  case,  that  a  grant  to  the  new- 
corporation  of  the  exemptions  and  immunities  "of  each  of  the  constitu- 
ent companies  did  not  pass  the  exemption  of  the  stockholders  of  the 
constituent  companies  from  individual  liability,  as  the  exemption  of 
stockholders  was  not  an  exemption  of  the  corporation.88 

§  332.  Duties  and  obligations  of  new  company. — Not  only  does 
the  new  company  possess  all  of  the  rights  and  privileges  of  the  orig- 
inal companies  not  expressly  taken  from  it,  but  it  is  subject  in  gen- 
eral to  all  the  duties  imposed  upon  them  by  the  law  or  laws  of  their 
creation,  except  so  far  as  the  law  under  which  the  consolidation  is 
effected  relieves  it  from  the  performance  of  such  duties.87  It  is  bound 
to  perform  the  duties  resting  upon  the  original  companies  as  common 
carriers,  and  any  agreement  to  avoid  such  duties  is  contrary  to  public 
policy  and  void.88  So,  it  has  been  held  liable  for  a  failure  to  restore 
a  stream  crossed  by  one  of  the.  constituent  companies  to  its  former 
condition,89  and  for  the  continuance  of  a  nuisance  erected  by  such 
company.90 

§  333.  Liability  of  new  company  on  old  contracts. — The  contracts 
entered  into  by  the  constituent  railroad  companies  may  be  enforced 
against  the  new  company  to  the  extent  that  it  is  capable  of  perform- 
ing their  conditions.91  Thus,  it  has  been  held  that  the  consolidated 


88  Minneapolis,  &c.  R.  Co.  v.  Gard- 
ner, 177  U.  S.  332,  20  Sup.  Ct.  656. 
This  seems  to  be  a  dangerous  doc- 
trine and  in  conflict  with  the  reason- 
ing in  such  cases  as  those  cited  in 
note  (at  close  of  §  330),  ante,  yet 
technically  and  logically  it  seems  to 
be  correct,  at  least  if  the  letter  rath- 
er than  the  spirit  of  the  law  is  to 
be  followed  and  the  rule  that  ex- 
emptions must  be  clearly  granted, 
and  that  the  corporation  is  a  dis- 
tinct entity,  separate  from  its  stock- 
holders, is  to  be  applied  as  against 
the  stockholders  in  such  a  case. 

87  Chicago,  &c.  R.  Co.  v.  Moffitt,  75 
111.  524;  Tomlinson  v.  Branch,  15 
Wall.  (U.  S.)  460;  State  v.  Northern 
Pac.  R.  Co.  36  Minn.  207;  Charity 
Hospital  v.  New  Orleans,  &c.  Co.  40 
La.  Ann.  382,  4  So.  433. 


83  Peoria,  &c.  R.  Co.  v.  Coal  Valley 
Min.  Co.  68  111.  489;  People  v.  Louis- 
ville, &c.  R.  Co.  120  111.  48,  10  N.  E. 
657. 

89  Chicago,  &c.  R.  Co.  v.  Moffitt,  75 
111.  524;  Cott  v.  Lewiston  R.  Co.  36 
N.  Y.  214. 

"OEyler  v.  County  Comrs.  49  Md. 
257,  33  Am.  R.  249;  "Wellcome  v. 
Leeds,  51  Me.  313;  Central  R.  Co.  v. 
State,  32  N.  J.  L.  220. 

91  Pullman  Palace  Car  Co.  v.  Mis- 
souri Pac.  R.  Co.  115  U.  S.  587,  6 
Sup.  Ct.  194;  2  Morawetz  Priv.  Corp. 
(2d  ed.)  §  955;  Smith  v.  Los  An- 
geles, &c.  R.  Co.  98  Cal.  210,  33  Pac. 
53  (liable  for  breach  of  contract) ; 
Union  Pac.  R.  Co.  v.  McAlpine,  129 
U.  S.  305,  9  Sup.  Ct.  286.  See,  also, 
Columbus,  &c.  R.  Co.  v.  Skidmore, 
69  111.  566;  Thompson  v.  Abbott,  61 


483 


LIABILITY   OF    NEW    COMPANY   TOR   TORTS. 


[§    334 


company  is  bound  to  perform  the  contract  of  transportation  called 
for  by  a  mileage  ticket  issued  by  a  constituent  company,92  to  convey 
land  agreed  to  be  conveyed  by  a  constituent  company,93  to  maintain 
a  depot  at  a  certain  place  as  so  agreed,94  and  the  like.95  But,  while 
the  contracts  of  the  original  companies  may  be  binding  upon  the  cor- 
poration formed  by  their  consolidation  to  the  same  extent  and  in  the 
same  manner  that  they  were  binding  upon  the  original  companies  re- 
spectively, the  new  company,  ordinarily,  assumes  no  greater  obliga- 
tions than  rested  upon  those  companies  at  the  time  of  the  consolida- 
tion. Thus,  in  a  suit  to  compel  a  railroad  company  formed  by  con- 
solidation to  perform  a  contract  made  by  one  of  the  original  com- 
panies to  use  the  complainant's  cars  on  its  entire  line  of  railway,  and 
on  all  roads  which  it  might  thereafter  control  by  ownership,  lease, 
or  otherwise,  the  court  held  that  the  new  company  must  use  the  plain- 
•tiff's  cars  upon  all  roads  owned  or  controlled  at  the  time  of  the  con- 
solidation by  the  company  which  had  made  the  contract,  but  that  the 
contract  did  not  apply  to  roads  acquired  after  the  consolidation.96 

§  334.  Liability  of  new  company  for  torts — Extent  of  liability — 
Generally. — The  consolidated  company  is  liable  for  the  torts  of  the 
original  companies  as  well  as  upon  their  contracts.97  Where  suit  is 


Mo.  176;  Day  v.  Worcester,  &c.  R. 
Co.  151  Mass.  302,  23  N.  E.  824;  Han- 
cock, &c.  Ins.  Co.  v.  Worcester,  &c. 
R.  Co.  149  Mass.  214,  21  N.  E.  364. 
Under  a  statute  authorizing  the  con- 
solidation of  a  railroad  company, 
which  is  the  grantee  of  a  right  of 
way,  with  another  company,  a  sec- 
tion of  the  statute  providing  that 
the  consolidation  shall  not  affect  the 
rights  of  creditors  of  the  companies, 
the  new  company  is  not  protected, 
as  an  innocent  purchaser,  against 
the  enforcement  of  covenants  en- 
tered into  by  the  grantee  of  the 
right  of  way,  and  which  run  with 
the  land,  even  though  the  breach, 
occurred  after  the  consolidation  was 
effected.  Mobile,  &c.  R.  Co.  v.  Gil- 
mer,  85  Ala.  422.  But  the  mere  fact 
that  the  stockholders  of  two  sepa- 
rate companies  are  the  same,  or  the 


like,  does  not  necessarily  operate  as 
a  merger  or  consolidation  and  make 
one  liable  for  the  contracts  of  the 
other.  Richmond,  &c.  Co.  v.  Rich- 
mond, &c.  Co.  68  Fed.  105,  15  C.  C. 
A.  289;  Chase  v.  Michigan  Tel.  Co. 
121  Mich.  631,  80  N.  W.  717. 

82Tompkins  v.  Augusta  Southern 
R.  Co.  102  Ga.  436,  30  S.  E.  992. 

83  Union  Pac.  R.  Co.  v.  McAlpine, 
129  U.  S.  305,  9  Sup.  Ct.  286. 

"People  v.  Louisville,  &c.  R.  Co. 
120  111.  48,  10  N.  E.  657. 

"5Boardman  v.  Lake  Shore,  &c.  R. 
Co.  84  N.  Y.  157;  Sappington  v.  Lit- 
tle Rock,  &c.  R.  Co.  37  Ark.  23. 

86  Pullman's  Palace  Car  Co.  v.  Mis- 
souri Pac.  R.  Co.  115  U.  S.  587,  6 
Sup.  Ct.  194;  2  Morawetz  Priv.  Corp. 
(2ded.)(  §  955. 

87  Indianapolis,  &c.  R.  Co.  v.  Jones, 
29  Ind.  465,  95  Am.  Dec.  654  (stock 


§  334] 


CONSOLIDATION. 


484 


brought  directly  against  the  consolidated  company  upon  a  demand 
against  one  of  its  constituent  corporations,  the  fact  of  the  consolida- 
tion should  be  averred  in  the  complaint,  declaration,  or  bill,  in  order 
to  avoid  a  variance  in  the  proof.98  The  debts  and  liabilities  may  be 
enforced  against  the  consolidated  company  into  which  it  is  merged, 
without  any  statute  imposing  such  liability,"  at  least  to  the  extent 


killing  case) ;  Columbus,  &c.  R.  Co. 
v.  Powell,  40  Ind.  37  (personal  in- 
juries) ;  Jeffersonville,  &c.  R.  Co.  v. 
Hendricks,  41  Ind,  48  (personal  in- 
juries); Cleveland,  &c.  R.  Co.  v. 
Prewitt,  134  Ind.  557,  33  N.  E.  367, 
54  Am.  &  Eng.  R.  Cas.  198;  Warren 
v.  Mobile,  &c.  R.  Co.  49  Ala.  582 
(personal  injuries) ;  Railroad  Co.  v. 
Hutchins,  37  Ohio  St.  282  (conver- 
sion) ;  Texas,  &c.  R.  Co.  v.  Murphy, 
46  Tex.  356,  26  Am.  R.  272;  Coggin 
v.  Central  R.  Co.  62  Ga.  685,  35  Am. 
R.  132 ;  Chicago,  &c.  R.  Co.  v.  Moffitt, 
75  111.  524;  New  Bedford  R.  Co.  v. 
Old  Colony  R.  Co.  120  Mass.  397; 
State  v.  Baltimore,  &c.  R.  Co.  77 
Md.  489,  26  Atl.  865;  Zealy  v.  Bir- 
mingham R.  Co.  99  Ala.  579,  13  So. 
118;  Batterson  v.  Chicago,  &c.  R. 
Co.  53  Mich.  125,  18  N.  W.  584; 
Langhorne  v.  Richmond  R.  Co.  91 
Va.  369,  22  S.  E.  159.  But  see  Cotz- 
hausen  v.  H.  W.  Johns  Mfg.  Co.  100 
Wis.  473,  76  N.  W.  622.  It  is  the 
identity  of  the  corporation,  and  not 
of  the  name,  that  determines  the  lia- 
bility of  a  railroad  company  for  a 
trespass.  De  Lissa  v.  Missouri  R. 
Co.  36  Mo.  App.  706. 

98  Indianapolis,  &c.  R.  Co.  v.  Jones, 
29  Ind.  465,  95  Am.  Dec.  654.  See, 
also,  Langhorne  v.  Richmond  City 
R.  Co.  91  Va.  364,  22  S.  E.  357;  Sel- 
ma,  &c.  R.  Co.  v.  Harbin,  40  Ga.  707; 
Marquette,  &c.  R.  Co.  v.  Langton,  32 
Mich.  251;  note  in  89  Am.  St.  647, 
648,  as  to  suing  the  consolidated 
company  directly  and  as  to  abate- 
ment and  substitution.  A  variance 
arising  from  such  omission  cannot 


be  taken  advantage  of  for  the  first 
time  in  an  appellate  court.  Indian- 
apolis, &c.  R.  Co.  v.  Jones,  29  Ind. 
465,  95  Am.  Dec.  654. 

89  The  consolidated  company,  it  is 
said,  should  be  deemed  to  be  merely 
the  same  as  each  of  its  constituents, 
their  existence  continued  in  it,  un- 
der the  new  form  and  name,  their 
liabilities  still  existing  as  before, 
and  capable  of  enforcement  against 
the  new  company  in  the  same  way 
as  if  no  change  had  occurred  in  its 
organization  or  name.  Indianapolis, 
&c.  R.  Co.  v.  Jones,  29  Ind.  465,  29 
Am.  Dec.  654;  Columbus,  &c.  R.  Co. 
v.  Powell,  40  Ind.  37;  Thompson  v. 
Abbott,  61  Mo.  176;  Miller  v.  Lan- 
caster, 5  Coldw.  (Tenn.)  514;  Louis- 
ville, &c.  R.  Co.  v.  Boney,  117  Ind. 
501,  20  N.  E.  432,  3  L.  R.  A.  435. 
There  can  be  no  loss  of  identity  of 
the  original  companies  in  the  con- 
solidation to  the  prejudice  of  the 
rights  of  prior  creditors,  or  the  de- 
struction of  prior  liens.  Hamlin  v. 
Jerrard,  72  Me.  62;  Central  R.  &c. 
Co.  v.  Georgia,  92  U.  S.  665.  Where 
one  railroad  company  terminates  its 
existence  by  being  consolidated  with 
another,  and  no  arrangements  are 
made  respecting  the  property  and 
liabilities  of  the  first  company,  the 
consolidated  company  will  succeed 
to  all  the  property  and  be  answera- 
ble for  all  the  liabilities  of  the  con- 
solidating companies.  Louisville, 
&c.  R.  Co.  v.  Boney,  117  Ind.  501,  20  • 
N.  E.  432,  3  L.  R.  A.  435;  Atlantic, 
&c.  R.  Co.  v.  Johnson  (Ga.),  56  S.  E. 
482. 


485  CONSTITUENT   COMPANIES  ARE   USUALLY  DISSOLVED.      [§    335 


of  the  property  received  by  it  from  the  old  corporation.100  For  equity 
will  consider  the  effects  of  a  merged  or  dissolved  corporation  as  a 
trust  fund  for  the  payment  of  creditors,  into  whosesoever  hands  they 
may  come.101  But  it  is  held  that  where  the  act  of  consolidation  merely 
merges  the  identity  of  one  railroad  company  into  that  of  another 
which  has  already  become  the  owner  of  its  property  and  franchises 
freed  from  liens,  this  rule  does  not  apply;  for  the  foundation  of  the 
liability  of  a  consolidated  corporation  for  the  debts  and  liabilities  of 
the  constituent  corporations  must  rest,  it  is  said,  upon  an  agreement 
either  express  or  implied  from  its  further  act  in  taking  possession 
of  all  means  of  meeting  those  liabilities;  and  no  assumption  of  lia- 
bility can  be  implied  from  a  consolidation  by  which  no  assets  pass  to 
the  corporation  sought  to  be  charged.102 

§  335.  Constituent  companies  are  usually  dissolved — When  not. — 
There  is,  it  seems,  a  clear  distinction  between  a  consolidation  whereby 
the  several  corporations  are  merged  into  a  new  one  and  the  union  or 
combination  of  two  or  more  corporations  by  dissolving  all  but  one 
into  which  the  others  are  merged.103  And  the  fact  that  the  company 


100  Tompkins  v.  Augusta  Southern 
R.    Co.   102   Ga.   436,   30   S.   E.   992; 
United  States  Capsule  Co.  v.  Isaacs, 
23  Ind.  App.  533,  55  N.  E.  832;  Mor- 
rison v.  American  Snuff  Co.  79  Miss. 
330,   30    So.    723,   89    Am.    St.    598; 
Brum  v.  Merchants'  Mut.  Ins.  Co.  16 
Fed.  140;  Harrison  v.  Arkansas  Val- 
ley R.  Co.  4  McCrary  (U.  S.)  264. 

101  Powell  v.  North  Missouri  R.  Co. 
42  Mo.  63.    The  creditors  have  not 
only  a  remedy  at  law  against  the 
new  company,  but  also  may  enforce 
their  claims  in  equity  against  the 
assets  of  the  original  company;  for 
it  is  not  competent  for  the  legisla- 
ture by  law  to  compel  the  creditors 
of  a  company  to  accept  the  liability 
of  a  new  company  formed  of  the 
stockholders    of    their    debtor   com- 
pany and  others,  in  substitution  for 
their     original     rights.       Morawetz 
Priv.   Corp.    (2d  ed.),  §§  808,   954; 
Harrison  v.  Arkansas  Valley  R.  Co. 
4  McCrary  (U.  S.)  264;  Barksdale  v. 
Finney,  14  Gratt.  (Va.)  338;  Mont- 
gomery, &c.  R.  Co.  v.  Branch,  59  Ala. 


139.  In  some  jurisdictions  it  is 
held  that  the  new  company,  in  the 
absence  of  a  statute  or  contract  to 
the  contrary,  does  not  assume  the 
debts  and  liabilities  of  the  old,  and 
is  liable  only  to  the  extent  of  the 
property  which  it  has  received  from 
the  debtor  company.  Prouty  v.  Lake 
Shore  R.  Co.  52  N.  Y.  363;  Board- 
man  v.  Lake  Shore,  &c.  R.  Co.  84  N. 
Y.  157;  Shackleford  v.  Mississippi 
Cent.  R.  Co.  52  Miss.  159;  Shaw  v. 
Norfolk  County  R.  Co.  16  Gray 
(Mass.)  407. 

102  Houston,  &c.  R.  Co.  v.  Shirley, 
54  Tex.  125.     See,  also,  Hatcher  v. 
Toledo,  &c.  R.  Co.  62  111.  477,  where 
the  debts  of  the  old  company,  having 
been  wiped  out  by  foreclosure  and 
sale,  were  held  not  to  be  fastened 
upon  the  new  by  a  subsequent  stat- 
ute making  consolidated  companies 
liable  for  the  debts  of  the  constitu- 
ent companies. 

103  See  United  States  v.  Southern 
Pac.  R.  Co.  46  Fed.  683;  Tomlinson 
v.   Branch,   15   Wall.    (U.   S.)    460; 


335] 


CONSOLIDATION. 


486 


absorbing  the  others  is  given  a  new  name  and  enlarged  powers  will 
not,  necessarily,  affect  its  identity,  but  a  mortgage  upon  its  property, 
together  with  all  future  acquisitions  executed  before  such  other  com- 
panies were  absorbed  or  merged  into  it  will,  it  has  been  held,  attach 
to  the  entire  line  of  road  as  it  exists  after  the  merger.104  Ordinarily, 
the  effect  of  a  consolidation  is  to  dissolve  the  old  companies  and  form 
a  new  one;105  but  this  result  does  not  always  follow  from  a  so-called 
consolidation,  for  it  depends  largely  upon  the  terms  of  the  consolida- 
tion and  the  legislative  intent  as  manifested  in  the  statute  under 
which  the  consolidation  takes  place,106  and  the  constituent  companies 
usually  have  at  least  a  qualified  existence  for  the  purpose  of  winding 
up  their  affairs  and  preserving  the  rights  of  their  creditors.107  The 


Central  R.  &c.  Co.  v.  Georgia,  92  U. 
S.  665;  Philadelphia,  &c.  R.  Co.  v. 
Maryland,  10  How.  (U.  S.)  376; 
Citizens'  Street  R.  Co.  v..  Memphis, 
53  Fed.  715;  Vicksburg,  &c.  Tel.  Co. 
v.  Citizens'  Tel.  Co.  79  Miss.  341,  30 
So.  725,  89  Am.  St.  656;  note  in  89 
Am.  St.  607-609 ;  Lee  v.  Atlantic,  &c. 
R.  Co.  150  Fed.  775,787  (citing text). 

1M  Meyer  v.  Johnston,  64  Ala.  603, 
8  Am.  &  Eng.  R.  Gas.  584. 

105  McMahan  v.  Morrison,  16  Ind. 
172,  79  Am.  Dec.  418,  and  note;  St. 
Louis,  &c.  R.  Co.  v.  Berry,  41  Ark. 
509;  Railroad  Co.  v.  Georgia,  98  U. 
S.  359,  363;  Yazoo,  &c.  R.  Co.  v.  Ad- 
ams, 180  U.  S.  1,  21  Sup.  Ct.  240, 
246,  247  (reviewing  the  earlier  cases 
in  the  supreme  court  of  the  United 
States) ;  Keokuk,  &c.  R.  Co.  v.  Mis- 
souri, 152  U.  S.  301,  14  Sup.  Ct.  592; 
Clearwater  v.  Meredith,  1  Wall.  (U. 
S.)  25;  Shields  v.  Ohio,  95  U.  S.  319, 
325;  Fee  v.  New  Orleans,  &c.  Co.  35 
La.  Ann.  413;  Miner  v.  New  York, 
&c.  R.  Co.  123  N.  Y.  242;  Cheraw, 
&c.  R.  Co.  v.  Commissioners,  88  N. 
Car.  519;  note  to  Louisville,  &c.  R. 
Co.  v.  Boney,  3  L.  R.  A.  435;  note 
to  State  v.  Chicago,  &c.  R.  Co.  2  L. 
R.  A.  564;  Ashley  v.  Ryan,  49  Ohio 
504,  31  N.  E.  721,  725,  726.  See,  also, 
Louisville,  &c.  R.  Co.  v.  Utz,  133 


Ind.  265,  32  N.  E.  881;  Chicago,  &c. 
R.  Co.  v.  Ashling,  160  111.  373,  43  N. 
E.  373;  State  v.  Leueur,  145  Mo. 
322,  46  S.  W.  1075;  Lester  v. 
Georgia,  &c.  R.  Co.  90  Ga.  802,  17  S. 
E.  113;  Charlotte,  &c.  R.  Co.  v.  Gib- 
bes,  27  S.  Car.  385,  4  S.  E.  49. 

1(X)Wabash,  &c.  R.  Co.  v.  Ham,  114 
U.  S.  587,  595,  5  Sup.  Ct.  1081;  Cen- 
tral R.  Co.  v.  Georgia,  92  U.  S.  665, 
670.  See,  also,  People  v.  New  York, 
&c.  R.  Co.  129  N.  Y.  474,  29  N.  E.  959, 
15  L.  R.  A.  82;  Boston,  &c.  R.  Co.  v. 
New  York,  &c.  R.  Co.  13  R.  I.  260; 
Evans  v.  Interstate  Rapid  Transit 
R.  Co.  106  Mo.  594,  17  S.  W.  489. 
See,  also,  ante,  §  324,  note  3. 

107  Edison  Electric  Light  Co.  v. 
New  Haven,  &c.  Co.  35  Fed.  233; 
Eaton,  &c.  R.  Co.  v.  Hunt,  20  Ind. 
457;  1  Beach  Priv.  Corp.  §  339; 
Compton  v.  Wabash,  &c.  R.  Co.  45 
Ohio  St.  592,  16  N.  E.  110,  117.  And 
see  Mansfield,  &c.  R.  Co.  v.  Brown, 
26  Ohio  St.  223;  Day  v.  Worcester, 
&c.  R.  Co.  151  Mass.  302,  23  N.  E. 
824;  Spence  v.  Mobile,  &c.  R.  Co.  79 
Ala.  576;  Selma,  &c.  R.  Co.  v.  Har- 
bin, 40  Ga.  706.  See  ante,  §  334, 
note  1,  p.  462;  also,  Atlantic,  &c.  R. 
Co.  v.  Cone  (Fla.),  43  So.  514,  521 
(citing  text). 


487  CONSTITUENT   COMPANIES   ARE   USUALLY  DISSOLVED.      [§    335 

term  "consolidation"  is  an  elastic  one  and  may  include  a  union  of 
two  or  more  corporations  into  a  new  one  with  a  different  name,  with 
or  without  extinguishing  the  constituent  corporations,  or  the  merger  of 
two  or  more  corporations  into  another  existing  corporation  under  the 
name  of  the  latter.108  There  is,  as  we  have  already  said,  a  distinction 
between  these  modes  of  consolidation.  In  the  latter  case,  if  the  merger 
is  complete,  it  is  evident  that  the  one  corporation  is  extinguished,  un- 
less kept  alive  for  certain  purposes,  while  it  is  equally  clear  that  the 
other,  in  which  it  is  merged,  is  not  dissolved.109  In  other  words,  the 
legislative  intention  in  such  a  case  would  seem  to  he  to  unite  the  two 
companies  under  the  old  charter  of  one  of  them,  while  statutes  author- 
izing the  consolidation  of  two  or  more  corporations  in  the  ordinary 
way  are  generally  construed  as  authorizing  the  formation  of  a  new 
and  distinct  corporation,  thus  extinguishing  all  the  constituent  com- 
panies unless  a  contrary  intention  is  manifest.  It  all  depends  ordi- 
narily, however,  upon  the  intention  of  the  legislature,  as  shown  in 
the  statute  authorizing  the  consolidation,  and  the  agreement  of  con- 
solidation in  pursuance  of  the  statute.110  "There  is  nothing  in  the 
nature  of  the  subject-matter,  nor  of  the  process  of  consolidation,  that 
requires  the  extinction  of  the  old  corporations  to  make  the  new.  It 
may  be  done,  or  it  may  not."-111  So  far  at  least  as  domestic  corpora- 
tions are  concerned,  it  is  for  the  state  to  say  upon  what  terms  they 
may  consolidate  and  it  may  thus  determine  the  effect  of  the  consolida- 
tion. As  said  in  a  recent  case,  "It  is  perfectly  competent  for  the  legis- 
lature, in  consolidation  acts,  to  declare  what  shall  be  the  status  of  the 
domestic  corporations  which  shall  avail  themselves  of  their  provisions, 

108  Text  quoted   with  approval   in  110See  Crawfordsville,   &c.   Co.  v. 
Pingree  v.  Michigan  Cent.  R.  Co.  118  Fletcher,  104  Ind.  97,  2  N.  E.  243; 
Mich.  314,  76  N.  W.  635,  643,  53  L.  Meyer  v.  Johnston,  64  Ala.  603;  note 
R.  A.  274.     In  Powell  v.  North  Mo.  in  52  Am.  St.   369;    Central  R.  &c. 
R.  Co.  42  Mo.  63,  however,  it  is  said  Co.  v.  Georgia,  92  U.  S.  665;  Chicago, 
that  a  union  by  which  several  com-  &c.  R.  Co.  v.  Ashling,  160  111.  373,  43 
panies  are  merged  into  and  consti-  N.  E.  373,  375,  376.     But  consolida- 
tuted  one  body,  corporate  under  the  tion    in    the    strict    and    narrowest 
name  of  one  of  them,  and  all  are  sense  usually  operates  to  create  a 
continued  in  existence,  is  a  consol-  new  corporation  and  extinguish  the 
idation   proper,   while   it   is  not  a  old  ones  except  as  they  may  be  kept 
mere  consolidation  where  one  is  ex*  alive  in  a  limited  sense  "or  the  pur- 
tinguished  and  the  other  continued  pose  of  winding  up  or  under  statu- 
in  existence.  tory   provision    for    the   benefit   of 

109  Central  R.  &c.  Co.  v.  Georgia,  92  creditors  or  the  like. 

U.  S.  665;  Meyer  v.  Johnston,  64  Ala.  m  Citizens'  St.  R.  Co.  v.  Memphis, 
603,  8  Am.  &  Eng.  R.  Cas.  584.  53  Fed.  715,  718. 


§  335a]  CONSOLIDATION.  488 

and  also  of  the  consolidated  company.  Whether  the  new  consolidation 
shall  create  a  mere  business  union  between  the  constituent  companies, 
leaving  them  in  existence  as  corporations,  or  whether  it  shall  operate 
as  a  surrender  of  the  corporate  franchises  and  an  extinguishment  of 
their  corporate  existence,  and  as  creating  a  new  corporation  combining, 
to  the  extent  permitted  by  the  act,  the  powers  of  the  corporations  out 
of  which  it  is  formed,  and  vesting  in  it  the  property  of  the  constitu- 
ent companies,  depends  upon  the  legislative  intention."'12 

§  335a.    Duration  of  life  and  franchises  of  consolidated  company. — 

The  statute  and  agreement  of  consolidation  generally  fix  the  duration 
of  the  life  of  the  consolidated  company,  but  a  question  of  some  diffi- 
culty arises  when  the  law  is  silent  and  does  not  speak  upon  the  subject. 
In  one  case  it  was  said  that  where- the  law  is  silent  the  life  of  the  new 
consolidated  company  cannot  exceed  that  of  the  shorter-lived  of  the 
constituent  companies,  and  it  was  held  that  where  the  charter  of  one 
expired  by  limitation  on  the  same  day  that  the  other  began  there 
could  be  no  consolidation  under  a  statute  providing  for  consolidations 
between  existing  corporations.113  But  this  decision,  as  to  the  latter 
point,  was  reversed  by  the  Supreme  Court  of  the  United  States,114 
which  did  not,  however,  consider  the  other  question.  The  fallacy  of 
the  reasoning  in  the  first  case  cited  lies,  it  is  said,  "in  the  assumption 
that  the  old  corporations  have  anything  to  do  with  granting  a  life  to 
the  new  corporation."115  At  all  events,  if,  as  is  generally  the  case  and 
is  generally  held,  a  new  and  distinct  corporation  is  created,  which 
owes  its  life  to  the  existing  law  and  act  of  consolidation  thereunder, 
and  that  existing  law,  while  not  expressly  stating  in  particular  what 
shall  be  the  duration  of  the  life  of  consolidated  companies,  authorizes 
new  companies  to  be  created  for  a  certain  term,  the  better  view  would 
seem  to  be  that  the  new  consolidated  company  may  be  created  and 
organized  for  that  term,(  notwithstanding  the  life  or  lives  one  or  both 
of  the  constituent  companies  would  have  terminated  before  that 
time.116 

112  People  v.  New  York,  &c.  R.  Co.  U3  New  Orleans  Gas  Light  Co.  v. 
129  N.  Y.  474,  482,  29  N.  E.  959,  15  Louisiana,  &c.  Co.  11  Fed.  277. 
L.  R.  A.  82.     To  the  same  effect  is  U4New  Orleans  Gas  Light  Co.  v. 
Day  v.   Worcester,   &c.    R.   Co.    151  Louisiana,  &c.  Co.  115  U.  S.  650,  6 
Mass.  302,  23  N.  E.  824.     See,  also,  Sup.  Ct.  252. 
Shrewsbury,    &c.    R.    Co.    v.    Stour  "5  See  note  in  89  Am.  St.  615. 
Valley  R.  Co.  2  DeG.,  M.  &  G.  866;  11B  See  Market  St.  R.  Co.  v.  Hell- 
Parkinson  v.  West  End  St.  R.  Co.  man,  109  Cal.  571,  42  Pac.  225;  Rio 
173  Mass.  446,  53  N.  E.  891.  Grande,  &c.  R.  Co.  v.  Telluride,  &c. 


489 


EFFECT  OF  CONSOLIDATION  UPON  LIENS. 


[§'  336 


§  336.  Effect  of  consolidation  upon  liens. — A  mortgage  placed 
upon  the  property  by  the  original  corporation  remains  a  lien  upon  it 
in  the  hands  of  the  consolidated  company,117  and  where  the  mortgage 
so  provides,  it  will  cover  all  acquisitions  of  the  consolidated  company 
which  become  a  part  of  the  property  to  which  it  originally  attached.118 
It  has  been  held,  however,  that  a  mortgage  executed  by  a  consolidated 
corporation  will  take  priority  over  unsecured  debts  of  one  of  the  con- 
solidating companies,  contracted  while  the  company  possessed  the 
power  to  enter  into  an  agreement  of  consolidation,  and  transfer  all 
of  its  assets  and  liabilities  to  the  new  company  thereby  formed  119 


Co.  16  Utah  125,  51  Pac.  146;  Char- 
ity Hospital  v.  New  Orleans,  &c.  Co. 
40  La  Ann.  382,  4  So.  433.  And  see, 
generally,  Blair  v.  Chicago,  &c.  R. 
Co.  201  U.  S.  400,  26  Sup.  Ct.  427; 
Cleveland  v.  Cleveland,  &c.  Co.  201 
U.  S.  529,  26  Sup.  Ct.  513. 

117  Hazard  v.  Vermont,  &c.  R.  Co. 
17  Fed.  753 ;  Rutten  v.  Union  Pac.  R. 
Co.  17  Fed.  480;  Mississippi  Valley 
Co.  v.  Chicago,  &c.  R.  Co.  58  Miss. 
846 ;  Morrison  v.  American  Snuff  Co. 
79  Miss.  330,  30  So.  723,  89  Am.  St. 
598;  Cordova  Coal  Co.  v.  Long,  91 
Ala.  538,  8  So.  765;  Eaton,  &c.  R.  Co. 
v.  Hunt,  20  Ind.  457;  Cqmpton  v. 
Wabash,  &c.  Co.  45  Ohio  St.  592,  16 
N.  E.  110.  But  see  Wabash,  &c.  R. 
Co.  v.  Ham,  114  U.  S.  587,  5  Sup.  Ct. 
1081.  And  the  consolidated  com- 
pany will  not  be  permitted  to  aver 
ignorance  of  such  mortgage,  though 
unrecorded.  Mississippi,  &c.  R.  Co. 
v.  Chicago,  &c.  R.  Co.  58  Miss.  846; 
The  Key  City,  14  Wall.  (U.  S.)  653. 
See,  also,  North  Carolina  R.  Co.  v. 
Drew,  3  Woods  (U.  S.)  691.  A  rail- 
road company  with  notice  of  plain- 
tiff's lien  on  the  road  entered  into 
a  consolidation  with  another  com- 
pany. The  property  of  the  consol- 
idated company  was  leased  to  a  ca- 
nal company.  Held,  that  neither 
the  consolidated  company  nor  its 
lessee,  the  canal  company,  was,  in 


respect  to  plaintiff's  lien,  a  pur- 
chaser for  value  without  notice.  Vi- 
las  v.  Page,  106  N.  Y.  439,  13  N.  E. 
743. 

118  Central  R.  &c.  Co.  v.  Georgia,  92 
U.  S.  665,  98  U.  S.  359;   Hamlin  v. 
Jerrard,  72  Me.  62 ;  Hamlin  v.  Euro- 
pean, &c.  R.  Co.  72  Me.  83 ;  Compton 
v.  Jesup,  68  Fed.  263. 

119  Wabash,  &c.  R.  Co.  v.  Ham,  114 
U.  S.  587,  5  Sup.  Ct.  1081;  Tysen  v. 
Wabash,  &c.  R.  Co.  15  Fed.  763 ;  In- 
dianapolis, &c.  R.  Co.  v.  Jones,  29 
Ind.  465,  95  Am.  Dec.  654.     In  the 
first  case  just  cited  the  old  bond- 
holders were  given  an  opportunity 
to  exchange  their  bonds  for  bonds 
secured  by  a  mortgage  of  the  consol- 
idated company,  but  failed  to  do  so 
for  six  years,  after  which  the  mort- 
gage in  question  was  executed.    See 
Blair  v.  St.  Louis,  &c.  R.  Co.  24  Fed. 
148.    But  where  a  consolidated  com- 
pany stipulated  that  certain  bonds 
of  the  old  company  should  be  pro- 
tected by  the  new  company,  it  was 
held  that  the  holders  of  these  bonds 
acquired   the   right  to   require   the 
property    of   the    company   issuing 
them  to  be  applied  to  their  payment 
in  preference  to  mortgagees  of  the 
consolidated  company.     Compton  v. 
Wabash,  &c.  R.  Co.  45  Ohio  St.  592. 
This   case   grew   out   of   the   same 
transaction  as  the  first  case  above 


337] 


CONSOLIDATION. 


490 


Where  a  person  purchases  unsecured  bonds  of  a  railroad  company 
which  is  authorized  by  law  to  consolidate  with  other  companies  he 
may  be  held  to  have  made  the  purchase  in  contemplation  of  a  possible 
consolidation;120  but  liens  created  by  the  constituent  companies  and 
existing  at  the  time  of  the  consolidation  are  superior  to  those  of  the 
same  class  created  by  the  consolidated  company.121  So,  where  the  act 
of  consolidation  provides  that  the  old  companies  shall  remain  in  ex- 
istence to  preserve  the  rights  of  creditors,  they  are  not  relieved  from 
liability  on  previously  issued  bonds  by  reason  of  the  fact  that  their 
property  has  passed  into  the  hands  of  the  consolidated  company.123 
It  has  been  held,  however,  that  where  several  railroad  companies  are 
consolidated  the  bonded  indebtedness  of  each,  although  secured  by 
mortgage  on  its  property  and  franchises,  may  be  enforced  against  the 
new  corporation,  under  a  statute  providing  that  "all  debts  and  lia- 
bilities incurred  by  either  of  said  corporations,  except  mortgages,  shall 
thenceforth  attach  to  such  new  corporation."124 

§  337.  De  facto  consolidation — Estoppel — Liability  of  constituent 
companies  where  consolidation  is  set  aside. — Railroad  companies 
which,  being  authorized  by  law  to  consolidate  their  lines,  enter  into  a 
de  facto  consolidation,  and  transact  business  in  the  name  of  the  con- 


cited  and  the  supreme  court  of 
Ohio  refused  to  follow  the  supreme 
court  of  the  United  States. 

^Tysen  v.  Wabash,  &c.  R.  Co.  15 
Fed.  763;  Montgomery,  &c.  Railroad 
Co.  v.  Branch,  59  Ala.  139.  But  see 
Wabash,  &c.  R.  Co.  v.  Ham,  114  U. 
S.  587,  5  Sup.  Ct.  1081. 

121  Shackelford  v.  Mississippi,  &c. 
R.  Co.  52  Miss.  159;  Hazard  v.  Ver- 
mont, &c.  R.  Co.  17  Fed.  753;  Spence 
v.  Mobile,  &c.  R.  Co.  79  Ala.  576; 
Mobile,  &c.  R.  Co.  v.  Gilmer,  85  Ala. 
422,  5  So.  138;  Pittsburg,  &c.  R.  Co. 
v.  Lynde,  55  Ohio  St.  23,  44  N.  E. 
596. 

123  Gale  v.  Troy,  &c.  R.  Co.  51  Hun 
(N.  Y.)  470,  4  N.  Y.  295;  Indianapo- 
lis, &c.  R.  Co.  v.  Jones,  29  Ind.  465, 
95  Am.  Dec.  654;  Jones  Corp.  Bonds 
and  Mort.  §  362.  An  agreement  be- 
tween the  old  companies  and  the 


consolidated  company  that  the  old 
shall  be  liable  has  been  held  not  to 
be  binding  upon  creditors  of  the  old 
without  their  consent.  Smith  v.  Los 
Angeles,  &c.  R.  Co.  98  Cal.  210,  33 
Pac.  53. 

124  Polhemus  v.  Fitchburg  R.  Co. 
123  N.  Y.  502,  26  N.  E.  31.  The  court 
held  that  the  words,  "except  mort- 
gages," confined  the  mortgage  lien 
to  the  property  owned  by  the  com- 
pany which  had  executed  the  mort- 
gage prior  to  the  consolidation  with- 
out affecting  the  other  property  of 
the  consolidated  company,  but  did 
not  prevent  the  latter  from  becom- 
ing liable  for  the  debt  of  the  old 
company  secured  by  such  mortgage. 
See,  also,  Utica  Nat.  Brewing  Co., 
Matter  of,  154  N.  Y.  268,  48  N.  E. 
521. 


491      EFFECT  OF  CONSOLIDATION  UPON  PENDING  SUITS.   [§  338 

solidated  company,  will  be  estopped  to  deny  the  validity  of  the  con- 
solidation in  a  suit  to  enforce  liabilities  incurred  in  the  transaction 
of  such  business  and  upon  the  faith  of  their  legal  existence  as  a  con- 
solidated company.125  This  rule  has  been  said  to  be  applicable  where 
business  within  the  ordinary  powers  of  the  constituent  companies  was 
transacted  by  a  company  into  which  they  had  formed  themselves  with- 
out legislative  authority.126  This  decision  rests  upon  the  theory  that 
the  companies,  having  power  to  do  the  acts,  could  not  deny  a  liability 
incurred  thereby  upon  the  ground  that  they  exceeded  their  charter 
powers  in  selecting  the  means  by  which  the  acts  should  be  done. 
Possibly  it  may  be  upheld  on  this  ground,  but,  in  any  event,  it  is  an 
extreme  application  of  the  doctrine.  And,  where  there  is  no  authority 
to  consolidate,  a  direct  attack  may  be  made  by  quo  warranto  proceed- 
ings by  the  state,127  but  it  has  been  held  that  a  suit  to  enjoin  an  ultra 
vires  consolidation  will  also  lie.128  "Where  an  ineffectual  attempt  is 
made  to  effect  a  consolidation,  and  the  attempted  consolidation  is 
afterward  set  aside  by  the  court  as  being  null  and  void,  it  has  been 
held  that  the  several  companies  are  individually  liable  for  liabilities 
contracted  by  the  consolidated  company;  and  execution  may  be  had 
against  them  upon  a  judgment  recovered  against  the  consolidated  com- 
pany before  it  was  judicially  dissolved.129 

§  338.     Effect  of  consolidation  upon  pending  suits. — It  is  sometimes 
provided  by  statute  that  pending  suits  against  a  corporation  shall  not 

12S  Racine,  &c.  R.  Co.  v.  Farmers',  State,  109  Ga.  736,  35  S.  E.  323,  48  L. 

&c.  Co.  49  111.  331,  347,  95  Am.  Dec.  R.  A.  520;   Louisville,  &c.  R.  Co.  v. 

595;  Reynolds  v.  Myers,  51  Vt.  444;  Commonwealth,  97  Ky.  675,  31  S.  W. 

Southern  Kans.  &c.  R.  Co.  v.  Town-  476.     See,  also,   Bohmer  v.  Haffen, 

er,  41  Kans.  72,  21  Pac.  221;  Callen-  161  N.  Y.  390,  55  N.  E.  1047  (suit  by 

der  v.  Painesville,  &c.  R.  Co.  11  Ohio  taxpayer). 

St.  516;  Tagart  v.  Northern  Central  129Ketcham  v.  Madison,  &c.  R.  Co. 

R.   Co.   29   Md.   557;    Farmers',   &c.  20  Ind.  260.     Where  two  competing 

Co.  v.  Toledo,  &c.  R.  Co.  67  Fed.  49,  railway    lines    executed    an    illegal 

55.    Ante,  §  323.  consolidation,  and  defendant  has  de- 

12SBissell    v.    Michigan    Southern,  rived  all  the  benefits  arising  from 

&c.  R.  Co.  22  N.  Y.  258.  the  contract  of  consolidation,  its  ille- 

127  Distilling,  &c.  Co.  v.  People,  156  gality  is  no  defense  to  a  bill  in  equi- 
111.    448,    41   N.    E.    188;    People   v.  iy  for  an  accounting  and  a  return  of 
North  River,  &c.  Co.  121  N.  Y.  582,  the  consideration  to  plaintiff  whose 
24  N.  E.  834,  9  L.  R.  A.  33,  18  Am.  property  passed  to  defendant  under 
St.   843;    East   Line,   &c.   R.   Co.   v.  the  contract.     Manchester,  &c.  R.  v. 
State,   75   Tex.   434,   12    S.  W.   690;  Concord   R.   66   N.   H.   100,   20   Atl. 
State  v.  Beck,  81  Ind.  500.  383,  9  L.  R.  A.  689,  49  Am.  St.  582, 

128  Trust   Company   of   Georgia   v.  47  Am.  &  Eng.  R.  Cas.  359. 


§  338] 


CONSOLIDATION. 


492 


be  affected  by  its  consolidation  with,  other  companies.130  And,  even 
in  the  absence  of  such  a  provision,  the  action  of  the  state  in  granting 
authority  to  consolidate  and  the  action  of  the  corporation  in  effecting 
a  consolidation  under  that  authority  cannot  affect  the  rights  of  the 
plaintiff  in  a  suit  pending  against  it.  The  corporation  cannot,  by  its 
own  act,  defeat  the  right  of  persons  to  maintain  suits  actually  begun.131 
The  identity  of  the  old  corporation  may  be  considered,  in  some  juris- 
dictions, at  least,  as  continued  for  the  purposes  of  the  suit.132  But  it 
has  been  held  in  other  jurisdictions  that  the  new  company  should  be 
made  a  party  to  the  suit  by  substitution,  and  that  all  proceedings 
against  the  original  company  after  consolidation  without  bringing  the 
consolidated  company  into  court  are  void.133  Where  such  a  substitu- 


130  Baltimore,  &c.  R.  Co.  v.  Mussel- 
man,  2  Grant's  Gas.  (Pa.)  348;  East 
Tennessee,   &c.  R.   Co.   v.   Evans,  6 
Heisk.   (Tenn.)   607;   Shackelford  v. 
Mississippi,  &c.  R.  Co.  52  Miss.  159. 
Under  a  New  York  statute,   which 
provided      that      actions      pending 
against  either  of  the  consolidating 
companies    should    not    ahate,    but 
might  he   conducted   to   final   judg- 
ment in  the  name  of  the  existing 
company,  and  the  rights  of  creditors 
preserved  unimpaired,  and  the  cor- 
porations continued  in  existence  to 
preserve  the  name,  it  was  held  that 
an  action  could  be  brought  after  the 
consolidation  against  one  of  the  con- 
solidating companies   on   its   bonds 
previously   executed.   Gale  v.   Troy, 
&c.  Co.  51  Hun  (N.  Y.)  470,  4    N.  Y. 
S.  295. 

131  Shackelford  v.   Mississippi,  &c. 
R.  Co.  52  Miss.  159.  See,  also,  Kinion 
v.  Kansas  City,  &c.   R.  Co.   39  Mo. 
App.   574;    Evans  v.  Interstate,  &c. 
R.   Co.   106  Mo.  594,  17   S.  W.  489; 
Atlantic,  &c.  R.  Co.  v.  Cone  (Fla.), 
43    So.    514,   521    (citing  text).     It 
is   no    defense  that   defendant   has 
no  property,  but  that  the  property 
it  formerly  possessed  had  vested  in 
the  new  company.    Gale  v.  Troy,  &c. 
R.  Co.  51  Hun   (N.  Y.)  470,  4  N.  Y. 
S.  295. 


152  Shackelford  v.  Mississippi,  &c. 
R.  Co.  52  Miss.  159;  East  Tennessee, 
&c.  R.  Co.  v.  Evans,  6  Heisk.  (Tenn.) 
607;  Baltimore,  &c.  R.  Co.  v.  Mussel- 
man,  2  Grant  Gas.  (Pa.)  348.  But 
see  Kansas,  &c.  R.  Co.  v.  Smith,  40 
Kans.  192,  19  Pac.  636. 

133  Selma,  &c.  R.  Co.  v.  Harbin,  40 
Ga.  706;  Prouty  v.  Lake  Shore,  &c. 
R.  Co.  52  N.  Y.  363;  Kansas  City, 
&c.  R.  Co.  v.  Way,  60  Kans.  856,  56 
Pac.  78.  See,  also,  note  in  89  Am. 
St.  648.  But  compare  Kinion  v. 
Kansas  City,  &c.  R.  Co.  39  Mo.  App. 
382;  Indianola  R.  Co.  v.  Fryer,  56 
Tex.  609;  Indianapolis,  &c.  R.  Co.  v. 
Jones,  29  Ind.  465,  95  Am.  Dec.  654. 
A  railroad  company  which  has  con- 
solidated with  other  railroad  com- 
panies under  a  new  name  ceases  to 
exist  as  a  corporation,  and  a  suit  by 
or  against  such  railroad  company 
before  consolidation  cannot  after- 
wards be  prosecuted  by  or  against 
it  or  in  its  original  name.  Kansas, 
&c.  R.  Co.  v.  Smith,  40  Kans.  192, 
19  Pac.  636.  Under  the  Missouri 
statute,  which  provides  that  the 
consolidated  company  succeeds  to 
the  liabilities  of  the  consolidating 
corporations  where  such  a  consoli- 
dation takes  place  pending  a  suit 
against  one  of  the  consolidating 
companies,  the  complaint  may  be 


493 


EFFECT   OF    CONSOLIDATION    UPON   PENDING   SUITS.        [§    338 


tion  is  made  it  has  been  held  that  the  substituted  defendant  may  treat 
the  pleadings  filed  by  the  original  defendant  as  its  own  and  avail 
itself  of  the  exceptions  reserved  by  the  original  defendant  before  the 
substitution.134  There  is  conflict  among  the  authorities  as  to  whether 
an  action  at  law  can  be  instituted  against  the  consolidated  company 
after  the  consolidation.  Some  of  the  courts  hold  that  it  is  only  liable 
to  the  extent  of  the  property  received  from  the  constituent  company, 
against  which  the  liability  existed,  and  that  it  can  only  be  reached  by 
suit  in  equity,135  but  the  better  rule  seems  to  be  that  an  action  at  law 
can  be  maintained  against  the  consolidated  company  for  the  prior 
torts  or  debts  of  the  constituent  companies,  for  which  it  is  made  liable 
under  the  statute  or  agreement  of  consolidation.136  It  has  been  held, 
however,  that  even  where  an  action  might  have  been  maintained 
against  either  the  constituent  company  committing  a  tort  or  against 
the  consolidated  company,  at  the  election  of  the  plaintiff,  he  cannot 
sue  both  in  one  action.137 


amended  by  substituting  the  consol- 
idated company  as  defendant,  and 
judgment  may  be  entered  against  it 
without  further  notice  to  it.  Kinion 
v.  Kansas  City,  &c.  R.  Co.  39  Mo. 
App.  574.  It  has  been  held  that 
judgment  against  the  consolidated 
company  on  a  claim  against  a  con- 
stituent company,  afterwards  dis- 
solved, may  be  enforced  against  the 
property  which  the  latter  received 
and  held  from  both  of  the  constitu- 
ent companies.  Ketcham  v.  Madison, 
&c.  R.  Co.  20  Ind.  260. 

134  Louisville,  &c.  R.  Co.  v.  Utz,  133 
Ind.  265,  32  N.  B.  881. 

135  See  ante,  §  334,  note. 

130  Langhorne  v.  Richmond  R.  Co. 
91  Va.  369,  22  S.  E.  159,  citing  1 
Thomp.  Corp.  §§  372,  395;  1  Beach 
Priv.  Corp.  §  344;  Purdy's  Beach 
Priv.  Corp.  §  1288;  2  Morawetz  Priv. 
Corp.  §  955;  Taylor  Priv.  Corp. 
§  666;  New  Bedford  R.  Co.  v.  Old 
Colony  R.  Co.  120  Mass.  397;  Colum- 
bus, &c.  R.  Co.  v.  Skidmore,  69  111. 
566;  Arbuckle  v.  Illinois,  &c.  R.  Co. 


81  111.429;  Montgomery,  &c.  R.  Co.  v. 
Boring,  51  Ga.  582;  Thompson  v.  Ab- 
bott, 61  Mo.  176;  Houston,  &c.  R.  Co. 
v.  Shirley,  54  Tex.  125;  Warren  v.  Mo- 
bile, &c.  R.  Co.  49  Ala.  582;  State  v. 
Baltimore,  &c.  R.  Co.  77  Md.  189,  26 
Atl.  865;  Berry  v.  Kansas  City,  &c. 
R.  Co.  52  Kans.  774,  36  Pac.  724,  39 
Am.  St.  381.  See,  also,  ante,  §  334, 
note,  and  note  to  Austin  v.  Tecum- 
seh  Nat.  Bank,  59  Am.  St.  551.  The 
right  to  bring  an  action  at  law 
against  the  consolidated  company  is 
placed  upon  various  grounds.  It 
avoids  circuity  of  action,  and  the 
necessary  privity  is  created,  accord- 
ing to  some  of  the  decisions,  by  the 
statute  and  consolidation  thereun- 
der, or,  according  to  others,  the 
right  to  maintain  such  an  action 
may  be  supported  upon  the  theory 
that  the  old  corporations  are  con- 
tinued in  existence  in  the  new  for 
the  purpose  of  enforcing  such  lia- 
bility. 

137  Langhorne  v.  Richmond  R.  Co. 
91  Va.  369,  22  S.  E.  159. 


§  339] 


CONSOLIDATION. 


494 


§  339.  Consolidation  with  foreign  corporations. — The  legislature 
of  a  state  may  authorize  corporations  of  that  state  to  consolidate  with 
those  of  other  stafes.138  Eailroads  of  other  states  are  generally  per- 
mitted to  consolidate  with  roads  within  the  state  upon  the  same  terms 
as  domestic  corporations,139  if  the  laws  of  such  states  also  authorize 
the  consolidation.140  But  the  new  company  so  formed  is  a  domestic 
corporation,  in  each  state  within  which  its  property  lies,  so  far  as  the 
ownership  and  use  of  such  property  is  concerned,141  and  it  is  subject 
to  the  jurisdiction  of  the  courts  of  the  several  states,  so  far  as  its  prop- 
erty and  the  operation  of  its  road  in  them  respectively  is  concerned.142 


138  Chicago,  &c.  R.  Co.  v.  Lake 
Shore,  &c.  R.  Co.  5  Fed.  19;  Peik  v. 
Chicago,  &c.  R.  Co.  94  U.  S.  164; 
Maine  Central  R.  Co.  v.  Maine,  96 
U.  S.  499;  Louisville,  &c.  R.  Co.  v. 
Kentucky,  161  U.  S.  677,  16  Sup.  Ct. 
714;  Ohio,  &c.  R.  Co.  v.  Weber,  96 
111.  443;  Boardman  v.  Lake  Shore, 
&c.  R.  Co.  84  N.  Y.  157;  Richardson 
v.  Vermont,  &c.  R.  Co.  44  Vt.  613; 
Ellis  v.  Boston,  &c.  R.  Co.  107  Mass. 
1;  Bishop  v.  Brainerd,  28  Conn.  289. 
But  a  state  may,  of  course,  permit  a 
railroad  of  another  state  to  acquire 
the  property  and  franchises  of  do- 
mestic corporations  and  to  operate 
their  roads  by  other  means  than 
consolidation.  Copeland  v.  Memphis, 
&c.  R.  Co.  3  Woods  (U.  S.)  651. 

138  The  consolidation  of  a  domestic 
corporation  with  a  corporation  or- 
ganized under  the  laws  of  another 
state  or  the  United  States  is  prohib- 
ited in  Texas.  Constitution,  Art.  10, 
§  6  R.  S.  Texas  (1879),  §  4247.  And 
in  New  Jersey  the  consent  of  the 
legislature  is  necessary  to  such  a 
consolidation.  N.  J.  Supp.  (1886), 
R.  R.  §  91. 

140  Pennsylvania  and  South  Caro- 
lina expressly  provide  so.  Dig. 
(1883)  Pa.  R.  §  79;  Laws  1885, 
S.  C.  Ch.  96,  §  5.  The  laws  of  In- 
diana require  the  consolidation  to 
be  made  in  accordance  with  the  laws 


of  the  adjoining  state.     R.  S.  1894, 
§  5257. 

141  Eaton,  &c.  R.   Co.  v.   Hunt,  20 
Ind.  457;   Delaware,  &c.  Tax  Cases, 
18  Wall.   (U.  S.)   206;   State  v.  Chi- 
cago, &c.  R.  Co.  25  Neb.  156,  41  N. 
W.  125,  2  L.  R.  A.  564,  and  note; 
Trester  v.  Missouri  Pac.  R.  Co.  33 
Neb.  171,  49  N.  W.  1110;   Peters  v. 
Boston,  &c.  R.   Co.   114   Mass.  127; 
Graham   v.   Boston,   &c.   R.    Co.    14 
Fed.  753;   2  Cook  Stock  and  Stock- 
holders,   §  909.      It   has    been    held 
that  the  corporation  cannot  be  sued 
in  the  Federal  courts  of  one  state 
by  a  citizen  of  that  state  for  inju- 
ries received  in  another  state,  into 
which  the  consolidated  line  extends. 
See   Nashville,   &c.   Railway   Co.   v. 
Edwards,  91  Ga.  24,  16   S.  E.  347; 
Western,  &c.  R.  Co.  v.  Roberson,  61 
Fed.   592;    Memphis,   &c.  R.   Co.   v. 
Alabama,  107  U.  S.  581,  2  Sup.  Ct. 
432.    As  to  whether  the  result  of  the 
consolidation  is  one  or  two  compa- 
nies, see  ante,  §§  26,  28.     See,  also, 
Central   Trust   Co.   v.    Chattanooga, 
&c.  R.  Co.  68  Fed.  685,  693;  Burger 
v.  Grand  Rapids,  &c.  R.  Co.  22  Fed. 
561,   20   Am.   &  Eng.   R.   Cas.    607; 
Ohio,  &c.  R.  Co.  v.  People,  123  111. 
467,  14  N.  E.  874. 

142  So  provided  by  law  in  many  of 
the     states.       Stimson     Am.     Stat. 
(1892)    §  8734.     See,  also,   Sage  v. 


495 


CONSOLIDATION  WITH   FOREIGN   CORPORATIONS. 


[§    339 


One  state,  while  it  may  fix  the  status  of  domestic  companies  which 
consolidate  under  its  laws,  has  no  power  to  authorize  the  consolidation 
of  domestic  corporations  with  those  of  another  state,  without  the  con- 
sent of  the  latter  state,  in  such  a  manner  as  to  vest  the  franchises, 
rights  and  property  of  the  foreign  corporations  in  the  consolidated 
company,  or  to  authorize  the  conversion  of  the  stock  of  all  the  con- 
stituent corporations  into  that  of  the  consolidated  company.143  Where 
a:  corporation  is  formed  by  the  consolidation  of  corporations  of  several 
states  it  generally  acts  as  a  unit  in  the  transaction  of  its  business,  and, 
in  the  absence  of  a  statutory  provision,  to  the  contrary,  it  has  been 
held  that  it  may  transact  its  corporate  business  in  one  state  for  all, 
and  the  contracts  it  enters  into,  and  the  liabilities  it  incurs  in  one 
state  are  binding  upon  it  in  all  the  states,  and  may  be  enforced  against 
it  in  any  one  of  them  when  the  action  ^is  transitory.144  Yet,  as  the 
laws  of  a  state  have  no  effect  outside  of  its  limits,  it  is  held  that  the 
consolidated  corporation  in  one  state  acts  under  the  authority  of  the 
charter  of  that  state,  and  is  not  affected  by  the  legislation  of  another 
state  in  which  a  part  of  its  line  lies,145  and  that  it  may  be  dissolved 


Lake  Shore,  &c.  R.  Co.  70  N.  Y.  220; 
Angier  v.  East  Tenn.  &c.  R.  Co.  74 
Ga.  634;  St.  Paul,  &c.  R.  Co.,  In  re, 
36  Minn.  85,  30  N.  W.  432;  Ashley  v. 
Ryan,  49  Ohio  St.  504,  31  N.  E.  721. 
The  courts  of  a  state  will  still  retain 
jurisdiction  of  a  corporation  after 
its  consolidation  with  a  foreign  cor- 
poration unless  an  express  surren- 
der of  jurisdictional  power  is  shown. 
Eaton,  &c.  R.  Co.  v.  Hunt,  20  Ind. 
457. 

143  People  v.  New  York,  &c.  R.  Co. 
129  N.  Y.  474,  29  N.  E.  959,  15  L.  R. 
A.  82. 

144  Fitzgerald  v.  Missouri  Pac.  R. 
Co.  45  Fed.  812;  Graham  v.  Boston, 
&c.  R.  Co.  118  U.  S.  161,  6  Sup.  Ct. 
1009 ;  Home  v.  Boston,  &c.  R.  Co.  62 
N.  H.  454,  ante,  §  27.    The  provision 
in  the  constitution  of  Illinois  requir- 
ing a  majority  of  the  directors  of 
any    company    incorporated    under 
the  laws  of  that  state  to  be  residents 
thereof,  does  not  apply  to  a  corpora- 
tion formed  by  the  consolidation  of 


an  existing  corporation  of  that  state 
with  similar  corporations  of  other 
states.  Ohio,  &c.  R.  Co.  v.  People, 
123  111.  467,  14  N.  E.  874.  A  railroad 
corporation,  chartered  and  operated 
in  two  states,  consolidated  and  made 
subject  to  all  the  duties  and  liabili- 
ties, under  one  charter  and  the  laws 
of  one  state,  as  if  wholly  located 
therein,  is  an  entity,  and  it  is  re- 
sponsible as  a  whole  for  its  acts  and 
its  negligence.  Providence  Coal  Co. 
v.  Providence  &  W.  R.  Co.  15  R.  I. 
303,  4  Atl.  394;  Southern  R.  Co.  v. 
Bouknight,  70  Fed.  442. 

145  Pittsburgh,  &c.  R.  Co.  v.  Roths- 
child (Pa.),  26  Am.  &  Eng.  R.  Cas. 
50;  Pittsburgh,  &c.  Co.'s  Appeal 
(Pa.),  4  Atl.  385,  affirming  1  Pa. 
County  Ct.  620;  Eaton,  &c.  R.  Co. 
v.  Hunt,  20  Ind.  457;  Mead  v.  New 
York,  &c.  R.  Co.  45  Conn.  199 ;  Quiii- 
cy  R.  Bridge  Co.  v.  Adams  Co.  88 
111.  615;  State  v.  Northern  Central 
R.  Co.  18  Md.  193;  Gardner  v.  James, 
5  R.  I.  235;  ante,  §  27.  In  Ohio,  &c. 


§  339] 


CONSOLIDATION". 


496 


and  its  business  wound  up  in  one  state  by  the  courts  of  that  state 
without  affecting  its  franchise  in  another.146  It  is  not  safe,  however, 
to  lay  down  any  unqualified  general  rules  upon  these  subjects.  In 
order  to  determine,  with  any  degree  of  certainty,  the  effect  of  a  con- 
solidation, and  the  rights,  powers,  duties  and  liabilities  of  the  con- 
solidated company,  in  any  particular  case,  resort  must  be  had  to  the 
legislation  of  the  states  in  which  the  company  is  consolidated  and  the 
agreement  of  consolidation  in  pursuance  thereof. 


R.  Co.  v.  People,  123  111.  467,  14  N.  E. 
874,  it  is  said  explicitly  that  the  con- 
solidated corporation  has  in  each 
state  all  the  rights,  powers  and 
franchises  that  the  constituent  com- 
pany of  that  state  had  therein,  but 
will  not  have  therein  the  rights, 
powers  and  franchises  of  the  con- 
stituent company  of  the  other  state, 
or,  in  other  words,  that  the  new 
corporation  will  stand  in  each  state 
as  the  original  company  had  stood 
in  the  same  state.  This,  however, 
cannot  be  affirmed  as  an  invariable 


rule,  for  much  depends  upon  the 
statute  and  consolidation  agreement. 
The  legislature  of  each  state  could 
give,  and  often  does  give,  the  new 
company  the  right  to  exercise  in  its 
own  jurisdiction  all  the  powers  and 
franchises  that  any  or  all  of  the 
constituent  companies  may  have 
possessed. 

146  Hart  v.  Boston,  &c.  R.  Co.  40 
Conn.  524.  For  a  further  and  fuller 
treatment  of  the  subject-matter  of 
this  section,  see  ante,  §§  26,  27,  28. 


CHAPTER  XVI. 


CONTRACTS. 


Sec.  Sec. 

340.  Contracts — Power    to    make-;-    360. 

Generally. 

341.  Contracts — Scope  of  corporate 

power.  361. 

342.  General    power    to    contract — 

Illustrative  instances. 

343.  Power  to  contract — Control  of     362. 

by  courts. 

344.  Effect  of  changes  in  charter.         363. 

345.  Contracts  —  Formal  requisites 

of.  364. 

346.  Formal  defects. 

347.  Contracts — Who  may  make — 

Generally.  365. 

348.  Contracts    by    interested    per-    366. 

sons. 

349.  Mode  prescribed  must  be  pur-     367. 

sued. 

350.  Contracts— Parties    bound    to    368. 

take  notice  of  charter  pro-     369. 
visions. 

351.  Contracts  —  Unauthorized  —     370. 

Notice. 

352.  Estoppel — Generally.  371. 

353.  Ratification    of    unauthorized 

acts — Rights    of   the   public     372. 
and  of  creditors. 

354.  Contracts  in  conjunction  with 

other  parties.  373. 

355.  Pledge  of  corporate  securities. 

356.  Contracts  between  connecting     374. 

lines — Division  of  fares. 

357.  Contracts    permitting    use    of     375. 

part  of  road. 

358.  Contracts   regarding   terminal 

facilities.  376. 

359.  Traffic  contracts  —  Surrender 

to  competing  line. 


Contracts  with  municipal  cor- 
porations for  terminal  facil- 
ities. 

Use  of  tracks  constructed  un- 
der grant  from  municipal 
corporation. 

Contracts  for  location  of  sta- 
tions. 

Location  of  tracks,  switches 
and  the  like. 

Contracts  that  may  be  made 
by  railroad  companies — Par- 
ticular instances. 

Pooling  contracts — Generally. 

Pooling  contracts  —  The  au- 
thorities. 

Pooling  contracts  —  Presump- 
tion. 

Contracts — Ultra  vires. 

Contracts — Ultra  vires  —  Gen- 
eral doctrine. 

Contracts  —  What  are  ultra 
vires — Generally. 

Contracts  —  Ultra  vires  —  Es- 
toppel. 

Contracts — Ultra  vires  —  Exe- 
cuted and  executory  con- 
tracts. 

Contracts — Ultra  vires — Cases 
discriminated. 

Contracts — Ultra  vires — Illus- 
trative instances. 

Contracts — Ultra  vires  —  Rule 
where  statute  prescribes 
consequences. 

Contracts  —  Ultra  vires  —  In- 
junction. 


ELL.  RAILROADS — 32 


497 


§  340] 


CONTRACTS. 


498 


Classes  of  illegal  contracts. 

Contracts  void  because  against 
public  policy. 

Contracts  against  public  policy 
— Location  of  stations  and 
tracks. 

Contracts  void  as  against  pub- 
lic policy — General  conclu- 
sions. 

Contracts  void  as  against  pub- 
lic policy — Illustrative  cases. 


Sec.  Sec. 

377.  Contracts  —  Ultra   vires  — De-    384. 

nial  of  relief — Laches.  385. 

378.  Contracts  —  Ultra  vires — Who 

may  contest.  386. 

379.  Contracts — Ultra    vires — Cred- 

itors. 

380.  Contracts — Ultra    vires — Non-    387. 

assenting  stockholders. 

381.  Prohibited  contracts — Effect  of 

prescribing  penalties.  888. 

382.  Illegal  contracts — Generally. 

383.  Illegal     contracts     and     ultra 

vires      contracts      discrimi- 
nated. 


§  340.  Contracts — Power  to  make — Generally. — A  railroad  com- 
pany has  the  implied  or  incidental  power  to  enter  into  any  and  all 
contracts  necessary  to  enable  it  to  carry  but  the  purposes  of  its  or- 
ganization, except  so  far  as  it  is  restrained  by  its  charter  or  the  general 
law.  The  presumption  is  in  favor  of  the  power  of  the  corporation  to 
make  any  contract,  which  is  regular  on  its  face  and  is  not  in  conflict 
with  any  prohibition  of  law,  and  is  within  the  scope  of  the  general 
powers  conferred  upon  the  corporation.1  Within  the  scope  of  the  cor- 
porate powers  the  right  to  contract  is  much  the  same  as  that  of  natural 
persons,2  but  as  corporate  powers  are  derivative  and  not  inherent,  the 
authority  of  a  corporation  to  contract  is  limited  by  the  charter  or  act 


1  Baltimore  v.  Baltimore,  &c.  R. 
Co.  21  Md.  50;  South  Wales  R.  Co. 
v.  Redmond,  10  C.  B.  N.  S.  675; 
Shipper  v.  Pennsylvania  R.  Co.  47 
Pa.  St.  338;  Stewart  v.  Erie  Trans. 
Co.  17  Minn.  372;  Davis  v.  Old  Col- 
ony R.  Co.  131  Mass.  258,  41  Am.  R. 
221;  Mitchell  v.  Rome,  &c.  R.  Co. 
17  Ga.  574;  Rider  Life  Raft  Co.  v. 
Roach,  97  N.  Y.  378;  Morris,  &c.  R. 
Co.  v.  Sussex  R.  Co.  20  N.  J.  Eq.  (5 
C.  E.  Green)  542.  The  burden  of 
proof  is  generally  upon  the  person 
asserting  the  illegality  or  ultra  vires 
character  of  a  contract  made  by  a 
corporation.  Morris,  &c.  R.  Co.  v. 
Sussex  R.  Co.  20  N.  J.  Eq.  (5  C.  E. 
Green)  542;  Ohio,  &c.  R.  Co.  v.  Mc- 
Carthy, 96  U.  S.  258;  Alabama  Gold 


Life  Ins.  Co.  v.  Central,  &c.  Assn. 
54  Ala.  73.  Prima  facie,  it  has  been 
said,  all  its  contracts  are  valid,  and 
it  lies  on  those  who  would  impeach 
any  contract  to  make  out  that  it  is 
invalid.  Scottish  North  Eastern  R. 
Co.  v.  Stewart,  3  Macqueen  382,  415. 
2  Hand  v.  Clearfield,  &c.  Co.  143 
Pa.  St.  408,  22  Atl.  709;  Tennessee, 
&c.  Co.  v.  Kavanaugh,  93  Ala.  324, 
9  So.  395;  Fitzgerald,  &c.  Co.  v.  Fitz- 
gerald, 137  U.  S.  98,  11  Sup.  Ct.  36; 
Hall  v.  Tanner,  &c.  Co.  91  Ala.  363, 
8  So.  348;  Gloninger  v.  Pittsburgh 
R.  Co.  139  Pa.  St  13,  21  Atl.  211. 
See,  also,  St.  Joseph,  &c.  R.  Co.  v. 
St.  Louis,  &c.  R.  'Co.  135  Mo.  173,  36 
S.  W.  602,  33  L.  R.  A.  607,  615. 


499 


CONTRACTS — SCOPE   OF   CORPORATE  POWER. 


[§   341 


of  incorporation.  It  is,  of  course,  competent  for  the  legislature  to 
limit  the  power  to  contract  and  to  designate  the  mode  in  which  cor- 
porations may  contract,  and  where  a  limitation  is  imposed  or  a  mode 
prescribed  the  corporation  cannot  rightfully  make  a  contract  beyond 
the  limits  nxed  by  the  statute,  nor  can  it  regularly  contract  in  any 
other  mode  than  that  prescribed  by  law  in  cases  where  a  specific  mode 
is  prescribed.3 

§  341.  Contracts — Scope  of  corporate  power. — The  power  of  a  rail- 
road company  to  make  contracts  is  limited  by  the  act  of  incorporation, 
but  is,  nevertheless,  very  broad  and  comprehensive.  Every  charter 
granted  a  railroad  corporation  invests  it  with  implied  as  well  as  with 
express  powers.  The  doctrine  seems  to  have  been  asserted  in  England, 
and  receives  some  support  in  this  country,  that  the  legislature,  when 
it  creates  a  corporation,  gives  to  that  body  an  absolute  right  of  con- 
tract, except  so  far  as  it  may  be  restrained  by  positive  law.4  It  cannot, 
however,  be  true  that  a  corporation  has  an  absolute  right  to  contract, 
for  it  cannot  make  a  contract  entirely  foreign  to  the  object  for  which 
it  was  created.5  It  is  generally  held  in  the  United  States,  and  it  is 
the  only  defensible  doctrine,  that  the  power  of  a  corporation  to  make 


3  Central,  &c.  Co.  v.  Pullman  Car 
Co.  139  U.  S.  24,  11  Sup.  Ct.  478,  45 
Am.  &  Eng.  R.  Cases  607;  Pearce 
v.  Madison,  &c.  Co.  21  How.  (U.  S.) 
441;  Zabriskie  v.  Cleveland,  &c.  Co. 
23  How.  (U.  S.)  381,  398;  Thomas 
v.  West  Jersey,  &c.  Co.  101  U.  S. 
71;  Branch  v.  Jesup,  106  U.  S.  468, 
1  Sup.  Ct.  495;  Pennsylvania  R.  Co. 
v.  St.  Louis,  &c.  Co.  118  U.  S.  290, 
6  Sup.  Ct.  1094;  Salt  Lake  City  v. 
Hollister,  118  U.  S.  256,  6  Sup.  Ct. 
1055;  Green  Bay,  &c.  R.  Co.  v. 
Union,  &c.  Co.  107  U.  S.  98,  2  Sup. 
Ct  221;  Pittsburg,  &c.  R.  Co.  v.  Keo- 
kuk,  &c.  Co.  131  U.  S.  371,  9  Sup. 
Ct.  770;  Oregon,  &c.  Co.  v.  Ore- 
gonian  R.  Co.  130  U.  S.  1,  4  Sup. 
Ct.  409;  New  London  v.  Brainard, 
23  Conn.  522;  Perrine  v.  Chesa- 
peake, &c.  Co.  9  How.  (U.  S.)  172; 
Commonwealth  v.  Erie,  &c.  Co.  27 
Pa.  St.  339,  67  Am.  Dec.  471. 


4  Shrewsbury,  &c.  R.  Co.  v.  North- 
western R.   Co.   6   H.   L.   Gas.   113; 
Riche  v.  Ashbury  R.  Car  Co.  L.  R.  9 
Ex.  224,  citing  case  of  Button's  Hos- 
pital, 10  Coke  1;    Norwich  v.  Nor- 
folk, &c.  R.  Co.  4  El.  &  Bl.  397. 

5  This  is  an  old  and  familiar  doc- 
trine, for  it  has  long  been   settled 
that  a -corporation  cannot  make   a 
contract  beyond  the  sphere  of  cor- 
porate power,  as  defined  by  the  act 
of  incorporation.     Utica  Ins.  Co.  v. 
Scott,     19     Johns.     1;     Lawler     v. 
Walker,  18  Ohio  151;   Dublin  Corp. 
v.  Attorney-General,   9  Bligh  N.   S. 
395;     Webb    v.    Manchester,    &c.    4 
Mylne  &  Craig  116;   Peirce  v.  New 
Orleans,  &c.  Co.  9  La.  397.    Nor,  in 
general,  that  would  disable  it  from 
performing  its  public  functions,  or 
be  against  public  policy.    See  post, 
§§  359,  368  et  seq. 


342] 


CONTRACTS. 


500 


contracts  is  limited  to  the  making  of  contracts  which  it  is  expressly 
authorized  to  enter  into  and  such  as  are  reasonably  necessary  or  inci- 
dent to  the  enjoyment  of  the  express  powers  granted  by  its  charter, 
and,  in  general,  its  officers  and  agents  can  only  bind  it  to  this  extent.6 
It  is  not  necessary,  however,  that  the  powers  of  a  corporation  should 
be  enumerated,  nor  is  it  necessary  that  the  power  to  contract  should 
be  expressly  conferred,  for  the  power  to  make  such  contracts  as  will 
promote  the  corporate  welfare  and  enable  the  corporation  to  conduct 
its  corporate  affairs  is  implied.7 

§342.  General  power  to  contract — Illustrative  instances. — Rail- 
road companies,  unless  forbidden  by  statute,  may  borrow  money  for 
corporate  purposes  and  issue  negotiable  instruments.8  It  is  held,  how- 


6  Mobile,  &c.  R.  Co.  v.  Franks,  41 
Miss.  494;    Winter  v.   Muscogee  R. 
Co.  11  Ga.  438;    Bowling  Green  R. 
Co.    v.    Warren    County,    10    Bush 
(Ky.)    711;    Downing  v.  Mt.  Wash- 
ington R.  Co.  40  N.  H.  231;  Vandall 
v.  South  San  Francisco  Dock  Co.  40 
Cal.  83.    See,  also,  Pittsburg,  &c.  R. 
Co.  v.  Lyon,  123  Pa.  St.  140,  16  Atl. 
607,  2  L.  R.  A.  489,  10  Am.  St.  517; 
Davis  v.  Old  Colony  R.  Co.  131  Mass. 
258,  41  Am.  R.  221. 

7  Smith  v.  Nashua,  &c.  R.  Co.  27 
N.  H.  86,  59  Am.  Dec.  364;   Brown 
v.      Winnisimmet      Co.      11     Allen 
(Mass.)  326;  Buffit  v.  Troy,  &c.  Co. 
36  Barb.   (N.  Y.)  420;   Jacksonville, 
&c.  R.  Co.tv.  Hooper,  160  U.  S.  514, 
16  Sup.  Ct379;  Toledo.  &c.  R.  Co.  v. 
Rodriguez,  47  111.  188,  95  Am.  Dec. 
484.     Some  of  the  cases  affirm  that 
the  inquiry  which  the  courts  are  to 
make  is  whether  the  power  to  make 
the     contract     is     forbidden,     not 
whether   it   is   granted.     Taylor   v. 
Chichester,  &c.  R.  Co.  L.  R.  2  Exch. 
356,  384;  Scottish,  &c.  R.  Co.  v.  Stew- 
art, 3  Macq.  382,  415;   Eastern,  &c. 
R.  Co.  v.  Hawkes,  5  H.  L.  Cas.  331. 
See  Cary  v.  Cleveland,  &c.  R.  Co.  29 
Barb.    (N.  Y.)    35,  52;    Bateman  v. 
Mayor,  &c.  Ashton,  &c.  3  Hurl.  &  N. 


323;  Kitchen  v.  Cape  Girardeau,  &c. 
Co.  59  Mo.  514;  South  Yorkshire  R. 
Co.  v.  Great  Northern  R.  Co.  9  Exch. 
55,  88;  South  Wales  R.  Co.  v.  Red- 
mond, 10  C.  B.  (N.  S.)  675;  Missis- 
sippi, &c.  R.  Co.  v.  Howard,  7  WaH. 
(U.  S.)  392;  Ohio,  &c.  R.  Co.  v.  Mc- 
Carthy, 96  U.  S.  258;  Norwich  v. 
Norfolk  R.  Co.  4  El.  &  Bl.  397,  432; 
Madison,  &c.  Co.  v.  Watertown,  &c. 
Co.  5  Wis.  173. 

8  White  Water  Valley  R.  Co.  v. 
Vallette,  21  How.  (U.  S.)  414;  Mis- 
sissippi, &c.  R.  Co.  v.  Howard,  7 
Wall.  (U.  S.)  392;  Gloninger  v. 
Pittsburgh,  &c.  R.  Co.  139  Pa.  St. 
13,  21  Atl.  211,  46  Am.  &  Eng.  R. 
Cas.  276;  Richards  v.  Merrimack, 
&c.  R.  Co.  44  N.  H.  127,  135;  Olcott 
v.  Tioga  R.  Co.  27  N.  Y.  546,  84  Am. 
Dec.  298;  Marion,  &c.  Co.  v.  Hodge, 
9  Ind.  163;  Frye  v.  Tucker,  24  111. 
180;  Goodrich  v.  Reynolds,  31  111. 
490,  83  Am.  Dec.  240;  Philadelphia, 
&c.  Co.  v.  Hickman,  28  Pa.  St.  318; 
Pierce  v.  Emery,  32  N.  H.  484;  Gal- 
veston,  &c.  Co.  v.  Cowdrey,  11  Wall. 
(U.  S.)  459;  Dupee  v.  Boston,  &c. 
Co.  114  Mass.  37;  Butler  v.  Rahm, 
46  Md.  541.  See,  also,  Alabama,  &c. 
Ins.  Co.  v.  Central,  &c.  Co.  54  Ala. 
73;  Philadelphia,  &c.  R.  Co.  v.  Stich- 


501       GENERAL  POWER  TO  CONTRACT — ILLUSTRATIONS.    [§  342 

ever,  that  under  a  power  to  borrow  money  and  issue  negotiable  bonds 
a  railroad  company  cannot  issue  perpetual  or  irredeemable  bonds.9 
A  railroad  company  has  power  to  compromise  all  controversies  relating 
to  corporate  aifairs.10  A  contract  to  haul  a  designated  quantity  of 
goods  each  month  is  one  that  may  be  lawfully  made,  provided  no  dis- 
crimination is  made  against  other  shippers.11  So,  it  has  recently  been 
held  that  a  railroad  company  may  contract  with  a  person  to  build  up, 
develop,  and  conduct  the  business  of  transporting  milk  over  its  lines 
of  road.lla  There  can,  of  course,  be  no  doubt  as  to  the  power  to  em- 
ploy and  contract  to  pay  a  compensation  to  such  agents  and  officers  as 
may  be  required  to  conduct  the  corporate  business,  and  it  has  been 
held  that  two  companies  may  employ  one  general  manager.12  A  con- 
tract between  two  railroad  companies,  wherein  they  agreed  to  estab- 
lish and  maintain  a  dispatch  line  for  the  transportation  of  freight, 
was  recognized  as  valid,  but  there  seems  to  have  been  no  discussion  of 
the  question  whether  the  contract  was  or  was  not  against  public 
policy.13  An  arrangement  by  which  the  receiver  of  existing  companies 
was  to  receive  all  the  stock  and  bonds  of  a  proposed  railroad,  to  be 
used  in  constructing  the  roadbed,  leaving  no  funds  for  building  side- 
tracks or  purchasing  equipment,  was  held  to  be  invalid  and  the  or- 
ganization of  the  proposed  company  a  fraud  upon  the  statute.14  A 
railroad  company  may  contract  with  a  municipal  corporation  to  erect 
a  depot  at  a  designated  place,  but  in  the  absence  of  clear  words  con- 
stituting a  covenant  to  perpetually  maintain  the  depot  at  the  desig- 

ter,  21  Am.  R.  Reg.  iN.  S.)  713,  and  "Harrison   v.    New   Orleans,   &c. 

note;    Commonwealth  v.   Smith,   10  Co.  28  La.  Ann.  777;  Chicago,  &c.  R. 

Allen  (Mass.)  448,  455,  87  Am.  Dec.  Co.  v.  Chicago,  &c.  R.  Co.  79  111.  121. 

672.  See,  also,  Cleveland,  &c.  R.  Co.  v. 

9  Taylor  v.  Philadelphia,  &c.  R.  Co.  Himrod    Furnace    Co.    37    Ohio   St. 
7  Fed.  386,  1  Am.  &  Eng.  R.  Cases  321,  41  Am.  R.  509. 

616,  citing  Thomas  v.  West  Jersey,  "a  Delaware,  &c.  R.  Co.  v.  Kutler, 

&c.   R.  Co.   101   U.   S.   71.     Contra,  147  Fed.  51. 

Phila.   &c.   R.   Co.'s  Appeal    (Phila.  "State  v.  Concord  R.  Co.  62  N.  H. 

&c.  R.  Co.  v.  Stichter),  11  W.  N.  C.  375,  13  Am.  &  Eng.  R.  Gas.  94. 

(Pa.)  325,  4  Am.  &  Eng.  R.  Cas.  118,  "Chicago,  &c.  R.  Co.  v.  New  York, 

21  Am.  L.  Reg.  713.  &c.  R.  Co.  22  Am.  &  Eng.  R.  Cas. 

10  Philadelphia,    &c.    Co.    v.    Hick-  265.     See,  also,  Prather  v.  Western 
man,  28  Pa.  St.  318;  Macon,  &c.  R.  tTn.  Tel.  Co.  89  Ind.  501;   Western 
Co.  v.  Vason,  57  Ga.  314.     See,  gen-  Un.  Tel.  Co.  v.  Rich.  19  Kans.  517,  27 
erally,  Bath's  Case,  L.  R.  8  Ch.  Div.  Am.  R.  159. 

334;  Kipling  v.  Todd,  L.  R.  3  C.  P.  "Chicago,  &c.  R.  Co.  v.  Miller,  91 
Div.  350.  Mich.  166,  51  N.  W.  981. 


§    343]  CONTRACTS.  502 

nated  place  the  company  is  not  bound  to  do  so.15  It  seems  to  us  doubt- 
ful whether  an  agreement  to  perpetually  maintain  a  depot  at  a  desig- 
nated place  would  be  valid,  since  the  changes  wrought  by  time  and 
progress  may  make  it  necessary  for  the  public  interest  and  the  promo- 
tion of  the  public  welfare  to  locate  the  station  elsewhere.  We  suppose 
that  when  parties  enter  into  a  contract  they  must  be  held  to  contract 
with  reference  to  such  matters.  This  subject,  however,  is  considered 
in  another  section.16  It  is  held  that  one  railroad  company  may  grant 
to  another  the  right  to  use  the  track  without  pecuniary  compensation 
and  that  where  such  a  contract  is  made  by  the  general  superintendent 
with  the  knowledge  of  the  board  of  directors,  it  will  be  enforced.17 

§  343.  Power  to  contract — Control  of  by  courts. — The  business 
policy  of  a  corporation  is  a  matter  for  the  management  and  control 
of  the  corporation,  and  the  courts  will  not  dictate  the  policy  to  be 
pursued  in  such  a  matter,  nor  exercise  surveillance  over  the  corpora- 
tion in  regard  to  mere  matters  of  business  policy  or  expediency.18 
Where  the  action  is  lawful  and  not  beyond  the  power  of  the  corpora- 
tion, the  courts  will  not  examine  "into  the  affairs  of  the  corporation 
to  determine  the  expediency  of  its  action,  or  the  motives  for  it."19 
Courts  will  not  control  corporate  action  where  the  matter  is  one  of 
pure  discretion,  but  may  interfere  where  there  is  a  palpable  abuse  of 
discretion  which  causes  a  legal  injury  to  the  person  who  seeks  judicial 
assistance.20  To  justify  interference  upon  the  ground  of  an  abuse  of 

15  Texas,   &c.  R.   Co.  v.   Marshall,  any  material  part  of  the  corporate 
136  U.   S.   393,  10  Sup.   Ct.  846,  42  property.    But  see  Central  R.  &c.  Co. 
Am.  &  Eng.  R.  Cas.  637;  citing  Mead  v.  Cheatham,  85  Ala.  292,  4  So.  824, 
v.  Ballard,  7  Wall.  (U.  S.)  290.  7  Am.  St.  48;  Hutton  v.  West  Cork 

16  See  post,  §  362.  R.  Co.  23  Ch.  Div.  654. 

17  Alabama,   &c.   R.   Co.   v.   South,  M  Evans  v.  Union  Pacific  R.  Co.  58 
&c.  R.  Co.  84  Ala.  570,  3  So.  286,  5  Fed.    497.    See,  generally,  Willough- 
Am.  St.  401.     Some  of  the  expres-  by  v.  Chicago,  &c.  Co.  50  N.  J.  Eq. 
sions  used  in  the  opinion  delivered  656,  25  Atl.  277,  39  Am.  &  Eng.  Corp. 
in  the  case  cited  indicate  that  the  Cas.  153;  Sewell  v.  East  Cape  May 
directors  may  make  a  donation  of  Co.  50  N.  J.  Eq.  717,  25  Atl.  929. 
the  property  rights  of  the  company,  19  Oglesby  v.  Attrill,  105  U.  S.  605 ; 
but   we   think   that   the   agreement  Bailey  v.  Birkenhead,  &c.  R.  Co.  12 
before  the  court  disclosed  a  consid-  Beav.  433. 

eration,  so  that  it  cannot  be  said  ^  Davis  v.  Mayor,  &c.  1  Duer  (N. 
that  there  was  an  entire  absence  of  Y.)  451;  Methodist,  &c.  Church  v. 
consideration.  We  do  not  believe  Baltimore,  6  .Gill  (Md.)  391;  Bald- 
that  the  officers  of  a  railroad  com-  win  v.  Bangor,  36  Me.  518.  See  Wil- 
pany  have  power  to  make  a  gift  of  liams  v.  New  York,  &c.  R.  16  N.  Y. 


503 


EFFECT   OF   CHANGES   IX    CHARTER. 


[§    344 


discretion,  a  very  strong  and  clear  case  must  be  made  by  the  complain- 
ant, for  it  is  only  where  there  is  palpable  abuse  and  manifest  injury 
that  courts  will  give  relief.21 

§  344.  Efiect  of  changes  in  charter. — A  party  who  contracts  with 
a  railroad  company  deals,  as  he  is  bound  to  know,  with  a  creature  of 
the  law  invested  with  limited  powers.  He  cannot  successfully  insist 
that  it  possesses  unlimited  power  to  enter  into  contracts,  and  he  must 
take  notice  of  the  general  power  of  the  legislature  over  the  corpora- 
tion. In  accordance  with  this  principle  it  has  been  held  that  all  parties 
contracting  with  a  corporation  must  take  notice  of  the  conditions  on 
which  it  holds  its  franchises,  and  of  its  subjection  to  the  legislative 
will,  and  that  executory  contracts  for  the  construction  of  the  road 
may  be  annulled  or  rendered  less  profitable  by  the  act  of  the  legisla- 
ture in  amending  the  charter  under  a  reserved  power  so  as  to  change 
the  route  and  render  the  performance  of  such  contracts  impossible 


or  more  expensive.5" 

97,  69  Am.  Dec.  615;  Western  Union, 
&c.  Co.  v.  Mayor,  &c.  38  Fed.  552,  3 
L.  R.  A.  449;  Montgomery,  &c.  Co. 
v.  Montgomery,  87  Ala.  245,  6  So. 
113,  4  L.  R.  A.  616;  Des  Moines,  &c. 
Co.  v.  Des  Moines,  44  Iowa  505,  24 
Am.  R.  756;  Chicago  v.  Evans,  24 
111.  52;  Smith  v.  McCarthy,  56  Pa. 
St.  359;  Richmond  v.  Davis,  103 
Ind.  449,  3  N.  E.  130. 

21  Wilder  v.  Rural,  &c.  Co.  (N.  J.) 
32  Atl.  676. 

^Macon,  &c.  R.  Co.  v.  Gibson,  85 
Ga.  1,  21  Am.  St.  135,  11  S.  E.  442, 
Bleckly,  J.,  said:  "Nor  is  the  right 
of  a  state  so  to  amend  or  modify  the 
charter  abridged  or  in  any  manner 
affected  by  executory  contracts,  en- 
tered into  by  the  company  with 
third  persons,  before  the  amending 
act  was  passed.  The  Macon  Con- 
struction Company,  in  dealing  with 
the  railroad  company,  was  bound  to 
take  notice  of  the  general  law  of  the 
state,  under  which  the  right  and 
power  were  reserved  which  have 
been  exercised.  A  tenant  at  will 


cannot  make  contracts  with  refer- 
ence to  the  estate,  which  will  limit 
the  power  of  the  landlord  to  ter- 
minate the  estate  by  means  com- 
patible with  its  nature.  So  a  cor- 
poration in  the  possession  of  fran- 
chises held  at  the  will  of  the  state 
cannot1  hinder  the  resumption  or 
modification  of  those  franchises  by 
entering  into  executory  contracts 
with  third  persons.  Nor  can  that 
effect  be  wrought  by  like  contracts 
between  the  parties  immediately 
contracting  with  the  corporation, 
and  subcontractors  under  them.  On 
no  contract  whatsoever  does  the 
amendment  now  in  question  have 
any  direct  effect.  Its  only  effect 
upon  contracts  is  incidental,  and, 
if  they  cannot  be  performed  con- 
sistently with  the  alteration  in  the 
charter  made  by  the  amending  stat- 
ute, their  performance,  in  so  far  as 
thus  hindered  or  obstructed,  will  be 
excused;  the  rule  of  law  being  that 
performance  of  contracts,  when  ren- 
dered impossible  by  act  of  law, 


345] 


CONTRACTS. 


504 


§345.  Contracts — Formal  requisites  of. — The  old  doctrine  that  a 
corporation  could  only  contract  under  its  common  seal  does  not,  as 
every  one  knows,  any  longer  prevail.  Some  contracts  must  be  evi- 
denced by  the  corporate  seal,  but  the  instances  in  which  a  seal  is  essen- 
tial to  the  validity  of  a  corporate  contract  are  comparatively  few,  for 
in  the  vast  majority  of  cases  no  seal  is  required.  It  is  not  required 
where  the  contract  relates  to  ordinary  corporate  business.  The  legis- 
lature may,  of  course,  require  that  all  contracts  shall  be  attested  by 
the  corporate  seal,  but  a  provision  in  the  charter  requiring  the  cor- 
poration to  have  a  common  seal  does  not  require  all  contracts  to  be 
under  seal.23  In  a  monographic  note  written  or  edited  by  Mr.  Free- 


stands  excused.  (Citing  Bish.  Cont. 
§  594,  and  other  authorities.)  Un- 
der these  authorities,  if  the  Macon 
Construction  Company,  or  a  sub- 
contractor under  it,  was  under  a 
stipulation  to  complete  the  railway 
by  a  given  time,  and  if  time  was  of 
the  essence  of  the  contract,  a  valid 
excuse  for  failing  so  ,to  do  would 
be  furnished  by  this  subsequent 
legislation,  in  that  legislation  has 
rendered,  or  should  render,  it  im- 
possible to  complete  the  work  by 
the  stipulated  time.  In  so  far  as 
this  or  any  other  executory  contract 
has  been  rendered  less  valuable  or 
profitable  to  the  parties  concerned 
by  the  legislation  in  question,  that 
is  a  consequence  which  should  have 
been  foreseen  as  possible,  and  which 
must  be  accepted  by  the  parties  as 
an  incident  of  the  exercise  by  the 
legislature  of  its  rightful  legislative 
power.  Surely  it  cannot  rationally 
be  contended  that  because  the  al- 
teration of  charters  with  respect  to 
the  latitude  of  the  franchises  grant- 
ed may  or  does  operate  unfavorably 
upon  executory  contracts  made  by 
or  under  the  corporations,  the  char- 
ters must  remain  unaltered  in  this 
respect,  and  the  reserved  power  in 
the  legislature  be  reduced  to  a 
power  in  name  only."  See,  also, 
Mumma  v.  Potomac  Co.  8  Pet.  (U. 


S.)    281;    Thornton  v.  Railway  Co. 
123  Mass.  32;  and  post,  §  350. 

23  Sarmiento  v.  Davis,  &c.  Co.  105 
Mich.  300,  63  N.  W.  205,  55  Am.  St. 
446.  See  Cary,  &c.  Co.  v.  Cain,  70 
Miss.  628,  13  So.  239.  The  seal, 
where  one  is  required,  may  be  at- 
tached by  a  person  whom  the  gov- 
erning board  recognizes  as  secre- 
tary, although  such  a  person  is  not 
secretary  de  jure.  Augusta,  &c.  R. 
Co.  v.  Kittel,  52  Fed.  63,  2  C.  C.  A. 
615.  A  contract  not  required  to  be 
under  seal,  which  professes  to  be 
executed  by  the  president  in  behalf 
of  the  corporation,  is  presumptively 
a  corporate  contract.  National,  &c. 
Ass'n  v.  Prentice,  &c.  Co.  49  Minn. 
220,  51  N.  W.  916.  See  Musca- 
tine,  &c.  Co.  v.  Muscatine  Lum- 
ber Co.  85  Iowa  112,  52  N.  W.  108, 
39  Am.  St.  284.  Of  course  a  cor- 
porate contract  must  possess  the  es- 
sential elements  of  a  contract  be- 
tween natural  persons,  such  as  a 
consideration  and  the  like.  It  is 
barely  necessary  to  suggest  that 
where  the  statute  requires  a  con- 
tract to  be  in  writing,  or  requires 
it  to  be  under  seal,  tne  statutory  re- 
quirement must  be  obeyed.  Paul- 
ing v.  London,  &c.  R.  Co.  8  Exch. 
867.  See  Chase  v.  Second  Ave.  R. 
Co.  97  N.  Y.  384,  49  Am.  R.  531. 


505 


FORMAL   DEFECTS. 


[§  346 


man  it  is  said  that  in  this  country  "the  rule  is  well  nigh,  if  not  abso- 
lutely, universal"  that  a  corporate  seal  is  unnecessary  in  most  cases, 
and  in  every  case  in  which  a  seal  would  be  unnecessary  if  the  act  or 
contract  in  question  were  that  of  an  individual.24  In  considering  the 
authority  of  corporate  representatives,  we  referred  to  the  familiar  rule 
that  where  the  charter  prescribed  the  mode  of  contracting,  that  mode 
must  be  pursued,  and  also  said  that  the  general  rule  is  that  corpora- 
tions are  not  bound  by  contracts  executed  by  persons  having  no  au- 
thority from  the  corporation,  or  by  agents  who  transcended  the  au- 
thority conferred  upon  them.  It  is  not  necessary  to  add  anything  to 
what  has  been  said  upon  those  subjects,  for  they  are  familiar  ones 
and  our  consideration  of  them  has  been  as  full  as  is  consistent  with 
the  scope  of  our  work.25 

§  346.  Formal  defects. — Merely  formal  defects  in  a  corporate  con- 
tract not  affecting  the  substantial  rights  of  the  parties  will  be  disre- 
garded by  the  courts.  If  there  is  no  defect  affecting  substantial  rights 
the  courts  will  ascertain  and  carry  into  effect  the  intention  of  the 
contracting  parties.26  But,  of  course,  if  the  defects  are  of  such  a 
character  as  to  render  the  contract  nugatory,  or  so  vague  and  uncer- 


24  Note  to   Green   Co.   v.   Blodgett 
(159  111.  169,  42  N.  E.  176),  50  Am. 
St.   146,   152,   citing  and   reviewing 
many  authorities. 

25  In    addition   to    the    authorities 
heretofore  cited,  see  Missouri  Pacific 
R.  Co.  v.  Sidell,  67  Fed.  464;  Leroy, 
&c.    R.    Co.   v.    Sidell,   66    Fed.    27; 
Canda,   &c.   Co.  v.  Woodbridge,  &c. 
Co.  58  N.  J.  L.  134,  32  Atl.  66;  Tul- 
leys  v.  Keller,  45  Neb.  220,  63  N.  W. 
388;  Eaton  v.  Robinson,  19  R.  I.  146, 
31  Atl.  1058,  32  Atl.  339,  29  L.  R.  A. 
100;    Bradford  v.  Frankfort,  &c.  R. 
Co.  142  Ind.  383,  40  N.  E.  741;  Na- 
tional, &c.  Bank  v.  Vigo  County,  &c. 
Bank,  141  Ind.  352,  40  N.  E.  799,  50 
Am.   St.   330;    First  National  Bank 
v.  Asheville,  &c.  Co.  116  N.  C.  827, 
21  S.  E.  948.    Effect  of  notice  by  one 
who  takes  promissory  note  executed 
by  treasurer  of  corporation  in  fraud 
of  its  rights.     Millward,  &c.  Co.,  In 


re,  161  Pa.  St.  157,  28  Atl.  1072,  1077. 
Authority  to  an  agent  to  execute  a 
mortgage  empowers  him  to  insert 
usual  conditions  therein.  Gribble  v. 
Columbus,  &c.  Co.  100  Cal.  67,  34 
Pac.  527;  Vincent  v.  Snoqualmie, 
&c.  Co.  7  Wash.  566,  35  Pac.  396. 
Acts  in  excess  of  authority  may  be 
ratified  where  they  are  within  scope 
of  corporate  power.  People  v.  Eel 
River,  &c.  R.  Co.  98  Cal.  665,  33  Pac. 
728;  Nebraska,  &c.  Co.  v.  Bell,  58 
Fed.  326,  7  C.  C.  A.  253;  Thomas  v. 
City,  &c.  Bank,  40  Neb.  501,  58  N. 
W.  943,  24  L.  R.  A.  263. 

26  Underbill  v.  Santa  Barbara,  &c. 
Co.  93  Cal.  300,  28  Pac.  1049.  See 
Seymour  v.  Spring  Forest,  &c.  Assn. 
«4  Hun  (N.  Y.)  632,  19  N.  Y.  94; 
Hasselman  v.  Japanese,  &c.  Co.  2 
Ind.  App.  180,  27  N.  E.  718,  28  N. 
E.  207;  Dexer  v.  Long,  2  Wash.  435, 
27  Pac.  271,  26  Am.  St.  867. 


§  347] 


CONTRACTS. 


506 


tain  that  the  intention  of  the  parties  cannot  be  discovered,  it  will  not 
be  enforced. 

§  347.  Contracts — Who  may  make — Generally. — The  general  power 
of  a  railroad  company  to  enter  into  contracts  may  be  exercised  by  the 
board  of  directors.27  The  general  rule  is  that  in  the  board  is  vested 
the  paramount  power  of  making  corporate  contracts,  but  other  officers 
may  often  contract  on  behalf  of  the  corporation.28  As  was  said  at  an- 
other place,  there  are  some  contracts  which  the  board  of  directors  must 
make,  but  ordinary  corporate  contracts  relating  to  the  usual  business 
of  the  corporation  may  be  made  by  other  officers,  or  by  duly  appointed 
agents  acting  within  the  scope  of  their  employment;29  and  the  powers 
of  the  board  of  directors  are  often  permitted  to  be  delegated  to  its 
executive  committee.293 

§348.  Contracts  by  interested  persons. — The  general  rule  is  that 
a  corporate  agent  cannot  at  the  same  time  act  for  himself  and  for  the 
corporation  in  a  matter  where  his  interests  are  antagonistic  to  those 
of  the  corporation.  This  rule  is  one  of  wide  sweep.  Thus  it  is  held,  in 
accordance  with  this  rule,  that  corporations  having  common  officers 
and  trustees  cannot  enter  into  valid  contracts  with  each  other.30  Nor 


27  Bank  of  Middlebury  v.  Rutland, 
&c.  R.  Co.  30  Vt.  159 ;  Wright  v.  Oro- 
ville,  &c.  Co.  40  Cal.  20;  Clark  Corp. 
485. 

28  A    president    who    has    general 
managing  authority  may  assent  to 
the   reformation   of   a   contract,    in 
case  of  a  mistake  therein,  executed 
by  him  in  behalf  of  the  corporation. 
Nichols  v.  Scranton,  &c.  Co.  137  N. 
Y.    471,    33    N.    E.    561.      See,    also, 
Taussig  v.  St.  Louis,  &c.  R.  Co.  186 
Mo.  269,  85  S.  W.  378. 

29  Where  the  purchasing  agent  of 
a  railway  has  apparent  authority  to 
make    contracts    for   supplying   the 
company    with    stationery,    a    third 
person,  who  has  dealt  with  him  a 
number  of  years  on  the  faith  of  his 
having  such  authority,  can  enforce 
a    contract    with    said    purchasing 
agent  as  against  the  company,  and 
the  defense  that  the  agent  had  no 


authority  is  not  a  good  one.  Levey 
v.  New  York,  &c.  R.  Co.  4  Misc.  (N. 
Y.)  415,  24  N.  Y.  S.  124. 

^a  Union  Pac.  R.  Co.  v.  Chicago, 
&c.  R.  Co.  163  U.  S.  564,  16  Sup.  Ct. 
1173.  See,  also,  Kelsey  v.  New  Eng- 
land, &c.  R.  60  N.  J.  Eq.  230,  46  Atl. 
1059;  Salem,  &c.  Co.  v.  Lake  Superi- 
or, &c.  Co.  112  Fed.  239;  Burrill  v. 
Nahant  Bank,  2  Mete.  (Mass.)  163, 
35  Am.  Dec.  395;  Black  River,  &c. 
Co.  v.  Holway,  85  Wis.  344,  55  N.  W. 
418;  Sheridan  Electric  Light  Co.  v. 
Chatham  Nat.  Bank,  52  Hun  (N.  Y.) 
575,  5  N.  Y.  S.  529. 

80  Stokes  v.  Phelps  Mission,  47 
Hun  (N.  Y.)  570,  14  N.  Y.  S.  901; 
Barr  v.  New  York,  &c.  R.  Co.  52 
Hun  (N.  Y.)  555,  24  N.  Y.  S.  188. 
See,  also,  Montgomery  Traction  Co. 
v.  Harmon,  140  Ala.  505,  37  So.  371. 
A  contract  leasing  cars  from  one 
railroad  company  to  another,  whose 


507 


CONTRACTS   BY   INTERESTED   PERSONS. 


[§    348 


can  an  officer  or  agent  of  the  company  bind  it,  as  a  general  rule,  by  a 
contract  in  which  he  is  personally  interested.31   It  is,  therefore,  to  be 


officers  are  substantially  the  same, 
will  not  be  recognized  on  a  claim 
for  compensation  against  a  receiver 
of  the  lessee  railroad  company, 
though  a  reasonable  compensation 
for  the  use  of  the  cars  will  be  al- 
lowed. Thomas  v.  Peoria,  &c.  R. 
Co.  36  Fed.  808.  Four  persons,  com- 
mon directors  of  two  different  rail- 
roads, became  assignees  of  a  con- 
struction contract  made  by  one  of 
the  companies,  by  which  they  re- 
ceived its  stocks  and  bonds,  thereby 
making  a  large  profit.  Afterwards 
acting  for  the  two  companies,  they 
executed  a  lease  of  the  road  and 
franchises  of  the  company  whose 
bonds  and  stocks  they  held  to  the 
other  company,  binding  it  to  pay  as 
rental  certain  sums  to  meet  interest 
on  the  bonds  and  dividends  on  the 
stocks.  The  lease  was  held  invalid  as 
an  attempt  by  the  directors  to  impose 
obligations  on  the  lessee  company 
for  their  own  private  benefit  and  no 
formal  rescission  of  the  lease  was 
necessary.  Barr  v.  New  York,  &c. 
R.  Co.  52  Hun  (N.  Y.)  555,  5  N.  Y. 
S.  623.  Certain  persons,  being  stock- 
holders and  directors  of  both  a  rail- 
road company  and  an  iron  company, 
negotiated  in  good  faith  a  contract 
between  the  railroad  company  and 
the  iron  company,  which  took  the 
form  of  a  resolution  by  the  railroad 
company  to  lease  a  railroad  owned 
by  the  iron  company  and  pay  in 
stocks  and  bonds,  and  of  a  subscrip- 
tion by  the  iron  company  to  be  paid 
in  property,  viz.,  a  lease  of  their 
railroad,  the  contract  was  unani- 
mously ratified  by  a  vote  of  all  the 
stockholders  of  the  railroad  com- 
pany. The  contract  was  held  to  be, 


at  worst,  only  voidable,  and  as  no 
fraud  or  intentional  overvaluation 
appeared,  and  the  consideration  was 
nearly  adequate,  the  bonds  issued 
were  held  valid.  Coe  v.  East,  &c. 
R.  Co.  of  Alabama,  52  Fed.  531. 
In  Chicago,  &c.  Co.  v.  Yerkes,  141 
111.  320,  30  N.  E.  667,  33  Am.  St. 
315,  it  is  held  that  where  authority 
to  sell  corporate  property  was  'con- 
ferred upon  the  president  and  secre- 
tary a  sale  to  the  secretary  was  in- 
effective. 

31  Sargent  v.  Kansas  Midland  R. 
Co.  48  Kans.  672.  See  ante,  §§  276, 
290.  But  such  a  contract  may,  by 
the  weight  of  authority,  be  binding 
if  it  is  shown  to  be  fair  and  free 
from  fraud  and  the  corporation  is 
represented  by  another  proper  agent,, 
or  if  the  contract  is  ratified  and 
adopted  by  the  corporation,  and  it 
may,  in  any  event,  be  liable  for  the 
benefits  actually  received  and  re- 
tained by  it.  Clark  Corp.  508.  The 
fact  that  the  president  of  a  railroad 
company,  without  the  knowledge  of 
the  other  directors,  is  interested  in 
a  construction  contract  let  by  the 
company,  does  not  in  itself  make 
the  contract  void,  but  simply  void- 
able. Augusta,  &c.  R.  Co.  v.  Kittel, 
2  U.  S.  App.  409,  2  C.  C.  A.  615,  52 
Fed.  63;  Langan  v.  Francklyn,  29 
Abb.  (N.  Y.)  N.  Cas.  102,  20  N.  Y. 
S.  404.  See,  also,  Schnittger  v.  Old 
Home,  &c.  Co.  144  Cal.  603,  78  Pac. 
9.  A  corporation  which  sells  cer- 
tain of  its  bonds  to  its  directors  for 
less  than  par,  but  for  their  actual 
value,  is  estopped  from  attacking 
the  validity  of  the  sale.  Union 
Loan,  &c.  Co.  v.  Southern  Cali- 
fornia, &c.  Co.  51  Fed.  840.  See 


§   349]  CONTRACTS.  508 

understood  that  when  it  is  said  that  a  corporation  may  be  bound  by 
the  act  of  its  agent  performed  within  the  scope  of  his  authority  the 
meaning  is  that  he  must  be  acting  for  the  corporation  and  not  in  a 
matter  in  which  his  interests  and  those  of  the  corporation  are  in 
conflict. 

§  349.  Mode  prescribed  must  be  pursued. — The  mandatory  require- 
ments of  the  charter  must  be  observed,  when  it  prescribes  a  mode  of 
contracting,  since  it  is  from  the  charter  alone  that  the  corporation  de- 
rives power  to  enter  into  contracts.32  This  elementary  rule  applies  to 
provisions  respecting  the  designation  of  the  officers  by  whom  the  con- 
tract shall  be  made,  as  well  as  to  other  matters.  The  stockholders  of 
a  corporation  cannot,  by  a  majority  vote,  bind  the  corporation  to  a 
contract,  when  the  charter  lodges  the  power  of  contracting  wholly 
with  the  board  of  directors.33  But  if  a  contract  were  adopted  by  a 
unanimous  vote  of  the  stockholders,  they  would,  no  doubt,  be  estopped 
to  deny  the  binding  force  of  the  contract.34  Although  the  acts,  doings 
and  declarations  of  individual  members  of  a  corporation,  unsanctioned 
by  the  body,  are  not  binding  upon  it,  yet,  in  the  absence  of  any  vote, 
a  contract  may  be  shown  by  inferences  drawn  from  corporate  acts,  the 
same  as  in  the  case  of  an  individual.35 

Skinner  v.  Smith,  134  N.  Y.  240,  31  222  n;  Essex  Turnpike  Corp.  v.  Col- 
N.  B.  911.  The  rule  prohibiting  lins,  8  Mass.  292. 
persons  in  a  fiduciary  relation  from  "*  The  act  of  incorporation  fur- 
contracting  for  their  own  advantage  nishes  no  security  to  persons  assent- 
in  the  name  of  the  beneficiaries  ing  to  unauthorized  acts.  Kearny 
does  not  apply  to  directors  who  own  v.  Buttles,  1  Ohio  St.  362.  But  the 
all  the  stock  of  the  corporation,  and  creditors  or  a  receiver  acting  for 
such  contracts  are  not  void  as  their  interests  may  dispute  the  cor- 
against  public  policy.  McCracken  porate  liability  on  such  a  contract 
v.  Robinson,  57  Fed.  375,  6  C.  C.  A.  so  far  as  it  tends  to  impair  the 
400.  ability  of  the  corporation  to  pay  its 

32  Head  v.  Providence  Ins.  Co.  2  valid  obligations.     Bank  of  Chatta- 
Cranch     (U.     S.)     127;     Bissell    v.  nooga  v.  Bank  of  Memphis,  9  Heisk. 
Spring  Valley  Twp.  110  U.  S.  162,  3  (Tenn.)  408;  National  Trust  Co.  v. 
Sup.  Ct.  555.  Miller,  33  N!  J.  Eq.  155.     A  share- 

33  Gulf,  &c.   R.   Co.   v.   Morris,   67  holder  ratifying,  participating  in  or 
Tex.  692,  4  S.  W.  156;   McCullough  acquiescing  in  the  acts  of  a  corpora- 
v.  Moss,  5  Denio  (N.  Y.)  567;  Gash-  tion  will  be  bound  by  such  acts  and 
wiler  v.  Willis,  33  Cal.  11,  91  Am.  his  trustee  cannot  bring  action  ad- 
Dec.    607.     But  at   common   law   a  versary  to   said   acts   in  his   favor, 
corporation  may  contract  by  a  vote  Memphis,  &c.  R.  Co.  v.  Grayson,  88 
accepting    a    proposal    made    in    a  Ala.  572,  7  So.  122,  16  Am.  St.  69. 
meeting.     Maxwell  v.  Dulwich  Col-  ^New   York,   &c.   R.   Co.   v.   New 
lege,   1   Fonbl.   Eq.    306,   7    Simons  York,  1  Hilton  (N.  Y.)  562;   Canal 


509  NOTICE  FKOM   CHARTER  PROVISIONS.  [§    350 

§  350.  Contracts — Parties  bound  to  take  notice  of  charter  provi- 
sions.— The  constitution  of  a  corporation,  and  the  powers  which  it 
possesses  under  its  constitution,  are  presumed  to  be  known  as  matters 
of  law  to  its  members  and  to  all  persons  dealing  with  the  corporation.36 
It  is  a  logical  conclusion  from  this  general  rule  that  parties  contract- 
ing with  a  railroad  company  cannot  successfully  aver  that  they  were 
ignorant  of  the  nature  of  the  powers  conferred  upon  it  by  the  legis- 
lature, but,  nevertheless,  the  courts  do  in  some  measure  at  least  de- 
part from  this  general  doctrine,  since  they  do  protect  persons  who 
contract  with  the  company.  The  doctrine,  however,  exerts  an  impor- 
tant influence  on  almost  all  cases.  The  general  principle  stated  leads 
to  the  conclusion  that  the  corporation  is  not  bound  by  any  act  of  the 
board  of  directors,  or  any  other  corporate  agent,  done  in  excess  of  the 
charter  powers,  since  a  person  dealing  with  the  corporation  is  bound 
to'  know  that  no  agent  can  exceed  the  powers  of  the  corporation  it- 
self.37 And,  of  course,  nobody  can  hold  a  principal  bound  by  a  con- 
tract made  with  his  agent  in  excess  of  that  agent's  known  powers, 
much  less  can  the  corporation  be  held  on  the  contract  where  the  con- 
tract is  one  which  the  corporation  had  no  power  to  make.  The  same 
general  rule  holds  as  to  ultra  vires  act  of  the  majority  of  the  stock- 
holders, for  the  majority  can  bind  absent  or  dissenting  stockholders 
only  by  acts  done  under  sanction  of  the  charter.38  While  a  person 
dealing  with  the  corporation  is  held  to  be  affected  with  notice  of*  the 
corporate  powers  as  indicated  by  the  law  of  its  incorporation,  he  is 

Bridge  v.  Gordon,  1  Pick.    (Mass.)  &  Corp.  Cases  285;    Steele  v.  Fra- 

297;   Gowen  Marble  Co.  v.  Tarrant,  ternal  Tribunes,  &c.  215  111.  190,  74 

73  111.  608 ;  Goodwin  v.  Union  Screw  N.    E.    121,    106    Am.    St.    160.      In 

Co.  34  N.  H.  378.  Jenkins  v.  Gastonia,  &c.  Co.  115  N. 

36  Spence  v.  Mobile,  &c.  R.  Co.  79  C.  535,  20  S.  E.  724,  it  is  held  that 

Ala.  576;  Davis  v.  Old  Colony  R.  Co.  where  the  statute  requires  the  cor- 

131  Mass.  258,  41  Am.  R.  221;  Pearce  porate  contract  to  be  in  writing  it 

v.  Madison,  &c.  R.  Co.  21  How.   (U.  cannot  be  ratified  by  silence.     See, 

S.)    441;    Kraniger   v.   People's   &c.  also,     Spence    v.    Wilmington,    &c. 

Society,  60  Minn.  94,  61  N.  W.  904;  Mills,  115  N.  C.  210,  20  S.  E.  372. 

Western  Nat.   Bank  v.  Armstrong,  These  cases  seem  to  us  to  go  very 

152  U.  S.  346,  14  Sup.  Ct.  572;   Al-  far. 

exander  v.  Cauldwell,  83  N.  Y.  480;         37  Elevator  Co.  v.  Memphis,  &c.  R. 

Hoyt  v.   Thompson,   19   N.   Y.   207;  '  Co.  85  Tenn.  703,  5  S.  W.  52,  4  Am. 

Relfe  v.  Rundle,  103  U.  S.  222;  Leon-  St.  798;  Davis  v.  Old  Colony  R.  Co. 

ard  v.   American   Insurance  Co.   97  131  Mass.  258,  41  Am.  R.  221. 
Ind.  299;   Jemison  v.  Citizens'  Sav-        ""Bird  v.  Bird's  Patent,  &c.  Co.  L. 

ings  Bank,  122  N.  Y.  135,  9  L.  R.  A.  R.  9  Ch.  358. 
708,  19  Am.  St.  482,  3  American  R. 


351] 


CONTRACTS. 


510 


not,  as  a  rule,  bound  to  take  notice  of  extraneous  circumstances  upon 
which  the  right  to  exercise  those  powers  may  depend.39 

§  351.  Contracts — Unauthorized — Notice. — A  party  who  deals 
with  a  corporation  is  bound  to  take  notice  of  the  powers  conferred 
upon  it  by  the  act  of  incorporation,  but  is  not  bound  to  take  notice  of 
the  purpose  of  the  corporation  in  making  the  contract  unless  that 
purpose  is  made  apparent  by  the  nature  of  the  transaction.  There  is, 
it  is  obvious,  a  clearly  marked  distinction  between  cases  where  a  party 
asserts  that  he  was  ignorant  of  extrinsic  facts  or  circumstances,  and 
cases  where  he  avers  ignorance  of  the  provisions  of  a  charter  or  stat- 
ute.40 Although  the  purpose  of  the  corporation  be  to  do  an  illegal  act, 
the  person  will  be  unaffected  by  that  fact  unless  he  had  notice  of  it. 
Thus,  if  a  contract  in  the  form  of  a  negotiable  corporate  security,  is- 
sued by  a  corporation  having  authority  to  issue  such  paper,  gives  no 
suggestion  that  it  was  issued  as  accommodation  paper,  an  innocent 
holder  will  not  be  affected  by  the  fact  that  it  was  issued. for  accom- 
modation and  without  consideration,41  but  it  would  be  otherwise  if 
the  person  who  took  the  paper  had  actual  knowledge  of  its  character.42 
If  it  is  within  the  scope  of  the  power  of  the  corporate  agents  to  issue 
such  securities,  the  purchaser  may  assume  that  they  were  properly 
issued.43  A  person  who  sells  to  a  corporation  property  which  it  has 


39  Madison,  &c.  R.  Co.  v.  Norwich 
Sav.  Soc.  24  Ind.  457;  Thompson  v. 
Lambert,  44  Iowa  239;   Express  Co. 
v.  Railroad  Co.   99  U.   S.  191,  199; 
Galveston  Railroad  v.  Cowdrey,  11 
Wall.   (U.  S.)  459;   Oxford  Iron  Co. 
v.    Spradley,   51   Ala.   171;    Gano  v. 
Chicago,  &c.  R.  Co.  60  Wis.  12,  17 
N.   W.   15;    Eastern  Counties  R.  v. 
Hawkes,  5  H.  L.  C.  331. 

40  It  was  held  in  Kuser  v.  Wright, 
52  N.  J.  Eq.  825,  31  Atl.  397,  that  a 
person  receiving  a  mortgage  is  not 
bound  to  know  that  sufficient  notice 
was  given  corporate  directors. 

41  Madison,  &c.  R.  Co.  v.  Norwich 
Sav.  Soc.  24  Ind.  457;  National  Bank 
v.  Young,  41  N.  J.  Eq.  531,  3  Atl.  94; 
Farmers',  &c.  Bank  v.  Empire  Stone 
Dressing  Co.  5  Bosw.   (N.  Y.)   275; 
Bird  v.  Daggett,  97  Mass.  494;  Bank 


of  Genesee  v.  Patchin  Bank,  19  N. 
Y.  312;  Estabrook,  Ex  parte,  2 
Lowell  (U.  S.)  547;  Farmers',  &c. 
Bank  v.  Sutton,  &c.  Co.  52  Fed.  191; 
Monument,  &c.  Bank  v.  Globe  Works, 
101  Mass.  57;  Lafayette,  &c.  Bank  v. 
St.  Louis,  &c.  Co.  2  Mo.  App.  299.  But 
see  McLellan  v.  Detroit,  &c.  Works, 
56  Mich.  579,  23  N.  W.  321. 

42  National  Bank  v.  Wells,  79   N. 
Y.  498;  West  St.  Louis,  &c.  Bank  v. 
Shawnee,  &c.  Bank,  95  U.  S.  557. 

43  Hackensack  Water  Co.  v.  DeKay, 
36  N.  J.  Eq.  548;   Ellsworth  v.  St. 
Louis,  &c.  R.  Co.  98  N.  Y.  553;  East- 
ern Counties  R.  Co.  v.  Hawkes,  5  H. 
L.  C.  331;  London,  &c.  R.  Co.  v.  Mc- 
Michael,  5  Ex,  855.     A  corporation 
having  power  to  execute  negotiable 
paper  may  bind  itself  by  becoming 
an  indorser  or  guarantor  of  bonds 


511  ESTOPPEL — GENERALLY.  [§   352 

power  to  purchase,  will  not  be  affected  by  the  circumstance  that  it  was 
purchased  for  an  unauthorized  purpose,  if  he  has  no  knowledge  of 
such  fact.44  The  general  doctrine  applies  to  a  loan  of  money  which 
is  afterward  misapplied.  If  the  corporation  had  general  authority  to 
borrow  money  the  lender  is  not  bound  to  supervise  its  application.45 
It  is  held  that  if  a  corporation,  with  authority  to  borrow  not  more 
than  a  certain  sum,  borrows  in  excess  of  that  sum,  the  lender  may  re- 
cover provided  he  made  the  loan  in  ignorance  that  the  excess  was  al- 
ready reached.46  It  may  be  well  enough  to  suggest,  in  passing,  that 
the  rules  respecting  rights  depending  upon  the  ignorance  of  the  party 
dealing  with  the  corporation,  are  subject  to  the  further  rule  that  he 
must  have  acted  in  good  faith  and  as  a  prudent  man,  and  his  ignor- 
ance must  not  be  due  to  his  own  fault  or  negligence.47 

§'352.  Estoppel — Generally. — A  corporation  may  estop  itself  to 
deny  the  existence  and  binding  force  of  a  contract,  the  same  as  an  in- 
dividual, provided  that  the  contract  is  not  entirely  beyond  the  scope 
of  its  corporate  powers.  Where  a  corporation  voluntarily  accepts  the 
benefit  arising  from  the  performance  of  a  contract  which  it  had  power 
to  make,  but  which  was  made  on  its  behalf  by  one  who  was  not  author- 
ized to  represent  it,  it  cannot  afterward  deny  its  liability  on  the  con- 
tract.48 A  railroad  company  may,  of  course,  be  estopped  by  acts  or 

received  by  it  in  the  course  of  busi-  Halsey,  117  TJ.   S.   336,   6   Sup.  Ct. 

ness,  with  a  view  to  increasing  the  764;   Cotton  v.  New  Providence,  47 

value  of  such  bonds.     Railroad  Co.  N.   J.    L.    401,   2   Atl.    253;    Mutual 

v.  Howard,  7  Wall.  (U.  S.)  392;  Tod  Benefit,  &c.  Co.  v.  Elizabeth,  42  N. 

v.  Kentucky  Union  Land  Co.  57  Fed.  J.  L.  235.    See  Coffin  v.  Indianapolis, 

47.  59  Fed.  221. 

44  And  in  case  the  property  is  such  a  Express  Co.  v.  Railroad  Co.  99 

as  the  corporation  is  authorized  to  U.  S.  191,  199. 

purchase,   the   vendor   is   under   no  4SBonner  v.  Spiral  Hinge  Mfg.  Co. 

obligation  to  inform  himself  as  to  81  N.  Y.  468;  Little  Rock,  &c.  R.  Co. 

whether    this    particular    purchase  v.  Perry,  37  Ark.  164;    Windsor  v. 

was   a  proper  one  for  it  to  make.  St.  Paul,  &c.  R.  Co.  37  Wash.  156,  79 

Eastern  Counties  R.  Co.  v.  Hawkes,  Pac.  613;    Jourdan  v.  Long  Island 

5  H.  L.  C.  331.  R.    Co.    115    N.    Y.    380,    22    N.    E. 

"Thomspon  v.  Lambert,  44  Iowa  1126.     See  Weatherford,  &c.  R.  Co. 

239;    Tracy   v.    Talmage,   14   N.   Y.  y.    Granger,    85    Tex.    574,    86    Tex. 

162,  67  Am.  Dec.  132.  350,  22  S.  W.  70,  959,  23  S.  W.  425. 

460ssipee,  &c.  Mfg.  Co.  v.  Canney,  When  a  natural  principal  would  be 

54  N.  H.  295;  Auerbach  v.  LeSueur  estopped     under     similar     circum- 

Mill  Co.  28  Minn.  291,  9  N.  W.  799,  stances,  to  deny  his  liability  on  a 

41  Am.  R.  285;  New  Providence  v.  contract  made  in  his  name  by  his 


§  353] 


CONTRACTS. 


512 


conduct,  as  well  as  by  matter  of  record.  It  may  be  estopped  to  deny 
that  it  has  ratified  the  unauthorized  act  of  a  person  who  has  assumed 
to  represent  it.  It  is  not  necessary  to  show  a  formal  ratification  of  a 
contract  by  a  board  of  directors  of  a  corporation,  but  it  is  sufficient  to 
render  it  binding  upon  the  corporation  if  it  accepted  and  acted  under 
it  and  performed  its  terms  with  full  knowledge  of  its  import.49 

§  353.  Ratification  of  unauthorized  acts — Rights  of  the  public  and 
of  creditors. — So  far  as  concerns  the  corporation  and  its  stockholders,, 
there  can  be  no  doubt  that  the  unauthorized  acts  of  the  company's 
officers  and  agents  may  be  ratified  by  the  stockholders,  so  as  to  render 
them  valid  and  binding  upon  the  corporation  and  its  stockholders. 
This  is  elementary  doctrine.50  But,  as  we  have  elsewhere  said,  we  do 
not  believe  that  an  act  entirely  outside  of  and  beyond  the  scope  of  the 


agent,  a  corporation  will  be  estopped 
in  like  manner,  provided  the  con- 
tract is  not  in  the  proper  sense  ultra 
vires.  Foulke  v.  San  Diego,  &c.  R. 
Co.  51  Cal.  365;  Hayden  v.  Middle- 
sex Turnp.  Co.  10  Mass.  397,  6  Am. 
Dec.  143 ;  Tyler  v.  Trustees,  14  Oreg. 
485,  13  Pac.  329;  Kellogg  Bridge  Co. 
v.  Hamilton,  110  U.  S.  108,  3  Sup. 
Ct.  537;  Taylor  Priv.  Corp.  249. 
Where  the  president  and  general 
manager  of  a  company  borrowed 
money  and  executed  notes  in  the 
corporate  name  it  was  held  that  the 
corporation  is  not  estopped  from  at- 
tacking the  validity  of  the  notes, 
even  though  one  member  of  the 
board  of  trustees  knew  of  the  trans- 
action and  though  the  money  was 
used  for  the  company's  benefit. 
Dunbar,  C.  J.,  dissenting.  Elwell  v. 
Puget  Sound,  &c.  R.  Co.  7  Wash. 
487,  35  Pac.  376. 

49  Taylor  v.  Albemarle  Steam  Nav. 
Co.  105  N.  C.  434,  10  S.  E.  897; 
Jacksonville,  &c.  R.  &c.  Co.  v.  Hoop- 
er, 160  U.  S.  514,  16  Sup.  Ct.  379; 
Anderson  v.  Connor.  43  Misc.  (N. 
Y.)  384,  87  N.  Y.  S.  449;  Gulf, 
&c.  R.  Co.  v.  Pittman,  4  Tex.  Civ. 
App.  167,  23  S.  W.  318.  The  ac- 


ceptance of  a  bonus  by  a  railroad 
company  ratifies  the  representations 
made  by  a  director  while  soliciting 
the  bonus  from  the  citizens  of  a 
town. 

00  Hitchings  v.  St.  Louis,  &c.  Trans. 
Co.  68  Hun  (N.  Y.)  33,  22  N.  Y.  S. 
719;  Branch  v.  Jesup,  106  U.  S.  468, 
1  Sup.  Ct.  495;  Taylor  v.  Chichester, 
&c.  R.  Co.  L.  R.  2  Ex.  356,  380;  Tay- 
lor v.  S.  &  N.  Alabama  R.  Co.  13 
Fed.  152;  Kelley  v.  Newburyport, 
&c.  R.  Co.  141  Mass.  496,  6  N.  E. 
745;  Augusta,  &c.  R.  Co.  v.  Kittel, 
52  Fed.  63.  If  stockholders  of  a 
corporation  stand  by  and  sanction, 
or  seem  by  their  silence  to  sanction, 
unauthorized  acts  of  the  officers  of 
the  company,  they  must  abide  by 
such  acts.  Burgess  v.  St.  Louis 
County  R.  Co.  99  Mo.  496,  12  S.  W. 
1050.  But  in  Weatherford,  &c.  R. 
Co.  v.  Granger,  86  Tex.  350,  24  S. 
W.  795,  it  was  held,  reversing  23 
S.  W.  425,  that  a  corporation  accept- 
ing a  bonus  on  its  organization  is 
not  liable  on  the  contract  of  the  pro- 
moter for  services  in  procuring  the 
bonus,  in  the  absence  of  a  statutory 
provision  or  an  express  agreement 
to  that  effect. 


513  CONTRACTS  IN  CONJUNCTION   WITH   OTHER  PARTIES.     [§    354 

powers  conferred  upon  the  corporation  can  be  ratified  so  as  to  give 
vitality  to  the  contract,  for  what  could  not  be  done  directly  by  enter- 
ing into  contract  cannot  be  accomplished  by  ratification.51  We  make 
a  distinction  between  acts  performed  by  agents  outside  of  the  scope  of 
their  authority,  and  acts  entirely  beyond  the  scope  of  the  powers  con- 
ferred upon  the  corporation  by  the  legislature.  The  question  of  the 
right  to  ratify  and  of  the  effect  of  a  ratification  is  radically  different 
in  cases  where  the  interests  of  creditors  are  involved,  and  in  cases 
where  the  state  assails  the  contract,  from  what  it  is  where  the  corpora- 
tion or  its  stockholders  seek  to  avoid  the  contract.  The  state,  and  in 
some  instances  the  creditors  of  the  company,  may  object  to  the  en- 
forcement of  such  a  contract,  although  the  corporation  and  its  stock- 
holders may  have  assumed  to  ratify  it.52 

§354.  Contracts  in  conjunction  with  other  parties. — The  power 
to  unite  with  other  corporations  or  with  natural  persons  in  making 
contracts  required  by  legitimate  corporate  business  is  one  of  the  im- 
plied powers  of  a  railroad  company.  The  general  power  to  contract 
authorizes  the  execution  of  all  such  contracts  as  are  necessary  to  en- 
able the  corporation  to  successfully  and  properly  conduct  its  cor- 
porate business.  Thus  a  railroad  company  may  unite  with  natural 
persons  in  a  contract  for  the  maintenance  of  crossings,53  or,  in  many 
instances,  with  individuals  or  corporations  for  various  other  legitimate 
purposes.5* 

81  Post,  §  371 ;  Kelner  v.  Baxter,  L.  Mo.  218.    As  to  the  rights  of  cred- 

R.  2  C.  P.  174;  Scott  v.  Lord  Ebury,  itors,   see   Bank   of  Chattanooga  v. 

36  L.  J.  C.  P.  161;  Melhado  v.  Porto  Bank  of  Memphis,  9  Heisk.  (Tenn.) 

Alegre,  &c.  R.  Co.  L.  R.  9  C.  P.  503;  408;  National  Trust  Co.  v.  Miller,  33 

Spiller  v.  Paris  Rink   Co.  L.  R.   7  N.  J.  Eq.  155;  Abbott  v.  Baltimore, 

Ch.  D.  368;    Empress  Eng.  Co.,  In  &c.  Co.  1  Md.  Ch.  542;   Talmage  v. 

re,  L.  R.  16  Ch,  D.  125;  North'd  Ave.  Pell,  7  N.  Y.  328. 

Hotel  Co.,  In  re,  L.  R.  33  Ch.  D.  16.  M  Chattanooga,  &c.  R.  Co.  v.  Davis, 

See  Gooday  v.  Colchester  &  S.  W.  89  Ga.  708,  15  S.  E.  626. 

Co.  15  Eng.  L.  &  Eq.  596;   Preston  "See  Chicago,  &c.  R.  Co.  v.  Ayres, 

v.  Liverpool  M.  &c.  R.  Co.  7  Eng.  L.  140  111.  644,  30  N.  E.  687;   Chicago, 

&  Eq.  124;   Webb  v.  Direct,  &c.  R.  &c.  R.  Co.  v.  Mulford,  162  111.  522, 

Co.  9  Hare  129.    See,  also,  Steele  v.  44  N.  E.  861,  39  L.  R.  A.  599;  Elkins 

Fraternal  Tribunes,  215  111.  190,  74  y.  Camden,  &c.  R.  Co.  36  N.  J.  Eq. 

N.  E.  121,  106  Am.  St.  160.  241;  Sussex  R.  Co.  v.  Morris,  &c.  19 

52  Oil  Creek,  &c.  R.  Co.  v.  Pennsyl-  N.  J.  Eq.  13 ;  State  v.  Concord  R.  Co. 

vania   Trans.    Co.    83    Pa.    St.   160;  59  N.  H.  85;   Nashua,  &c.  R.  Co.  v. 

Kelly  v.  People's  Transportation  Co.  Boston,    &c.    R.    Co.    27    Fed.    821; 

3  Oreg.  189;  Shewalter  v.  Pirner,  55  Rocky  Mt.  Mills  V.  Wilmington,  &c. 

ELL.  RAILROADS — 33 


§'355] 


CONTRACTS. 


514 


§  355.  Pledge  of  corporate  securities. — A  party  who,  in  good  faith, 
receives  from  the  board  of  directors  of  a  corporation  bonds  in  pledge, 
will  be  protected  provided  the  directors  had  authority  to  issue  such 
bonds.55  The  general  doctrine  is  that  the  power  to  sell  carries  with 
it  the  power  to  pledge.56  But  an  officer  or  agent  who  has  no  power 
to  sell  or  negotiate  the  bonds  cannot,  of  course,  pledge  them,  and  the 
decisions  in  analogous  cases  clearly  establish  the  doctrine  that  neither 
the  president  nor  any  other  executive  or  ministerial  officer  has  au- 
thority, merely  by  virtue  of  his  office,  to  pledge  the  bonds  of  the  com- 
pany.57 The  board  of  directors,  if  it  has  the  power  to  issue  and  sell 
bonds,  may  authorize  the  president  or  other  representative  of  the 
company  to  pledge  them.  If  the  course  of  business  has  been  such  as 
to  warrant  the  inference  that  the  president  or  other  representative 
has  authority  to  pledge  the  bonds,  and  such  an  act  is  not  ultra  vires 
in  the  proper  sense,  then  a  pledge  by  the  president  would  be  upheld 
for  the  protection  of  a  bona  fide  pledgee. 

§  356.    Contracts  between  connecting  lines — Division  of  fares. — In 

the  absence  of  a  statute  interdicting  it,  one  railroad  company  may 
rightfully  enter  into  a  contract  with  another  for  the  purpose  of  mak- 
ing a  through  line,  and  agree  upon  a  division  of  the  fares  according 
to  local  rates.58  Where  the  object  of  such  a  contract  is  to  secure 


R.  Co.  119  N.  Car.  693,  25  S.  E.  854, 
56  Am.  St.  682. 

55  Farmers',  Loan,  &c.  Co.  v.  To- 
ledo, &c.  R.  Co.  54  Fed.  759;   Dun- 
comb  v.  New  York,  &c.  Railroad  Co. 
84  N.  Y.  190;  Beecher  v.  Marquette, 
&c.  Mill  Co.  45  Mich.  103,  7  N.  W. 
695. 

56  Platt  v.  Union  Pac.  R.  Co.  99  U. 
S.  48;    Leo  v.  Union  Pac.  Railway 
Co.  17  Fed.  273;  Farmers'  Loan,  &c. 
Co.  v.  Toledo,  &c.  R.  Co.  54  Fed.  759. 

57  Potts  v.  Wallace,  146  U.  S.  689, 
13  Sup.  Ct.  196,  40  Am.  &  Eng.  Corp. 
Cas.  286;   Burke  v.  Smith,  16  Wall. 
(U.  S.)  390;  Bank  of  U.  S.  v.  Dunn, 
6  Pet.   (U.  S.)   51;   Famous,  &c.  Co. 
v.  Eagle  Iron  Works,  51  Mo.  App. 
66;    Blanding  v.  Davenport,   &c.  R. 
Co.  88  Iowa  225,  55  N.  W.  81;  Chem- 
ical, &c.  Bank  v.  Wagner,  93  Ky.  525, 


20  S.  W.  535,  40  Am.  St.  206;  Davis 
v.  Rockingham,  &c.  Co.  89  Va.  290, 
15  S.  E.  547.  See,  also,  Second  Ave. 
R.  Co.  v.  Mehrbach,  49  N.  Y.  Super. 
Ct.  267;  Titus  v.  Cairo,  &c.  R.  Co.  37 
N.  J.  L.  98.  Nor,  it  is  held,  to  let 
a  construction  contract.  Griffith  v. 
Chicago,  &c.  R.  Co.  74  Iowa  85,  36 
N.  W.  901;  Templin  v.  Chicago,  &c. 
R.  Co.  73  Iowa  548,  35  N.  W.  634. 

58  Hartford,  &c.  R.  Co.  v.  New 
York,  &c.  R.  Co.  3  Robt.  (N.  Y.) 
411;  Stewart  v.  Erie,  &c.  Co.  17 
Minn.  372;  Sussex,  &c.  Co.  v.  Mor- 
ris, &c.  Co.  19  N.  J.  Eq.  13;  Colum- 
bus, &c.  R.  Co.  v.  Indianapolis,  &c. 
R.  Co.  5  McLean  (U.  S.)  450;  An- 
droscoggin,  &c.  Co.  v.  Androscoggin 
R.  Co.  52  Me.  417;  Great  Northern 
R.  Co.  v.  Manchester  R.  Co.  10  Eng. 
Law  &  Eq.  11.  See  Bartlette  v.  Nor- 


515  CONTRACTS   PERMITTING   USE   OF   PART   OF   ROAD.          [§357 

through  connections  and  not  to  stifle  competition,  there  is,  it  is  ob- 
vious, no  violation  of  the  principles  of  public  policy.  If,  however, 
under  the  guise  of  securing  a  through  connection,  one  railroad  com- 
pany should  contract  with  another  for  the  purpose  of  shutting  off  all 
competition  and  enabling  one  of  the  companies  to  charge  unreasonable 
fares,  the  contract  would  be  illegal.  Where  there  is  a  statute  forbid- 
ding combinations  and  the  division  of  fares  an  essentially  different 
question  is  presented,  and  that  question  is  not  here  considered. 

§  357.  Contracts  permitting  use  of  part  of  road. — A  distinction  is 
made  between  the  lease  of  the  entire  road  and  a  contract  granting  per- 
mission to  one  railroad  company  to  use  part  of  the  road  of  another, 
and  contracts  of  the  latter  class  may  be,  and  usually  are,  upheld59 
even  though  a  lease  of  the  entire  road  and  property  would  be  unau- 
thorized. Where  the  company  granting  the  permission  does  not  disable 
itself  from  performing  its  duty  to  the  public,  there  is  no  reason  for 
holding  invalid  a  contract  which  simply  grants  the  use  of  part  of  the 
road.  It  would  be  otherwise  if  one  of  the  companies  by  such  a  con- 
tract should  disable  itself  from  performing  the  duties  enjoined  upon 
it  by  law.  If  the  governing  statute  authorizes  the  execution  of  a  lease, 
then,  of  course,  there  can  be  no  question  as  to  the  power  of  one  com- 
pany to  lease  all  of  its  road  to  another. 

§  358.  Contracts  regarding  terminal  facilities. — A  contract  by  one 
railroad  company  to  permit  the  use  of  its  terminal  facilities  by  an- 
other company  is  valid,  provided  the  company  owning  the  terminal 
facilities  does  not  by  the  terms  or  the  effect  of  the  contract  disable 
itself  from  performing  its  corporate  functions.60  But  under  guise  of 

wich,  &c.  R.  Co.  33  Conn.  560;  Mun-  see  State  v.  Minneapolis,  &c.  R.  Co. 

hall  v.  Pennsylvania  R.  Co.  92  Pa.  St.  80.  Minn.  191,  83  N.  W.  60,  89  Am. 

150;  Perkins  v.  Portland,  &c.  R.  Co.  St.  514,  and  note,  including  opinion 

47  Me.  573,  74  Am.  Dec.  507;  Pennsyl-.  of    Supreme    Court    of    the    United 

vania,  &c.  Co.  v.  Delaware,  &c.  Co.  States  affirming  the  decision  of  the 

1  Keyes  (N.  Y.)  72;  Graham  v.  Ma-  state  court. 

con,  &c.  R.  Co.  120  Ga.  757,  49  S.  E.  5a  Chicago,  &c.  R.  Co.  v.  Ayres,  140 

75;   Missouri  Pac.  R.  Co.  v.  Texas,  111.  644,  30  N.  E.  687;  Union  Pacific 

&c.  R.  Co.  30  Fed.  2 ;  note  in  72  Am.  R.  Co.  v.  Chicago,  &c.  R.  Co.  51  Fed. 

Dec.  230,  231;  Georgia  R.  &c.  Co.  v.'  309,  affirmed  in  163  U.  S.  564,  16  Sup. 

Maddox,  116  Ga.   64,  42  S.  E.   315,  Ct.  1173;  Chicago,  &c.  R.  Co.  v.  Den- 

321,    citing   text.     As   to   power   of  ver,  &c.  R.  Co.  143  U.  S.  596,  12  Sup. 

state  to  compel  joint  traffic  arrange-  Ct.  479. 

ments  between  connecting  carriers,  *>  Union  Pac.  R.  Co.  v.  Chicago,  &c. 


359] 


CONTRACTS. 


51G 


such  a  contract,  a  railroad  company  cannot  so  divest  itself  of  its 
property  and  franchises  as  to  incapacitate  itself  from  discharging  the 
duties  resting  upon  it.  The  paramount  rule  that  railroad  corporations 
cannot  abdicate  their  functions,  nor  surrender  their  powers  without 
the  consent  of  the  legislature  is  not  impinged  by  a  reasonable  contract 
granting  to  another  company  use  of  its  tracks  and  stations. 

§  359.  Traffic  contract — Surrender  to  competing  line. — A  traffic 
contract  which  destroys  the  independence  of  a  railroad  company  and 
disables  it  from  performing  its  duties  cannot  be  enforced,  except 
where  such  a  contract  is  authorized  by  statute.61  The  policy  of  the 
law  is  to  prevent  the  creation  of  monopolies  and  to  foster  fair  com- 
petition,62 and  hence  one  railroad  company  has  no  implied  power  to 
absorb  another,  but  such  power  may  be  granted  by  the  legislature.  The 
rule  that  a  railroad  company  cannot  "absolve  itself  from  the  per- 
formance of  its  functions  without  the  consent  of  the  legislature,"63 


R.  Co.  51  Fed.  309,  2  C.  C.  A.  174,  51 
Am.  &  Eng.  R.  Cas.  162;  Chicago, 
&c.  R.  Co.  v.  Union  Pacific  R.  Co. 
47  Fed.  15.  See,  also,  Miller  v. 
Green  Bay,  &c.  R.  Co.  59  Minn.  169, 
60  N.  W.  1006,  26  L.  R.  A.  443.  In 
the  case  first  cited  the  court  referred 
to  Oregon,  &c.  Co.  v.  Oregonian  R. 
Co.  130  U.  S.  1,  9  Sup.  Ct.  409;  Cen- 
tral Transp.  &c.  Co.  v.  Pullman,  &c. 
Co.  139  U.  S.  24,  11  Sup.  Ct.  478, 
and  other  cases  of  like  character, 
and  discriminated  them  from  the 
case  where  there  was  a  grant  of  a 
right  to  use  terminal  facilities.  The 
court  cited,  in  support  of  its  con- 
clusion, the  following  cases:  Joy  v. 
St.  Louis,  138  U.  S.  1,  43,  11  Sup. 
Ct.  243;  Brown  v.  Bellows,  4  Pick. 
(Mass.)  179;  Gregory  v.  Mighell,  18 
Vesey  328;  Providence  v.  St.  John's 
Lodge,  2  R.  I.  46;  Dike  v.  Greene, 
4  R.  I.  285;  Brown  v.  Winnisimmet 
Co.  11  Allen  (Mass.)  326;  Midland 
R.  Co.  v.  Great  Western  R.  Co.  8 
Ch.  App.  841,  851;  Simpson  v.  West- 
minster Hotel  Co.  8  H.  L.  Cas.  712; 
Hendee  v.  Pinkerton,  96  Mass.  381, 
386.  On  appeal  to  the  Supreme 


Court  the  judgment  was  affirmed 
and  the  distinction  clearly  drawn 
between  such  a  contract  and  one 
disabling  a  railroad  company  from 
performing  its  duties  to  the  public, 
two  justices,  however,  dissenting. 
163  U.  S.  564,  16  Sup.  Ct  1173.  See, 
generally,  Harper  v.  Cincinnati,  &c. 
Co.  15  Ky.  L.  223,  22  S.  W.  849.  The 
text  is  cited  with  approval  in 
Georgia  R.  &c.  Co.  v.  Maddox,  116 
Ga.  64,  42  S.  E.  315,  321,  where  it  is 
said  that  such  an  arrangement,  in- 
stead of  disabling  either  company 
from  transacting  its  own  business, 
increases  the  facilities  of  each  and 
correspondingly  benefits  the  general 
public. 

81Earle  v.  Seattle,  &c.  R.  Co.  56 
Fed.  909. 

62  Chicago,  &c.  R.  Co.  v.  Southern 
Ind.  R.  Co.  (Ind.  App.)  70  N.  E.  843, 
845,  quoting  text. 

63  Fisher  v.  West  Virginia,  &c.  Co. 
39  W.  Va.  366,  19  S.  E.  578,  23  L.  R. 
A.  758;  Ricketts  v.  Chesapeake,  &c. 
R.  Co.  33  W.  Va.  433,  10  S.  E.  801, 
7  L.  R.  A.  354,  25  Am.  St.  901;  New 
York,  &c.  R.  Co.  v.  Winans,  17  How. 


517 


CONTRACTS  WITH  CITIES  FOR  TERMINALS. 


[§  360 


is  a  general  one  applicable  to  all  classes  of  contracts  made  by  railroad 
corporations.  An  arrangement  by  which  one  company  grants  to  an- 
other a  right  to  use  its  track,  the  purpose  of  the  two  companies  being 
to  secure  an  interchange  of  traffic,  is  not  a  mere  naked  license  but  is 
an  enforceable  contract.64  Trackage  contracts,  unless  forbidden  by 
statute,  may  be  made  between  railroad  companies.65  Eailroad  com- 
panies have  general  power  to  make  contracts  to  build,  repair  and  re- 
store public  or  private  crossings.66 

§  360.  Contracts  with  municipal  corporations  for  terminal  facili- 
ties.— A  contract  may  be  made  between  a  railroad  company  and  a 
municipal  corporation,  by  which  the  company  is  granted  terminal 
facilities.67  The  grant  is  taken  with  the  burdens  imposed  upon  it  by 
the  town  or  city,68  and  all  companies  claiming  through  the  company  to 


(U.  S.)  30;  Washington,  &c.  R.  Co. 
v.  Brown,  17  Wall.  (U.  S.)  445; 
Pennsylvania,  &c.  Co.  v.  St.  Louis, 
&c.  Co.  118  U.  S.  290,  6  Sup.  Ct. 
1094;  Central  Transp.  Co.  v.  Pull- 
man's Palace  Car  Co.  139  U.  S.  24, 
11  Sup.  Ct.  478;  United  States  v. 
Union  Pac.  R.  Co.  160  U.  S.  1,  16 
Sup.  Ct.  190;  Grand  Tower,  &c.  Co. 
v.  Ullman,  89  111.  244.  See  George 
v.  Central,  &c.  R.  Co.  101  Ala.  607, 
14  So.  752;  Biles  v.  Tacoma,  &c.  Co. 
5  Wash.  509,  32  Pac.  211.  In  Galves- 
ton,  &c.  Co.  v.  Davis,  4  Tex.  Civ. 
App.  468,  23  S.  W.  301,  and  in  Gal- 
veston,  &c.  Co.  v.  Arispe,  5  Tex.  Civ. 
App.  611,  23  S.  W.  928,  24  S.  W. 
33,  it  was  held  that  an  arrangement 
by  which  several  companies  lease 
their  roads  to  one  company  for 
ninety-nine  years,  is  an  agree- 
ment of  partnership  and  not  a  lease. 
We  very  much  doubt  the  soundness 
of  those  decisions,  for,  as  we  be- 
lieve, the  contract,  whether  techni- 
cally a  lease  or  not,  was  ineffective. 

w  Louisville,  &c.  R.  Co.  v.  Ken- 
tucky, &c.  R.  Co.  95  Ky.  55,  26  S.  W. 
532. 

65  Union  Pac.  R.  Co.  v.  Chicago, 
&c.  R.  Co.  163  U.  S.  564,  16  Sup,  Ct. 


1173;  Boston,  &c.  R.  Corp.  v. 
Nashua,  &c.  R.  Corp.  157  Mass.  258, 
31  N.  E.  1067,  citing  Nashua,  &c.  R. 
Co.  v.  Boston,  &c.  R.  136  U.  S.  356, 
10  Sup.  Ct.  1004.  Contract  grant- 
ing right  to  use  railroad  and  appur- 
tenances is  governed  by  ordinary 
rules  of  construction.  Chicago,  &c. 
Co.  v.  Denver,  &c.  R.  Co.  143  U.  S. 
596,  12  Sup.  Ct.  479,  50  Am.  &  Eng. 
R.  Cas.  60.  See  St.  Paul,  &c.  R.  Co. 
v.  St.  Paul,  &c.  Co.  44  Minn.  325,  46 
N.  W.  566. 

66  Post  v.  West  Shore,  &c.  R.  Co. 
123  N.  Y.  580,  26  N.  E.  7.  See  Atchi- 
son,  &c.  R.  Co.  v.  Lenz,  35  111.  App. 
330;  Elgin  v.  Baltimore,  &c.  R.  Co. 
74  Md.  61,  21  Atl.  688. 

6T  Louisville,  &c.  Co.  v.  Mississippi, 
&c.  Co.  92  Tenn.  681,  22  S.  W.  920, 
59  Am.  &  Eng.  R.  Cas.  99;  Chicago, 
&c.  Co.  v.  St.  Paul,  &c.  R.  Co.  54 
Minn.  411,  56  N.  W.  129;  Baltimore, 
&c.  R.  Co.  v.  Pittsburgh,  &c.  R.  Co. 
55  Fed.  701;  St.  Paul,  &c.  v.  Minne- 
sota, &c.  R.  Co.  47  Minn.  154,  49  N. 
W.  646,  13  L.  R.  A.  415,  50  Am.  & 
Eng.  R.  Cas.  55. 

68  Hayes  v.  Michigan  Cent.  R.  Co. 
Ill  U.  S.  228,  4  Sup.  Ct.  369,  15  Am. 
&  Eng.  R.  Cas.  394. 


§'  361] 


CONTRACTS. 


SIS 


which  the  grant  is  made  take  subject  to  .the  burdens  so  imposed.69  It 
is  true  of  all  grants  of  rights  to  use  public  parks,  streets  or  roads,  that 
the  grantee  takes  with  the  burdens  imposed  by  the  municipal  authori- 
ties, and  all  parties  whose  claims  are  founded  upon  the  grant  are 
bound  by  its  terms  and  conditions. 

§  361.  Use  of  tracks  constructed  under  grant  from  municipal  cor- 
poration.— It  is  common  for  municipal  corporations  to  grant  the  right 
to  use  its  streets  to  one  railroad  company  upon  a  condition  that  other 
companies  may  be  permitted  to  use  the  track.70  The  power  to  make 
such  a  contract  is  unquestionable,  and  the  disputes  that  the  courts 
have  been  called  upon  to  adjudicate  generally  are  as  to  the  construction 
to  be  given  such  contracts.71  Ordinarily,  the  municipal  corporation 
may  impose  such  conditions  as  in  its  discretion  it  deems  expedient, 
and  the  company  accepting  such  a  grant,  as  well  as  such  companies  as 
avail  themselves  of  the  benefit  of  it,  must  accept  the  benefit  with  its 
conditions  and  burdens.72  It  has  also  been  held  that  a  municipal  cor- 
poration may  contract  with  a  railroad  company  to  pay  part  of  the 
expense  of  changing  a  grade  crossing,  and  in  making  such  a  contract 
the  municipality  does  not  loan  its  credit.73 


69  Joy  v.  St.  Louis,  138  U.  S.  1,  11 
Sup.  Ct.  243,  45  Am.  &  Eng.  R.  Gas. 
655,  citing  Tulk  v.  Moxhay,  2  Phil. 
Ch.  774 ;  Luker  v.  Dennis,  7  Ch.  Div. 
227;    Bronson   v.   Coffin,   108    Mass. 
175;  Parker  v.  Nightingale,  88  Mass. 
341,  83  Am.  Dec.  632;  Van  Doren  v. 
Robinson,  16  N.   J.  Eq.  256;   Kirk- 
patrick  v.  Peshine,  24  N.  J.  Eq.  206; 
Western  v.  Macdermott,  L.  R.  2  Ch. 
72;      Trustees     of     Watertown     v. 
Cowen,  4  Paige  (N.  Y.)  510,  27  Am. 
Dec.    80;     Randall    v.    Latham,    36 
Conn.    48;    Cincinnati    v.    White,    6 
Pet.   (U.  S.)   431;   Drew  v.  Van  De- 
man,   6   Heisk.    (Tenn.)    433;    Win- 
field  v.  Henning,  21  N.  J.  Eq.  188; 
Verplanck  v.  Wright,  23  Wend.  (N. 
Y.)  506;  Stockett  v.  Howard,  34  Md. 
121. 

70  We  merely  touch  upon  the  gen- 
eral question  here,  as  we  have  con- 
sidered the  subject  more  at  length 


in   discussing   the   subject   of   rail- 
roads in  streets. 

71  Chicago,   &c.   R.    Co.   v.   Kansas 
City,  &c.  R.  Co.  52  Fed.  178,  38  Fed. 
58;   Central,  &c.  Co.  v.  Wabash,  &c. 
R.  Co.  29  Fed.  546.     The  power  of 
determining  where  tracks  shall  be 
located,  unless  an  express  provision 
to  the  contrary  is  made  by  the  legis- 
lature, resides  in  the  municipal  cor- 
poration.     Booth    Street    Railways, 
§§  855,  856;   Chicago,  &c.  R.  Co.  v. 
People,  73  111.   541;   West  End,  &c. 
R.   Co.  v.   Atlanta,   &c.   Co.    49   Ga. 
151;  State  v.  Henderson,  38  Ohio  St. 
644;    Citizens',  &c.  Co.  v.  Jones,  34 
Fed.  579;  Elliott  Roads  and  Streets 
(2d  ed.),  §  766. 

72  Louisville,  &c.  Co.  v.  Mississippi, 
&c.  Co.  92  Tenn.  681,  22  S.  W.  920; 
Joy  v.  St.  Louis,  138  U.  S.  1,  11  Sup. 
Ct.  243,  45  Am.  &  Eng.  R.  Cas.  655. 

73  Brooke  v.  Philadelphia,  162  Pa. 
St.  123,  29  Atl.  387,  24  L.  R.  A.  781. 


519 


CONTRACTS  FOR  LOCATION  OF  STATIONS. 


[§  362 


§  362.  Contracts  for  location  of  stations. — Elsewhere  we  have  di- 
rected attention  to  the  cases  which  hold  that  a  railroad  company  can- 
not enter  into  a  valid  contract  to  locate  a  station  at  a  designated  place, 
and  have  said  that  in  our  opinion  such  a  contract  may  be  made  if  no 
public  interest  is  prejudiced.  If  the  contract  is  made  solely  to  promote 
private  interests  at  the  expense  of  the  public  welfare,  the  contract 
should,  as  we  think,  be  held  to  be  illegal.  But  if  public  interests  are 
not  prejudiced,  or  the  power  of  the  company  to  do  what  the  public 
welfare  requires  is  not  abridged,  we  believe  the  contract  should  be 
regarded  as  valid.  Many  cases  hold  that  a  railroad  corporation  may 
contract  for  the  erection  and  maintenance  of  a  station  at  a  certain 
point,7*  where  its  right  to  maintain  stations  at  other  points  is  not 
thereby  impaired.75  This  we  believe  to  be  the  sound  doctrine.  But 
an  agreement  not  to  locate  a  station  or  depot  within  prescribed  limits, 
where  it  is  needed  for  the  business  of  the  company  and  for  the  use  of 
the  public  would  be  illegal.76 


74  Currier  v.  Concord  R.  Co.  48  N. 
H.  321;  McClure  v.  Missouri  River, 
&c.  R.  Co.  9  Kans.  373;  Kansas  Pac. 
R.  Co.  v.  Hopkins,  18  Kans.  494; 
Gray  v.  Chicago,  &c.  R.  Co.  189  111. 
400,  59  N.  E.  950;  Owensboro,  &c.  R. 
Co.  v.  Griffith,  92  Ky.  137,  17  S.  W. 
277;  Port  Huron,  &c.  R.  Co.  v.  Rich- 
ards, 90  Mich.  577,  51  N.  W.  680; 
Cedar  Rapids,  &c.  R.  Co.  v.  Spafford, 
41  Iowa  292;  First  Nat.  Bank  v. 
Hendrie,  49  Iowa  402,  31  Am.  R.  153; 
Louisville,  &c.  R.  Co.  v.  Sumner,  106 
Ind.  55,  5  N.  E.  404,  55  Am.  R.  719; 
Martindale  v.  Kansas  City,  &c.  R.  Co. 
60  Mo.  508;  Kinealy  v.  St.  Louis, 
&c.  R.  Co.  69  Mo.  658;  Missouri  Pac. 
R.  Co.  v.  Tygard,  84  Mo.  263,  54  Am. 
R.  97 ;  Vicksburg,  &c.  R.  Co.  v.  Rags- 
dale,  46  Miss.  458;  Cumberland  Val- 
ley R.  Co.  v.  Baab,  9  Watts  (Pa.) 
458,  36  Am.  Dec.  132;  Texas,  &c.  R. 
Co.  v.  Robards,  60  Tex.  545,  48  Am. 
R.  268;  Jessup  v.  Grand  Trunk  R. 
Co.  28  Grant's  Ch.  (U.  C.)  583;  Wal- 
lace v.  Great  Western  R.  Co.  3  Ont. 
App.  44;  Caldwell  v.  East  Broad 
Top,  &c.  R.  Co.  169  Pa.  St.  99,  32 


Atl.  85.  Contra,  Pacific  R.  Co.  v. 
Seely,  45  Mo.  212,  100  Am.  Dec.  369; 
Burney  v.  Ludeling,  47  La.  Ann.  73, 
16  So.  507;  Clark  Contracts,  424,  and 
cases  there  cited. 

75  Williamson  v.  Chicago,  &c.  R. 
Co.  53  Iowa  126,  4  N.  W.  870,  36  Am. 
R.  206;  St.  Louis,  &c.  R.  Co.  v. 
Mathers,  72  111.  592.  Where  a  right 
of  way  and  ground  for  the  erection 
of  station  were  granted  to  a  rail- 
road at  a  nominal  quit  rent  in  con- 
sideration that  "all  passenger  trains 
should  stop  regularly"  at  such  sta- 
tion, it  was  held  on  appeal  to  the 
House  of  Lords  that  the  company 
was  bound  to  stop  all  trains  passing 
through  said  station  for  the  convey- 
ance of  passengers,  excepting  trains 
chartered  by  individuals  for  their 
own  use,  and  special  excursion 
trains.  Burnett  v.  Great  North  of 
( Scotland  R.  Co.  L.  R.  10  App.  Cas. 
147,  24  Am.  &  Eng.  R.  Cas.  647. 

74  Florida  Cent.  R.  Co.  v.  State, 
Lavarez,  31  Fla.  482,  13  So.  103,  20 
L.  R.  A.  419,  34  Am.  St.  30;  Louis- 
ville, &c.  R.  Co.  v.  Sumner,  106  Ind. 


363] 


CONTRACTS. 


520 


§  363.  Location  of  tracks,  switches  and  the  like. — The  first  duty 
of  a  railroad  company  in  the  location  of  tracks  and  switches  is  to  the 
public,  and  it  cannot  rightfully  make  any  contract  which  will  pre- 
vent it  from  performing  this  duty.  Where,  however,  no  public  inter- 
est is  affected,  a  railroad  company  may  bind  itself  to  locate  a  switch 
at  a  designated  place.77  If,  however,  it  appears  that  the  company  is 
governed  by  a  consideration  of  self-interest,  and  that  the  interest  of 
the  public  will  be  prejudiced  by  such  a  contract,  it  should  be  regarded 
as  illegal.78  It  has  been  held  that  a  railroad  company  may  make  a 
valid  agreement  to  stop  its  trains  at  a  certain  point  at  specified  times 
for  the  receipt  of  freight.79  But  in  our  opinion  such  contracts  cannot 
be  upheld  if  it  is  shown' that  they  are  materially  injurious  to  the  inter- 
ests of  the  public,  for  the  public  welfare  cannot  be  sacrificed  for  mere 
private  benefit.  It  has  also  been  adjudged  that  a  railroad  company 
may  agree  with  the  lessee  of  refreshment  rooms  at  a  point  upon  its 
line  for  the  stoppage  of  its  trains  at  such  point  for  a  reasonable  time 
to  enable  the  passengers  to  obtain  refreshments  there,80  and  that  a 
recovery  may  be  had  for  a  breach  of  such  agreement.81 

§  364.  Contracts  that  may  be  made  by  railroad  companies — Par- 
ticular instances. — We  have  called  attention  to  the  general  and  fa- 
miliar rule  that  all  railroad  companies  possess  implied  and  incidental 
contract  powers,  and  we  do  not  attempt  to  give  many  cases  illustrating 
the  general  rule,  but  shall  refer  to  some  cases  possessing  peculiar  fea- 


55,  5  N.  E.  404,  55  Am.  R.  719;  St. 
Joseph,  &c.  R  Co.  v.  Ryan,  11  Kans. 
602,  15  Am.  R.  357;  Currie  v. 
Natchez,  &c.  R.  Co.  61  Miss.  725; 
Marsh  v.  Fairbury,  &c.  R.  Co.  64  111. 
414,  16  Am.  R.  564;  Mobile,  &c.  R. 
Co  v.  People,  132  111.  559,  24  N.  E. 
643,  22  Am.  St.  556. 

77Lydick  v.  Baltimore,  &c.  R.  Co. 
17  W.  Va.  427. 

78  See  Chicago,  &c.  R.  Co.  v.  South- 
ern Ind.  R.  Co.  (Ind.  App.)  70  N.  E. 
843. 

79Lydick  v.  Baltimore,  &c.  Co.  17 
W.  Va.  427;  "Lindsay  v.  Great  North- 
ern R.  Co.  17  Jur.  522.  In  these 
cases  it  was  held  that  such  an  agree- 
ment could  be  specifically  enforced, 


and  a  court  of  equity  will  restrain 
a  breach  thereof. 

80  Phillips  v.  Great  Western  R.  Co. 
L.  R.  7  Ch.  409. 

81  Flanagan  v.   Great  Western  R. 
Co.  L.  R.  7  Eq.  116;  Rigby  v.  Great 
Western  R.  Co.  4  Eng.  R.  &  Canal 
Gas.  190.     But  we  think  that  such 
contracts  are  to  be  carefully  scrut- 
inized  and  not  upheld  where  they 
materially    infringe    the    rights    of 
the  public.     The  public  interest  is 
always,  as  it  seems  to  us,  the  para- 
mount consideration.     Contracts  to 
stop  trains  at  designated  places,  or 
to   do  like  acts,   may   in   many   in- 
stances be  detrimental  to  the  public 
welfare,  and  in  such  instances  they 
should  not  be  enforced. 


521 


CONTRACTS   THAT  MAY  BE  MADE — ILLUSTRATIONS.       [§-3G4 


tures.  A  railroad  company  may  contract  to  carry  a  person  and  his 
family  upon  its  trains  free  during  his  life,82  or  for  any  period  of 
time,83  subject  to  any  prescribed  legal  conditions.84  It  may  make 
special  contracts  for  the  carriage  of  passengers,85  provided  that  it 
makes  no  unjust  discrimination  and  violates  no  rules  of  law.  This  is 
true  also  respecting  the  carriage  of  goods.86  It  may,  by  contract,  ex- 
tend its  duties  and  liabilities  to  the  carriage  of  goods  beyond  its  own 
line.87  Many  cases  hold  that  where  no  statutory  provisions  control,  a 


82  Grimes   v.   Minneapolis,   &c.   R. 
Co.  37  Minn.  66,  33  N.  W.  33.     See 
Pennsylvania  Co.  v.  Erie,  &c.  R.  Co. 
108    Pa.    St.    621;    Rice   v.    Illinois 
Cent.  R.  Co.  22  111.  App.  643.    Where 
right  of  way  is  granted  to  a  railroad 
company  in  consideration  of  a  free 
pass  for  the  grantor  during  his  life, 
the  purchaser  of  the  road  at  a  fore- 
closure  sale   cannot  be   held  liable 
for  failure  to  grant  such  pass.    Hel- 
ton v.  St.  Louis,  &c.  R.  Co.  25  Mo. 
App.  322. 

83  Knopf  v.  Richmond,  &c.  R.  Co. 
85  Va.  769,  8  S.  E.  787. 

"In  Knopf  v.  Richmond,  &c.  R. 
Co.  85  Va.  769,  8  S.  E.  787,  it  was 
decided  that,  under  the  circum- 
stances, the  company  was  not  at 
fault  for  failing  to  issue  a  pass 
which  had  not  been  applied  for, 
and  that  the  company's  agents  right- 
fully ejected  the  plaintiff  on  his 
failure  to  produce  and  show  a  pass. 
In  Grimes  v.  Minneapolis,  &c.  R.  Co. 
37  Minn.  66,  33  N.  W.  33,  it  was  held 
that  the  defendant,  having  contract- 
ed to  carry  the  members  of  the 
family  of  plaintiff's  father,  in  con- 
sideration of  a  conveyance  of  land 
for  a  right  of  way,  and  making  it  a 
rule  to  issue  no  passes,  was  under 
an  obligation  to  inform  the  con- 
ductors of  plaintiff's  rights,  and  In- 
struct them  to  allow  them. 

"Gulf,  &c.  R.  Co.  v.  McGown,  65 
Tex.  640;  Bates  v.  Old  Colony  R.  Co. 
147  Mass.  255,  17  N.  E.  633;  John- 


son v.  Philadelphia,  &c.  R.  Co.  63 
Md.  106 ;  Mosher  v.  St.  Louis,  &c.  R. 
Co.  127  U.  S.  390,  8  Sup.  Ct.  1324; 
Pennington  v.  Philadelphia,  &c.  R. 
Co.  62  Md.  95.  See,  also,  Quimby  v. 
Boston,  &c.  R.  Co.  150  Mass.  365,  23 
N.  E.  205,  5  L.  R.  A.  846;  Griswold 
v.  New  York,  &c.  R.  Co.  53  Conn. 
371,  4  Atl.  261,  55  Am.  R.  115;  Ul- 
rich  v.  New  York,  &c.  R.  Co.  108  N. 
Y.  80,  15  N.  E.  60,  2  Am.  St.  369. 

88  Ball  v.  Wabash,  &c.  R.  Co.  83 
Mo.  574;  Bartlett  v.  Pittsburg,  &c. 
R.  Co.  94  Ind.  281;  Chicago,  &c.  R. 
Co.  v.  Abels,  60  Miss.  1017;  Brown 
v.  Manchester,  &c.  R.  Co.  L.  R.  9 
Q.  B.  Div.  230,  10  Q.  B.  D.  250,  af- 
firmed, L.  R.  8  App.  Gas.  703;  Black 
v.  Wabash,  &c.  R.  Co.  Ill  111.  351, 
53  Am.  R.  628;  Sprague  v.  Missouri 
Pac.  R.  Co.  34  Kans.  347,  8  Pac. 
465;  Louisville,  &c.  R.  Co.  v.  Sher- 
rod,  84  Ala.  178,  4  So.  29,  35  Am. 
&  Eng.  R.  Cas.  611. 

"Houston,  &c.  R.  Co.  v.  Hill,  63 
Tex.  381,  51  Am.  R.  642;  Cummins 
v.  Dayton,  &c.  R.  Co.  (Marion  Co. 
Ind.,  Super.  Ct.)  9  Am.  &  Eng.  R. 
Cas.  36;  Beard  v.  St.  Louis,  &c.  R. 
Co.  79  Iowa  527,  44  N.  W.  803;  At- 
lanta, &c.  R.  Co.  v.  Texas  G.  Co.  81 
Ga.  602,  9  S.  E.  600 ;  Hanson  v.  Flint, 
&c.  R.  Co.  73  Wis.  346,  41  N.  W.  529, 
9  Am.  St.  791;  St.  Louis,  &c.  R.  Co. 
v.- Lamed,  103  111.  293;  Pereira  v. 
Central  Pac.  R.  Co.  66  Cal.  92,  4  Pac. 
988;  Swift  v.  Pacific  Mail,  &c.  Co. 
106  N.  Y.  206,  12  N.  E.  583;  Bar- 


§    365]  CONTRACTS.  522 

railway  company  may  contract  to  carry  for  less  than  a  reasonable  com- 
pensation, though  it  may  not  charge  more.88 

§  365.  Pooling  contracts — Generally. — There  is  much  diversity  of 
opinion  as  to  the  wisdom  or  expediency  of  permitting  railroad  com- 
panies to  enter  into  pooling  contracts,89  and  there  is  some  diversity 
of  opinion  among  authors  and  judges  as  to  the  validity  of  such  con- 
tracts.90 It  seems  to  us  that  some  confusion  has  been  caused  by  the 
failure  to  clearly  discriminate  a  pooling  contract  from  a  contract  for 
the  maintenance  of  fair  rates  and  the  prevention  of  ruinous  competi- 
tion. If  a  contract  is  simply  one  wherein  provision  is  made  for  pre- 
venting ruinous  competition  and  is  neither  intended  to  nor  does  limit 
or  suppress  fair  competition  and  is  neither  intended  to  nor  does  fix 
or  maintain  unreasonable  rates  of  fare,  then  it  cannot  be  regarded  as 
an  illegal  pooling  contract,  but  must  be  regarded  as  a  valid  traffic 
contract.  If  there  is  no  restraint  placed  upon  any  one  of  the  con- 
tracting companies,  if  all  are  left  free  to  perform  their  duties,  and  if 
there  is  no  incentive  or  inducement  to  any  one  of  them  to  neglect  or 
refuse  to  perform  its  duty  there  is  not,  as  it  seems  to  us,  any  illegal 
element  in  the  contract.  But  if  the  contract  either  in  terms  or  in  effect 
disables  any  one  of  the  contracting  companies  from  performing  its 
duty  or  makes  it  to  its  interest  not  to  perform  its  duty  the  contract 
should,  as  we  believe,  be  held  void  as  against  public  policy.  Whether 

danelle,  &c.  R.  Co.  v.  Shinn,  52  Ark.  an  agreement  of  this  character  is 
93,  12  S.  W.  183.  a  reasonable  business  arrangement 
88  Toledo,  &c.  R.  Co.  v.  Elliott,  76  to  protect  the  shareholders  and 
111.  67;  Christie  v.  Missouri  Pac.  R.  creditors  of  the  companies  from  loss, 
Co.  94  Mo.  453,  7  S.  W.  567.  But  it  and  does  not  cause  unreasonably 
may  not  unjustly  discriminate  in  fa-  high  charges,  or  violate  any  duty 
vor  of  certain  shippers  so  as  to  fos-  which  the  companies  owe  the  pub- 
ter  monopoly.  Scofield  v.  Lake  lie,  it  should  be  sustained  and  en- 
Shore,  &c.  R.  Co.  43  Ohio  St.  571,  forced  by  the  courts."  2  Morawetz 
54  Am.  R.  846.  See  Houston,  &c.  R.  Corp.  (2d  ed.)  1131.  See  Greenhood 
Co.  v.  Rust,  58  Tex.  98,  9  Am.  &  Public  Policy,  660-666;  Redfield 
Eng.  R.  Cas.  123.  Railways,  §  146,  par.  2,  where  it  is 
89 Railway  Review,  April  26,  1884.  said:  "There  is  no  principle  of  pub- 
90  Mr.  Morawetz  says:  "It  is  im-  lie  policy  which  renders  void  a 
possible  to  support  the  proposition  traffic  arrangement  between  two 
that  all  agreements  among  railroad  lines  of  railway  for  the  purpose  of 
companies  which  restrict  competi-  avoiding  competition."  Beach  Rail- 
tion  are  condemned  by  law.  Some  ways,  §  528;  Wood  Railroads,  590- 
such  agreements  may  be  contrary  to  600;  Taylor  Private  Corp.  (2d  ed.) 
public  policy  and  unlawful,  but  if  §  309;  2  Cook  Stockholders,  §  897. 


523 


POOLING   CONTRACTS — THE  AUTHORITIES. 


[§    366 


the  contract  does  or  does  not  disable  some  one  of  the  contracting  com- 
panies, or  whether  it  makes  it  to  its  interest  not  to  perform  its  duty, 
or  limits  fair  competition,  or  tends  to  enable  the  companies,  or  some 
one  of  them,  to  obtain  unreasonable  fares,  are  questions  to  be  deter- 
mined from  the  facts  of  the  particular  case.  Where  the  constitution 
or  statute  prohibits  contracts  between  competing  or  rival  lines  then, 
of  course,  no  such  contract  can  be  valid.91  If  the  policy  of  the  state 
as  indicated  by  its  laws  is  against  such  contracts  they  are  not,  it  is 
obvious,  of  any  validity.92  We  do  not  at  this  place  enter  upon  a  con- 
sideration of  the  effect  of  the  federal  interstate  commerce  law,  or  of 
the  federal  statute  directed  against  trusts,  or  the  effect  of  state  stat- 
utes directed  against  trusts  and  combinations,  but  confine  our  dis- 
cussion to  the  subject  of  what  are  commonly  called  pooling  contracts 
without  regard  to  constitutional  or  statutory  provisions.93 

§  366.  Pooling  contracts — The  authorities. — The  rule  which  seems 
to  be  sanctioned  by  the  weight  of  authority  is  that  contracts  between 
railroad  companies  providing  for  the  regulation  of  charges  and  pre- 
venting ruinous  competition  are  not  in  themselves  illegal,  but  they 
are  illegal  if  they  are  intended  to  suppress  fair  competition  or  have' 
that  effect,  and  so  they  are  if  they  disable  any  of  the  contracting  com- 
panies from  performing  their  duty  or  make  it  to  the  interest  of  any 
one  of  them  not  to  perform  the  duty  enjoined  upon  them  by  law.94 


91  In  some  of  the  states  railroad 
companies  are  forbidden  to  enter  in- 
to any  contract  for  pooling  their 
earnings.  Stimson's  Am.  Stat. 
§  8839. 

92Morrill  v.  Boston,  &c.  R.  Co.  55 
N.  H.  531.  But  see  Manchester,  &c. 
R.  Co.  v.  Concord  R.  Co.  66  N.  H. 
100,  20  Atl.  383,  9  L.  R.  A.  689,  49 
Am.  St.  582,  47  Am.  &  Eng.  R.  Gas. 
359,  3  Am.  R.  &  Corp.  R.  22;  Currier 
v.  Concord  R.  Co.  48  N.  H.  321. 

93  The  effect  of  the  so-called  Sher- 
man anti-trust  act  and  the  inter- 
state commerce  act  and  the  recent 
decisions  of  the  supreme  court  of 
the  United  States  in  such  cases  as 
United  States  v.  Trans-Missouri 
Freight  Ass'n,  166  U.  S.  290,  17  Sup. 
Ct.  540,  and  Northern  Securities  Co. 


v.  United  States,  193  U.  S.  197,  24 
Sup.  Ct.  436,  will  be  considered  in 
another  volume. 

94  Shrewsbury,  &c.  R.  Co.  v.  Lon- 
don, &c.  R.  Co.  17  Q.  B.  652,  21  L.  J. 
Q.  B.  89;  Hare  v.  London,  &c.  R. 
Co.  2  J.  &  H.  80,  30  L.  J.  Ch.  817; 
Lancaster,  &c.  Co.  v.  Northwestern, 
&c.  Co.  2  K.  &  J.  293,  25  L.  J.  Ch. 
223;  Eclipse,  &c.  Co.  v.  Pontchar- 
train  R.  Co.  24  La.  Ann.  1;  Stewart 
v.  Erie,  &c.  Co.  17  Minn.  372;  Sus- 
sex, &c.  R.  Co.  v.  Morris  R.  Co.  19 
N.  J.  Eq.  13;  United  States  v.  Trans- 
Missouri,  &c.  Assn.  58  Fed.  58;  Man- 
chester, &c.  R.  Co.  v.  Concord  R.  Co. 
66  N.  H.  100,  20  Atl.  383,  49  Am.  St. 
582,  47  Am.  &  Eng.  R.  Gas.  359,  3 
Am.  R.  &  Corp.  Cases  22;  Koehler, 
Ex  parte,  23  Fed.  529;  Central  Trust 


£366] 


CONTRACTS. 


524 


We  have  stated  the  doctrine  in  somewhat  narrower  terms  than  some  of 
the  cases  declare  it,  but  we  believe  our  statement  to  be  a  fair  expres- 
sion of  the  prevailing  opinion.  If  the  purpose  of  the  contract  between 
the  companies  is  to  stifle  competition  so  as  to  obtain  unreasonable 
fares,  or  if  its  effect  be  to  disable  one  of  the  contracting  companies 
from  performing  the  duty  enjoined  upon,  it,  the  contract  should  be 
condemned  as  illegal.95 


Co.  v.  Ohio  Central  R.  Co.  23  Fed. 
306;  Burke  v.  Concord  R.  Co.  61  N. 
H.  160;  Pittsburgh,  &c.  R.  Co.  v. 
Keokuk,  &c.  Co.  131  U.  S.  371,  9 
Sup.  Ct.  770.  In  Ives  v.  Smith,  3 
N.  Y.  645,  19  N.  Y.  St.  645,  a  viola- 
tion of  such  a  contract  by  a  com- 
pany was  enjoined  at  the  suit  of  a 
stockholder.  A  contract  between 
railroad  companies,  members  of  a 
freight  association,  binding  them  to 
establish  and  maintain  such  rates, 
rules  and  regulations  on  freight 
traffic  between  competitive  points, 
as  a  committee  of  their  choosing 
shall  recommend,  providing  for 
monthly  meetings  of  the  association, 
and  that  each  company  shall  give 
five  days'  notice  before  a  monthly 
meeting  of  every  reduction  of  rates 
or  deviation  from  the  rules  it  pro- 
poses to  make;  that  it  will  advise 
with  the  representatives  of  the  other 
members  at  the  meeting  relative  to 
proposed  changes,  and,  if  the  propo- 
sition is  voted  down,  that  it  will 
then  give  ten  days'  notice  that  it 
will  make  the  changes,  notwith- 
standing the  vote,  if  it  will  not 
abide  by  the  vote;  that  no  member 
will  bill  any  freight  falsely,  or  at  a 
wrong  classification;  and,  providing 
that  any  member  may  withdraw 
from  the  association  on  a  notice  of 
thirty  days,  does  not  substantially 
disable  the  parties  to  the  contract 
from  the  performance  of  their  pub- 
lic duties.  United  States  v.  Trans- 
Missouri  Freight  Assn.  58  Fed.  58, 


7  C.  C.  A.  15.  In  this  case  there 
is  a  strong  dissenting  opinion  by 
Shiras,  J.  See  Texas,  &c.  R.  Co.  v. 
Southern  Pacific  R.  Co.  41  La.  Ann. 
970,  6  So.  888,  17  Am.  St.  445, 10  Am. 
&  Eng.  R.  Gas.  475;  Kettle  River 
R.  Co.  v.  Eastern  R.  Co.  41  Minn. 
461,  43  N.  W.  469,  40  Am.  &  Eng.  R. 
Cas.  449. 

95  In  the  case  of  Chicago,  &c.  R. 
Co.  v.  Wabash,  &c.  Co.  61  Fed.  993, 
10  Lewis'  Am.  R.  &  Corp.  173, 
the  court  said:  "A  railroad  com- 
pany is  a  quasi  public  corporation 
and  owes  certain  duties  to  the  pub- 
lic, among  which  are  the  duties  to 
afford  reasonable  facilities  for  the 
transportation  of  persons  and  to 
charge  only  reasonable  rates  for 
such  service.  Any  contract  by  which 
it  disables  itself  from  these  duties, 
or  which  makes  it  to  its  interest 
not  to  perform  them,  or  removes  all 
incentive  to  their  performance,  is 
contrary  to  public  policy  and  void, 
and  the  obvious  purpose  of  this  con- 
tract being  to  suppress  or  limit  com- 
petition between  the  contracting 
companies,  in  respect  to  the  traffic 
covered  by  the  contract,  and  to  es- 
tablish rates  without  regard  to  the 
question  of  their  reasonableness,  it 
is  contrary  to  public  policy  and 
void."  The  court  cited  Cleveland, 
&c.  Co.  v.  Closser,  126  Ind.  348,  26 
N.  E.  159,  9  L.  R.  A.  754,  22  Am.  St. 
593;  Gulf,  &c.  R.  Co.  v.  State,  72 
Tex.  404,  10  S.  W.  81,  1  L.  R.  A.  849, 
13  Am.  St.  815;  State  v.  Standard 


525' 


POOLING  CONTRACTS — PRESUMPTION. 


[§  367 


§  367.  Pooling  contracts — Presumption. — It  seems  to  us  that  when 
it  appears  that  several  railroad  companies  have  entered  into  an  agree- 
ment to  establish  and  maintain  rates  the  presumption  should  be 
against  its  validity,  and  that  the  contracting  companies  should  be  re- 
quired to  show  that  it  was  not  intended  to  unjustly  stifle  fair  competi- 
tion or  disable  any  one  of  the  companies  from  performing  its  duty. 
Prima  facie  such  a  contract  should  be  regarded  as  against  public 
policy.96  The  presumption  against  such  a  contract  may  doubtless  be 
removed,  but  the  contract  should  be  jealously  scrutinized  and  not  up- 
held if  it  be  not  made  to  appear  that  it  was  not  entered  into  in  order 
to  prevent  ruinous  or,  as  some  of  the  cases  say,  unhealthy  competi- 
tion. The  burden  of  making  this  appear  should  be  placed  on  the  party 
who  asserts  the  validity  of  the  contract.97  But  a  contract  between  com- 
panies whose  roads  connect  and  are  not  competing  is  not  such  a  pool- 
ing contract  as  we  mean,  and,  unless  prohibited  by  charter  or  statute, 
such  a  contract  between  connecting  companies  is  usually  valid.98 


Oil  Co.  49  Ohio  St.  137,  30  N.  E.  279, 
15  L.  R.  A.  145,  34  Am.  St.  541; 
Texas,  &c.  Co.  v.  Southern  Pacific  R. 
Co.  41  La.  Ann.  970,  6  So.  888,  17 
Am.  St.  445;  Gihbs  v.  Consolidated 
Gas  Co.  130  U.  S.  396,  9  Sup.  Ct. 
553;  Morris  Run  Co.  v.  Barclay,  &c. 
Co.  68  Pa.  St.  173,  8  Am.  R.  159; 
Central,  &c.  Co.  v.  Guthrie,  35  Ohio 
St.  666;  Stanton  v.  Allen,  5  Denio 
(N.  Y.)  434,  49  Am.  Dec.  282;  Hook- 
er v.  Vandewater,  4  Denio  (N.  Y.) 
349,  47  Am.  Dec.  258;  Chicago,  &c. 
Co.  v.  People's,  &c.  Co.  121  111.  530, 
13  N.  E.  169,  2  Am.  St.  124;  West 
Va.  &c.  Co.  T.  Ohio  River,  &c.  Co. 
22  W.  Va.  600,  46  Am.  R.  527;  West- 
ern Union  Tel.  Co.  v.  American,  &c. 
Co.  65  Ga.  160,  38  Am.  R.  781;  Sayre 
v.  Louisville,  &c.  Assn.  62  Ky.  143, 
85  Am.  Dec.  613;  United  States  v. 
Trans-Missouri,  &c.  Assn.  58  Fed. 
58,  7  C.  C.  A.  15.  The  court  denied 
the  doctrine  of  Central,  &c.  Co.  v. 
Ohio  Central  R.  Co.  23  Fed.  306. 
Mr.  Lewis,  in  this  note  to  the  case 
from  which  we  have  quoted,  cites 


and  comments  upon  many  cases.  10 
Lewis'  Am.  R.  &  Corp.  R.  181-184. 

96  Cleveland,  &c.  R.  Co.  v.  Closser, 
126  Ind.  348,  26  N.  E.  159,  9  L.  R.  A. 
754,  22  Am.  St.  593. 

07  In  a  subsequent  part  of  our 
work,  we  have  discussed  the  effect 
of  the  interstate  commerce  law  and 
other  statutes  upon  the  question  of 
the  validity  of  pooling  arrange- 
ments between  railroad  companies. 
It  has  been  held  that  the  perform- 
ance of  an  unlawful  pooling  contract 
may  be  enjoined.  Gulf,  &c.  R.  Co.  v. 
State,  72  Tex.  404,  10  S.  W.  81,  13 
Am.  St.  815;  Morrill  v.  Boston,  &c. 
R.  Co.  55  N.  H.  531;  Currier  v.  Con- 
cord R.  Corp.  48  N.  H.  321.  But  a 
court  will  not  help  a  guilty  party 
where  such  a  contract  has  been  per- 
formed. Harriman  v.  Northern  Se- 
curities Co.  197  U.  S.  244,  25  Sup. 
Ct.  493;  Central  Trust  Co.  v.  Ohio 
Cent.  R.  Co.  23  Fed.  306. 

"Atchison,  &c.  R.  Co.  v.  Denver, 
&c.  R.  Co.  110  U.  S.  667,  4  Sup.  Ct. 
185;  Sussex  R.  Co.  v.  Morris,  &c.  R. 


§•  368] 


CONTRACTS. 


526 


§368.  Contracts — Ultra  vires — Definitions. — In  discussing  many 
of  the  subjects  which  have  been  considered  in  the  preceding  pages  we 
have  referred  to  the  doctrine  of  ultra  vires,  and  so  we  shall  do  in 
other  parts  of  our  work,  but  it  seems  appropriate  to  treat  briefly  of 
the  general  doctrine  of  ultra  vires  at  this  place.  The  term  "ultra 
vires'7  is  one  very  frequently  employed  and  not  always  with  strict  ac- 
curacy. Eoughly  defined  the  term,  when  applied  to  a  corporation, 
means  beyond  the  powers  of  the  corporation."  It  may  be  here  noted 
that  the  doctrine  of  ultra  vires  is  applicable  as  a  defense  on  the  part 
of  the  corporation  only  to  actions  arising  out  of  contract.100  Con- 
tracts and  other  acts  of  the  corporation  which  are  outside  or  in  ex- 
cess of  the  corporate  powers  are  ultra'  vires.  The  term  is  sometimes 
applied  to  acts  which  corporations,  as  well  as  natural  persons,  are  for- 
bidden by  law  to  do,101  and  when  so  used  it  means  illegal  contracts, 
but  this  is  not,  in  strictness,  an  accurate  use  of  the  term.  Acts  may  be 
ultra  vires  and  yet  not  be  illegal  in  the  strict  sense,  for  acts  in  excess 
of  the  corporate  powers,  although  entirely  honest  and  moral,  may  be 
ultra  vires.102  If  the  corporation  is  not  invested  with  power  to  make 


Co.  19  N.  J.  Eq.  13;  Elkins  v.  Cam- 
den,  &c.  R.  Co.  36  N.  J.  Eq.  241; 
Cumberland  Valley  R.  Co.  v.  Gettys- 
burg, &c.  R.  Co.  177  Pa.  St.  519,  35 
Atl.  952.  See,  also,  ante,  §  356. 

89  In  the  case  of  National,  &c.  Bank 
v.  Porter,  125  Mass.  333,  28  Am.  R. 
235,  the  court  said:  "There  is  noth- 
ing of  mystery  or  sanctity  in  the  use 
of  the  words  of  a  dead  language, 
ultra  vires ;  and  although  it  is  a  con- 
cise and  convenient  form  by  which 
to  indicate  the  unauthorized  action 
of  artificial  persons  with  limited 
powers,  still  it  is  as  applicable  to  in- 
dividual as  to  corporate  action.  An 
illegal  act  of  an  individual  is  as  re- 
ally ultra  vires  as  the  unauthorized 
act  of  a  corporation." 

100  National  Bank  v.  Graham,  100 
U.  S.  699;  Hussey  v.  Norfolk,  &c.  R. 
Co.  98  N.  C.  34,  3  S.  E.  923,  2  Am. 
St.  312;  Hutchinson  v.  Western,  &c. 
R.  Co.  6  Heisk.  (Tenn.)  634;  Gru- 
ber  v.  Washington,  &c.  R.  Co.  92  N. 
C.  1:  Central,  &c.  R.  Co.  v.  Smith, 
76  Ala.  572,  52  Am.  R.  353. 


101  East  Anglian  R.  Co.  v.  Eastern 
Counties  R.  Co.  11  C.  B.  775;  South 
Yorkshire  R.  Co.  v.  Great  Northern 
R.  Co.  9  Ex.  55,  84.    It  is  held  that 
the  word  "unlawful,"  as  applied  to 
the  purposes  for  which  corporations 
are  formed,  is  not  used  exclusively 
in   the   sense  of   malum   in   se   or 
malum  prohibitum,  but  is  also  used 
to  designate  such  acts,  powers,  and 
contracts  as  are  ultra  vires.    People, 
ex  rel.  Peabody  v.  Chicago  Gas  Trust 
Co.  130  111.  268,  22  N.  E.  798,  8  L.  R. 
A.  497,  17  Am.  St.  319. 

102  In   Whitney   Arms   Co.  v.   Bar- 
low, 63  N.  Y.  62,  20  Am.  R.  504,  it 
was  said:     "When  acts  of  corpora- 
tions are  spoken  of  as  ultra  vires  it 
is  not  intended  that  they  are  unlaw- 
ful or  even  such  as  the  corporation 
cannot  perform,   but   merely   those 
which   are   not  within    the   powers 
conferred  upon  the  corporation  by 
the  act  of  its  creation,  and  are  in 
violation  of  the  trust  reposed  in  the 
managing  board  by  the   sharehold- 
ers, that  the  affairs  shall  be  man- 


527 


CONTRACTS — ULTRA  VIRES — GENERAL  DOCTRINE. 


[§    369 


the  contract  or  perform  the  act  which,  is  the  subject  of  controversy, 
the  contract  or  act  is  ultra  vires,  although  it  may  be  free  from  any 
taint  of  fraud.  The  term  ultra  vires  is  often  used  in  denoting  con- 
tracts voidable  because  of  their  violation  of  public  policy,  but,  as  said 
by  an  eminent  English  judge,  the  term  "illegality"  is  the  better  one.103 
The  term  ultra  vires  is  sometimes  used  to  characterize  a  contract  made 
by  a  corporate  officer  who  has  no  authority  to  act  for  the  corporation 
in  the  transaction  out  of  which  the  contract  arises,  but  this  is  not  an 
accurate  use  of  the  term.  A  president  of  a  railroad  company,  for  ex- 
ample, may  have  no  authority  to  contract  for  the  construction  of  the 
road,  because  such  authority  is  vested  in  the  board  of  directors,  but 
such  a  contract  could  not  be  justly  said  to  be  ultra  vires  of  the  cor- 
poration.104 

§  369.  Contracts  —  Ultra  vires  —  General  doctrine. — Contracts 
which  are  beyond  the  scope  of  the  powers  granted  by  the  act  of  in- 
corporation or  outside  of  the  objects  for  which  it  was  created,  are,  in 
the  just  sense,  ultra  vires,  but  they  are  not  necessarily  illegal  in  the 
strict  sense.105  An  illegal  contract,  that  is,  a  contract  condemned  or 


aged  and  the  funds  applied  solely 
for  carrying  out  the  objects  for 
which  the  corporation  was  created." 
The  court  cited  Earl  of  Shrewsbury 
v.  North  Staffordshire,  &c.  R.  Co. 
L.  R.  1  Eq.  593;  Tyler  v.  Chichester, 
&c.  Co.  L.  R.  2  Exch.  356;  Bissell  v. 
Mich.  &c.  R.  Co.  22  N.  Y.  258.  In 
Bissell  v.  Mich.  &c.  R.  Co.  supra, 
the  court  said:  "The  words  ultra 
vires  and  illegality  represent  totally 
different  and  distinct  ideas.  It  is 
true  that  a  contract  may  have  both 
these  defects,  but  it  may  also  have 
one  without  the  other."  See,  gen- 
erally, Ashbury,  &c.  Co.  v.  Riche,  L. 
R.  7  H.  L.  653 ;  Kent  v.  Quicksilver, 
&c.  Co.  78  N.  Y.  159;  Bath  Gas 
Light  Co.  v.  Claffy,  151  N.  Y.  24,  45 
N.  E.  390,  36  L.  R.  A.  664;  Neils- 
ville  Bank  v.  Tuthill,  4  Dak.  295,  30 
N.  W.  154;  Kadish  v.  Garden  City, 
&c.  Ass'n,  151  111.  531,  38  N.  E.  236, 
42  Am.  St.  256;  note  in  70  Am.  St. 
157,  158;  Taylor  Private  Corp. 
§  592. 


103  Cairns,  L.  C.,  in  Ashbury,  &c.  R. 
Co.  v.  Riche,  L.  R.  7  H.  L.  653. 

104  An   agent  may   exceed   his   au- 
thority,   but    the    contract    entered 
into  by  him  not  be  ultra  vires  as  to 
the    corporation.      The    distinction 
between  cases  where  an  agent  ex- 
ceeds the  authority  conferred  upon 
him    and    cases   where   the    act    is 
beyond  the  corporate  power  or  ca- 
pacity  is   often   of  importance.     It 
is  especially  so  in  cases  where  the 
question  is  whether  the  agent's  act 
has  been  ratified;   if  the  agent  sim- 
ply  transcended   his   authority   his 
act  may  be  validated  by  ratification, 
but  if  the  act  was  beyond  the  cor- 
porate  power,   ratification   will   not 
always  validate  it.     See  note  in  70 
Am.  St.  160. 

'105Lord  Chancellor  Selborne  in 
Great  Eastern,  &c.  R.  Co.  v.  Turner, 
L.  R.  8  Ch.  149,  said:  "The  com- 
pany is  a  mere  abstraction5  of  law. 
All  that  it  does,  all  that  the  law 
imputes  to  it  as  its  act,  must  be 


§  369] 


CONTRACTS. 


528 


prohibited  by  law,  differs  from  a  contract  made  by  a  corporation  in 
excess  of  its  corporate  powers,  but  involving  no  moral  turpitude  or 
wrong,  and  this  difference  leads  to  important  practical  results.  If  a 
party  engages  with  a  corporation  in  an  illegal  contract,  that  is,  a  con- 
tract involving  moral  turpitude,  the  courts  will  not  aid  him  to  en- 
force the  contract  nor  to  recover  money  or  property  yielded  the  cor- 
poration under  it.  Where,  however,  a  corporation  obtains  money  or 
property  under  a  contract  that  is  not  illegal,  the  party  from  whom 
such  money  or  property  is  obtained  may  be  aided  by  the  courts,  al- 
though the  contract  was  ultra  vires.106  It  is  held  upon  the  same  gen- 
eral principle  that  if  the  party  contracting  with  a  corporation  retains 
the  property  obtained  from  the  corporation,  thus  securing  a  benefit 
under  the  contract,  he  cannot  escape  payment  of  the  value  of  the  prop- 
erty so  obtained  on  the  ground  that  the  contract  was  ultra  vires.107  A 


that  which  can  be  legally  done  with- 
in the  powers  vested  in  it  by  law. 
Consequently,  an  act  which  is  ultra 
vires  and  unauthorized  is  not  an 
act  of  the  company  in  such  a  sense 
as  that  the  consent  of  the  company 
to  that  act  can  be  pleaded."  See, 
also,  note  in  70  Am.  St.  157,  158. 

106  Pullman,  &c.  Co.  v.  Central,  &c. 
Co.  65  Fed.  158;  New  Castle,  &c. 
Railroad  Co.  v.  Simpson,  23  Fed. 
214;  Manchester,  &c.  Co.  v.  Con- 
cord, &c.  Co.  66  N.  H.  100,  20  Atl. 
383,  9  L.  R.  A.  689,  49  Am.  St.  582; 
Memphis,  &c.  R.  Co.  v.  Dow,  19  Fed. 
388;  Parrish  v.  Wheeler,  22  N.  Y. 
494;  Bissell  v.  Michigan,  &c.  Co.  22 
N.  Y.  258;  Hays  v.  Galion,  &c.  Co. 
29  Ohio  St.  330,  340;  Attleborough 
Bank  v.  Rogers,  125  Mass.  339;  Rut- 
land, &c.  R.  Co.  v.  Proctor,  29  Vt. 
93;  Central  Transportation  Co.  v. 
Pullman  Car  Co.  139  U.  S.  24,  11 
Sup.  Ct.  478;  Pennsylvania,  &c.  Co. 
v.  St.  Louis,  &c.  Co.  118  U.  S.  290, 
6  Sup.  Ct.  1094;  Union  Trust  Co.  v. 
Illinois  Midland,  &c.  Co.  117  U.  S. 
434,  6  Sup.  Ct.  809;  DeGroff  v. 
American,  &c.  Co.  21  N.  Y.  124; 
Franklin  Co.  v.  Lewiston,  &c.  Bank, 
68  Me.  43,  49,  28  Am.  R.  9;  Dill  v. 


Wareham,  7  Metcf.  (Mass.)  438; 
Morville  v.  American,  &c.  Co.  123 
Mass.  129,  25  Am.  R.  40;  Oil  Creek, 
&c.  Co.  v.  Penn.  Transportation  Co. 
83  Pa.  St.  160;  Bradley  v.  Ballard, 
55  111.  413,  8  Am.  R.  656;  Hazle- 
hurst  v.  Savannah,  &c.  R.  Co.  43 
Ga.  13;  Argenti  v.  San  Francisco, 
16  Cal.  255;  State  Board,  &c.  v.  Citi- 
zens, &c.  Co.  47  Ind.  407,  17  Am.  R. 
702;  Miners',  &c.  Co.  v.  Zellerbach, 
37  Cal.  543,  99  Am.  Dec.  300;  North- 
western, &c.  Co.  v.  Shaw,  37  Wis. 
655,  19  Am.  R.  781;  Wapello  v.  Bur- 
lington, &c.  Co.  44  Iowa  585;  At- 
lantic, &c.  Co.  v.  Union  Pacific  R. 
Co.  1  Fed.  745;  Wright  v.  Pipe  Line 
Co.  101  Pa.  St.  204,  47  Am.  R.  701; 
Miller  v.  American,  &c.  Co.  92  Tenn. 
167,  21  S.  W.  39,  20  L.  R.  A.  765. 
In  many  jurisdictions,  however,  as 
shown  in  some  of  the  decisions 
above  cited,  there  can  be  no  recov- 
ery upon  the  contract  itself. 

107  Bath  Gaslight  Co.  v.  Claffy,  56 
N.  Y.  St.  426,  26  N.  Y.  S.  287;  Ash- 
enbroedel  Club  v.  Finlay,  53  Mo. 
App.  256;  Whitney  Arms  Co.  v.  Bar- 
low, 63  N.  Y.  70.  See  Belcher,  &c. 
Co.  v.  St.  Louis,  &c.  Elevator  Co. 
101  Mo.  192,  13  S.  W.  822,  8  L.  R. 


529 


CONTRACTS — WHAT  AEE   ULTRA   VIRES — GENERALLY.      [§    370 


contract  expressly  forbidden  by  statute  or  one  malum  in  se  is  not  en- 
forceable, but  is  to  be  regarded  as  void,  for  in  such  cases  the  corpora- 
tion does  more  than  perform  an  act  in  excess  of  its  corporate  powers.108 
Some  of  the  cases  hold  that  contracts  executed  in  a  mode  different 
from  that  prescribed  by  the  act  of  incorporation  are  ultra  vires,109  but 
this  doctrine  we  regard  as  untenable.  It  is,  no  doubt,  true  that  the 
contract  should  be  made  in  the  mode  prescribed  by  the  charter,110  but 
the  fact  that  the  contract  was  not  made  in  the  prescribed  mode  does 
not  authorize  the  conclusion  that  the  corporation  had  no  power  to  enter 
into  the  contract.  It  is  probably  true  that  an  executory  contract,  made 
in  a  mode  different  from  that  prescribed,  will  not  be  obligatory  upon 
the  corporation,  but,  nevertheless,  such  a  contract  is  not  void  and  may 
therefore  be  ratified. 

§  370.  Contracts — What  are  ultra  vires — Generally. — The  familiar 
elementary  rule  is  that  the  corporate  powers  are  such  only  as  are  ex- 
pressed in  the  charter,  or  in  the  act  of  incorporation  and  the  articles 
of  association,  together  with  such  implied  powers  as  are  proper  and 
necessary  to  the  enjoyment  of  those  which  are  expressly  conferred,1103 


A.  801;  Baker  v.  Northwestern,  &c. 
Co.  36  Minn.  185,  30  N.  W.  464; 
Salmon,  &c.  Co.  v.  Dunn,  2  Idaho 
26,  3  Pac.  911. 

108  Root  v.  Godard,  3  McLean    (U. 
S.)  102;  Hayden  v.  Davis,  3  McLean 
(U.  S.)  276;  Root  v.  Wallace,  4  Mc- 
Lean   (U.    S.)     8;    Davis    v.    Bank, 
4  McLean    (U.  S.)    387;    New  York 
State,  &c.   Co.  v.  Helmer,  77  N.  Y. 
64;    Jaycox,   In  re,  12   Blatch.    (U. 
S.)    209;    Philadelphia,    &c.    Co.    v. 
Towner,  13   Conn.  249;   Talmage  v. 
Pell,  7  N.  Y.  328.    See,  also,  McNulta 
v.  Corn  Belt  Bank,  164  111.  427,  56 
Am.  St.  203;   Cincinnati,  &c.  Co.  v. 
Rosenthal,  55  111.  85,  8  Am.  R.  626; 
Visalia  Gas,  &c.  Co.  v.  Sims,  104  Cal. 
326,  43  Am.  St.  105. 

109  Farmers',  &c.  Bank  v.  Harrison, 
67  Mo.   503;    Matthews  v.   Skinker, 
62    Mo.    329,    21    Am.    R.    425;    Mc- 
Spedon  v.  New  York,  7  Bosw.    (N. 
Y.  Super.  Ct.)  601. 

u°Bank  of  United  States  v.  Dan- 
ELL.  RAILEOADS — 34 


dridge,  12  Wheat.  (U.  S.)  64;  Han- 
nibal, &c.  Co.  v.  Marion  County,  36 
Mo.  294;  Head  v.  Providence,  &c. 
Co.  2  Cranch  (U.  S.)  127. 

uoa  Thomas  v.  Railroad  Co.  101  U. 
S.  71;  Jacksonville  R.  &c.  Co.  v. 
Hooper,  160  U.  S.  514,  16  Sup.  Ct. 
379;  Mobile,  &c.  R.  Co.  v.  Franks, 
41  Miss.  494,  511;  State  v.  Atchison, 
&c.  R.  Co.  24  Neb.  143,  38  N.  W.  43, 
8  Am.  St.  164;  Lower  v.  Chicago, 
&c.  R.  Co.  59  Iowa  563,  13  N.  W. 
718.  As  elsewhere  shown,  however, 
the  word  "necessity"  as  used  in  this 
connection  does  not  mean  absolute- 
ly necessary,  but  rather  reasonably 
necessary,  or  convenient,  usual  and 
appropriate.  See,  also,  Central 
Ohio,  &c.  Co.  v.  Capital  City  Dairy 
Co.  60  Ohio  St.  96,  53  N.  E.  711,  64 
L.  R.  A.  395;  Bedford  Belt  R.  Co. 
v.  McDonald,  17  Ind.  App.  492,  46 
N.  E.  1022,  60  Am.  St.  172;  Tona- 
wanda  R.  Co.  v.  New  York,  &c.  R. 
Co.  42  Hun  (N.  Y.)  496;  Fort  Worth 


§  370] 


CONTRACTS. 


530 


and  acts  Of  the  corporation  or  its  agents  in  excess  of  such  powers  will 
not  impose  an  obligation  upon  the  corporation  by  express  contract.111 
It  is,  of  course,  not  difficult  to  state,  as  a  general  rule,  that  contracts 
beyond  or  outside  of  the  scope  of  the  powers  bestowed  on  the  corpora- 
tion are  ultra  vires,  but  it  is  not  always  easy  to  say  just  what  con- 
tracts are  beyond  the  scope  of  the  powers  expressly  or  impliedly  con- 
ferred upon  the  corporation.  It  is,  to  be  sure,  not  difficult  in  all  cases 
to  conclude  that  a  contract  is  ultra  vires  since  there  are  many  cases 
in  which  the  contract  is  so  plainly  beyond  the  corporate  power  that 
it  may,  without  doubt  or  hesitation,  be  adjudged  to  be  ultra  vires. 
In  many  instances  a  careful  study  of  the  charter  or  act  of  incorpora- 
tion is  necessary  in  order  to  determine  whether  the  contract  is  one  the 
corporation  had  power  to  make,  in  others  a  bare  knowledge  of  the 
nature  and  character  of  the  corporation  is  all  that  is  required  in  order 
to  determine  whether  the  contract  is  beyond  the  scope  of  the  powers 
conferred  upon  the  corporation  by  the  legislature.  A  study  of  the  de- 
cided cases  will  give  a  clearer  conception  of  the  law  upon  the  subject 
than  the  statement  of  general  rules  can  do. 


City  Co.  v.  Smith  Bridge  Co.  151  U. 
S.  294,  14  Sup.  Ct.  339. 

111  Lucas  v.  White  Line  Transfer 
Co.  70  Iowa  541,  3  N.  W.  771,  59  Am. 
R.  449;  Knoxville  v.  Knoxville,  &c. 
R.  Co.  22  Fed.  758.  The  true  basis 
of  the  doctrine  of  ultra  vires  and 
the  reason  the  corporation  is  not 
liable  upon  such  a  contract  is  said 
to  be:  1.  The  interest  of  the  public 
that  the  corporation  shall  not  tran- 
scend the  powers  granted.  2.  The 
interest  of  the  stockholders.  3.  The 
obligation  of  every  one  entering  into 
a  contract  with  a  corporation  to 
take  notice  of  the  legal  limits  of 
its  power.  Pittsburg,  &c.  R.  Co.  v. 
Keokuk  Bridge  Co.  131  U.  S.  3.71,  9 
Sup.  Ct.  770;  California  Bank  v. 
Kennedy,  167  U.  S.  362,  17  Sup.  Ct. 
381;  McCormick  v.  Market  Nat. 
Bank,  165  U.  S.  538,  17  Sup.  Ct.  433. 
No  corporation,  either  public  or  pri- 
vate, can  exercise  any  power  not 


expressly  conferred  or  necessarily 
implied  to  enable  it  to  carry  into 
effect  the  purposes  for  which  it  was 
created.  First  M.  E.  Church  v.  At- 
lanta, 76  Ga.  181;  Oregon  R.  &c.  Co. 
v.  Oregonian  R.  Co.  130  U.  S.  1,  9 
Sup.  Ct.  409;  Cumberland,  &c.  Co.  v. 
Evansville,  127  Fed.  187,  190,  191, 
and  numerous  authorities  cited; 
Beers  v.  Dalles  City,  16  Ore.  334,  18 
Pac.  835;  State  v.  Atchison  &  N.  R. 
Co.  24  Neb.  143,  38  N.  W.  43,  8  Am. 
St.  164;  Chewacla  Lime  Works  v. 
Dismukes,  87  Ala.  344,  6  So.  122,  5 
L.  R.  A.  100.  An  ultra  vires  con- 
tract cannot,  as  we  have  seen,  im- 
pose an  obligation  by  express  con- 
tract on  the  corporation,  but  prop- 
erty or  money  received  by  the  cor- 
poration, under  color  of  the  con- 
tract, may  be  recovered  back.  See, 
generally,  note  in  70  Am.  St.  165- 
176. 


531  CONTRACTS — ULTRA  VIRES — ESTOPPEL.  [§   371 

§  371.  Contracts — Ultra  vires — Estoppel. — It  is  held  in  many  of 
the  cases  that  a  corporation  may  be  estopped  to  make  the  defense  that 
the  contract  was  ultra  vires,112  but  this  doctrine  is,  as  we  believe, 
technically  if  not  radically  unsound.  We  do  not  doubt  that  a  corpora- 
tion receiving  and  retaining  a  benefit  under  an  ultra  vires  contract 
may  be  compelled  to  do  equity,  but  we  do  not  see  how  it  is  legally 
possible  to  hold  that  a  corporation  can  be  estopped  to  deny  that  it  had 
no  power  to  make  the  contract.  If  a  contract  is  ultra  vires  in  the  true 
sense,  that  is,  a  contract  entirely  beyond  and  outside  of  the  corporate 
powers,  it  cannot  be  made  effective  by  an  estoppel  although  the  party 
contracting  with  the  corporation  may  be  protected  from  loss  or  injury 
upon  equitable  principles.  Where  the  contract  is  not  beyond  the  scope 
of  the  corporate  powers,  but  is  executed  in  a  mode  different  from  that 
prescribed  by  law,  or  is  executed  by  officers  or  agents  without  author- 
ity from  the  corporation,  then  it  may  be  ratified  or  the  corporation 
may  be  bound  by  an  estoppel.  Where,  however,  the  contract  is  in  the 
true  sense  ultra  vires  it  is  void  and  relief  is  granted  a  party  against 
the  corporation  not  upon  the  ground  of  estoppel  or  of  ratification  of 
the  contract,  but  upon  equitable  principles,  and  in  granting  relief 
the  courts  in  effect  treat  the  contract  as  disaffirmed.113 

112  State  Board  v.  Citizens',  &c.  Co.  cannot  be  ratified  by  either  party, 
47  Ind.  407,  17  Am.  R.  702;  Whitney  because  it  could  not  have  been  au- 
Arms   Co.  v.   Barlow,   63   N.   Y.   62,  thorized  by  either.    No  performance 
20  Am.  R.  504.    See  authorities  cited  on  either  side  can  give  it  validity, 
in    the   notes    to   the    next   section  or  be  the  foundation  of  any  right 
which     follows.       See,    also,    post,  of  action  upon  it.    When  a  corpora- 
§  374.  tion    is    acting   within   the    general 

113  The   doctrine,    which    rests   on  scope  of  the  powers  conferred  upon 
solid  principle,  is  that  declared  in  it  by  the  legislature,   the   corpora- 
Central  Transportation  Co.  v.  Pull-  tion,  as  well  as  persons  contracting 
man,  &c.  Co.  139  U.  S.  24,  11  Sup.  with   it,   may   be   estopped   to  deny 
Ct.  478,  where  it  was  said:    "A  con-  that  it  has  complied  with  the  legal 
tract  of  a  corporation  which  is  ultra  formalities,   which  are  prerequisite 
vires  in  the  proper  sense,  that  is  to  to  its  existence  or  to  its  action,  be- 
say,  outside  of  the  object  of  its  crea-  cause   such   prerequisites   might    in 
tion,  as  defined  in  the  law  of  its  or-  fact  have  been  complied  with.    But 
ganization,    and,   therefore,   beyond  when   the   contract  is   beyond   the 
the  powers  conferred  upon  it  by  the  powers    conferred    upon    it   by    the 
legislature,  is  not  voidable  only,  but  <  legislature,  neither  the  corporation 
wholly  void,  and  of  no  legal  effect,  nor  the  other  party  to  the  contract 
The  objection  to  the  contract  is  not  can  be  estopped  by  assenting  to  it, 
merely  that  the  corporation  ought  or  by  acting  upon  it,  to  show  that 
not  to   have   made   it,  but  that   it  it  was  prohibited  by  those  laws." 
could   not  make   it.     The   contract  It  was  also  said:    "A  contract  ultra 


372] 


CONTRACTS. 


532 


§  372.  Contracts — Ultra  vires — Executed  and  executory  contracts. 
— The  authorities  discriminate  between  executed  and  executory  con- 
tracts. There  is  substantial  agreement  upon  the  proposition  that  ultra 
vires  contracts  which  are  wholly  executory  cannot  be  enforced  against 
the  corporation,114  but  as  intimated  in  the  preceding  paragraph  there 


vires  being  unlawful  and  void,  not 
because  it  is  in  itself  immoral,  but 
because  the  corporation,  by  the  law 
of  its  creation,  is  incapable  of  mak- 
ing it,  the  courts,  while  refusing  to 
maintain  any  action  upon  the  un- 
lawful contract,  have  always  striven 
to  do  justice  between  the  parties, 
so  far  as  could  be  done,  consistently, 
with  adherence  to  the  law,  by  per- 
mitting money  or  property,  parted 
with  on  the  faith'  of  the  unlawful 
contract,  to  be  recovered  back  or 
compensation  to  be  made  for  it.  In 
such  a  case,  however,  the  action  is 
not  maintained  upon  the  unlawful 
contract,  nor  according  to  its 
terms."  The  court  cited  many 
cases,  among  them  Parkersburg  v. 
Brown,  106  U.  S.  487,  1  Sup.  Ct. 
442;  Chapman  v.  Board,  &c.  107  U. 
S.  348,  2  Sup.  Ct.  62;  Pittsburg,  &c. 
R.  Co.  v.  Keokuk,  &c.  Co.  131  U.  S. 
371,  9  Sup.  Ct.  770;  Hitchcock  v. 
Galveston,  96  U.  S.  341;  Union 
Trust  Co.  v.  Illinois  Midland,  &c. 
Co.  117  U.  S.  434,  6  Sup.  Ct.  809. 
This  doctrine,  asserted  in  the  case 
from  which  we  have  quoted,  is  sus- 
tained by  well-reasoned  cases. 
Brunswick,  &c.  Co.  v.  United  Gas, 
&c.  Co.  85  Me.  532,  35  Am.  St.  385; 
Marble  Co.  v.  Harvey,  92  Tenn.  115, 
20  S.  W.  427,  36  Am.  St.  71;  Da- 
vis v.  Old  Colony  R.  131  Mass. 
258,  41  Am:  R.  221;  Greenville  Com- 
press, &c.  Co.  v.  Planters',  &c.  Co. 
70  Miss.  669,  13  So.  879,  35  Am.  St. 
681;  Franco,  &c.  Co.  v.  McCormick, 
85  Tex.  416,  23  S.  W.  123,  34  Am.  St. 
815;  Chicago,  &c.  Co.  v.  People's,  &c. 
Co.  121  111.  530,  13  N.  E.  169,  2  Am. 


St.  124;  Steele  v.  Fraternal  Trib- 
unes, 215  111.  190,  74  N.  E.  121,  106 
Am.  St.  160;  Long  v.  Georgia,  &c. 
Co.  91  Ala.  519,  8  So.  706,  24  Am. 
St.  931;  Bank  of  Chillicothe  v. 
Swayne,  8  Ohio  257,  32  Am.  Dec. 
207;  Eastern  Counties  R.  v.  Hawkes, 
5  H.  L.  Cases  331,  per  Lord  Cran- 
worth;  Bagshaw  v.  Eastern  Union 
R.  Co.  7  Hare  114,  per  Wigram,  V. 
C.;  Ashbury  R.  &c.  Co.  v.  Riche,  L. 
R.  7  H.  L.  Gas.  653;  Morris,  &c.  R. 
Co.  v.  Sussex  R.  Co.  20  N.  J.  Eq. 
542,  562 ;  Central  Transportation  Co. 
v.  Pullman  Car  Co.  139  U.  S.  24,  11 
Sup.  Ct.  478,  and  other  authorities 
cited  in  29  Am.  &  Eng.  Ency.  of 
Law  (2d  ed.)  54,  55,  56,  but  some 
of  these  cases  hold  the  several  con- 
tracts to  be  opposed  to  public  policy, 
and  it  is  said  that  the  opinions  ex- 
pressed as  to  the  effect  of  contracts 
to  which  this  objection  cannot  be 
made  may  therefore  be  considered 
as  mere  dicta.  Rorer  Railroads, 
941,  942.  See,  also,  Muncie  Nat. 
Gas  Co.  v.  Muncie,  160  Ind.  97,  104, 
105,  66  N.  E.  436,  60  L.  R.  A.  822. 

114  Green's  Brice's  Ultra  Vires,  607. 
See  State  Board  of,  Agriculture  v. 
Citizens'  Street  R.  Co.  47  Ind.  407, 
17  Am.  R.  702;  Chicago,  &c.  R.  Co. 
v.  Southern  Ind.  R.  Co.  (Ind.  App.) 
70  N.  E.  843;  Parish  v.  Wheeler,  22 
N.  Y.  494;  Hazlehurst  v.  Savannah 
R.  Co.  43  Ga.  13;  Nassau  Bank  v. 
Jones,  95  N.  Y.  115,  47  Am.  R.  14; 
Wilkes  v.  Georgia  Pacific  R.  Co.  79 
Ala.  180;  Day  v.  Spiral  Springs  Co. 
57  Mich.  146,  23  N.  W.  628,  58  Am. 
R.  352;  Simpson  v.  Building  Assn. 
38  Ohio  St.  349;  note  in  70  Am.  St. 


533     ULTEA  VIRES — EXECUTED  AND  EXECUTORY  CONTRACTS.  [§  372 


is  conflict  as  to  the  effect  of  such  a  contract  after  it  has  been  executed 
and  the  party  contracting  with  the  corporation  has  parted  with  money 
or  property.  The  performance  of  an  executory  ultra  vires  contract  may 
be  enjoined  by  a  dissenting  stockholder  or  other  interested  party  who 
would  be  injured  if  it  were  carried  into  effect.115  Many  cases  hold 
that  after  a  contract  has  been  executed,  in  whole  or  in  part,  a  new  ele- 
ment is  introduced  into  the  transaction.  It  would,  they  assert,  be 
clearly  unjust  to  permit  the  members  of  a  corporation  to  take  the 
benefits  of  a  performance  of  the  contract  by  the  other  party  and  then 
refuse  performance  on  its  part.118  The  fallacy  in  this  reasoning,  as  it 
seems  to  us,  is  in  assuming  that  a  contract  may  be  valid  although  there 
was  no  power  whatever  to  make  it,  and  that  unless  the  contract  is 
upheld,  the  party  will  be  remediless.  The  party  is  not  without  rem- 
edy because  the  courts  decline  to  hold  the  contract  valid,  for  it  is 
clearly  within  the  power  of  the  court  to  do  complete  justice  by  com- 
pelling the  restoration  of  the  property  or  by  awarding  damages.  We 
fully  agree  that  in  all  cases  where  the  corporation  has  received  money 
or  property  or  the  fruits  of  labor,  as  a  result  of  a  performance  of  the 
contract  by  the  other  party,  it  should  not  be  permitted  to  retain  the 
benefits  received  without  making  reparation,  but  we  cannot  agree 
that  a  contract  made  where  there  is  an  entire  absence  of  power  can  be 


165;  and  authorities  cited  in  29  Am. 
&  Eng.  Bncy.  of  Law  (2d  ed.)  49. 
Such  executory  contracts  as  are  en- 
tirely foreign  to  the  objects  and 
purposes  for  which  the  corporation 
was  formed,  or  which  are  outside 
its  express  or  implied  powers,  are 
void  and  cannot  be  enforced  against 
it.  Rock  River  Bank  v.  Sherwood, 
10  Wis.  230,  78  Am.  Dec.  669. 

U5It  has  been  held  that  a  con- 
tract for  the  purchase  of  steamboats 
to  run  in  connection  with  the  line 
may  be  set  aside  at  the  suit  of  a 
stockholder.  Hoagland  v.  Hannibal, 
&c.  R.  Co.  39  Mo.  451;  Colman  v. 
Eastern  Counties  R.  Co.  10  Beav. 
1.  So  of  a  contract  to  improve  a 
harbor.  Munt  v.  Shrewsbury,  &c. 
R.  Co.  13  Beav.  1.  Or  to  build  the 
main  line  by  the  use  of  money 
raised  for  the  construction  of  a 
branch  line.  Bagshaw  v.  Eastern 


Union  R.  7  Hare  114.  So  of  an  ultra 
vires  lease.  Board,  &c.  Tippecanoe 
Co.  v.  Lafayette,  &c.  R.  Co.  50  Ind. 
85.  See,  also,  Central  R.  Co.  v.  Col- 
lins, 40  Ga.  582;  Cumberland  Valley 
R.  Co.'s  Appeal,  62  Pa.  St.  218; 
Stewart  v.  Erie,  &c.  Trans.  Co.  17 
Minn.  372,  398;  Stevens  v.  Rutland, 
&c.  R.  Co.  29  Vt.  545;  Mills  v.  Cen- 
tral R.  Co.  41  N.  J.  Eq.  1,  2  Atl. 
453;  March  v.  Eastern  R.  Co.  40  N. 
H.  548,  43  N.  H.  515,  77  Am.  Dec. 
732. 

u8  State  Board  of  Agriculture  v. 
Citizens'  Street  R.  Co.  47  Ind.  407, 
17  Am.  R.  702;  Oil  Creek,  &c.  R.  Co. 
v.  Pennsylvania  Trans.  Co.  83  Pa. 
'St.  160;  Peoria,  &c.  R.  Co.  v.  Thomp- 
son, 103  111.  187;  Camden,  &c.  R.  Co. 
v.  Mays  Landing,  &c.  R.  Co.  48  N. 
J.  L.  530,  7  Atl.  523;  Denver  Fire 
Ins.  Co.  v.  McClelland,  9  Colo.  11, 
9  Pac.  771,  59  Am.  R.  134. 


CONTRACTS. 


534 


enforced.    The  members  of  the  corporation  are  held  by  many  of  the 
courts  to  be  estopped,117  not  only  individually,  but  collectively,  to  set 


117  State  Board  of  Agriculture  v. 
Citizens'  Street  R.  Co.  47  Ind.  407, 
17  Am.  R.  702;  Bradley  v.  Ballard, 
55  111.  413,  8  Am.  R.  656;  Gary  v. 
Cleveland,  &c.  R.  Co.  29  Barb.  (N. 
Y.)  35;  Voughtv.  Eastern  Building, 
&c.  Ass'n,  172  N.  Y.  517,  92  Am.  St. 
761;  Argenti  v.  San  Francisco,  16 
Cal.  255;  McCluer  v.  Manchester, 
&c.  R.  Co.  13  Gray  (Mass.)  124,  74 
Am.  Dec.  624;  Hale  v.  Mutual  Fire 
Ins.  Co.  32  N.  H.  295,  64  Am.  Dec. 
370;  Rutland,  &c.  R.  Co.  v.  Proctor, 
29  Vt.  93;  Louisville,  &c.  R.  Co.  v. 
Flanagan,  113  Ind.  488,  14  N.  E. 
370,  3  Am.  St.  674;  Texas  Western 
R.  Co.  v.  Gentry,  69  Tex.  625,  8  S. 
W.  98.  See,  also,  Oil  Creek,  &c.  R. 
Co.  v.  Pennsylvania,  &c.  Co.  83  Pa. 
St.  160;  Pittsburg,  &c.  R.  Co. 
v.  Allegheny  Co.  79  Pa.  St.  210, 
215;  2  Purdy's  Beach  Priv.  Corp. 
§§  888,  890  et  seq.  Articles  in  6 
Cent.  L.  J.  5,  and  12  Cent.  L.  J. 
389;  Perkins  v.  Portland,  &c.  R. 
Co.  47  Me.  573,  74  Am.  Dec.  507; 
Kennedy  v.  California,  &c.  Bank, 
101  Cal.  495,  35  Pac.  1039,  40  Am. 
St.  69;  Peoria,  &c.  R.  Co.  v.  Thomp- 
son, 103  111.  187;  Derwey  v.  Toledo, 
&c.  R.  Co.  91  Mich.  351,  51  N.  W. 
1063;  Camden,  &c.  R.  Co.  v.  May's 
Landing,  &c.  R.  Co.  48  N.  J.  L.  530, 
7  Atl.  523;  Security  Nat.  Bank  v. 
St.  Croix  Power  Co.  117  Wis.  211, 
94  N.  W.  74,  and  other  authorities 
cited  in  29  Am.  &  Eng.  Ency.  of 
Law  (2d  ed.)  57,  and  in  note  in  70 
Am.  St.  170;  also  White  v.  Com- 
mercial, &c.  Bank,  66  S.  Car.  491, 
45  S.  E.  94,  97  Am.  St.  803,  and  note. 
In  one  case  it  was  held  that  where 
two  street  car  companies,  organized 
under  the  general  laws  of  the  state, 
enter  into  a  contract  by  which  the 


first  is  to  pay  the  second  a  certain 
rental  for  the  use  of  the  latter's 
track,  the  lessor  cannot,  while  ex- 
ercising and  enjoying  the  right,  re- 
fuse to  pay  the  sum  agreed  upon 
on  the  ground  that  the  contract  was 
ultra  vires  of  its  officers.  Canal,  &c. 
R.  Co.  v.  St.  Charles  St.  R.  Co.  44 
La.  Ann.  1069,  11  So.  702.  So  it 
has  been  held  that  a  corporation 
which  accepts  and  uses  money 
loaned  in  good  faith  on  a  mortgage 
upon  its  property,  and  pays  interest 
on  such  money  after  notice  of  the 
mortgage,  cannot  escape  liability  on 
such  mortgage  by  the  passage  of  a 
resolution  disapproving  and  annul- 
ling the  president's  authority,  espe- 
cially where  the  mortgage  was  exe- 
cuted by  the  president  by  the  au- 
thority of  the  board  of  directors 
and  no  steps  were  taken  to  disaf- 
firm the  mortgage  until  long  after 
its  execution.  Augusta,  &c.  R.  Co. 
v.  Kittel,  52  Fed.  63.  The  cases 
which  follow  also  oppose  the  doc- 
trine we  favor.  In  one  case  it  was 
held  that  after  a  corporation  has 
received  the  fruits  which  grow  out 
of  the  performance  of  an  act  ultra 
vires,  and  the  mischief  has  all  been 
accomplished,  it  comes  with  an  ill 
grace  then  to  assert  its  want  of 
power  to  do  the  act  or  make  the 
contract  in  order  to  escape  the  per- 
formance of  an  obligation  it  has 
assumed.  Wright  v.  Hughes,  119 
Ind.  324,  12  Am.  St.  412.  The  same 
general  doctrine  is  held  in  other 
cases.  Owen  Sound  S.  S.  Co.  v. 
Canadian  Pac.  R.  Co.  17  Ont.  R. 
691,  40  Am.  &  Eng.  R.  Cas.  593.  A 
corporation,  having  enjoyed  the 
benefits  of  a  contract,  cannot  plead 
that  it  was  ultra  vires  in  the  ab- 


535 


CONTRACTS — ULTRA  VIRES— CASES   DISCRIMINATED.       [§'  373 


up  the  defense  to  an  action  on  the  contract,  but  as  we  have  said  in 
the  preceding  section  we  cannot  yield  assent  to  this. 

§  373.  Contracts — Ultra  vires — Cases  discriminated. — We  think 
that  it  will  be  found  upon  an  analysis  of  many  of  the  cases  often  cited 
as  holding  that  a  corporation  may  be  estopped  to  aver  that  it  had  no 
power  to  enter  into  the  contract  which  is  beyond  its  corporate  capacity, 
that  they  are  not,  in  fact,  cases  in  which  the  contract  was  in  the  proper 
sense  ultra  vires.  They  are  cases  of  the  defective  exercise  of  power, 
not  cases  where  there  is  an  entire  want  of  power.118  Some  of  the  cases 
are  really  cases  where  the  act  was  performed  in  violation  of  the  cor- 
porate by-laws,119  or  by  an  agent  in  excess  of  his  authority,  and  not 
cases  where  the  act  was  wholly  and  entirely  beyond  the  scope  of  the 
powers  conferred  upon  the  corporation  by  the  legislature.120  It  may, 


sence  of  fraud.  Sherman  Center 
Town  Co.  v.  Morris,  43  Kans.  282, 
23  Pac.  569,  19  Am.  St.  134;  Peo- 
ple's Gaslight  &  C.  Co.  v.  Chicago 
Gaslight  &  C.  Co.  20  111.  App.  473; 
First  Nat.  Bank  of  Monmouth  v. 
Brooks,  22  111.  App.  238;  Sheridan 
Electric  Light  Co.  v.  Chatham  Nat. 
Bank,  52  Hun  (N.  Y.)  575,  24  N.  Y. 
St.  622,  5  N.  Y.  S.  529;  Hubbard  v. 
Camperdown  Mills,  26  S.  Car.  581, 
2  S.  E.  576.  This  rule  applies  where 
a  corporation  attempts  to  deny  the 
authority  of  an  agent  or  officer. 
Peck  v.  Doran  &  W.  Co.  57  Hun  (N. 
Y.)  343,  32  N.  Y.  St.  405,  10  N.  Y. 
S.  401;  Lancaster  County  v.  Cheraw 
&  C.  R.  Co.  28  S.  Car.  134,  5  S.  E. 
338.  A  railroad  company  cannot 
plead  that  its  contract  to  build  and 
operate  a  telegraph  line  was  ultra 
vires  as  a  defense  to  an  action  by 
the  builder  of  the  line  for  his  com- 
pensation. Pittsburgh,  &c.  R.  Co.  v. 
Shaw  (Pa.),  13  Cent.  R.  220,  14  Atl. 
323. 

118  This  is  true  of  the  case  of  Ben- 
siek  v.  Thomas,  66  Fed.  104,  and  of 
the  cases  of  Aurora,  &c.  Horticul- 
tural Society  v.  Paddock,  80  111.  263 ; 
Kent  v.  Quicksilver  Mining  Co.  78 


N.  Y.  159.  The  reasoning  of  the  de- 
cision in  Sheldon,  &c.  Co.  v.  Eick- 
emeyer,  &c.  Co.  90  N.  Y.  608,  is,  we 
venture  to  say,  founded  on  the  er- 
roneous assumption  that  an  ultra 
vires  contract  is  "but  the  case  of  an 
agent  making  a  contract  in  excess 
of  his  authority,"  for,  as  it  seems 
to  us,  where  the  corporation  itself 
acts  and  the  contract  is  entirely 
outside  of  the  scope  of  the  powers 
conferred  upon  the  corporation,  the 
case  is  that  of  a  corporation  at- 
tempting to  make  a  contract  it  had 
no  power  to  make.  We  believe  the 
conclusion  reached  in  the  case  upon 
which  we  are  commenting  is  right, 
but  think  the  reasoning  fallacious. 

119  Roy,   &c.   Co.   v.   Scott,   &c.    11 
Wash.  399,  39  Pac.  679. 

120  In  the  case  of  Missouri  Pac.  R. 
Co.  v.  Sidell,  67  Fed.  464,  the  court 
pointed  out  the  difference  between 
cases  where  there  is  an  entire  ab- 
sence of  power  and  cases  where  the 
power  is  abused  or  not  properly  ex- 
ercised.    The  court  cited  the  cases 
of  Davis  v.  Old  Colony  Railroad  Co. 
131  Mass.  258,  41  Am.  R.  221;  Penn- 
sylvania, &c.  Co.  v.  Keokuk,  &c.  Co. 
131  U.  S.  371,  9  Sup.  Ct.  770;  Louisi- 


§   373]  CONTRACTS.  536 

perhaps,  be  true  in  a  limited  or  qualified  sense  that  where  the  contract 
is  made  by  an  agent  who  exceeds  his  authority,  or  is  made  in  violation 
of  corporate  by-laws,  that  there  is  a  contract  ultra  vires,  but  it  is  not 
true  in  the  proper  or  just  sense,  for  it  is  not  a  contract  made  where 
the  corporation  itself  had  no  capacity  whatever  to  contract,  and  it  is 
only  to  cases  where  there  is  an  entire  absence  of  power  to  contract  that 
the  doctrine  of  ultra  vires  justly  applies.  Some  of  the  decisions  treat 
cases  where  the  contract  in  question  was  made  in  some  mode  other 
than  that  prescribed  by  the  charter  as  ultra  vires;  but  this  certainly 
is  erroneous,  for  the  defect  in  such  cases  is  in  the  execution  of  a  power 
granted;  the  power  itself  is  not  absent.  Other  cases  cited  as  affirm- 
ing that  a  corporation  may  be  estopped  to  deny  the  validity  of  an 
ultra  vires  contract  really  decide  nothing  more  than  that  the  corpora- 
tion must  restore  the  property  it  received  or  make  compensation,  and 
in  such  cases  there  is  no  question  of  estoppel  involved.  Still  other 
cases  are  placed  under  the  doctrine  of  ultra  vires  where  there  was  in 
fact  nothing  more  than  a  failure  to  hold  a  directors'  meeting,  or  give 
a  notice,  or  do  some  such  act  in  the  mode  prescribed  by  law,121  but 
such  cases  are  not  justly  cases  within  the  doctrine  of  ultra  vires. 
Whether  a  contract  beyond  the  power  of  the  corporation  is  absolutely 
void  or  not,  however,  the  practical  effect  of  the  difference  of  opinion 
is  confined,  in  the  main,  to  the  remedy,  for  in  all  jurisdictions  the 
courts  will  seek  to  do  justice,  and  if  the  contract  is  regarded  as  abso- 
lutely void,  still  if  one  party  has  performed  it  and  the  other  re- 
tains the  benefit  there  may  be  an  action  upon  the  implied  contract,  or, 

ana  v.  Wood,  102  U.  S.  294;  Parkers-  tions  in  the  particular  instance, 
burg  v.  Brown,  106  U.  S.  487,  1  Sup.  when  such  abuse  or  failure  is  not 
Ct.  442;  Pennsylvania  R.  Co.  v.  St.  known  to  the  other  contracting  par- 
Louis,  &c.  R.  Co.  118  U.  S.  290,  6  ties." 

Sup.  Ct.  1094;  Zabriskie  v.  Cleve-  121  Farmers',  &c.  Co.  v.  Toledo,  &c. 
land,  &c.  R.  Co.  23  How.  (U.  S.)  67  Fed.  49.  The  case  cited  holds, 
381.  The  court  quoted  with  ap-  inter  alia,  that  parties,  by  unreason- 
proval  from  Davis  v.  Railroad  Co.,  able  delay,  may  lose  the  right  to 
supra,  the  following:  "There  is  a  successfully  complain  of  an  irregu- 
clear  distinction  between  the  exer-  lar  or  unauthorized  act,  citing  Allis 
cise  of  a  power  not  conferred  upon,  v.  Jones,  45  Fed.  148;  Reed's  Ap- 
varying  from  the  objects  of  its  crea-  peal,  122  Pa.  St.  565,  16  Atl.  100; 
tion  as  declared  in  the  law  of  its  Fidelity,  &c.  Co.  v.  West  Pennsyl- 
organization,  of  which  all  persons  vania,  &c.  R.  Co.  138  Pa.  St.  494,  21 
dealing  with  it  are  bound  to  take  Atl.  21,  21  Am.  St., 911;  Wood  v. 
notice,  and  the  abuse  of  a  general  Corry  Water-Works  Co.  44  Fed. 
power,  or  the  failure  to  comply  with  146;  Hackensack  Water  Co.  v.  De- 
prescribed  formalities  or  regula-  Kay,  36  N.  J.  Eq.  548. 
\ 


537 


CONTRACTS — ULTRA  VIRES — ILLUSTRATIVE  INSTANCES.    [§    374 


in  any  event  proper  relief  will  be  granted  by  proceeding  according  to 
the  view  taken  in  the  particular  jurisdiction.122 

§  374.  Contracts — Ultra  vires — Illustrative  instances. — A  charter 
incorporating  a  company  to  build  and  operate  a  railroad,  does  not  by 
implication  confer  power  to  purchase  and  run  a  line  of  steamboats,123 
but,  of  course,  such  a  company  may  be  invested  with  power  to  own 
and  operate  a  line  of  steamboats  in  connection  with  its  railroad,  and 
the  power  to  do  so,  or  at  least  to  make  traffic  arrangements,  may  be 
implied  from  provisions  ordinarily  found  in  railroad  charters  where 
the  boats  are  run  in  connection  with  the  railroad  at  its  termini,  or 
across  a  river,  or  the  like,  for  the  benefit  of  the  public  who  travel  upon 
the  railroad,  at  least  where  there  seems  to  be  a  reasonable  necessity 


^Eastern  Bldg.  &c.  Ass'n  v.  Wil- 
liamson, 189  U.  S.  122,  23  Sup.  Ct. 
527;  Central  R.  &c.  Co.  v.  Farmers' 
L.  &  T.  Co.  116  Fed.  700;  L'Herbette 
v.  Pittsfleld  Nat.  Bank,  162  Mass. 
137,  38  N.  B.  368,  44  Am.  St.  354; 
Harrison  v.  Annapolis,  &c.  R.  Co. 
50  Md.  490;  Atkins  v.  Shreveport, 
&c.  R.  Co.  106  La.  Ann.  568,  31  So. 
166;  Bigbee,  &c.  Packet  Co.  v. 
Moore,  121  Ala.  379,  25  So.  602;  Mo- 
bile, &c.  R.  Co.  v.  Wisdom,  5  Heisk. 
(Tenn.)  125;  Tennessee  Ice  Co.  v. 
Raine,  107  Tenn.  151,  64  S.  W.  29. 
See,  also,  Grand  River  Bridge  Co. 
v.  Rollins,  13  Colo.  4,  21  Pac.  897; 
Eckman  v.  Chicago,  &c.  R.  Co.  169 
111.  312,  48  N.  E.  496,  38  L.  R.  A. 
750;  Schrimplin  v.  Farmers'  Ass'n, 
123  Iowa  102,  98  N.  W.  613;  Hunt 
v.  Hauser  Malting  Co.  90  Minn.  282, 
96  N.  W.  85;  Interstate  Hotel  Co. 
v.  Woodward,  &c.  Co.  103  Mo.  App. 
198,  77  S.  W.  114;  Pittsburg,  &c.  R. 
Co.  v.  Altoona,  &c.  R.  Co.  196  Pa. 
St.  452,  46  Atl.  431;  note  in  70  Am. 
St.  173-175.  If  fully  executed  and 
performed  on  both  sides  such  ultra 
vires  contracts  are  usually  unassail- 
able and  permitted  to  stand. 

^Central  R.  &c.  Co.  v.  Smith,  76 
Ala.  572,  52  Am.  R.  353;  Gunn  v. 


Central  R.  &c.  Co.  74  Ga.  509;  Hoag- 
land  v.  Hannibal,  St.  Joseph  R.  Co. 
39  Mo.  451;  Pearce  v.  Madison,  &c. 
R.  Co.  21  How.  (U.  S.)  441;  Colman 
v.  Eastern  Counties  R.  Co.  10  Beav. 
1.  But  authority  to  contract  for 
the  transportation  of  its  passengers 
beyond  its  own  line  will  enable  it 
to  make  a  valid  contract  guarantee- 
ing the  profits  of  a  steamboat  line 
connecting  with  it  at  its  terminus. 
Green  Bay,  &c.  R.  Co.  v.  Union 
Steamboat  Co.  107  U.  S.  98.  But 
see  Colman  v.  Eastern  Counties  R. 
Co.  10  Beav.  1.  And  a  railroad 
company  can  purchase  and  operate 
such  boats  as  are  necessary  to  carry 
its  traffic  from  the  end  of  its  line 
across  an  intervening  navigable 
water  to  the  "ostensible  and  sub- 
stantial termini  of  their  route." 
Wheeler  v.  San  Francisco,  &c.  R. 
Co.  31  Cal.  46,  89  Am.  Dec.  147. 
Where  the  road  has  authority  to 
contract  for  transportation  and  de- 
livery of  persons  and  property  be- 
yond its  own  termini,  it  may  run 
boats  from  its  termini  to  other 
points.  Shawmut  Bank  v.  Platts- 
burgh,  &c.  R.  Co.  31  Vt.  491;  South 
Wales  R.  Co.  v.  Redmond,  10  Conn. 
B.  N.  S.  675. 


§  374] 


CONTBACTS. 


538 


therefor.124  Such  a  charter  does  not  by  implication  confer  power  to 
engage  in  the  business  of  trading  in  coal,125  nor  to  purchase  and  hold 
for  speculative  purposes  lands  not  needed  for  the  purposes  of  the 
corporation.126  A  railroad  cannot  contract  to  extend  its  line  beyond 
the  limits  defined  in  the  charter,127  nor  construct  branch  roads  not 
authorized  by  its  charter,128  nor  make  any  material  change  in  its 
route  where  the  charter  prescribes  what  the  route  shall  be,129  nor 
expend  its  funds  in  the  construction  of  the  line  essentially  different 
from  that  for  which  they  were  raised;130  so  it  has  been  held  that  it 
cannot  use  corporate  funds  to  improve  the  navigation  of  a  stream 
upon  which  it  had  erected  wharves  and  warehouses.131  A  railway 
company  has  no  implied  power  to  build  a  canal  basin,132  nor  to 
aid  improvement,  gas,  water,  or  land  companies,  or  the  like.133  Cor- 
porate funds  cannot  be  used  for  lobbying  purposes,134  nor,  as  a  rule, 


1MSee  authorities  cited  in  last 
note,  supra;  also  Graham  v.  Macon, 
&c.  R.  Co.  120  Ga.  757,  49  S.  E.  75; 
Wiggins  Ferry  Co.  v.  Chicago,  &c. 
R.  Co.  73  Mo.  389,  39  Am.  R.  519; 
Wiggins  Ferry  Co.  v.  Ohio,  &c.  R. 
Co.  142  U.  S.  396,  12  Sup.  Ct.  188; 
McAboy's  Appeal,  107  Pa.  St.  548; 
Hackett  v.  Multnomah  R.  Co.  12 
Oreg.  124,  6  Pac.  659,  53  Am.  R. 
327. 

^Attorney-General  v.  Great  North- 
ern R.  Co.  1  Dr.  &  S.  154.  Or  grain. 
Northwestern  Union  Packet  Co.  v. 
Shaw,  37  Wis.  655,  19  Am.  R.  781. 

128  Pacific  R.  Co.  v.  Seely,  45  Mo. 
212,  100  Am.  Dec.  369.  Rensselaer, 
&c.  R.  Co.  v.  Davis,  43  N.  Y.  137; 
Waldo  v.  Chicago,  &c.  R.  Co.  14  Wis. 
575.  A  contract  whereby  one  rail- 
road company  agrees  not  to  oppose 
the  passage  of  a  law  giving  land 
to  another  company,  on  condition 
that  the  land  shall  be  subsequently 
divided,  is  not  enforceable.  Chip- 
pewa,  &c.  R.  Co.  v.  Chicago,  &c.  R. 
Co.  75  Wis.  224,  44  N.  W.  17.  A  rail- 
road corporation  has  no  power  to 
take  by  gift  lands  lying  along  its 
route  for  other  than  railroad  pur- 
poses. Case  v.  Kelly,  133  U.  S.  21, 
10  Sup.  Ct.  216. 


127Bagshaw  v.  Eastern  Union  R. 
Co.  7  Hare  114.  See  Stevens  v.  Rut- 
land, &c.  R.  Co.  29  Vt.  545. 

128  Knight  v.  Carrolton  R.  Co.  9  La. 
Ann.  284;  Morris,  &c.  R.  Co.  v.  Cen- 
tral R.  Co.  31  N.  J.  L.  205.    But  see 
McAboy's  Appeal,  107  Pa.  St.  548. 

129  Chartiers  R.  Co.  v.  Hodgens,  77 
Pa.  St.  187;  Erie  R.  Co.  v.  Steward, 
170   N.    Y.   172,    63    N.   E.    118;    see 
Central  Plank  R.  Co.  v.  Clemens,  16 
Mo.  359;   Rives  v.  Montgomery,  &c. 
R.  Co.   30  Ala.  92;    Mississippi,  &c. 
R.  Co.  v.  Cross,  20  Ark.  443. 

130  See  Bagshaw  v.  Eastern  Union 
Railway,  7  Hare  114,  where,  at  the 
suit  of  a  stockholder,  the  railway 
company  was  enjoined  from  using, 
for  the  completion  of  its  main  line, 
funds  raised  under  authority  of  an 
act   of   parliament   to   construct    a 
branch  line. 

131  Munt  v.  Shrewsbury,  &c.  R.  Co. 
13  Beav.  1. 

132  Plymouth  R.  Co.  v.  Colwell,  39 
Pa.  St.  337,  80  Am.  Dec.  526. 

133  Chicago    v.    Cameron,    120    111. 
447,  11  N.  E.  899. 

134  Shea  v.  Mabry,  1  Lea   (Tenn.) 
319,  where  the  directors  were  held 
liable  for  using  the  corporate  funds 
for  this  purpose. 


'539          CONTRACTS — ULTRA  VIRES — ILLUSTRATIVE  INSTANCES.   [§'  374 


used  to  purchase  stock  in  another  company.135  Corporate  funds,  it  is 
held,  may  not  be  donated  to  an  exhibition,136  nor  to  a  musical  con- 
cert, even  though  it  is  expected  that  the  receipts  of  the  corporation 
from  its  business  of  carrying  will  be  thereby  materially  increased.137 


1SS  Central  R.  Co.  v.  Collins,  40  Ga. 
582;  Military,  &c.  Assn.  v.  Savannah, 
&c.  R.  105  Ga.  420,  31  S.  E.  200; 
Salomons  v.  Laing,  12  Beav.  339; 
Mannsell  v.  Midland,  &c.  R.  Co.  1 
Hem.  &  Miller  130.  See,  also, 
Holmes,  &c.  Co.  v.  Holmes,  &c. 
Co.  127  N.  Y.  252,  27  N.  E.  831,  24 
Am.  St.  448.  Though  the  purchase 
by  a  corporation  of  stock  in  another 
corporation  is  ultra  vires,  the  objec- 
tion cannot  be  raised  by  the  stock- 
holders of  the  company  whose  stock 
is  so  purchased.  Oelbermann  v. 
New  York,  &c.  R.  Co.  7  Misc.  (N. 
Y.)  352,  27  N.  Y.  S.  945.  In  some 
states  railway  corporations  are 
given  a  limited  power  to  purchase 
stock  in  other  railway  companies. 
Stimson's  Am.  Stat.  (1892)  §  8720, 
citing  laws  of  Pennsylvania,  Kan- 
sas, Nebraska,  Tennessee,  Missouri, 
North  Dakota,  Idaho,  Montana, 
South  Carolina,  Florida,  Ohio,  Mich- 
igan, Wyoming,  New  Mexico;  Pub. 
Stat.  1891,  Mass.  Ch.  112,  §  74;  Laws 
1891  (Ex.  Sess.)  111.,  p.  185.  While 
other  states  expressly  forbid  such 
a  purchase.  Stimson,  supra,  citing 
laws  of  New  York,  Illinois,  Arkan- 
sas, Texas.  See,  also,  Oelbermann 
v.  New  York  &  N.  R.  Co.  77  Hun 
(N.  Y.)  332,  29  N.  Y.  S.  545. 

138  See  Tomkinson  v.  South,  &c.  R. 
Co.  56  L.  T.  R.  812,  where  such  a 
donation  was  enjoined  at  the  suit 
of  a  stockholder.  But  see  as  to  per- 
manent location  of  state  fair,  State 
Board  of  Agriculture  v.  Citizens'  St. 
R.  Co.  47  Ind.  407,  17  Am.  R.  702. 

137  Davis  v.  Old  Colony  R.  Co,  131 
Mass.  258,  41  Am.  R.  221,  where  a 
subscription  in  aid  of  the  "World's 


Peace  Jubilee  and  International  Mu- 
sical Festival"  at  Boston  was  held 
not  binding  upon  the  corporation, 
although  the  concert  had  been  held 
on  the  faith  of  the  subscription 
guarantees.  In  this  case,  Gray,  J., 
after  an  exhaustive  review  of  the 
cases  both  of  this  country  and  Eng- 
land, says:  "But  when  the  corpora- 
tion has  actually  received  nothing 
in  money  or  property,  it  cannot  be 
held  liable  upon  an  agreement  to 
share  in  or  to  guarantee  the  profits 
of  an  enterprise  which  is  wholly 
without  the  scope  of  its  corporate 
powers,  upon  the  mere  ground  that 
conjectural  or  speculative  benefits 
were  believed  by  its  officers  to  be 
likely  to  result  from  the  making 
of  the  agreement,  and  that  the  other 
party  has  incurred  expenses  upon 
the  faith  of  it.  East  Anglian  R.  Co. 
v.  Eastern  Counties  R.  Co.  11  C.  B. 
775;  MacGregor  v.  Dover  &  Deal  R. 
Co.  18  Q.  B.  618;  Ashbury  R.  &c.  Co. 
v.  Riche,  L.  R.  7  H.  L.  653;  Thomas 
v.  Railroad  Co.  101  U.  S.  71;  Down- 
ing v.  Mount  Washington  Road  Co. 
40  N.  H.  230;  Franklin  Co.  v.  Lewis- 
ton  Institution  for  Savings,  68  Me. 
43,  28  Am.  R.  9.  See,  however,  State 
Board  of  Ag.  v.  Citizens'  St.  R.  Co. 
47  Ind.  407,  17  Am.  R.  702,  where 
the  court,  in  construing  a  subscrip- 
tion contract,  conditioned  upon  the 
location  of  the  state  fair  upon  its 
line,  says:  "It  is  not  claimed  in 
the  case  under  consideration  that 
there  was  any  statute  by  which  the 
Street  Railway  Company  was  pro- 
hibited from  entering  into  the  con- 
tract in  question,  or,  in  other  words, 
that  in  making  the  contract  that 


§  375] 


CONTRACTS. 


540 


The  directors  cannot  legally  use  the  corporate  funds  to  induce  pro- 
moters to  abandon  a  proposed  rival  company,138  nor  to  buy  land  at  an 
exorbitant  price  of  one  who,  as  part  consideration,  withdraws  opposi- 
tion to  the  charter,139  or  lends  his  influence  to  the  scheme.140 

§  375.  Contracts— Ultra  vires — Rule  where  statute  prescribes  con- 
sequences.— It  is  generally  held  that  where  the  legislature  specifically 
prescribes  the  consequences  that  shall  follow  from  an  act  of  ultra 
vires,  without  making  it  void,  the  act  is  not  to  be  regarded  as  void.141 
Where  the  statutory  prohibition  is  clearly  for  the  benefit  of  a  desig- 
nated class  of  persons  and  no  others,  only  members  of  that  class  can 
take  advantage  of  a  violation  of  the  statute.  Where  the  manifest  in- 
tention of  the  statute  would  be  defeated  by  adjudging  an  ultra  vires 
contract  void  it  will  not  be  so  adjudged.142 


company  violated  any  statute  by 
which  the  act  was  prohibited.  All 
that  is  claimed  is  that  there  was  a 
want  of  power  on  the  part  of  the 
corporation  to  bind  itself  by  the 
contract.  It  is  fully  shown  on  the 
part  of  the  plaintiff  that  the  state 
board  of  agriculture  performed  the 
contract  on  its  part.  The  Street 
Railway  Company  has  thus  received 
the  benefits  and  advantages  of  the 
contract,  but  seeks  to  avoid  paying 
the  consideration  promised,  because 
it  had  not  the  legal  power  to  con- 
tract for  the  benefits  which  it  has 
actually  received.  In  our  opinion 
the  Street  Railway  Company  is  not 
at  liberty  to  assume  this  position. 
It  has  received  the  profits  resulting 
from  the  compliance  of  the  plain- 
tiff with  the  contract.  These  profits, 
we  are  at  liberty  to  presume,  have 
gone  to  swell  the  dividends  of  the 
stockholders  in  that  corporation.  It 
would  be  unjust  for  their  company 
now  to  escape  performance  of  the 
contract  by  which  these  profits  have 
been  realized." 

138  Russell  v.  Wakefield  W.  W.  Co. 
L.  R.  20  Eq.  474.  Nor  agree  with 
a  competing  road  that  it  will  not 
complete  its  own  road.  Hartford, 


&c.  R.  Co.  v.  New  York,  &c.  R.  Co. 
3  Rob.  (N.  Y.)  411. 

139  Gage  v.  New  Market  R.  Co.  18 
Q.  B.  457.     Cases  such  as  the  above 
are  usually  treated  as  coming  un- 
der the  doctrine  of  ultra  vires,  and 
many   of   them   with   reason,   since 
such  contracts  as  they  involve  are 
tainted   with  the  vice  of   illegality 
and  are  also  beyond  the  corporate 
power.     A  contract  may,  it  is  evi- 
dent, have  more  than  one  defect  or 
vice. 

140  Earl    of   Shrewsbury   v.    North 
Staffordshire  R.  Co.  L.  R.  1  Eq.  593. 

141  Pratt  v.    Short,   79   N.   Y.    437, 
445,  35  Am.  R.  531;  Lester  v.  How- 
ard Bank,  33  Md.  558,  3  Am.  R.  211; 
Washburn  Mill  Co.  v.  Bartlett,  3  N. 
Dak.   138,   54   N.   W.   544;    National 
Bank  v.  Whitney,  103  U.  S.  99.     In 
Chattanooga,   &c.   R.   Co.   v.   Evans, 
66  Fed.  809,  it  is  held  that  non-com- 
pliance with  a  statute  requiring  cer- 
tain acts  to  be  done  by  a  railroad 
company  and  prescribing  a  penalty 
to  be  imposed  upon  persons  for  a 
violation  of  the  statute  does  not  in- 
validate a  purchase  of  land  by  the 
company. 

142  Gold    Mining    Co.    v.    National 
Bank,    96    U.    S.    640;    Duncomb   v. 


CONTRACTS — ULTRA  VIRES — INJUNCTION. 


{§  376, 


§  376.  Contracts — Ultra  vires — Injunction. — A  contract  which,  a 
corporation  has  no  power  to  make  cannot  be  enforced  by  injunction.143 
The  doctrine  that  an  ultra  vires  contract  cannot  be  enforced  directly 
or  indirectly  by  injunction  is  so  clearly  sound  that  there  is  no  room 
for  fair  debate,  but  as  to  the  power  to  prevent  a  corporation  from 
entering  into  such  a  contract  there  is  perhaps  room  for  debate,  since 
such  a  contract  if  entered  into  is  not,  as  a  contract,  effective.  In  our 
opinion,  however,  both  principle  and  authority  require  the  conclusion 
that  injunction  will  lie  to  restrain  a  corporation  from  making  such 
a  contract.144  The  modern  cases,  with  good  reason,  are  inclined  to 
extend  the  remedy  by  injunction,145  and  it  seems  to  us  that  sound 
reason  authorizes  interference  to  prevent  a  corporation  from  entering 
into  a  contract  that  it  has  no  power  to  make  rather  than  to  permit  the 
contract  to  be  made  and  after  it  is  made  contest  its  validity.  The  state 
may,  in  the  proper  case,  secure  relief  in  equity  against  a  corporation 
that  attempts  to  exercise  a  power  that  it  does  not  possess.146  Stock- 


New  York,  &c.  Co.  84  N.  Y.  190; 
Farmington,  &c.  Bank  v.  Fall,  71 
Me.  49;  National  Bank  v.  Matthews, 
98  U.  S.  621.  See,  also,  Mutual,  &c. 
Ins.  Co.,  In  re,  107  Iowa  143,  77  N. 
W.  868,  70  Am.  St.  149. 

143  Greenville,  &c.  Co.  v.  Planters', 
&c.  Co.  70  Miss.  669,  13  So.  879,  35 
Am.  St.  681,  citing  Pennsylvania  Co. 
v.  St  Louis,  &c.  Co.  118  U.  S.  290, 
6  Sup.  Ct.  1094;  Davis  v.  Old  Colony 
Eailroad,  131  Mass.  258,  41  Am.  R. 
221;    Pearce  v.   Madison,  &c.   Rail- 
road Co.  21  How.  (U.  S.)  451;  Cork, 
&c.  R.  Co.,  In  re,  4  Ch.  App.  748; 
Ashbury,  &c.  Co.  v.  Riche,  L.  R.  7 
H.  L.  653,  672. 

144  Attorney-General  v.  Chicago,  &c. 
B.   Co.   35   Wis.    425;    Fishmongers 
Co.  v.  East  India  Co.  1  Dickens  163 ; 
Agar  v.  Regents'  Canal,  Cooper  Ch. 
77;  Latimer  v.  Richmond  R.  Co.  39 
S.  Car.  44,  17  S.  E.  258;  Beman  v. 
Rufford,  6  Eng.  L.  &  Eq.  106;   Col- 
man  v.  Eastern,  &c.  R.  Co.  10  Beav. 
1;  Coats  v.  Clarence  R.  Co.  1  Rus- 
sell &  M.  181;   Attorney-General  v. 
Delaware,  &c.  R.  Co.  27  N.  J.  Eq. 


631;  Stockton  v.  Central  R.  Co.  50 
N.  J.  Eq.  489,  25  Atl.  942,  17  L.  R. 
A.  97;  Board  v.  Lafayette,  &c.  R. 
Co.  50  Ind.  85;  Thomas  v.  Railroad 
Company,  101  U.  S.  71;  2  Redfield 
Railways  307;  2  Story  Eq.  920,  923; 
Pomeroy  Eq.  Juris.  §  1093.  See, 
however,  Graham  v.  Birkenhead,  &c. 
R.  Co.  6  Eng.  L.  &  Eq.  132;  Ffooks 
v.  London,  &c.  Co.  19  Eng.  L.  & 
Eq.  7. 

145  Champ  v.  Kendrick,  130  Ind. 
549,  30  N.  E.  787;  Pomeroy  Equity 
Juris.  §  1357. 

149  Stockton  v.  Central  R.  Co.  50 
N.  J.  Eq.  489,  25  Atl.  942,  17  L.  R. 
A.  97;  Columbian  Athletic  Club  v. 
State,  143  Ind.  98,  40  N.  E.  914,  28 
L.  R.  A.  216,  52  Am.  St.  407.  See 
Attorney-General  v.  Great  Northern 
R.  Co.  4  DeGex  &  S.  75;  Taylor  v. 
Salmon,  4  Myl.  &  C.  134;  Attorney- 
General  v.  Chicago,  &c.  R.  Co.  35 
Wis.  425;  Ware  v.  Regents',  &c.  Co. 
3  DeGex  &  J.  212;  River  Dun,  &c. 
Co.  v.  North  Midland  R.  Co.  1  Eng. 
Ry.  &  Canal  Cas.  135;  Attorney-Gen- 
eral v.  Johnson,  Wilson's  Ch.  pt.  2, 


§  377] 


CONTRACTS. 


542 


holders  may  maintain  injunction  to  prevent  corporate  officers  from 
materially  deviating  from  the  objects  for  which  the  corporation  was 
formed.147 

§'377.     Contracts — Ultra  vires — Denial  of  relief — Laches. — It  is 

held  that  if  there  is  inexcusable  delay  in  seeking  relief  the  courts  will 
refuse  to  interpose,  although  the  contract  may  be  ultra  vires.148  The 
decisions  proceed  upon  the  general  doctrine  that  a  party  guilty  of 
laches  cannot  successfully  invoke  the  assistance  of  the  courts.  The 
courts  in  refusing  to  grant  relief  do  not  affirm  the  validity  of  the 
Contract,  but  leave  the  parties  where  it  found  them  because  of  the 
laches  of  the  complaint.149 

§  378.  Contracts — Ultra  vires — Who  may  contest. — A  person  not 
a  corporate  stockholder,  or  one  not  having  a  right  to  or  interest  in 
corporate  property,  cannot  dispute  the  right  of  a  corporation  to  make 
contracts  of  a  certain  kind  upon  the  ground  that  they  are  ultra  vires. 
Thus,  a  wharfinger  will  not  be  permitted  to  dispute  the  right  of  a 
railroad  company  to  rent  its  wharf  in  competition  with  his  own,  by 


87;'  Attorney-General  v.  Birming- 
ham, &c.  Co.  4  DeGex  &  S.  490;  At- 
torney-General v.  Forbes,  2  Myl.  & 
C.  123;  Attorney-General  v.  Eastern 
Counties  R.  Co.  3  Eng.  R.  &  Canal 
Cas.  337;  Attorney-General  v.  Shef- 
field, &c.  Co.  3  DeGex,  M.  &  G.  304; 
Attorney-General  v.  Mid-Kent  R.  Co. 
3  Ch.  App.  Cas.  100.  See  People  v. 
North  River,  &c.  Co.  121  N.  Y.  582, 
24  N.  E.  834,  9  L.  R.  A.  33,  18  Am. 
St  843;  People  v.  North  River,  &c. 
Co.  22  Abbott  New  Cas.  164,  3  N.  Y. 
S.  401,  2  L.  R.  A.  33.  But  compare 
Attorney-General  v.  Great  Eastern 
R.  Co.  11  Ch.  Div.  449;  Attorney- 
General  v.  Utica  Ins.  Co.  2  Johns. 
Ch.  (N.  Y.)  371. 

147Kean  v.  Johnson,  9  N.  J.  Eq. 
401;  Livingston  y.  Lynch.  4  Johns. 
Ch.  (N.  Y.)  573;  Ware  v.  Grand 
Junction  R.  Co.  2  Russ.  &  M.  470. 
See  Sparhawk  v.  Union,  &c.  R.  Co. 
54  Pa.  St.  401.  See,  also,  Tippe- 
canoe  County  v.  Lafayette,  &c.  R. 


Co.  50  Ind.  85;  Gunnison,  &c.  Co.  v. 
Whitaker,  91  Fed.  191;  Zabriskie  v. 
Cleveland,  &c.  R.  Co.  23  How.  (U. 
S.)  381;  Willoughby  v.  Chicago 
Junction  R.  Co.  50  N.  J.  Eq.  656,  25 
Atl.  277,  39  Am.  &  Eng.  Corp.  Cas. 
153;  Central  R.  Co.  v.  Collins,  40 
Ga.  582;  International,  &c.  R.  Co.  v. 
Bremond,  53  Tex.  96.  As  far  back 
as  Dodge  v.  Woolsey,  18  How.  (U. 
S.)  331,  it  was  said  that  this  "is  no 
longer  doubted."  See,  also,  Pollock 
v.  Farmers',  &c.  Co.  157  U.  S.  429, 
15  Sup.  Ct.  673. 

148  St.    Louis,    &c.    Co.    v.    Terre 
Haute,  &c.  Co.  145  U.  S.  393,  12  Sup. 
Ct.  953;  St.  Louis,  &c.  Co.  v.  Terre 
Haute,  &c.   Co.   33  Fed.   440;   Alex- 
ander V.  Searcy,  81  Ga.  536,  12  Am. 
St.  337. 

149  In  the  first  case  cited  the  court 
placed  stress  upon  the  principle  that 
where  both  parties  are  in  fault  the 
courts  will  not  give  aid  to  either 
of  them. 


513 


CONTRACTS — ULTRA  VIRES — WHO   MAY   CONTEST. 


[§'  378 


showing  that  its  charter  does  not  authorize  it  to  keep  a  wharf  for 
rent.150  A  person  who  is  sued  for  damage  done  to  real  estate  held  by 
a  corporation  cannot  successfully  defend  by  showing  that  the  charter 
of  the  corporation  does  not  permit  it  to  hold  such  real  estate,  or  that 
it  is  not  authorized  to  take  and  hold  land  for  the  purposes  for  which 
the  real  estate  in  question  is  acquired.151  Even  with  regard  to  stock- 
holders and  officers  of  the  corporation  the  rule  obtains  that  a  person 
whose  rights  are  in  no  way  infringed  by  the  doing  of  an  ultra  vires 
act  cannot  found  an  action  or  defense  upon  the  doing  of  that  act.152 
Upon  this  principle,  it  is  held  that  the  title  acquired  by  the  vendee  of 
land  from  a  railroad  company  is  good,  although  it  was  ultra  vires 
the  company's  charter  to  purchase  the  land  in  the  first  instance.153 
And  the  officers  of  a  corporation  who  have  bought  stock  for  the 
company  cannot  plead  as  a  defense  to  an  action  for  conversion  of  the 
stock  to  their  own  use,  that  the  original  purchase  made  by  them  on 
behalf  of  the  corporation  was  ultra  vires.154  The  rule  as  asserted  by 
many  of  the  adjudged  cases  is  that,  after  the  corporation  has  performed 
its  part  of  the  contract,  the  other  party  will  not  be  permitted  to  in- 
terpose the  plea  that  it  had  no  power  to  make  such  a  contract.155  The 
rule  has  been  thus  stated:  "Without  deciding  whether  or  not  it  was 
within  the  corporate  power  of  the  railway  company  to  become  a  party 


150  New  Orleans,  &c.  R.  Co.  v.  El- 
lerman,  105  U.  S.  166,  9  Am.  &  Eng. 
R.  Gas.  144;  see  Oelbermann  v.  New 
York,   &c.   R.   Co.   7   Misc.    (N.   Y.) 
352,  27  N.  Y.  S.  945;    Tomlinson  v. 
Bricklayers'    Union,    87    Ind.    308; 
Farmers',  &c.  Bank  v.  Detroit,  &c. 
R.  Co.  17  Wis.  372;   St.  Louis  Drug 
Co.  v.  Robinson,  81  Mo.  18;  Gifford 
v.  New  Jersey  R.  Co.  10  N.  J.  Eq. 
171;  New  Haven  Wire  Co.  Cases,  57 
Conn.  352,  18  Atl.  266. 

151  Farmers'  Loan  &c.  Co.  v.  Green 
Bay,  &c.  R.  Co.  11  Biss.  (U.  S.)  334. 

m  Taylor  Priv.  Corp.  281. 

153  Walsh  v.  Barton,  24  Ohio  St.  28. 
See,  also,  Mallett  v.  Simpson,  94  N. 
Car.  37,  55  Am.  R.  594. 

154  St.  Louis  Stoneware  Co.  v.  Part- 
ridge, 8  Mo.  App.  217. 

155  Whitney   Arms    Co.   v.   Barlow, 
63  N.  Y.  62,  20  Am.  R.  504;  Parish 
T.  Wheeler,  22  N.  Y.  494;  Hamilton, 


&c.  Hydraulic  Co.  v.  Cincinnati,  &c. 
R.  Co.  29  Ohio  St.  341.  In  this  case 
the  defendant  was  permitted  to  fill 
up  a  watercourse  in  consideration 
that  it  would  re-open  and  restore 
the  watercourse  when  requested. 
The  defendant  was  held  estopped 
to  set  up  that  the  ownership  and 
maintenance  of  the  watercourse  by 
the  plaintiff  was  ultra  vires.  Three 
years  of  performance  of  a  contract 
by  which  the  railway  company  de- 
mised its  road,  privileges  and  fran- 
chises for  ninety-six  years  to  de- 
fendant does  not  render  it  so  far 
an  executed  contract  that  a  party 
thereto  is  estopped  to  deny  its  valid- 
ity and  to  repudiate  it.  Oregon  R. 
&c.  Co.  v.  Oregonian  R.  Co.  130  U. 
S.  1,  9  Sup.  Ct.  409;  Pennsylvania 
R.  Co.  v.  St.  Louis,  &c.  R.  Co.  118 
U.  S.  290,  630,  7  Sup.  Ct.  24. 


§   379]  CONTRACTS.  544 

to  such,  bond  or  contract,  we  are  clearly  of  the  opinion  that,  after 
full  performance  by  the  company  of  the  stipulations  of  such  bond 
or  contract  on  its  part  to  be  done  and  performed,  and  after  the  ap- 
pellees have  received  in  full  the  benefits  they  bargained  for,  they 
cannot  be  permitted  to  escape  or  avoid  the  obligation  of  their  contract 
upon  the  ground  that  the  company  had  possibly  exceeded  its  cor- 
porate power,  or  that  such  contract,  as  to  it,  was  possibly  ultra 
vires/'158  We  have  elsewhere  said  that  we  believe  that  the  contract  is 
not  enforceable  and  the  right  of  the  party  to  protection  from  loss 
or  injury  does  not  rest  upon  the  contract,  but  upon  general  equitable 
principles. 

§  379.  Contracts — Ultra  vires — Creditors. — Corporate  creditors  oc- 
cupy an  essentially  different  position  from  that  occupied  by  the  cor- 
poration or  its  stockholders.  They  have  no  part  in  the  management 
of  the  affairs  of  the  corporation,  and  receive  no  direct  benefit  from  a 
successful  prosecution  of  its  enterprises.  Their  contracts  are  made  in 
reliance  upon  the  fact  that  the  corporate  fund  is  a  primary  fund  for 
the  payment  of  the  corporate  debts.  Accordingly  the  assent  of  all  the 
shareholders  cannot  render  valid,  as  against  the  creditors,  a  contract 
not  within  the  corporate  powers;  and  a  partial  performance  by  the 
other  contracting  party  cannot  make  the  corporation  liable  to  an  ac- 
tion that  will  jeopardize  their  interests.157  The  position  of  the  cred- 
itors is  so  essentially  different  from  that  of  the  corporation  and  its 
shareholders  that  the  rules  which  apply  to  one  class  cannot  unquali- 
fiedly apply  to  the  other.  The  rule  asserted  in  well  considered  de- 
cisions is  that  in  cases  where  the  corporation  is  insolvent,  the  claims 
of  parties  founded  upon  an  ultra  vires  contract  will  be  set  aside  in 
favor  of  creditors  claiming  under  valid  contracts.168  The  corporate 

MS  Chicago,  &c.  R.  Co.  v.  Derkes,  w  The  receiver  of  such  a  corpora- 

103  Ind.  520,  525,  3  N.  E.  239.  See,  tion  may  repudiate  claims  arising 

also,  Louisville,  &c.  Co.  v.  Flanagan,  out  of  ultra  vires  contracts.  Abbott 

113  Ind.  488,  493,  14  N.  E.  370,  3  v.  Baltimore,  &c.  Steam  Packet  Co. 

Am.  St.  674;  Steam  Nav.  Co.  v.  1  Md.  Ch.  542.  He  may  repudiate 

Weed,  17  Barb.  (N.  Y.)  378.  a  transfer  of  mortgages  by  the  cor- 

157  National  Trust  Co.  v.  Miller,  33  poration  made  to  secure  such 

N.  J.  Eq.  155.  See,  also,  Washing-  claims.  Talmage  v.  Pell,  7  N.  Y.  328. 

ton  Mill  Co.  v.  Sprague  Lumber  Co.  The  corporation  is  not  estopped  to 

19  Wash.  165,  52  Pac.  1067.  But  it  set  up  the  defense  of  ultra  vires  in 

has  been  held  otherwise  where  no  favor  of  its  creditors  whose  debts 

fraud  is  charged.  Force  v.  Age-  were  created  under  lawful  power, 

Herald  Co.  136  Ala.  271,  33  So.  866.  where  it  is  insolvent,  and  the  ob- 


545  ULTRA  VIRES — NON-ASSENTING   STOCKHOLDERS.  [§    380 

creditors,  of  course,  have  no  rights  to  be  protected  in  cases  where  the 
corporation  is  clearly  solvent,  for  in  such  a  case  payment  of  the  debt 
due  under  an  ultra  vires  contract  will  not  menace  its  ability  to  pay  its 
other  debts,  and  they  cannot  complain  of  such  payment.  But  where 
the  payment  of  the  claims  of  creditors  founded  upon  contracts  valid 
in  all  respects  will  be  endangered  by  the  enforcement  of  what  are 
called  ultra  vires  contracts  the  latter  class  of  contracts  will  not  be 
enforced.  Where  the  contract  is  ultra  vires  in  the  proper  sense  of  the 
term,  then,  as  we  have  elsewhere  shown,  there  can  be  no  recovery 
upon  it.  The  contract  itself  is  void,  but  there  may  be  in  many  cases 
a  recovery  upon  the  quantum  valebat  or  quantum  meruit.  If  there 
is  a  right  to  recover  on  the  quantum  meruit,  for  the  reasonable  value 
of  the  property  received  and  appropriated  by  the  corporation,  there 
is  reason  for  doubting  whether  creditors  can  defeat  the  claims  of  par- 
ties having  such  a  right  of  recovery,  for,  in  such  a  case,  the  property 
received  and  appropriated  becomes  part  of  the  corporate  assets  and 
increases  the  security  of  the  creditors.  Where  there  is  an  executory 
contract  merely  there  is  no  difficulty,  for  it  is  clear  that  such  a  contract 
cannot  be  enforced  nor  damages  recovered  for  its  breach.  It  is  held  that 
creditors  may  be  estopped  by  the  fact  that  they  have  received  the  bene- 
fits of  the  unauthorized  act  and  their  dealings  have  been  with  refer- 
ence thereto.159 

§  380.    Contracts — Ultra  vires — Non-assenting  stockholders. — It  is 

reasoned  that  as  corporations  act  only  by  their  officers  and  agents,  and 
are  controlled  by  majorities,  and  as  the  interests  of  the  minority  stock- 
holders and  the  creditors  are  not  always  respected  by  the  managers, 
the  rule  that  the  corporation  is  bound  by  contracts  of  its  agents,  is  not 
of  universal  application.  It  would  seem  to  be  clear  upon  principle  that 
a  stockholder  would  not  be  bound  by  any  ultra  vires  contract  entered 
into  by  the  directors,  of  which  he  had  no  knowledge,  even  though  a 
benefit  accrued  to  the  corporation  by  reason  of  the  performance  of 
such  a  contract.160  There  is,  however,  difficulty  in  practically  apply- 
ing this  general  doctrine.  If  the  corporation  does  actually  receive  and 
retain  property  of  value  it  should  be  compelled  to  make  just  and 

ject  is  to  prefer  such  creditors  to  281,  48  Am.  R.  438.    See,  also,  Fogg 

others  claiming  under  unauthorized  v.  Blair,  133  U.  S.  534,  10  Sup.  Ct. 

contracts.     Bank  of  Chattanooga  v.  338. 

Bank  of  Memphis,  9  Heisk.  (Tenn.)        16°  Taylor    Priv.    Corp.    278.      See 

408.  Bi-Spool,  &c.  Co.  v.  Acme  Mfg.  Co. 

168  Tone  v.  Columbus,  39  Ohio  St.  153  Mass.  404,  26  N.  E.  991. 
ELL.  RAILROADS — 35 


§   381]  CONTRACTS.  546 

equitable  compensation,  although  some  of  the  stockholders  may  assail 
the  transaction.  It  is,  however,  quite  clear  on  principle  that  where  the 
contract  is  executory  a  non-assenting  stockholder,  who  promptly  as- 
sails it,  is  entitled  to  relief.  But  since  the  books  of  the  company  are 
at  all  times  open  for  their  inspection,  it  may  be  presumed  that  the 
members  of  the  corporation  are  cognizant  of  its  acts,  and  a  ratification 
of  such  acts  will  be  presumed  from  acquiesence  on  their  part.161  It  is 
so  difficult  to  permit  a  contract  to  be  set  aside  by  a  dissenting  stock- 
holder without  at  the  same  time  relieving  those  by  whom  it  was  made, 
that  the  courts  refuse  to  entertain  his  objections  on  the  ground  that  a 
contract  is  ultra  vires,  unless  he  moves  promptly  to  prevent  its  exe- 
cution. He  will  not,  as  a  general  rule,  be  heard  to  express,  after  the 
contract  is  executed,  a  dissent  which  he  has  not  made  known  until  it 
was  apparent  that  the  contract  would  operate  against  his  interests,162 
unless  he  has  done  equity  or  caused  equity  to  be  done  by  the  corpo- 
ration. 

§381.    Prohibited   contracts — Effect   of   prescribing  penalties. — 

Where  a  contract  is  illegal  because  prohibited  by  legislative  enact- 
ment, it  is  not  necessarily  void  if  the  legislature  has  specifically  pro- 
vided what  the  consequences  of  a  violation  of  the  statute  shall  be. 
The  general  rule  upon  this  subject  seems  to  be  that  where  the  statute 
which  prohibits  the  contract  expressly  prescribes  the  consequences  of 
its  violation  the  contract  is  not  void,  since  the  consequences  expressly 
prescribed  are  exclusive.163  But  this  rule  cannot  govern  where  there 

161  Thompson  v.  Lambert,  44  Iowa  money  loaned  or  discounted  by  any 

239;  Taylor  Priv.  Corp.  279.  incorporated  company,  contrary  to 

182  Thompson  v.  Lambert,  44  Iowa  the  provisions  of  the  [statute]  shall 

239;  Bradley  v.  Ballard,  55  111.  413,  be  void,"  it  was  held  that  the  notes 

8  Am.  R.  656.  See,  also,  Union  Pac.  or  securities  so  taken  were  void, 

R.  Co.  v.  Chicago,  &c.  R.  Co.  163  U.  but  the  money  loaned  on  them  could 

S.  564,  16  Sup.  Ct.  1173;  article  in  be  recovered.  The  court  said:  "A 

13  Am.  L.  Rev.  661;  2  Purdy's  Beach  prohibitory  statute  may  itself  point 

Priv.  Corp.  §  906;  Rabe  v.  Dunlap,  out  the  consequences  of  its  viola- 

51  N.  J.  Eq.  40,  25  Atl.  959.  tion,  and  if,  on  a  consideration  of 

163  See  ante,  §  375.  Where  a  cor-  the  whole  statute,  it  appears  that 

poration  was  forbidden  by  law  to  the  legislature  intended  to  define 

issue  notes  or  other  evidences  of  such  consequences,  and  to  exclude 

debt,  to  be  loaned  or  put  in  circu-  any  other  penalty  or  forfeiture  than 

lation  as  money,  the  statute  declar-  such  as  is  declared  in  the  statute 

ing  that  all  notes  or  other  securities  itself,  no  other  will  be  enforced,  and 

for  the  payment  of  money  "made  or  if  an  action  can  be  maintained  on 

given  to  secure  the  payment  of  any  the  transaction  of  which  the  pro- 


PROHIBITED   CONTRACTS. 


[§    381 


is  simply  a  general  penalty  prescribed.   Where  a  penalty  is  declared, 
the  general  rule  is  that  a  contract  to  do  the  forbidden  act  is  void. 


hibited  transaction  was  a  part  with- 
out sanctioning  the  illegality,  such 
action  will  be  entertained."  Pratt 
v.  Short,  79  N.  Y.  437,  445,  35  Am. 
R.  531;  Taylor  Priv.  Corp.  (2d  ed.) 
299.  In  Edison  General  Electric  Co. 
v.  Canadian  Pac.  Nav.  Co.  8  Wash. 
370,  36  Pac.  260,  24  L.  R.  A.  315, 
40  Am.  St.  910,  the  supreme  court 
of  Washington  held  that  although 
a  statute  provides  a  penalty  for  a 
foreign  corporation  doing  business 
without  first  having  registered,  con- 
tracts by  such  corporation  are  not 
thereby  rendered  void.  The  court 
said:  "There  is  some  diversity 
among  the  cases  in  the  construction 
of  laws  of  this  kind,  but  the  weight 
of  authority  seems  to  establish  the 
doctrine  that  it  is  the  duty  of  the 
courts  to  look  at  the  whole  statute, 
and  therefrom  determine  as  to  what 
was  the  intent  of  the  legislature. 
If,  by  the  terms  thereof,  the  act  is 
made  unlawful,  it  will  usually  be 
construed  to  amount  to  a  prohibi- 
tion of  said  act,  and  the  imposition 
of  a  penalty  will  also  amount  to  a 
prohibition  if,  from  the  language 
used,  such  seems  to  have  been  the 
intent  of  the  legislature.  But  in 
the  case  at  bar,  while  the  company 
is  liable  to  the  penalty  provided 
in  the  statute,  there  is  nothing  in 
the  act  which  in  terms  prohibits 
the  transaction  of  business  or  de- 
clares it  to  be  unlawful,  and  the 
particular  language  of  the  clause 
which  imposes  the  penalty  has  no 
tendency  to  establish  either  of  said 
propositions.  On  the  contrary,  its 
language,  fairly  construed,  would 
seem  to  contemplate  that  the  com- 
pany might  do  business  without 
such  registration,  but  that,  if  it  did, 


it  should  pay  the  penalty  therein 
prescribed  for  the  privilege  of  so 
doing.  The  cases  cited  by  appel- 
lant, when  applied  to  the  facts  of 
this  case,  have  little  tendency  to 
sustain  its  contention.  The  investi- 
gation which  we  have  been  able  to 
give  the  adjudged  cases  tends  to 
support  the  statement  made  by  re- 
spondent, in  its  brief,  that  a  pro- 
vision like  the  one  under  considera- 
tion has  never  been  held  to  render 
contracts  void,  though  entered  into 
without  the  authority  of  the  statute. 
Some  of  the  cases  cited  by  appel- 
lant contain  expressions  to  the  ef- 
fect that  the  imposition  of  a  penalty 
for  the  performance  of  an  act  is 
equivalent  to  declaring  it  unlaw- 
ful ;  but  an  examination  of  the  facts 
will  show  that  the  provisions  which 
they  were  construing  were  clothed 
in  far  different  language  than  the 
one  under  consideration."  Where  a 
corporation  loans  money  in  excess 
of  the  prescribed  limit  to  be  loaned 
to  an  individual,  the  corporation 
can  recover  the  money.  "We  do 
not  think  that  public  policy  re- 
quires, or  that  congress  intended 
that  an  excess  of  loans  beyond  the 
proportion  specified  should  enable 
the  borrower  to  avoid  the  payment 
of  the  money  actually  received  by 
him.  This  would  be  to  injure  the 
interests  of  creditors,  stockholders 
and  all  who  have  an  interest  in  the 
safety  and  prosperity  of  the  bank." 
Gold  Min.  Co.  v.  National  Bank,  96 
y.  S.  640;  Duncomb  v.  New  York, 
&c.  R.  Co.  84  N.  Y.  190.  And  a  pro- 
vision in  the  charter  of  a  corpora- 
tion prohibiting  any  director  or 
other  officer,  under  penalty  of  fine 
or  imprisonment,  from  borrowing 


§  382] 


CONTRACTS. 


548 


As  is  well  known  the  accepted  doctrine  is  that  the  imposition  of  a 
penalty  for  doing  the  act  operates  as  such  an  implied  prohibition  as 
to  bring  the  case  within  this  rule.164  It  is  sometimes  provided  that 
only  specified  persons  shall  be  entitled  to  the  protection  of  a  special 
prohibition  of  the  statute,  and  when  this  is  so  only  such  persons  can 
take  advantage  of  it.165 

§  382.  Illegal  contracts — Generally. — It  is  hardly  necessary  to 
say  that  a  railroad  company  has  no  more  right  to  enter  into  an  illegal 
contract  than  a  natural  person  or  a  corporation  of  any  kind.  If  an 
act  be  malum  in  se  or  malum  prohibitum  a  railroad  company  cannot 
perform  it.166  Where  a  contract  is  illegal  and  for  that  reason  void, 
no  action  can  be  maintained  upon  it,  for  the  courts  will  decline  to 
assist  either  party  in  enforcing  it.167  But  it  is  unnecessary  to  do  more 


money  from  the  bank,  does  not  ex- 
empt a  director  from  liability  for 
money  loaned  to  him  in  violation  of 
the  prohibition.  Farmington  Sav. 
Bank  v.  Fall,  71  Me.  49.  Ante, 
§  375. 

164  Ohio   L.   Ins.   &c.    Co.   v.    Mer- 
chants' Ins.  Co.  30  Tenn.  1,  53  Am. 
Dec.  742;   Mitchell  v.  Smith,  1  Bin- 
ney    (Pa.)    110,    2    Am.    Dec.    417; 
Seidenbender  v.  Charles,  4  Serg.  & 
R.   (Pa.)   151,  8  Am.  Dec.  682;  Wil- 
son v.  Spencer,  1  Randolph   (Va.) 
76,  10  Am.  Dec.  491;  Sharp  v.  Teese, 
9   N.   J.   L.   352,  17   Am.   Dec.  479; 
O'Donneil  v.   Sweeney,  5  Ala.   467, 
39   Am.   Dec.    336;    Woods  v.   Arm- 
strong, 54  Ala.  150,  25  Am.  R.  671. 

165  "Courts  often  speak  of  acts  and 
contracts  as  void,  when  they  mean 
no  more  than  that  some  party  con- 
cerned has  a  right  to  avoid  them. 
Legislators  sometimes  use  language 
with  equal  want  of  exact  accuracy; 
and  when  they  say  that  some  act  or 
contract  shall  not  be  of  any  force 

•or  effect,  mean  perhaps  no  more 
than  this:  that  at  the  option  of 
those  for  whose  benefit  the  provi- 
sion was  made  it  shall  be  voidable, 
and  have  no  force  or  effect  as 


against  his  interests.  *  *  *  If  it  is 
apparent  that  an  act  is  prohibited 
and  declared  void  on  grounds  of 
general  policy,  we  must  suppose  the 
legislative  intent  to  be  that  it  shall 
be  void  to  all  intents,  while  if  the 
manifest  intention  is  to  give  protec- 
tion to  determinate  individuals  who 
are  sui  juris,  the  purpose  is  suffi- 
ciently accomplished,  if  they  are 
given  the  liberty  of  avoiding  it." 
Beecher  v.  Marquette,  &c.  Co.  45 
Mich.  103,  108,  7  N.  W.  695,  per 
Cooley,  J.;  Earle  v.  Earle,  91  Ind. 
27;  Taylor  Priv.  Corp.  (2d  ed.)  300. 
See,  also,  Union  Nat.  Bank  v.  Mat- 
thews, 98  U.  S.  629;  Prescott  Nat. 
Bank  v.  Butler,  157  Mass.  548,  32 
N.  E.  909;  Roberts  v.  Lane,  64  Me. 
108,  18  Am.  R.  242. 

188Chippewa,  &c.  Co.  v.  Chicago, 
&c.  R.  Co.  75  Wis.  224,  44  N.  W.  17, 
6  L.  R.  A.  601;  Marshall  v.  Balti- 
more, &c.  R.  Co.  16  How.  (U.  S.) 
314;  Pueblo,  &c.  R.  Co.  v.  Rudd,  5 
Colo.  270;  Pueblo,  &c.  R.  Co.  v.  Tay- 
lor, 6  Colo.  1,  45  Am.  Dec.  512;  Mor- 
ris, &c.  R.  Co.  v.  Sussex,  &c.  R.  Co. 
20  N.  J.  Eq.  542 ;  Ashbury  R.  &c.  Co. 
v.  Riche,  L.  R.  7  H.  L.  C.  653. 

187  Ohio,  &c.  Co.  v.  Merchants',  &c. 


549  ILLEGAL   CONTRACTS  AND  ULTEA  VIRES.  [§   383 

V 

than  suggest  these  general  rules  and  add  that  all  of  the  fundamental 
rules  regarding  illegal  contracts  apply  to  contracts  by  railroad  com- 
panies. 

§  383.    Illegal  contracts  and  ultra  vires  contracts  discriminated. — 

At  another  place  we  have  directed  attention  to  the  difference  between 
contracts  that  are  ultra  vires  and  contracts  that  are  illegal.168  It  is 
obvious  that  a  contract  may  be  beyond  the  scope  of  the  corporate 
powers  and  yet  not  be  illegal  in  the  proper  sense  of  the  term.  The 
term  "illegal  contract,"  as  we  employ  it,  means  a  contract  forbidden 
by  legislative  enactment  or  condemned  by  some  general  rule  of  law. 
It  is  true,  of  course,  that  a  contract  which  is  against  public  policy 
is  illegal,  but  we  can  see  no  valid  reason  for  making  an  independent 
and  distinct  class  of  contracts  against  public  policy,  for  public  policy 
is  settled  and  determined  by  general  rules  of  law,  so  that  such  a  con- 
tract is  really  an  illegal  one  and  is,  therefore,  properly  a  member  of 
the  general  class  designated  by  the  term  illegal  contracts.  What  the 
term  "public  policy"  means  has  not  been  precisely  determined  by  the 
judicial  decisions.169  Illegal  contracts  are,  in  a  sense,  ultra  vires,  but 
they  are  something  more,  they  are  contracts  of  "an  evil  tendency."  It 
is  hardly  necessary  to  say  that  a  railroad  corporation  has  no  more 

Co.  30  Tenn.  1,  53  Am.  Dec.  742;  is  not  easily  explained."  See,  gen- 
Wilson  v.  Spencer,  1  Rand.  (Va.)  erally,  Egerton  v.  Earl  Brownlow,  4 
76,  10  Am.  Dec.  491;  O'Donnell  v.  H.  L.  Cas.  1;  Smith  v.  Arnold,  106 
Sweeney,  5  Ala.  467,  39  Am.  Dec.  Mass.  269;  Durgin  v.  Dyer,  68  Me. 
336;  Woods  v.  Armstrong,  54  Ala.  143;  Burkholder  v.  Beetem,  65  Pa. 
150,  25  Am.  R.  671;  Webb  v.  Tul-  St.  496;  Pierce  v.  Evans,  61  Pa.  St. 
chire,  3  Ired.  (N.  C.)  Law  485,  40  415;  Bank  of  United  States  v.  Ow- 
Am.  Dec.  419.  ens,  2  Pet.  (U.  S.)  527;  Bishop  v. 

1(8  Ante,  §  373;  Woodruff  v.  Erie  Palmer,  146  Mass.  469,  474,  16  N.  E. 

R.  Co.  93  N.  Y.  609,  618.  The  mod-  299,  4  Am.  St.  339;  Brown  v.  New 

ern  cases  deny  that  there  is  any  es-  York,  &c.  Co.  75  Hun  (N.  Y.)  355, 

sential  difference  between  contracts  27  N.  Y.  S.  69;  Florida,  &c.  R.  Co.  v. 

to  perform  acts  malum  in  se  and  State,  31  Fla.  482,  13  So.  103,  20  L. 

contracts  to  do  that  which  is  malum  R.  A.  419 ;  Pennsylvania  Co.  v.  Do- 

prohibitum.  Evans  v.  Trenton,  24  Ian,  6  Ind.  App.  109,  32  N.  E.  802, 

N.  J.  L.  764.  51  Am.  St.  289;  Griswold  v.  Illinois, 

149  In  Richardson  v.  Mellish,  2  &c.  R.  Co.  (Iowa)  53  N.  W.  295  (re- 
Bing.  229,  9  E.  C.  L.  557,  Burroughs,  versed  on  rehearing,  in  90  Iowa  265, 
J.,  said:  "Public  policy  is  a  very  57  N.  W.  843,  24  L.  R.  A.  647;  Farm- 
unruly  horse,  and  when  once  you  ers',  &c.  R.  Co.  v.  White,  5  Col. 
get  astride  of  it  you  never  know  App.  1,  31  Pac.  345;  Providence,  &c. 
where  it  will  carry  you.  Public  pol-  Co.  v.  Norris,  2  Wall.  (U.  S.)  45,  56. 
icy  does  not  admit  of  definition  and 


§    384]  CONTRACTS.  550 

right  to  enter  into  an  illegal  contract  than  an  individual.  It  is  to  be 
remarked,  however,  that  a  positive  legislative  enactment  may  confer 
authority  to  make  a  contract  which,  but  for  the  statute,  would  be 
regarded  as  illegal  because  against  public  policy.170 

§  384.  Classes  of  illegal  contracts. — We  have  said  that  in  our 
judgment  a  contract  void  because  against  public  policy  is  an  illegal 
contract.  Some  of  the  cases,  however,  do  not  class  such  contracts  as 
illegal,  but  make  of  them  a  separate  and  distinct  class.  "We  think  that 
illegal  contracts,  as  distinguished  from  ordinary  ultra  vires  contracts, 
may  be  divided  into  (1)  those  which  are  immoral  in  themselves,  and 
forbidden  by  law  to  persons  as  well  as  corporations;  (2)  those  which 
the  corporations  in  question  are  forbidden  to  make  by  statute,  and  (3) 
those  which  public  policy  forbids  them  to  make.171  The  latter  class 
of  contracts,  that  is,  contracts  against  public  policy,  have  been  dis- 
cussed principally  in  cases  where  corporations  charged  with  the  per- 
formance of  certain  public  duties  have  entered  into  contracts  whereby 
they  are  disabled  to  perform  such  duties,  or  the  rights  of  the  public 
are  infringed/72  but  the  principle  has  a  somewhat  wider  range. 

§  385.  Contracts  void  because  against  public  policy. — The  settled 
doctrine  is  that  railroads  and  other  corporations  which  are  created 

170  Donaldson    v.     Jude,     2     Bibb  Hadden  v.  Collector,  5  Wall.  (U.  S.) 

(Ky.)  57;  Brown  v.  Anderson,  1  T.  107;    Magee  v.   O'Neill,   19    S.   Car. 

B.  Monr.    (Ky.)    198;   Vermont,  &c.  170,  45  Am.  R.  765. 
R.   Co.   v.   Vermont,   &c.   R.   Co.   34        m  Taylor  Priv.  Corp.  (2d  ed.)  292. 
Vt.    1.      See,    also,    American,    &c.        172  New  York,  &c.  R.  Co.  v.  Winans, 

Union    v.    Yount,    101    U.    S.    352.  17  How.    (U.  S.)   30,  39;   Pearce  v. 

Where  there  is  no  legislation  it  is  Madison,  &c.   R.   Co.   21   How.    (U. 

for  the  courts  to  decide  whether  a  S.)  441;  Thomas  v.  West  Jersey  Co. 

contract  is  or  is  not  "at  war  with  101    U.    S.    71;    Branch    v.    Jesup, 

any  established  interest  of  society,"  106  U.   S.  468,  478,  1  Sup.  Ct.   15; 

and,   therefore,   illegal.     Kellogg  v.  Pennsylvania  R.  Co.  v.  St.  Louis,  &c. 

Larkin,    3    Pinney     (Wis.)     123,    3  R.  Co.  118  U.  S.  290,  6  Sup.  Ct.  1094; 

Chand.  (Wis.)  133,  56  Am.  Dec.  164;  Pittsburgh,  &c.  R.  Co.  v.  Keokuk,  &c. 

Boardman    v.    Thompson,    25    Iowa  Bridge    Co.   131   U.    S.    371,    384,    9 

487,  501.     Legislation,  however,  set-  Sup.  Ct.  770;   Central  Trans.  Co.  v. 

ties  questions  of  policy.     Speaking  Pullman  P.   Car  Co.   139  U.   S.  24, 

of  the  power  of  the  legislature  in  11  Sup.  Ct.  478;    Hazlehurst  v.  Sa- 

this   regard   the   supreme   court  of  vannah,  &c.  R.  Co.  24  Ga.  13;  Elkins 

the  United  States  said:    "Questions  v.  Camden,  &c.  R.  Co.  36  N.  J.  Eq. 

of  this  sort  determined   there  are  5;    New    England    Express    Co.    v. 

conclusive  here."  License  Tax  Cases,  Maine  Central  R.  Co.  57  Me.  188. 
5  Wall.  (U.  S.)  462,  469.    See,  also, 


55.1  CONTRACTS  VOID  BECAUSE  AGAINST   PUBLIC   POLICY.      [§    385 


•with  special  powers  and  privileges,  and  charged  with  certain  duties 
to  the  public,  are  held  bound  by  considerations  of  public  policy  to 
refrain  from  doing  any  acts  which  may  disable  them  from  performing 
their  duties  to  the  public.173  This  familiar  principle  is  applied  to  va- 
riolas classes  of  cases,  but  while  there  is  no  diversity  of  opinion  as  to 
the  principle  itself  there  is  some  conflict  among  the  cases  as  to  its 
application.  It  is  held,  in  accordance  with  the  general  principle 
stated,174  that  a  railroad  cannot  mortgage,  lease  or  sell  its  railroad, 
nor  any  property  essential  to  the  operation  of  its  railroad,175  in  the 
absence  of  authority  from  the  state.176  So  contracts  by  which  it  is 


173  Daniels  v.  Hart,  118  Mass.  543; 
Abboltt  v.  Johnstown,  &c.  R.  Co.  80 
N.   Y.   27,  36  Am.  R.   572;    Central 
Trans.  Co.  v.  Pullman  Car  Co.  139 
U.  S.  24,  11  Sup.  Ct.  478;   Thomas 
v.  West  Jersey  R.  Co.  101  U.  S.  71; 
West  Virginia,  &c.  Co.  v.  Ohio,  &c. 
Co.  22  W.  Va.  600,  46  Am.  R.  527, 
and  see  Indiana  authorities  collect- 
ed and  cited  in  Muncie  Gas  Co.  v. 
Muncie,  160  Ind.  97,  104,  66  N.  E. 
436,  60  L.  R.  A.  822V    A  corporation 
cannot    disable    itself    by    contract 
from  performing  its  public  duties, 
or,  by  agreement,   compel  itself  to 
make  public  accommodation  subor- 
dinate to  its  private  interests.  Gibbs 
v.   Consolidated  Gas  Co.  130   U.   S. 
396,  9  Sup.  Ct.  553. 

174  Daniels  v.  Hart,  118  Mass.  543; 
State  v.  Morgan,  28  La.  Ann.  482; 
Winchester,   &c.    Turnp.   Co.   v.   Vi- 
mont,  5  B.  Mon.   (Ky.)   1;   Black  v. 
Delaware,  &c.  Canal  Co.  22  N.  J.  Eq. 
130,  399;  Oregon  R.  Co.  v.  Oregonian 
R.  Co.  130  U.  S.  1,  9  Sup.  Ct.  409; 
Southern   Pac.   R.   Co.   v.   Esquibel, 
4  (Johns.)  N.  Mex.  337,  20  Pac.  109. 
But  see  Memphis,  &c.  R.  Co.  v.  Dow, 
19  Fed.  388;   Kelly  v.  Trustees,  &c. 
58  Ala.  489;   Miller  v.  Rutland,  &c. 
R.  Co.  36  Vt.  452,  488,  holding  that 
it   may    mortgage    its    property    to 
purchase    necessary    rails,    without 
which  it  could  perform  none  of  its 
public  duties. 


175  Pierce  v.  Emery,  32  N.  H.  484; 
Singleton  v.  Southwestern  R.  Co.  70 
Ga.  464,  48  Am.  R.  574;  Board,  &c. 
v.  Lafayette,  &c.  R.  Co.  50  Ind.  85, 
110;    Abbott  v.    Johnstown,   &c.    R. 
Co.   80   N.   Y.   27,   36   Am.   R.    572; 
Freeman   v.   Minnesota.   &c.   R.  Co. 
28  Minn.  443,  10  N.  W.  594;  Middle- 
sex R.  Co.  v.  Boston,  &c.  R.  Co.  115 
Mass.   347;    Peters   v.   Lincoln,   &c. 
R.    Co.    2    McCrary    (U.    S.)    275; 
Thomas  v.  Railroad  Co.  101  U.   S. 
71 ;  Pennsylvania  R.  Co.  v.  St.  Louis, 
&c.  R.  Co.  118  U.  S.  290,  6  Sup.  Ct. 
1094;   Oregon  R.  &c.  Co.  v.  Oregoni- 
an R.  Co.  130  U.  S.  1,  9  Sup.  Ct.  409; 
Morawetz    Priv.    Corp.    1120.      See 
opinion  of  Chief  Justice  Ruger,  in 
Woodruff  v.  Erie  R.  Co.  93  N.  Y.  609, 
618 ;  Brookes  v.  Mayesville,  &c.  R.  Co. 
(Ky.)  83  S.  W.  117.   But  it  has  been 
held  that  it  may,  under  certain  cir- 
cumstances, sell  a  terminal  switch 
to  the  owner  of  the  land  on  which 
it   is   laid.     Oman   v.   Bedford,   &c. 
Stone  Co.  134  Fed.  64,  67  C.  C.  A. 
190,  citing  Jones  v.  Newport  News, 
&c.  R.  Co.  65  Fed.  736,  13  C.  C.  A.  95, 
and    South   Dakota  v.   North   Caro- 
lina, 192  U.  S.  286,  24  Sup.  Ct.  269. 

176  In  Maine  it  is  held  to  be  the 
policy  of  the  state  to  permit  rail- 
roads to  mortgage  their  property  at 
will.     Kennebec,  &c.  R.  Co.  v.  Port- 
land, &c.  R.  Co.  59  Me.  9.    Nearly  all 
the  states  permit  railroads  to  mort- 


§  385] 


CONTRACTS. 


552 


undertaken  to  stifle  competition  between  parallel  roads,  which  would, 
in  the  natural  order  of  things,  be  competing  lines,  are  illegal  and 
void.177  One  road  will  not  be  permitted  to  contract  for  the  purchase 
of  stock  of  a  competing  road,  with  a  view  to  gaining  control  of  it,  and 
so  preventing  competition  between  the  two  roads.178 


gage  their  property  for  any  purpose 
for  which  they  are  allowed  to  bor- 
row money.  Stimson's  Am.  Stat. 
(1892),  §  8642.  Most  of  the  states 
now  offer  every  advantage  to 
non-competing  roads  to  unite  by 
lease,  sale  or  consolidation.  Stim- 
son's Am.  Stat.  (1892)  §§  8721,  8722, 
8730.  See,  also,  Woodruff  v.  Erie 
R.  Co.  93  N.  Y.  609,  618.  Mr.  Charles 
Francis  Adams,  president  of  the 
Union  Pacific  Railroad,  in  an  ad- 
dress at  Boston,  on  December  15, 
1888,  said:  "I  am  very  sure  now, 
as  I  have  been  for  the  last  twenty 
years,  and  as  I  long  ago  expressed 
myself,  that  a  great  consolidated 
corporation,  or  even  trust,  can  be 
held  to  a  far  stricter  responsibility 
to  the  law  than  numerous  smaller 
and  conflicting  corporations."  Mr. 
Justice  Brewer,  in  United  States  v. 
Western  Union  Tel.  Co.  50  Fed.  28, 
42,  said:  "It  may  be  true,  as  con- 
tended, and,  not  disturbed  by  the 
common  hue  and  cry  about  monop- 
oly, I  am  disposed  to  believe  that  it 
is  true — that  the  real  interests  of 
the  public  are  subserved  by  the  con- 
solidation of  the  various  transporta- 
tion systems." 

"7  Cleveland,  &c.  R.  Co.  v.  Closser, 
126  Ind.  348,  26  N.  E.  159,  9  L.  R.  A. 
754,  22  Am.  St.  593;  Hooker  v.  Van- 
dewater,  4  Denio  (N.  Y.)  349,  47 
Am.  Dec.  258;  Central  Ohio  Salt  Co. 
v.  Guthrie,  35  Ohio  St.  666;  Morrill 
v.  Boston,  &c.  R.  Co.  55  N.  H.  531; 
Craft  v.  McConoughy,  79  111.  346,  22 
Am.  R.  171;  Morris  Run  Coal  Co.  v. 
Barclay  Coal  Co.  68  Pa.  St.  173,  8 
Am.  R.  159;  Stockton  v.  Cent.  R. 


&c.  Co.  50  N.  J.  Eq.  52,  24  Atl.  964, 
17  L.  R.  A.  97;  Chicago,  &c.  R.  Co. 
v.  Wabash,  &c.  R.  Co.  61  Fed..  993,  9 
C.  C.  A.  659;  Gibbs  v.  Consolidated 
Gas  Co.  130  U.  S.  396,  9  Sup.  Ct.  553. 
In  announcing  the  opinion  of  the 
court  in  this  case  Chief  Justice  Ful- 
ler said:  "In  the  instance  of  busi- 
ness of  such  a  character  that  it  pre- 
sumably cannot  be  restrained  to 
any  extent  whatever  without  prej- 
udice to  the  public  interest,  courts 
decline  to  enforce  or  sustain  con- 
tracts imposing  such  restraint,  how- 
ever partial,  because  in  contraven- 
tion of  public  policy."  Texas,  &c. 
R.  Co.  v.  Southern  Pacific  R.  Co.  41 
La.  Ann.  970,  17  Am.  St.  445;  Gulf, 
&c.  R.  Co.  v.  State,  72  Tex.  404,  1  L. 
R.  A.  849.  See  United  States  v. 
Trans-Missouri  Freight  Assn.  58 
Fed.  58,  7  C.  C.  A.  15,  166  U.  S.  290, 
17  Sup.  Ct.  540;  and  note  to  Hard- 
ing v.  American  Glucose  Co.  182  111. 
551,  55  N.  E.  577,  64  L.  R.  A.  738,  74 
Am.  St.  189,  235,  249-255. 

178  Central  R.  Co.  v.  Collins,  40  Ga. 
582;  Elkins  v.  Camden,  &c.  R.  Co. 
36  N.  J.  Eq.  5;  Pennsylvania  R.  Co. 
v.  Commonwealth  (Pa.),  29  Am.  & 
Eng.  R.  Cas.  145,  154;  People  v.  Chi- 
cago, &c.  Co.  130  111.  268,  22  N.  E. 
798,  8  L.  R.  A.  497,  17  Am.  St.  319; 
Louisville,  &c.  R.  v.  Kentucky,  161 
U.  S.  677,  16  Sup.  Ct.  714;  De  La 
Vergne,  &c.  Co.  v.  German,  &c.  Inst. 
175  U.  S.  40,  20  Sup.  Ct.  20.  See, 
also,  Milbank  v.  New  York,  &c.  R. 
Co.  64  How.  Pr.  (N.  Y.)  20;  Central 
R.  Co.  v.  Pennsylvania  R.  Co.  31  N. 
J.  Eq.  475,  494;  Great  Northern  R. 
Co.  v.  Eastern  Counties  R.  Co.  21 


553 


PUBLIC  POLICY — LOCATION  OF  STATIONS  AND  TRACKS.    [§    386, 


§  386.  Contracts  against  public  policy — Location  of  stations  and 
tracks. — True  principle  requires,  as  it  seems  to  us,  that  contracts  for 
the  location  of  depots  and  stations  should  be  held  illegal  where  they 
are  made  for  the  advancement  of  mere  private  interest,  and  are 
prejudicial  to  the  public  interest.  Where,  however,  there  is  contra- 
vention of  the  public  interest,  we  can  see  no  valid  reason  for  con- 
demning such  a  contract.  We  believe  that  whether  public  interests  are 
or  are  not  sacrificed  to  purely  private  interests  is  a  question  to  be  de- 
termined upon  the  facts  of  the  particular  case.  The  cases  which  hold 
that  subscriptions  upon  condition  that  the  road  shall  be  built  upon 
a  designated  line  are  valid,179  as  well  as  cases  which  uphold  municipal 
aid  to  railroad  companies,  cannot  be  supported  if  it  be  conceded  that 
all  contracts  to  locate  a  road  on  a  designated  line,  or  build  stations 
at  a  particular  place  are  void.  It  has  been  held  that  contracts  requir- 
ing a  railroad  company  to  establish  its  depot  at  a  certain  point  are 
against  public  policy,  and  not  enforceable.180  There  is,  however,  con- 


L.  J.  Ch.  837.  An  insolvent  con- 
struction company  contracted  to 
build  a  railway  for  a  corporation, 
and  received  nearly  all  of  the  lat- 
ter's  stocks,  bonds,  and  assets  as  se- 
curity for  its  outlay.  Without  be- 
ginning the  work  the  construction 
company  transferred  all  the  stock 
to  the  persons  managing  another 
railway  already  in  operation,  among 
whom  were  the  president  and  many 
of  its  directors,  the  funds  of  the  lat- 
ter corporation  being  used  in  pur- 
chasing the  stock  of  the  construc- 
tion company.  So  that  the  stock  of 
both  the  construction  company  and 
the  projected  road  was  controlled 
by  the  same  management  as  the 
road  then  in  operation,  and  ran  for 
nearly  the  same  distance,  and  in  the 
same  general  direction,  as  the  pro- 
jected line,  which  would  be  a  com- 
petitor. The  court  held  that  the 
evident  purpose  and  effect  of  the 
transaction  was  to  violate  by  indi- 
rection the  section  of  the  Georgia 
constitution  prohibiting  the  pur- 
chase of  the  stock  of  one  corpora- 


tion by  another,  and  any  contract 
between  them  tending  to  lessen  com- 
petition in  their  respective  busi- 
nesses or  to  encourage  monopoly, 
and  that  equity  would  interfere  and 
seize  the  assets  of  the  insolvent  con- 
struction company,  which  stood  in 
the  position  of  derelict  trustees. 
Langdon  v.  Branch,  37  Fed.  449. 

179Rhey  v.  Ebensburg,  &c.  Co.  27 
Pa.  St.  261;  Bvansville,  &c.  Co.  v. 
Shearer,  10  Ind.  244;  Martin  v.  Pen- 
sacola,  &c.  R.  Co.  8  Fla.  370;  Ashta- 
bula,  &c.  R.  Co.  v.  Smith,  15  Ohio 
St.  328;  Taggart  v.  Western  Md.  R. 
Co.  24  Md.  563,  89  Am.  Dec.  760; 
Burlington,  &c.  R.  Co.  v.  Boestler, 
15  Iowa  555;  Detroit,  &c.  Co.  v. 
Starnes,  38  Mich.  698;  Spartanburg, 
&c.  R.  Co.  v.  De  Graffenreid,  12 
Rich.  L.  (S.  C.)  675;  Bucksport,  &c. 
Co.  v.  Brewer,  67  Me.  295;  McMillan 
v.  Maysville,  &c.  R.  Co.  54  Ky.  218, 
61  Am.  Dec.  179;  O'Neal  v.  King,  3 
Jones  (N.  C.)  517;  North  Mo.  R.  Co. 
v.  Winkler,  29  Mo.  318. 

180  Pacific  R.  Co.  v.  Seely,  45  Mo. 
212,  100  Am.  Dec.  369;  Florida  Cent. 


386] 


CONTRACTS. 


flict  of  authority  upon  this  question.181  Contracts  made  to  influence 
the  location  of  the  route  of  a  projected  road  are  held  to  be  illegal  by 
some  of  the  courts.182  In  our  opinion,  however,  a  contract  to  locate  a 
railroad  upon  a  designated  line  cannot  be  adjudged  void  as  a  matter 
of  law  without  regard  to  extrinsic  facts.  Such  a  contract  may  or  may 
not  be  void,  depending  upon  the  facts  of  the  particular  case.  If  the 
public  interests  are  not  prejudiced,  and  there  is  no  corrupt  conduct, 


R.  Co.  v.  State,  31  Fla.  482,  13  So. 
103,  20  L.  R.  A.  419,  34  Am.  St.  30. 

181Bestor  v.  Wathen,  60  111.  138; 
Currier  v.  Concord  R.  Co.  48  N.  H. 
321;  Williamson  v.  Chicago,  &c.  R. 
Co.  53  Iowa  126,  4  N.  W.  870,  36  Am. 
R.  206;  Kansas  Pac.  R.  Co.  v.  Hop- 
kins, 18  Kans.  494;  Vicksburgh,  &c. 
R.  Co.  v.  Ragsdale,  54  Miss.  200; 
Missouri  Pac.  R.  Co.  v.  Tygard,  84 
Mo,  263,  54  Am.  R.  97;  Texas,  &c. 
R.  Co.  v.  Robards,  60  Tex.  545,  48 
Am.  R.  268;  Cedar  Rapids,  &c.  R. 
Co.  v.  Spafford,  41  Iowa  292;  Louis- 
ville, &c.*R.  Co.  v.  Sumner,  106  Ind. 
55,  5  N.  E.  404,  55  Am.  R.  719; 
Marsh  v.  Fairbury,  &c.  Co.  64  111. 
414,  16  Am.  R.  564;  International, 
&c.  Co.  v.  Dawson,  62  Tex.  260; 
Chapman  v.  Mad  River,  &c.  R.  Co. 
6  Ohio  St.  119.  A  provision  in 
such  a  contract  that  another  depot 
should  not  be  established  within 
certain  limits  is  illegal  and  void. 
St.  Joseph,  &c.  R.  Co.  v.  Ryan, 
11  Kans.  602,  15  Am.  R.  357;  Wil- 
liamson v.  Chicago,  &c.  R.  Co.  53 
Iowa  126,  4  N.  W.  870,  36  Am.  R. 
206;  St.  Louis,  &c.  R.  Co.  v.  Mathers, 
104  111.  257;  St.  Louis,  &c.  R.  Co.  v. 
Mathers,  71  111.  592,  22  Am.  R.  122. 
See,  also,  Mobile,  &c.  R.  Co.  v.  Peo- 
ple, 132  111.  559,  24  N.  E.  643,  22 
Am.  St.  556. 

182  Woodstock  Iron  Co.  v.  Rich- 
mond, &c.  Co.  129  U.  S.  643,  9  Sup. 
Ct.  402.  In  announcing  the  opinion 
of  the  court  in  the  case  cited,  Mr. 
Justice  Field  said:  "The  business 
of  the  extension  company  was  one 


in  which  the  public  was  interested. 
Railroads  are  for  many  purposes 
public  highways.  They  are  con- 
structed for  the  convenience  of  the 
public  in  the  transportation  of  per- 
sons and  property.  In  their  con- 
struction, without  unnecessary 
length  between  designated  points,  in 
their  having  proper  accommoda- 
tions, and  in  their  charges  for  trans- 
portation, the  public  is  directly  in- 
terested. *  *  *  All  arrange- 
ments, therefore,  by  which  directors 
or  stockholders  or  other  persons 
may  acquire  gain  by  inducing  cor- 
porations to  disregard  their  duties 
to  the  public,  are  illegal  and  lead  to 
unfair  dealing,  and,  this  being 
against  public  policy,  will  not  be  en- 
forced by  the  courts.  In  this  case, 
the  extension  company,  to  which 
the  duty  of  locating  and  construct- 
ing the  railroad  between  its  termini 
was  intrusted,  in  agreeing,  for  a 
consideration  offered  by  a  third 
party,  to  disregard  that  duty,  and 
locate  and  construct  the  road  by  a 
longer  route  than  was  required,  not 
only  committed  a  wrong  upon  the 
railroad  company  by  imposing  un- 
necessary burdens  upon  it,  to  meet 
which  larger  charges  for  transporta- 
tion might  be  called  for,  but  also  a 
wrong  upon  the  public."  Fuller  v. 
Dame,  18  Pick.  (Mass.)  472;  Bestor 
v.  Wathen,  60  111.  138;  St.  Louis,  &c. 
R.  Co.  v.  Mathers^  71  111.  592,  22  Am. 
R.  122;  Horlladay  v.  Patterson,  5 
Oreg.  177. 


555 


PUBLIC  POLICY — LOCATION  OF  STATIONS  AXD  TRACKS.    [§    386 


such  contracts  are  not  illegal,  but  if  the  public  interests  are  sacrificed, 
the  charter  violated,  or  corrupt  influences  exerted,  the  contract  should 
be  adjudged  illegal.  A  stipulation  in  a  contract  that  no  side  track 
shall  be  built  by  the  railroad  company  in  a  certain  town  is  sufficient 
to  render  the  entire  contract  illegal  and  void.183 


183  Pueblo,  &c.  R.  Co.  v.  Rudd,  5 
Colo.  270;  Pueblo,  &c.  R.  Co.  v.  Tay- 
lor, 6  Colo.  2.  In  this  case  the  court 
said:  "Railroad  companies  are  held 
to  be  quasi  public  corporations  and 
agencies,  their  directors,  acting  in 
the  double  capacity  as  agents  for 
the  company  and  trustees  for  the 
public,  clothed  with  an  important 
public  trust.  These  roads  subserve 
public  purposes  to  such  an  extent 
that  the  public  may  impose  upon  it- 
self the  burden  of  taxation  to  aid 
in  their  construction  (St.  Joseph  & 
Denver  City  R.  Co.  v.  Ryan,  11 
Kans.  602,  15  Am.  R.  357),  and  the 
lawful  exercise  of  the  rights  of  em- 
inent domain  in  the  taking  of  pri- 
vate property  for  the  purpose  of 
their  construction  is  put  solely  upon 
the  ground  of  public  use.  When, 
therefore,  the  public  interests  are 
brought  in  conflict  with  the  private 
interests  of  the  company,  or  of  pri- 
vate individuals  with  whom  such 
companies  deal,  such  private  inter- 
ests must  yield  to  those  of  the  pub- 
lic. It  logically  follows  that  the 
public  has  a  right  to  say  that  such 
companies  shall  not  be  permitted 
to  make  any  contract  which  would 
prevent  them  from  accommodating 
the  public,  where  entitled  to  it  in 
the  matter  of  transportation  and 
travel.  In  the  case  of  the  St.  Jo- 
seph, &c.  R.  Co.  v.  Ryan,  11  Kans. 
602,  15  Am.  R.  357,  which  arose  up- 
on a  contract  containing  a  stipula- 
tion that  the  railroad  company' 
would  not  have  or  use  any  other 
depot  within  three  miles  of  the  de- 
pot agreed  to  be  established  by  the 


contract,  the  court  says:  'Railroads 
are  public  agencies  and  perform  a 
public  duty.  They  are  agencies, 
created  by  the  public,  with  certain 
privileges,  and  subject  to  certain 
obligations.  A  contract  that  they 
will  not  discharge,  or  by  which  they 
cannot  discharge  those  obligations, 
is  a  breach  of  that  public  duty,  and 
cannot  be  enforced.  They  are  un- 
der obligations  to  employ  skillful 
and  competent  engineers  and  other 
competent  employes  to  superintend 
and  take  care  of  the  running  of 
their  trains.  A  contract  that  they 
will  not  employ  such  agents  and 
servants  is  certainly  void.  They 
are  bound  to  furnish  reasonable  fa- 
cilities for  the  transportation  of 
freight  and  passengers,  both  as  to 
number  and  quality  of  cars  and 
coaches,  and  the  number  of  trains, 
and  a  contract  not  to  furnish  such 
facilities  will  not  be  tolerated.  *  *  * 
Upon  the  same  principle  it  is  the 
duty  of  a  railroad  company  to  fur- 
nish reasonable  depot  facilities.  The 
number  and  location  of  the  depots, 
so  as  to  constitute  reasonable  depot 
facilities,  vary  with  the  changes  and 
amount  of  population  and  business. 
A  contract  to  leave  a  certain  dis- 
tance along  the  line  of  the  road  des- 
titute of  depots  is  a  contravention 
of  this  duty.'  In  addition  to  the 
foregoing,  the  same  doctrine  is  laid 
down  in  the  following,  among  other 
cases:  Marsh  v.  Fairbury  and 
Northwestern  R.  Co.  64  111.  414,  16 
Am.  R.  564;  St.  Louis,  Jacksonville 
and  Chicago  R.  Co.  v.  Mathers,  71 
111.  592,  22  Am.  R.  122;  Pacific  R. 


§•  387] 


CONTRACTS. 


556 


§  387.  Contracts  void  as  against  public  policy — General  conclu- 
sions.— It  may  be  laid  down  as  a  general  rule  that  any  contract  by 
which  the  rights  of  the  public  are  infringed  is  void  as  against  public 
policy ;  but  the  decisions  as  to  what  are  public  rights  and  what  is  the 
public  policy  upon  which  those  rights  are  founded,  depend  so  much 
upon  the  peculiar  circumstances  of  each  case  that  it  is  not  an  easy 
matter  to  state  a  general  rule  that  will  justly  govern  any  given  con- 
tract.18* A  contract  which  on  its  face  assumes  to  bind  the  parties 
to  an  act  hostile  to  the  public  interest  may,  doubtless,  be  adjudged 
void  as  a  matter  of  law.  But  it  cannot  be  justly  said  that  every  con- 
tract providing  for  the  construction  of  a  railroad  upon  a  given  line, 
or  for  the  building  of  a  station  at  a  particular  place  is  opposed  to  the 
interests  of  the  public.  It  may  well  be  that  such  a  contract  will  promote 
and  not  prejudice  the  public  welfare.  So,  too,  it  may  be  true  that  such 
a  contract  in  no  manner  violates  the  provisions  of  the  corporate  char- 
ter, but  on  the  contrary,  justly  aids  in  carrying  those  provisions  into 
effect.  In  such  cases,  or  in  cases  of  a  similar  character,  there  is  no 
valid  reason  for  adjudging  the  contract  void.  We  believe  that  a  con- 
tract providing  for  the  location  of  a  station  at  a  given  place  should  be 
regarded  with  something  akin  to  suspicion  and  that  it  should  be  care- 
fully scrutinized,  but  we  do  not  think  that  it  should  be  regarded  as 
illegal  per  se  without  looking  to  attendant  circumstances  or  regarding 


Co.  v.  Seely,  45  Mo.  212,  100  Am. 
Dec.  369;  Fuller  v.  Dame,  18  Pick. 
(Mass.)  472;  Holladay  v.  Patterson, 
5  Oreg.  177.  Upon  both  principle 
and  authority,  we  think  it  beyond 
serious  question  that  the  condition 
in  this  contract,  whereby  it  was 
sought  to  prevent  a  neighboring 
town  through  which  the  railroad 
passed  from  having  the  facilities  of 
even  a  side  track,  and  to  prevent 
the  railroad  company  from  the  ex- 
ercise of  discretion  in  providing 
such  facilities  for  the  public,  is  ille- 
gal and  void,  by  reason  of  its  clear 
contravention  of  the  public  inter- 
ests, and  the  duty  of  such  company 
in  their  relations  to  the  public." 
See,  also,  Chicago,  &c.  R.  Co.  v. 
Southern  Ind.  R.  Co.  (Ind.  App.) 
70  N.  E.  843,  and  see,  generally,  as 


to  the  doctrine  of  this  section,  ante, 
§  362. 

184  In  proof  of  this  statement  of 
the  text  we  refer  to  the  conflict  of 
authority  as  to  whether  a  railroad 
company  may  make  a  valid  contract 
with  a  telegraph  company  to  allow 
no  other  telegraph  company  to  con- 
struct a  line  along  its  road.  The 
following  authorities  hold  that,  un- 
der the  circumstances  of  those  cases, 
it  may.  Western  Union  Tel.  Co.  V. 
Atlantic,  &c.  Tel.  Co.  7  Biss.  (U.  S.) 
367;  Western  Union  Tel.  Co.  v.  Chi- 
cago, &c.  R.  Co.  86  111.  246,  29  Am. 
R.  28.  The  case  of  Western  Union 
Tel.  Co.  v.  Burlington,  &c.  R.  Co.  3 
McCrary  (U.  S.)  130,  holds  that  It 
may  not.  See  Atlantic,  &c.  Tel.  Co. 
v.  Union  Pac.  R.  Co.  1  McCrary  (U. 
S.)  541. 


557 


PUBLIC   POLICY — GEKERAL   COXCLUSIOSTS. 


[§  387 


extrinsic  evidence.185  As  we  have  substantially  said,  such  a  contract 
may  be  regarded  as  per  se  illegal  where  a  corrupt  purpose  is  disclosed 
by  its  terms,  or  where  it  appears  from  its  provisions  that  public  inter- 
ests will  be  unduly  prejudiced,  but  we  do  not  believe  that  such  a 
contract  is  under  all  circumstances  to  be  regarded  as  illegal.  We 
know  that  the  general  rule  is  that  the  validity  of  a  contract  is  to  be 
determined  not  by  considering  whether  it  does  injury  in  the  particular 
case,  but  whether  it  is  such  as  might  be  injurious.186  But  we  do  not 
believe  that  the  rule  applies  to  all  contracts  belonging  to  the  class  of 
which  we  are  speaking,  for  such  contracts  are  not  always  opposed  to 
the  public  interests.  The  cases  which  hold  that  officers  cannot  contract 
for  their  own  benefit  to  secure  a  particular  location  are  not  in  point, 
for  they  rest  upon  a  different  principle ;  nor  are  the  cases  which  hold 
that  a  contract  to  pay  a  person  a  sum  of  money  to  secure  the  location 
at  a  particular  place,  since  such  cases  are  different  from  those  in 
which  there  is  a  direct  and  open  agreement  with  the  railroad  com- 
pany^187  Where  a  party  under  a  contract  to  build  a  railroad  enters  into 
an  agreement  to  deviate  from  the  line  fixed,  it  is  entirely  just  to  ad- 
judge such  an  agreement  void,  but  such  an  agreement  is  essentially 
different  from  one  openly  and  directly  made  with  the  railroad  com- 
pany.188 The  doctrine  we  have  ventured  to  advocate  is,  perhaps,  op- 
posed by  the  weight  of  authority,  if  regard  be  had  only  to  the  number 
of  the  cases,  but  there  are  well-reasoned  cases  which  give  our  views 
full  support.189 


188  Ante,  §  362. 

^Holladay  v.  Patterson,  5  Oreg. 
177,  180;  Oscanyan  v.  Arms  Co.  103 
U.  S.  261,  274;  Providence  Tool  Co. 
v.  Norris,  2  Wall.  (U.  S.)  48,  56; 
Elkhart  County  Lodge  v.  Crary,  98 
Ind.  238,  49  Am.  R.  746. 

187  The  case  of  Fuller  v.  Dame,  18 
Pick.  (Mass.)  472,  was  that  of  a 
person  agreeing  for  a  designated 
sum  to  secure  the  location  at  a  par- 
ticular place,  and  is  not,  when  just- 
ly interpreted,  against  the  doctrine 
of  the  text.  It  seems  to  us  that 
some  of  the  courts  have  given  an 
effect  to  the  case  cited  far  beyond 
that  which  can  be  fairly  assigned 
it.  A  doctrine  has  been  deduced 
from  it  which  it  does  not  declare. 


188  The  agreement  held  void  in 
Woodstock,  &c.  Iron  Co.  v.  Rich- 
mond, &c.  Co.  129  U.  S.  643,  9  Sup. 
Ct.  402,  was  between  a  construction 
company  and  a  land-owner,  so  that 
the  decision  cannot  be  regarded  as 
opposing  the  statements  of  the  text. 

188  Louisville  R.  Co.  v.  Sumner,  106 
Ind.  55,  5  N.  E.  404,  55  Am.  R.  719; 
Swartout  v.  Michigan,  &c.  R.  Co. 
24  Mich.  389;  Williamson  v.  Chi- 
cago, &c.  R.  Co.  53  Iowa  126,  4  N. 
W.  870,  36  Am.  R.  206;  First  Na- 
tjonal  Bank  v.  Hendrie,  49  Iowa 
402,  31  Am.  R.  153 ;  Taylor  v.  Cedar 
Rapids,  &c.  R.  Co.  25  Iowa  371;  Har- 
ris v.  Roberts,  12  Neb.  631,  12  N.  W. 
89,  41  Am.  R.  779;  McClure  v.  Mo. 
River  R.  Co.  9  Kans.  373. 


§  338] 


CONTRACTS. 


558 


§  338.  Contracts  void  as  against  public  policy — Ulustrative  cases. 
— A  contract  by  which  a  railway  corporation  undertakes  to  convey  to 
a  telegraph  company  such  exclusive  rights  in  that  portion  of  its  right 
of  way  not  occupied  by  its  track  as  to  prevent  the  erection  of  a  com- 
peting line  thereon  is  invalid.190  An  agreement,  which,  by  its  terms, 


190  Pacific  Postal  Tel.  Co.  v.  West- 
ern Union  Tel.  Co.  50  Fed.  493,  50 
Am.  &  Eng.  R.  Cas.  665;  Western 
Un.  Tel.  Co.  v.  American  Un.  Tel. 
Co.  65  Ga.  160,  38  Am.  R.  781; 
Union  Trust  Co.  v.  Atchison,  &c.  R. 
Co.  8  N.  Mex.  327,  43  Pac.  701;  West- 
ern Un.  Tel.  Co.  v.  Burlington,  &c. 
R.  Co.  3  McCrary  (U.  S.)  130,  11 
Fed.  1.  The  first  case  cited  was  a 
proceeding  by  a  bill  in  equity  for  an 
injunction  to  prevent  the  Western 
Union  Telegraph  Company  from 
constructing  and  operating  a  tele- 
graph line  on  the  right  of  way  of 
the  Seattle,  Lake  Shore  and  Eastern 
Railway  Company  between  certain 
stations.  The  plaintiff  based  its 
claims  upon  a  contract  entered  into 
by  the  defendant's  grantor,  which 
provided  as  follows:  "The  railway 
company  hereby  grants  right  of  way 
for  said  line  of  telegraph  along  the 
route  of  its  road,  and  upon  its 
grounds,  *  *  *  and  the  railway 
company  hereby  agrees  that  it  will 
not  grant  right  of  way  along  its 
road  for  the  construction  of  the  line 
of  any  other  telegraph  company." 
Judge  Hanford  said:  "The  argu- 
ment is  that  the  contract  is  a  con- 
veyance, and  that  it  vests  in  the 
complainant  the  exclusive  right  to 
the  entire  strip  of  land  for  tele- 
graph purposes  during  the  term 
specified,  which  right  amounts  to 
an  interest  in  the  land,  and  is  a 
legal  estate.  *  *  *  If  the  con- 
tract, in  explicit  terms,  granted 
such  an  interest  in  the  premises  as 
the  plaintiff  claims,  I  should  have 
to  hold  it  to  be  ultra  vires  and  void, 


for  the  reason  that  the  laws  of  the 
territory  of  Washington,  in  force 
when  it  was  made,  did  not  author- 
ize a  railway  corporation  to  transfer 
land  acquired  for  railroad  purposes, 
by  lease,  so  as  to  divest  itself  of  its 
duties  and  obligations  to  the  public 
as  to  the  use  of  such  property.  *  *  * 
Telegraph  lines  are  to  serve  the  pub- 
lic, and  wherever  they  are  connect- 
ed with  a  railroad  as  incidental  to 
the  railway  business,  the  rights  of 
the  public  respecting  the  same  must 
be  governed  by  the  principles  appli- 
cable to  other  branches  of  the  serv- 
ice; and  the  public  policy  which  un- 
derlies the  numerous  decisions  of 
the  courts  of  this  country  denying 
the  right  of  a  railway  corporation 
to  divest  itself  of  responsibility  and 
invest  another  with  its  powers  and 
functions,  touches  directly  the  ques- 
tion in  this  case  as  to  the  right  of 
one  corporation  to  transfer  to  an- 
other an  exclusive  right  for  tele- 
graph purposes  to  the  occupancy 
and  control  of  property  acquired  as 
a  necessary  means  of  serving  the 
public.  A  contract  made  by  a  rail- 
way company,  whereby  it  attempts 
to  create  a  monopoly  in  the  use  of 
its  property  for  the  transmission  of 
news  and  intelligence,  is  just  as  in- 
valid as  a  contract  would  be  where- 
by a  railway  corporation  should 
attempt  to  confer  upon  one  individ- 
ual or  corporation  an  exclusive 
right  to  have  any  particular  com- 
modity transported  as  freight  over 
its  railway.  Whether  this  contract 
be  regarded  as  an  intended  convey- 
ance of  an  interest  in  the  property, 


559 


PUBLIC   POLICY — ILLUSTRATIONS. 


[§   338 


gives  the  exclusive  right  to  a  railway  corporation  in  or  through  a  cer- 
tain tract  of  land,  in  so  far  as  it  attempts  to  exclude  other  railway 
corporations  from  acquiring  a  right  of  way  over  tljie  same  tract, 
upon  land  not  appropriated  or  required  for  its  use  by  the  company, 
is  against  public  policy  and  void.191  A  contract  by  which  a  corpora- 
tion, chartered  to  perform  certain  duties  to  the  public,  agrees  that  it 
will  not  perform  those  duties  at  all  for  a  term  of  years,  is  void.192  A 
stipulation  in  a  contract  by  which  a  railroad  common  carrier  seeks  to 


or  as  a  covenant  affecting  the  title 
to  the  right  of  way,  or  as  a  contract 
creating  simply  a  personal  liability, 
it  is  not  such  a  contract  as  a  court 
of  equity  can  uphold  or  decree  to  he 
specifically  performed;  and  at  least 
as  against  the  defendant  the  West- 
ern Union  Telegraph  Company,  it 
is  void,  except  in  so  far  as  it  con- 
fers upon  the  plaintiff  the  right  to 
maintain  unmolested  its  telegraph 
line  and  conduct  its  business  with- 
out interruption."  It  has  been  laid 
down  as  a  general  rule  that  con- 
tracts, the  object  of  which  is  to  se- 
cure to  the  obligee  a  monopoly  or 
an  exclusive  use  for  public  purposes 
of  land  held  by  other  corporations 
or  by  a  private  owner  if  subject  to 
the  right  of  eminent  domain,  are 
void.  See  American  Rapid  Tel.  Co. 
v.  Connecticut  Telephone  Co.  49 
Conn.  352,  44  Am.  R.  237;  Western 
Union  Tel.  Co.  v.  Am.  Tel.  Co.  19 
Am.  L.  Reg.  (N.  S.)  173;  Western 
Union  Tel.  Co.  v.  Atlantic,  &c.  Tel. 
Co.  5  Nev.  102;  Western  Union  Tel. 
Co.  v.  American  Tel.  &c.  Co.  65  Ga. 
160,  38  Am.  R.  781;  Skrainka  v. 
Scharringhausen,  8  Mo.  App.  522; 
Pensacola  Tel.  Co.  v.  Western  Union 
Tel.  Co.  96  U.  S.  1;  Western  Union 
Tel.  Co.  v.  St.  Joseph,  &c.  R.  Co.  1 
McCrary  (U.  S.)  565;  Western 
Union  Tel.  Co.  v.  Burlington,  &c. 
R.  Co.  3  McCrary  (U.  S.)  130;  West- 
ern Union  Tel.  Co.  v.  American  U. 
Tel.  Co.  9  Biss.  (U.  S.)  72;  Western 


Union  Tel.  Co.  v.  Baltimore,  &c.  Tel. 
Co.  22  Fed.  133;  Western  Union  Tel. 
Co.  v.  Baltimore,  &c.  Tel.  Co.  23  Fed. 
12.  In  Fort  Worth  St.  R.  Co.  v. 
Queen  City  R.  Co.  71  Tex.  165,  9  S. 
W.  94,  the  court  in  construing  a 
contract  by  which  a  railroad  com- 
pany owning  a  tract  of  land  upon 
which  its  depot  is  located  under- 
takes to  give  to  a  horse  railway 
company  an  exclusive  right  to  build 
its  road  to  the  depot  over  the  land, 
held  that  such  a  contract  is  not  a 
monopoly,  but  an  easement  granted 
by  the  owner  of  the  fee,  and  can  be 
taken  for  public  use  only  by  due 
process  of  law,  but  that  the  rights 
of  the  company  cannot  be  divested 
by  any  act  of  the  original  grantors. 

191  Kettle  River  R.  Co.  v.  Eastern 
R.  Co.  41  Minn.  461,  4  N.  W.  469,  6 
L.  R.  A.  111. 

192  Central  Trans.  Co.  v.  Pullman's 
Palace  Car  Co.  139  U.  S.  24,  11  Sup. 
Ct.  478;   Gibbs  v.  Consolidated  Gas 
Co.  130  U.  S.  396,  408,  8  Sup.  Ct.  553; 
Oregon  Steam  Nav.  Co.  v.  Winsor,  20 
Wall.  (U.  S.)  64.    This  principle  ap- 
plies to  all  cases  where  the  corpora- 
tion assumes  to  contract  that  it  will 
not  perform  the  duties  imposed  upon 
it,  no  matter  what  the  form  of  the 
contract  may  be,  but  it  finds,  per- 
haps, its  most  frequent  illustration 
and  application  in  cases  where  cor- 
porations assume  to  transfer  their 
property    by    way    of    lease.      See 
Leases,  Chapter  XVIII. 


§  338] 


CONTRACTS. 


560 


protect  itself  from  liability  for  the  negligence  of  itself  or  its  servants 
will  not  be  enforced  by  the  courts.193  And  a  contract  by  which  a  com- 
mon carrier  undertakes  to  carry  for  one  person  or  corporation  to  the 
exclusion  of  all  others/94  or  to  carry  for  them  on  more  favorable 
terms  than  are  accorded  others,  thereby  fostering  a  monopoly  and  de- 
stroying the  business  of  those  less  favored196  is  contrary  to  public  pol- 
icy and  void.196 


183  Railroad  Company  v.  Lockwood, 
17  Wall.  (U.  S.)  357.  This  topic  is 
considered  in  treating  of  liability  of 
employer  to  employe. 

181  New  England  Express  Co.  v. 
Maine  Central  R.  Co.  57  Me.  188; 
Sandford  v.  Railroad  Co.  24  Pa.  St. 
378,  64  Am.  Dec.  667;  Dinsmore  v. 
Louisville,  &c.  R.  Co.  2  Flippin  (U. 
S.)  672;  Southern  Express  Co.  v. 
Memphis,  &c.  R.  Co.  2  McCrary  (U. 
S.)  570,  holding  that  a  discrimina- 
tion against  an  express  company  is 
unlawful. 

185  Scofield  v.  Railway  Co.  43  Ohio 
St.  571,  3  N.  E.  907,  54  Am.  R. 
846;  Messenger  v.  Pennsylvania  R. 
Co.  37  N.  J.  L.  531,  36  N.  J.  L.  407; 
Stewart  v.  Lehigh  Valley  R.  Co.  38 
N.  J.  L.  505.  See,  also,  note  in  74 
Am.  St.  250;  Hays  v.  Pennsylvania 
Co.  12  Fed.  309 ;  State  v.  Cincinnati, 
&c.  R.  Co.  47  Ohio  St.  130,  7  L.  R.  A. 
319,  and  compare  Scofield  v.  Lake 
Shore,  &c.  R.  Co.  43  Ohio  St.  571,  54 
Am.  R.  846;  Kansas  Pac.  R.  Co.  v. 
Bayles,  19  Colo.  348,  35  Pac.  744.  Ev- 
ery common  carrier  must  carry  for 


all  to  the  extent  of  his  capacity, 
without  undue  or  unreasonable  dis- 
crimination either  in  charges  or  fa- 
cilities. Atchison,  &c.  R.  Co.  v.  Den- 
ver, &c.  R.  Co.  110  U.  S.  667,  674,  4 
Sup.  Ct.  185. 

188  But  it  is  held  that  a  common 
carrier  which  charges  no  more  than 
a  reasonable  sum  for  carrying  may 
charge  one  person  more  than  it  does 
another.  Munhall  v.  Pennsylvania 
R.  Co.  92  Pa.  St.  150;  Johnson  v. 
Pensacola,  &c.  R.  Co.  16  Fla.  623, 
667;  Fitchburg  R.  Co.  v.  Gage,  12 
Gray  (Mass.)  393;  Houston,  &c.  R. 
Co.  v.  Rust,  58  Tex.  98.  See,  also, 
Manchester,  &c.  R.  Co.  v.  Concord 
R.  Co.  66  N.  H.  100,  20  All.  383,  9 
L.  R.  A.  689,  49  Am.  St.  582.  The 
granting  of  a  rebate  contrary  to  the 
provisions  of  the  interstate  com- 
merce law  does  not  render  the  bill 
of  lading  void,  so  that  no  action  can 
be  maintained  against  the  carrier 
for  loss  of  the  goods  by  negligence. 
Merchants'  Cotton  Press,  &c.  Co.  v. 
Ins.  Co.  of  North  America,  151  U. 
S.  368,  14  Sup.  Ct.  367. 


CHAPTER  XVII. 


HEAL   ESTATE. 


Sec.  Sec. 

389.  What  railroad  property  is  real    406. 

estate. 

390.  Statutory  authority  requisite. 

391.  Power  to  acquire  real  estate —    407. 

Implied  power — Generally. 

392.  Implied    power    to    acquire — 

General  rule. 

393.  Implied      power  —  Illustrative    408. 

instances. 

394.  Power  to  acquire  real  estate —    409. 

Instances  of  denial  of  power. 

395.  Title  to  real  estate  is  in  the    410. 

company. 

396.  Title  once  vested  not  divested 

because  property  subse-    411. 
quently     becomes     unneces- 
sary. 412. 

397.  Effect  of  conveyance  to  corpo-    413. 

ration    of    land    it   has    no 
power  to  hold.  4f4. 

398.  Right   of   foreign   corporation 

to  hold  real  estate.  415. 

399.  The  power  to  acquire  by  grant 

broader  than  the  power  to     416. 
acquire  by  condemnation. 

400.  Acquisition  of  the  fee  by  pri-     417. 

vate  grant. 

401.  Acquisition  of  title  by  adverse     418. 

possession. 

402.  Possession   of   land — To  what    419. 

right  referred. 

403.  Rights  of  company  where  land 

is  owned  in  fee.  420. 

404.  Effect  of  conveyance  of  prop-    ( 

erty  the  company  is  not  au-    421. 
thorized  to  acquire. 

405.  Questioning  the  right  to  hold    422. 

real  estate. 


Enjoining  purchase  of  real 
estate  where  no  power  to  re- 
ceive and  hold. 

Executory  contract  of  pur- 
chase not  enforceable  where 
there  is  no  power  to  hold 
the  land. 

Estoppel  of  parties  to  deeds  to 
deny  corporate  existence. 

Deed  to  company  not  in  ex- 
istence. 

Formal  execution  of  convey- 
ances and  agreements  relat- 
ing to  real  estate. 

Contracts  under  corporate  seal 
— Effect  as  evidence. 

Acceptance  of  deed. 

Distinction  between  a  donation 
of  lands  and  a  sale. 

Deeds  of  company — By  whom 
executed. 

Construction  of  deeds  to  rail- 
road companies — Generally. 

Deeds  to  railroad  companies — 
Construction  of  conditions. 

Grants — Beneficial — Presump- 
tion of  acceptance. 

Incidents  pass  with  principal 
thing  granted. 

Effect  of  designating  in  the 
deed  the  purpose  for  which 
the  land  is  granted. 

Covenants  that  run  with  the 
land. 

Merger  of  preliminary  agree- 
ment in  deed. 

Bonds  for  conveyance — Spe- 
cific performance. 


ELL.  RAILED  ADS — 36" 


561 


§  389] 


EEAL   ESTATE. 


562 


Sec. 
423. 

424. 
425. 


Presumption  that  there  is 
power  to  hold  the  land. 

Power  to  convey  real  estate. 

Dedication  of  land  for  use  as 
a  highway. 


Sec. 
426. 


Disposition  of  property  corpo- 
ration has  no  power  to  re- 
ceive and  hold — Escheat. 


§  389.  What  railroad  property  is  real  estate. — There  is  no  con- 
trariety of  opinion  as  to  the  nature  of  land  and  "annexed  permanent 
immovable  structures,"  for  that  kind  of  property  is  so  clearly  real 
estate  that  there  is  no  room  for  doubt  as  to  its  character.1  The  question 
of  difficulty  most  often  encountered  is  as  to  the  nature  of  what  is  com- 
monly called  "rolling  stock/'  that  is,  locomotives,  cars  and  the  like. 
These  things  are  essential  to  the  operation  of  a  railroad  and  it  is  dif- 
ficult to  conceive  the  existence  of  a  railroad  without  incorporating  in 
the  conception  locomotives  and  cars.  Locomotives  and  cars  are  not, 
to  borrow  a  term  from  logic,  accidents,  but  inseparable  incidents. 
There  is  reason  supporting  the  cases  which  adjudge  that  the  rolling 
stock  is  personal  property,  but,  on  the  other  hand,  there  is  reason  sup- 
porting the  cases  which  adjudge  it  to  be  real  estate.  The  weight  of 
authority  is  that  where  the  statute  does  not  otherwise  provide,  rolling 
stock  is  personal  property  and  not  real  estate,2  but  upon  this  question 


Calmer  v.  Forbes,  23  111.  301; 
Hunt  v.  Bullock,  23  111.  320.  See 
Front,  &c.  Co.  v.  Johnson,  2  Wash. 
112,  25  Pac.  1084,  11  L.  R.  A.  693; 
St.  Louis,  &c.  Co.  v.  Donahue,  3  Mo. 
App.  559,  Appendix;  Mcllvain  v. 
Hestonville,  &c.  R.  Co.  5  Phila.  (Pa.) 
13;  Neilson  v.  Iowa,  &c.  R.  Co.  51 
Iowa  184,  1  N.  W.  434,  33  Am.  R. 
124;  Northern  Pac.  R.  Co.  v.  Car- 
land,  5  Mont.  146,  3  Pac.  134;  Joy 
v.  St.  Louis,  138  U.  S.  1,  11  Sup.  Ct. 
243;  note  in  66  L.  R.  A.  33  et  seq. 
Iron  rails  laid  on  roadbed  are  held 
to  be  real  estate  unless  made  per- 
sonal property  by  agreement.  Hunt  v. 
Bay  State,  &c.  Co.  97  Mass.  279.  Stat- 
utes frequently  provide  that  such 
things  shall  be  deemed  real  estate. 
Union  Trust  Co.  v.  Weber,  96  111. 
346;  Quincy  R.  Bridge  Co.  v.  Adams 
County,  88  111.  615;  Neary  v.  Phila- 


delphia, &c.  R.  Co.  7  Houst.  (Del.) 
419,  9  Atl.  405.  Or,  on  the  other 
hand,  personal  property  for  the  pur- 
pose of  taxation  or  the  like.  Mis- 
souri, &c.  R.  Co.  v.  Labette  County, 
9  Kans.  App.  545,  59  Pac.  383;  Rich- 
mond v.  Richmond,  &c.  R.  Co.  21 
Gratt.  (Va.)  604;  note  in  66  L.  R. 
A.  35.  And  it  is  held  that  property 
which  may  be  regarded  either  as  a 
fixture  ordinarily  constituting  part 
of  the  real  estate  or  as  personalty 
may  be  considered  as  the  one  or  the 
other  according  to  the  agreement  of 
the  parties.  Webster  Lumber  Co.  v. 
Keystone,  &c.  Co.  51  W.  Va.  545,  42 
S.  E.  632,  66  L.  R.  A.  33.  See,  also, 
upon  the  general  subject,  Western, 
&c.  R.  Co.  T.  Deal,  90  N.  Car.  110. 

2  Judge  Minor  is  very  decided  in 
his  opinion  that  rolling  stock  is  per- 
sonal property.  He  says:  "As  the 


563 


WHAT  EAILEOAD  PEOPEBTT  IS   REAL  ESTATE. 


[g   S89 


there  is  a  direct  conflict.  Whether  rolling  stock  is  or  is  not  real  estate 
often  depends  in  a  great  measure  upon  the  statute.  Where  the 
question  is  not  influenced  by  statute  the  weight  of  authority  is  that  it 
is  personal  property,8  but  there  has  been  much  diversity  of  opinion.4 
The  right  of  way  of  a  railroad  company  is  real  estate,5  or  at  least 
an  easement  or  interest  in  land  rather  than  personal  property. 


rolling  stock  Is  not  attached  to  the 
realty  it  seems  to  be  an  extraordi- 
nary anomaly  to  treat  it  as  consti- 
tuting a  part  thereof,  merely  be- 
cause the  road  cannot  be  operated 
without  it.  With  equal  reason  a 
cart,  a  plough,  a  mule,  a  wheelbar- 
row or  a  spade  might  be  deemed 
part  of  a  farm,  inasmuch  as  a  farm 
cannot  be  operated  without  such  ap- 
pliances." Minor's  Inst.  (top)  609. 
The  conclusion  of  the  justly  respect- 
ed and  able  author  is  sustained  by 
the  weight  of  authority,  but,  with 
sincere  deference,  we  venture  to  say 
that  the  fact  that  the  things  he  men- 
tions are  not  attached  to  the  land  is 
not  sufficient  to  characterize  them  as 
personal  property.  -  The  character  of 
property  is  by  no  means  always  de- 
termined by  the  answer  to  the  ques- 
tion whether  it  is  or  is  not  attached 
to  the  land.  As  shown  in  the  argu- 
ment of  Mr.  Carpenter,  elsewhere 
quoted  from,  many  things  are  re- 
garded as  real  estate  although  not 
permanently  annexed  to  the  land. 
Farrar  v.  Stackpole,  6  Greenl.  (Me.) 
154,  19  Am.  Dec.  201;  Rogers  v. 
Gilinger,  30  Pa.  St.  185,  72  Am.  Dec. 
694;  .Colegrave  v.  Dias  Santos,  2  B. 
&  C.  76;  Siford's  Case,  11  Coke  46; 
House  v.  House,  10  Paige  Ch.  158; 
Gile  v.  Stevens,  13  Gray  (Mass.) 
146,  7  Am.  Dec.  132;  Rogers  v.  Cox, 
96  Ind.  157,  49  Am.  Dec.  152,  and 
cases  cited. 

3  Ante,  §  31;  Randall  v.  Elwell,  52 
N.  Y.  521,  11  Am.  R.  747;  Hoyle  v. 
Plattsburg,  &c.  R.  Co.  54  N.  Y.  314, 


13  Am.  R.  595;  Stevens  v.  Buffalo, 
&c.  R.  Co.  31  Barb.  (N.  Y.)  590; 
Williamson  v.  New  Jersey,  &c.  R. 
Co.  29  N.  J.  Eq.  311;  Chicago,  &c. 
Co.  v.  Ft.  Howard,  21  Wis.  44,  91 
Am.  Dec.  458.  See,  generally, 
Beardszey  v.  Ontario  Bank,  31  Barb. 
(N.  Y.)  619;  State  Treas.  v.  Somer- 
ville,  &c.  R.  Co.  28  N.  J.  L.  21;  Bos- 
ton, &c.  R.  Co.  v.  Gilmore,  37  N.  H. 
410,  72  Am.  Dec.  336;  Coe  v.  Colum- 
bus, &c.  R.  Co.  10  Ohio  St.  372,  75 
Am.  Dec.  518;  Neilson  v.  Iowa,  &c. 
R.  Co.  51  Iowa  184,  1  N.  W.  434,  33 
Am.  R.  124;  Meyer  v.  Johnston,  53 
Ala.  237,  353;  Grand  Trunk,  &c.  R. 
Co.  v.  Eastern  Township  Bank,  10 
Lower  Canada  Jur.  11;  Louisville, 
&c.  R.  Co.  v.  State,  25  Ind.  177,  87 
Am.  Dec.  358. 

*  Phillips  v.  Winslow,  18  B.  Monr. 
(Ky.)  431;  Minnesota  Co.  v.  St. 
Paul  Co.  2  Wall.  (U.  S.)  644;  Farm- 
ers', &c.  Co.  v.  Hendrickson,  25  Barb. 
(N.  Y.)  484;  Palmer  v.  Forbes,  23 
111.  301;  State  v.  Northern,  &c.  R. 
Co.  18  Md.  193;  Railroad  Co.  v. 
James,  6  Wall.  (U.  S.)  750;  Pen- 
nock  v.  Coe,  23  How.  (U.  S.)  117; 
Farmers',  &c.  v.  St.  Joseph,  &c.  R. 
Co.  3  Dill.  (U.  S.)  412;  Merrill  v. 
Noyes,  56  Me.  458,  96  Am.  Dec.  486; 
Titus  v.  Mabee,  25  111.  257 ;  Farmers', 
&c.  Co.  v.  Commercial  Bank,  11  Wis. 
207;  Scott  v.  Clinton,  &c.  R.  Co.  6 
Biss.  (U.  S.)  529. 

B  President,  &c.  v.  Sipe,  11  Ind.  67; 
Timmons  v.  Swltzer,  11  Ind.  363; 
Vaughn  v.  Dayton,  12  Ind.  561;  New 
Albany,  &c.  R.  Co.  Y.  Huff,  19  Ind. 


§   390]  HEAL  ESTATE.  564 

§  390.  Statutory  authority  requisite. — The  rule  is  well  established 
that  a  railroad  corporation  cannot  acquire  and  hold  lands  for  any  pur- 
poses except  such  as  are  authorized  by  statute.6  The  authority  must 
be  conferred  by  legislation  or  it  does  not  exist.  It  is,  however,  not 
necessary  that  the  authority  should  be  expressly  conferred.  It  may  be 
implied. 

§  391.    Power  to  acquire  real  estate— Implied  power — Generally. — 

The  rule  as  generally  expressed  is  that  a  railroad  company  has  the 
implied  power  to  acquire  and  hold  such  real  estate  as  is  reasonably 
necessary  to  enable  it  to  perform  its  corporate  duties  and  exercise  its 
corporate  functions.  Where  there  is  no  statute  specifically  defining  the 
power  of  the  company  to  hold  real  estate,  the  question  is  to  be  solved 
by  ascertaining  what  is  reasonably  necessary  to  enable  it  to  accom- 
plish the  purpose  for  which  it  was  organized.  The  object  for  which 
the  corporation  was  created  is,  of  course,  to  be  determined  from  the 
statute  authorizing  its  existence.  This  object  being  ascertained,  then 
it  follows  that  such  incidental  powers  as  are  reasonably  necessary  .to 
enable  the  corporation  to  accomplish  the  object  for  which  it  was 
created  vest  in  it  by  necessary  implication.  Analogous  cases  adjudge 
that  the  power  of  a  corporation  is  not  confined  to  authority  to  do  that 
which  is  absolutely  or  indispensably  essential  to  the  performance  of 
the  acts  and  duties  specified  in  the  statute  from  which  it  derives  its 
powers,7  but  extends  to  such  things  as  are  reasonably  and  fairly  neces- 
sary. The  law,  however,  has  always  jealously  regarded  the  power  of 
corporations  to  hold  real  estate  and  the  courts  are  reluctant  to  enlarge 
the  power  by  implication.  It  has  been  again  and  again  affirmed  that 
there  is  serious  danger  to  be  apprehended  from  corporate  acquisition 
of  land,  and  that  the  power  should  be  carefully  limited.8  It  is,  there- 

444;  Louisville,  &c.  R.  Co.  v.  Boney,  v.  Williams,  15  Ohio  26;  Pacific  R. 

117  Ind.  501,  20  N.  E.  432,  3  L.  R.  A.  Co.  v.   Seely,  45   Mo.  212,  100  Am. 

435 ;  Atlantic,  &c.  R.  Co.  v.  Leseur,  2  Dec.  369 ;  Waldo  v.  Chicago,  &c.  R. 

Ariz.  428,  19  Pac.  157,  1  L.  R.  A.  Co.  14  Wis.  575;  Eldridge  v.  Smith, 

244;   Northern  Pac.  R.  Co.  v.  Car-  34  Vt.  484;  Eastern  Counties  R.  Co. 

land,  5  Mont.  146,  3  Pac.  134;  ante,  v.  Hawkes,  5  H.  L.  Cas.  331. 

7  Smith  v.  Nashua,  &c.  R.  Co.  27 

8  Coleman  v.  San  Rafael  Turnpike  N.    H.    86,    94,    59   Am.    Dec.    864; 

Co.  49  Cal.  517;  Taber  v.  Cincinnati,  Brown  v.  Winnisimmet  Co.  11  Al- 

&c.  R.  Co.  15  Ind.  459;  New  York,  len    (Mass.)    326;    Buffett  v.   Troy, 

&c.  R.  Co.  v.  Kip,  46  N.  Y.  546,  7  &c.  R.  Co.  40  N.  Y.  168,  36  Barb.  (N. 

Am.  R.  385;   Case  v.  Kelly,  133  U.  Y.)  420. 
S.  21,  10  Sup.  Ct.   216;    Overmyer        "  The  statutes  enacted  hy  the  Brtt- 


565 


IMPLIED  POWER  TO  ACQUIRE — GENERAL  RULE. 


[§'  392 


fore,  true  that  the  cases  relating  to  implied  powers  where  ordinary 
business  contracts  or  acts  performed  in  conducting  ordinary  corporate 
affairs  are  involved  can  hardly  be  taken  as  safe  guides  for  the  govern- 
ment of  cases  where  the  question  is  as  to  the  power  of  a  railroad  com- 
pany to  acquire  and  hold  real  estate.9 

§  392.  Implied  power  to  acquire — General  rule. — The  general  rule 
that  a  corporation  has  the  right  to  take  and  hold  real  estate  reasonably 
necessary  to  the  purpose  of  its  creation  is  asserted  by  many  of  the 
courts.  There  is  no  substantial  diversity  of  opinion.10  This  is  implied 
as  an  incident  of  the  principal  power  granted.11  But  as  corporate 
grants  are  always-  strictly  construed,  the  right  to  acquire  and  hold 
real  estate  cannot  be  extended  by  liberal  construction.12  If  it  appears 
from  the  express  provisions  of  the  statute  that  to  deny  the  power  to 
hold  real  estate  would  defeat  the  object  for  which  the  corporation  was 
created,  then,  in  the  absence  of  countervailing  provisions,  the  power  to 


ish  parliament  and  by  the  legisla- 
tures of  some  of  the  American  states 
evidence  the  opposition  to  the  policy 
of  allowing  corporations  to  become 
owners  of  real  estate.  Angell  Pri- 
vate Corp.  §  177.  The  public  grant 
of  land  by  the  United  States  and  by 
the  states  to  railroad  companies  is 
a  departure  from  the  ancient  policy 
of  the  law. 

8  In  Case  v.  Kelly,  133  U.  S.  21,  10 
Sup.  Ct.  216,  it  was  held  that  a  rail- 
road company  could  only  receive  and 
hold  lands  for  the  defined  purposes 
of  the  road.  See,  also,  Pacific  R.  Co. 
v.  Seely,  45  Mo.  212,  100  Am.  Dec. 
369. 

10Asheville  Division,  &c.  v.  Aston, 
92  N.  C.  578;  Ossipee,  &c.  Co.  v.  Can- 
ney,  54  N.  H.  295;  Callaway,  &c.  Co. 
v.  Clark,  32  Mo.  305;  Page  v.  Heine- 
berg,  40  Vt.  81,  94  Am.  Dec.  378; 
State  v.  Madison,  7  Wis.  688;  Old 
Colony,  &c.  R.  Co.  v.  Evans,  72  Mass. 
25,  66  Am.  Dec.  394;  2  Kent's  Comm. 
227;  1  Bl.  Comm.  475,  478;  Mdra- 
wetz  Priv.  Corp.  §  327. 

u  The  question  as  to  the  right  to 


hold  real  estate  is,  as  is  well  known, 
a  question  between  the  sovereign 
and  the  corporation.  The  title 
which  the  corporation  obtains  even 
where  it  has  no  authority  to  own 
the  land  is  a  peculiar  one.  It  does, 
it  seems,  acquire  a  title,  but,  of 
course,  not  a  complete  one.  It  is 
held  that  "a  corporation  might  pur- 
chase and  take  title  to  the  real 
estate,  its  title,  however,  like  that 
of  an  alien  being  defeasible  at  the 
pleasure  of  the  commonwealth." 
Leazure  v.  Hillegas,  7  Sergt.  &  R. 
(Pa.)  313;  Goundie  v.  Northampton 
Water  Co.  7  Pa.  St.  233;  Hickory 
Farm,  &c.  Co.  v.  Buffalo,  &c.  R.  Co. 
32  Fed.  22;  Runyan  v.  Coster,  14 
Pet.  (U.  S.)  122;  Hamsher  v.  Ham- 
sher,  132  111.  273,  23  N.  E.  1123,  8 
L.  R.  A.  556. 

12Eversfield  v.  Mid-Sussex,  &c.  R. 
Co.  1  Giff.  153,  3  DeG.  &  J.  286; 
Dodd  v.  Salisbury,  &c.  R.  Co.  1  Giff. 
158,  5  Juris.  (N.  S.)  782;  Bostock 
v.  North  Staffordshire,  &c.  R.  Co.  5 
DeG.  &  S.  584,  4  El.  &  B.  798; 
Browne  &  Theobald's  R.  Law  96. 


§  393J 


HEAL  ESTATE. 


566T 


hold  real  estate  will  be  implied.  In  the  case  of  a  railroad  corporation 
the  implied  power  is  broad  enough  to  authorize  the  acquisition  of  land 
for  any  structures  that  are  reasonably  necessary  for  the  proper  con- 
struction and  operation  of  the  road.18 

§393.  Implied  power — Illustrative  instances. — A  railroad  com- 
pany may  acquire  land  for  the  erection  of  engine  houses  and  shops 
for  the  repair  of  cars  and  engines  used  on  the  road.14  It  may  buy  and 
hold  property  for  docks  and  warehouses  reasonably  necessary  for  the 
storage  of  property  entrusted  to  it  for  carriage.15  It  may  buy  land 
for  freight  and  passenger  depots  and  the  necessary  approaches  there- 
to,16 for  the  building  of  turnouts  and  side  tracks  to  accommodate  the 
business  of  the  company.17  It  may  acquire  land  in  order  to  procure 
materials  for  the  economical  construction  of  the  road.18  It  has  been 


13  Chicago,  &c.  R.  Co.  v.  Wilson,  17 
111.  123;  Low  v.  Galena,  &c.  R.  Co. 
18  111.  324;  New  York,  &c.  R.  Co., 
In  re,  46  N.  Y.  546,  7  Am.  R.  385; 
Bangor,  &c.  R.  Co.  v.  Smith,  47  Me. 
34. 

"Southern  Pac.  R.  Co.  v.  Ray- 
mond, 53  Cal.  223;  Hannibal,  &c.  R. 
Co.  v.  Muder,  49  Mo.  165;  State  v. 
Mansfield,  23  N.  J.  L.  510,  57  Am. 
Dec.  409;  Virginia,  &c.  R.  Co.  v.  El- 
liott, 5  Nev.  358. 

15 1  Morawetz  Private  Corp.  §  268. 

18  Mansfield,  &c.  R.  Co.  v.  Clark,  23 
Mich.  519;  Protzman  v.  Indianapolis, 
&c.  R.  Co.  9  Ind.  467,  68  Am.  Dec. 
650;  Graham  v.  Connersville,  &c.  R. 
Co.  36  Ind.  463,  10  Am.  R.  56;  Nash- 
ville, &c.  R.  Co.  v.  Cowardin,  11 
Humph.  (Tenn.)  348;  Reed  v.  Louis- 
ville Bridge  Co.  8  Bush  (Ky.)  69; 
South  Carolina,  &c.  R.  Co.  v.  Blake, 
9  Rich.  L.  (S.  C.)  228;  Hamilton 
v.  Annapolis,  &c.  R.  Co.  1  Md.  553; 
Cumberland  Valley  R.  Co.  v.  McLan- 
ahan,  59  Pa.  St.  23;  New  York  Cent. 
&c.  R.  Co.,  In  re,  77  N.  Y.  248;  Giesy 
v.  Cincinnati,  &c.  R.  Co.  4  Ohio  St. 
308;  Hannibal,  &c.  R.  Co.  v.  Muder, 
49  Mo.  165;  Weir  v.  St.  Paul,  &c.  R. 
Co.  18  Minn.  155.  A  railroad  com- 


pany may  use  the  land  acquired  by 
it  for  a  right  of  way  in  any  manner 
which  contributes  to  the  safe  and 
efficient  operation  of  the  road,  and 
does  not  interfere  with  the  rights 
of  adjacent  property,  and  the  erec- 
tion of  a  freight  depot  and  other 
structures  thereon  is  not  a  misuser. 
Elyton  Land  Co.  v.  South  &  North 
Ala.  R.  Co.  95  Ala.  631,  10  So.  270. 
We  cite  some  cases  where  the  land 
was  acquired  by  condemnation,  since 
they  serve  to  show  the  general  scope 
of  the  term  corporate  purposes. 

17  Protzman  v.  Indianapolis,  &c.  R. 
Co.  9  Ind.  467;  Cleveland,  &c.  R.  Co. 
v.  Speer,  56  Pa.  St.  325,  94  Am.  Dec. 
84;  Toledo,  &c.  R.  Co.  v.  Daniels,  16 
Ohio  St.  390. 

"Overmyer  v.  Williams,  15  Ohio 
26.  See,  also,  Georgia  Pac.  R.  Co.  v. 
Wilks,  86  Ala.  478,  6  So.  34;  Mallett 
v.  Simpson,  94  N.  Car.  37,  55  Am.  R. 
594.  But  see  New  York,  &c.  R.  Co. 
v.  Gunnison,  1  Hun  (N.  Y.)  496. 
See,  in  general,  New  York,  &c.  R. 
Co.  v.  Kip,  46  N.  Y.  546,  7  Am.  R. 
385;  McClure  v.  Missouri  River  R. 
Co.  9  Kans.  373;  Lake  Shore,  &c.  R. 
Co.  v.  Cincinnati,  &c.  R.  Co.,  30  Ohio 
St. -604;  Land  v.  Coffman,  50  Mo. 


567  INSTANCES  OF  DENIAL  OF  POWER  TO  ACQUIRE  REAL  ESTATE.  [§    394 


held  that  it  may  buy  land  in  order  to  furnish  gravel  to  persons  who 
are  to  transport  it  over  the  company's  road,  thereby  adding  to  its  reve- 
nues.19 It  may  acquire  land  for  the  purpose  of  erecting  thereon  a  din- 
ner house  for  its  employes.20  It  may  provide  offices  for  the  transaction 
of  its  business,  although  such  offices  are  located  in  a  foreign  state,  and 
it  has  been  held  that  it  may  buy  mines  under  some  circumstances.21 

§  394.    Power  to  acquire  real  estate — Instances  of  denial  of  power. 

— We  have  called  attention  to  the  fact  that  the  power  to  acquire  prop- 
erty by  purchase  is  broader  than  the  power  to  acquire  it  by  the  virtue 
of  the  right  of  eminent  domain,22  and  it  is  obvious  that  cases  bearing 
on  the  power  to  acquire  by  condemnation  cannot  be  accepted  as  safe 
guides  where  the  question  is  as  to  the  power  to  obtain  land  by  pur- 
chase. But  those  cases  do  serve  to  mark  the  general  nature  of  the 
power,  so  that  it  is  proper  to  cite  them  in  this  connection,  as  we  are 
here  discussing  the  general  power  to  acquire  land.  It  is  held  that  a 


243;   Blunt  v.  Walker,  11  Wis.  334, 
78  Am.  Dec.  709. 

19  Old  Colony,  &c.  R.  Co.  v.  Evans, 
72  Mass.  25,  66  Am.  Dec.  394.    It  has 
been  suggested  that  a  railway  com- 
pany may  supply  a  chapel  or  theater 
for  the  benefit  of  its  workmen.   East 
Anglian  R.  Co.  v.  Eastern  Counties 
R.  Co.  11  C.  B.  775.    There  is  rea- 
son, in   our  judgment,   for   holding 
that  railway  companies  may,  within 
reasonable  limits,   provide    for  the 
comfort  and   welfare   of  their  em- 
ployes. 

20  Gudger  v.  Richmond,  &c.  R.  Co. 
106  N.  C.  481,  11  S.  E.  515;   Texas, 
&c.  R.  Co.  v.  Robards,  60  Tex.  545, 
48  Am.  R.   268;    United  States,  &c. 
Co.  v.  Wabash,  &c.  R.  Co.  32   Fed. 
480.    See,  also,  Abraham  v.  Oregon, 
&c.  R.  Co.  37  Oreg.  495,  60  Pac.  899, 
64   L.   R.   A.    391,   82   Am.    St.   779; 
Jacksonville,  &c.  R.  Co.  v.  Hoofer, 
160  U.  S.  514,  16  Sup.  Ct.  379;  Mil- 
waukee, &c.  R.  Co.  v.  Board,  29  Wis. 
116;  Chicago,  &c.  R.  Co.  v.  Board,  48 
Wis.  666,  5  N.  W.  3. 

aLyde  v.  Eastern,  &c.  R.  Co.   36 
Beav.  10,  17.     See  Attorney-Gen,  v. 


Great  Northern,  &c.  R.  Co.  6  Jurist 
N.  S.  1006.  See,  generally,  Attorney- 
Gen,  v.  Great  Eastern,  &c.  R.  Co.  L. 
R.  11  Ch.  D.  449,  505;  Holmes  v. 
Eastern  Counties,  &c.  R.  Co.  3  K.  & 
J.  675;  Flanagan  v.  Great  Western, 
&c.  R.  Co.  7  Eq.  116;  Shrewsbury, 
&c.  R.  Cff.  v.  Stour  Valley,  &c.  R.  Co. 
2  De  G.  M.  &  G.  866;  East,  &c.  Docks 
R.  Co.  v.  Dawes,  11  Hare  363;  Cother 
v.  Midland  R.  Co.  2  Phill.  469;  Moses 
v.  Boston,  &c.  R.  Co.  24  N.  H.  71,  55 
Am.  Dec.  222;  Smith  v.  Nashua,  &c. 
R.  Co.  27  N.  H.  86,  95,  59  Am..  Dec. 
364;  Western  Union,  &c.  Co.  v.  Rich, 
19  Kans.  517,  27  Am.  R.  159;  New 
York,  &c.  R.  Co.  v.  Kip,  46  N.  Y.  546, 
7  Am.  R.  385. 

22  The  rights  acquired  by  purchase 
are  regarded  as  more  complete  than 
those  acquired  by  condemnation. 
Thus  where  a  railroad  company 
acquires  land  upon  which  to  build 
its  road  by  purchase  of  the  fee,  it  is 
not  bound,  in  its  dealings  with  such 
land,  by  restrictions  upon  its  au- 
thority to  use  its  "right  of  way." 
Calcasieu  Lumber  Co.  v.  Harris,  77 
Tex.  18,  13  S.  W.  453. 


§    395]  EEAL  ESTATE.  568 

railroad  company  cannot  acquire  land  by  condemnation  for  the  con- 
struction of  a  temporary  track  while  the  main  track  is  building,23  but 
it  seems  to  us  that  the  doctrine  of  the  cases  cited  goes  too  far.  We 
think  that  where  a  temporary  track  is  essential  to  the  proper  con- 
struction of  the  main  line  or  to  its  operation,  it  is  competent  for  the 
company  to  acquire  land  for  that  purpose.  It  has  been  held  not  com- 
petent for  a  railroad  company  to  condemn  land  for  the  erection  of 
dwellings  for  the  workmen  employed  by  it.24  It  is  clear  that  a  railroad 
company  has  no  implied  power  to  acquire  lands  by  eminent  domain  or 
otherwise  for  speculative  purposes,  or  to  prevent  competition,  or  to 
aid  in  collateral  enterprises  remotely  connected  with  the  road.25 

§•  395.  Title  to  real  estate  is  in  the  company. — Title  to  real'estate 
acquired  by  a  railroad  company  vests  in  the  company  and  not  in  its 
stockholders.  The  stockholders  have  an  interest  in  corporate  property, 
which  interest  is  represented  by  their  shares  of  capital  stock,  but  they 
are  not  the  owners  of  the  real  estate  of  the  company.  The  corporation 
while  composed  of  its  shareholders  is  a  distinct  legal  entity  having 
an  individuality  of  its  own.26  It  is  of  itself  a  person  although  it  is 
the  creature  of  statute.  We  do  not  mean  to  say  that  the  term  "corpo- 
rations" always  includes  natural  persons,  but  -so  far  as  the  ownership 
of  property  is  concerned  a  corporation  such  as  a  railroad  company  is  a 
person.  Conveyances  of  corporate  real  estate  must  be  executed  by  the 
company,27  and,  ordinarily,  actions  for  injuries  to  its  property  must 
be  prosecuted  by  the  corporate  entity.  There  are  cases  where,  upon  the 
wrongful  refusal  of  the  corporation  to  act,  equity  will  interfere  for 

^Currier  v.  Marietta,  &c.  R.  Co.  6  Am.  R.  397;  McClure  v.  Missouri, 

11  Ohio  St.  228;  Gray  v.  Liverpool,  &c.  R.  Co.  9  Kans.  373;  Pacific  R.  Co. 

&c.  R.  Co.  9  Beav.  391.  v.  Seeley,  45  Mo.  212,  100  Am.  Dec. 

"Nashville,  &c.  R.  Co.  v.  Coward-  369. 

in,    11    Humph.     (Tenn.)     348;    El-        ^Regina  v.  Arnaud,  16  L.  J.  Q.  B. 

dridge  v.  Smith,  34  Vt.  484;   State  50;  Rand  v.  Hubbell,  115  Mass.  461, 

v.    Mansfield,    23    N.   J.   L.    510,    57  15  Am.  R.  121. 

Am.  Dec.  409.    But  see  ante,  §  393,        ^Ante,  §  237.    There  are  cases  of 

note  20.  a   very    peculiar    nature    in    which 

25  Rensselaer,  &c.  R.  Co.  v.  Davis,  equity    will    enforce    a   conveyance 

43  N.  Y.  137;  Iron  R.  Co.  v.  Iron  ton,  made    by    individual    stockholders, 

19  Ohio  St.  299;  Vermont,  &c.  R.  Co.  but  they  are  exceedingly  rare.  Amer- 

v.  Vermont  Cent.  R.  Co.  34  Vt.  1;  lean,  &c.  Co.  v.  Taylor,  &c.  Co.  46 

New  York,  &c.  R.  Co.  v.  Kip,  46  N.  Fed.  152;    Society,  &c.  v.  Abbott,  2 

Y.  546,  7  Am.  R.  385;  Baltimore,  &c.  Beav.  559. 
R.  Co.  v.  Union  R.  Co.  35  Md.  224, 


569  DIVESTITURE    OF    TITLE — UNNECESSARY    PROPERTY.       [§    396 

the  protection  of  the  stockholders,  but  these  cases  form  exceptions  to 
the  general  rule. 

§  396.  Title  once  vested  not  divested  because  property  subse- 
quently becomes  unnecessary. — Where  property  at  the  time  of  its  ac- 
quisition is  reasonably  necessary  for  the  legitimate  corporate  pur- 
poses the  fact  that  the  necessity  subsequently  ceases  does  not  always 
make  the  holding  wrongful  nor  divest  the  title.  The  question  of  the 
right  to  hold  property  acquired  by  a  railroad  company  must,  as  a  rule, 
be  determined  by  the  situation  and  condition  at  the  time  of  its  ac- 
quisition, and  complete  title  once  acquired  is  not  taken  away  by  future 
events.  There  is  no  wrong  in  holding  real  estate  where  a  complete 
title  is  rightfully  obtained,  although  changes  wrought  by  subsequent 
action,  taken  under  authority  of  law,  may  have  the  effect  to  render 
the  property  not  necessary  to  the  attainment  of  corporate  objects  or 
the  exercise  of  corporate  functions.  But  the  general  doctrine  stated 
does  not  ordinarily  apply  where  the  property  is  acquired  by  virtue  of 
the  right  of  eminent  domain  and  the  fee  is  not  taken.  If,  however,  the 
law  authorizes  the  taking  of  the  fee  and  a  fee  is  taken,  it  is  not  di- 
vested by  the  fact  that  it  has  ceased  to  be  necessary  to  the  accomplish- 
ment of  corporate  objects.28  If  an  absolute  title  vests,  no  matter  how 
acquired,  the  company,  it  is  obvious,  secures  an  indefeasible  estate. 

§  397.  Effect  of  conveyance  to  corporation  of  land  it  has  no  power 
to  hold. — A  conveyance  to  a  corporation  of  land  it  has  no  power  to  hold 
is  voidable  at  the  suit  of  the  state,  but  it  is  not  void.29  Such  a  convey- 
ance is  so  far  effective  that  it  vests  in  the  corporation  a  title  which 
will  empower  it  to  convey  the  land,  provided  the  conveyance  is  made 

28  Page  v.  Heineberg,  40  Vt.  81,  94  assailed  by  a  direct  proceeding  insti- 

Am.  Dec.  378.     See,  however,  as  to  tuted  for  that  purpose."    See,  to  the 

reversion  where  right  of  way  is  only  same  effect,  National  Bank  v.  Whit- 

an   easement.     McLemore   v.   Mem-  ney,  103  U.  S.  99;   Swope  v.  Leffing- 

phis,  &c.  R.  Co.    (Tenn.)    69   S.  W.  well,  105  U.  S.  3;  Reynolds  v.  Craw- 

338;   Missouri  Pac.  R.  Co.  v.  Brad-  fordsville,  &c.  Bank,  112  U.  S.  405, 

bury,  106  Mo.  App.  450,  79  S.  W.  966.  5  Sup.  Ct.  213;  Smith  v.  Sheeley,  12 

28  In  National  Bank  v.  Matthews,  Wall.    (U.    S.)    358,   361;    Myers  v. 

98    U.    S.    621,    627,    it    was    said?  Croft,  13  Wall.  (U.  S.)  291;  Fortier 

"Where  a  corporation  is  incompetent  v.  New  Orleans,  &c.  Bank,  112  U.  S. 

by  its  charter  to  take  a  title  to  real  439,  5  Sup.  Ct.  234;  Long  v.  Georgia 

estate  a  conveyance  to  it  is  not  void,  Pac.  R.  Co.  91  Ala.  519,  8  So.  706,  24 

but    voidable,    and    the    sovereign  Am.  St.  931. 
alone  can  object.     It  is  valid  until 


398] 


REAL  ESTATE. 


570 


prior  to  a  judgment  against  it  in  a  proceeding  by  the  state.  The  au- 
thorities declare  the  title  acquired  by  the  corporation  to  be  similar  to 
that  obtained  by  an  alien  in  a  jurisdiction  where  aliens  are  forbidden 
to  hold  land.80 

§  398.    Right  of  foreign  corporation  to  hold  real  estate. — It  was 

adjudged  in  an  early  case  by  the  Supreme  Court  of  the  United  States 
that  a  corporation  of  one  state  cannot  be  the  owner  of  land  in  another 
state  without  the  assent  of  the  state  in  which  the  land  lies.31  But 
while  it  is  true  that  the  state  in  which  the  land  is  situated  may  deny 
the  right  to  a  foreign  corporation  to  hold  land  within  the  state  limits, 
the  corporation  may  hold  such  lands,  if  it  has  power  from  the  state 
that  created  it,32  unless  the  right  is  denied  by  the  state  in  which  the 
land  is  situated.33  In  one  of  the  cases  it  is  held  that  in  favor  of  a 
grantee  a  foreign  corporation  will  be  presumed  to  have  power  to  hold 
real  estate  under  the  laws  of  the  state  by  which  it  was  incorporated.34 
The  state  in  which  the  land  lies  may  impose  such  limitations  and  re- 
strictions upon  the  right  of  a  foreign  corporation  to  acquire  and  hold 


^Fritts  v.  Palmer,  132  U.  S.  282, 
10  Sup.  Ct.  93,  citing  Cross  v.  De 
Valle,  1  Wall.  (U.  S.)  1,  13;  Gov- 
erneur  v.  Robertson,  11  Wheat.  (U. 
S.)  332;  National  Bank  v.  Matthews, 
96  U.  S.  621,  628;  Phillips  v.  Moore, 
100  U.  S.  208.  See,  also,  Leazure  v. 
Hillegas,  7  Sergt.  &  R.  (Pa.)  313; 
Goundie  v.  Northampton  Water  Co. 
7  Pa.  St.  233;  Hickory  Farm,  &c. 
Co.  v.  Buffalo,  &c.  R.  Co.  32  Fed. 
22;  Hamsher  v.  Hamsher,  132  111. 
273,  23  N.  B.  1123,  8  L.  R.  A.  556; 
Russell  v.  Texas,  &c.  R.  Co.  68  Tex. 
646,  5  S.  W.  686. 

31  Runyan  v.  Coster,  14  Pet.  (U.  S.) 
122;  Carroll  v.  East  St.  Louis,  67  111. 
568,  16  Am.  R.  632;  United  States, 
&c.  Co.  v.  Lee,  73  111.  142,  24  Am.  R. 
236;  Pennsylvania  Co.  &c.  v.  Bauerle, 
143  111.  459,  33  N.  E.  166;  Barnes  v. 
Suddard,  117  111.  237;  Cowell  v.  Colo- 
rado, &c.  Co.  100  U.  S.  55. 

82  Diamond,  &c.  Co.  v.  Powers,  51 
Mich.  145,  16  N.  W.  314;  Metropoli- 
tan Bank  v.  Godfrey,  23  111.  579.  See 


Blair  v.  Perpetual  Ins.  Co.  10  Mo. 
559,  47  Am.  Dec.  129;  Ohio,  &c.  Co.  v. 
Merchants',  &c.  Co.  30  Tenn.  1,  53 
Am.  Dec.  742. 

33  New  York,  &c.  Dock  v.  Hicks,  5 
McLean  (U.  S.)  Ill;  Lumbard  v. 
Aldrich,  8  N.  H.  31,  28  Am.  Dec.  381; 
Thompson  v.  Waters,  25  Mich.  214, 
12  Am.  R.  243;  Baltimore,  &c.  S.  Co. 
v.  McCutchen,  13  Pa.  St.  13;  North- 
ern Transportation,  &c.  Co.  v.  Chi- 
cago, 7  Biss.  (U.  S.)  45;  Lathrop  v. 
Commercial  Bank,  38  Ky.  114,  33 
Am.  Dec.  481;  Alward  v.  Holmes,  10 
Abbott  (N.  C.)  96;  Claremont,  &c. 
v.  Royce,  42  Vt.  730 ;  State  v.  Boston, 
&c.  R.  Co.  25  Vt.  433;  Lancaster  v. 
Amsterdam,  &c.  Co.  140  N.  Y.  576, 
35  N.  E.  964,  24  L.  R.  A.  322;  New 
Hampshire,  &c.  Co.  v.  Tilton,  19  Fed. 
73;  White  v.  Howard,  46  N.  Y.  144. 

"Tarpey  v.  Deseret,  &c.  Co.  5 
Utah  494,  17  Pac.  631.  See  New 
Hampshire,  &c.  Co.  v.  Tilton,  19  Fed. 
73;  Realty  Co.  v.  Appolonio,  5  Wash. 
437,  32  Pac.  219. 


571  ACQUISITION  BY  GRANT  AND  CONDEMNATION.  [§    399 

land  situated  within  its  borders  as  it  deems  proper.35  The  doctrine  of 
the  cases  is  that  an  individual  cannot  successfully  assail  the  right  of  a 
foreign  corporation  to  hold  lands.36 

§  399.  The  power  to  acquire  property  by  grant  broader  than  the 
power  to  acquire  by  condemnation. — The  authorities  with  good  reason 
discriminate  between  the  power  to  acquire  property  by  grant  and  the 
power  to  obtain  by  the  exercise  of  the  right  of  domain.  Statutes  con- 
ferring the  authority  to  condemn  property  are,  as  is  well  known, 
strictly  construed,  and  their  operation  is  seldom  enlarged  by  implica- 
tion. Where  property  is  seized  by  virtue  of  the  eminent  domain,  it  is 
taken  against  the  owner's  will,  while  in  the  case  of  a  grant  he  volun- 
tarily conveys  to  the  company.  Property  legitimately  connected  with 
the  purpose  of  the  corporation  may  be  rightfully  acquired,  although 
the  connection  be  remote.  It  is  not  essential,  in  case  of  purchase,  that 
the  property  be  immediately  connected  with  the  corporate  purpose ;  it 
is  sufficient  if  it  be  reasonably  necessary  to  the  convenience  of  the 
company  and  those  dealing  with  it.  They  may  acquire  land  by  pur- 
chase for  many  purposes  that  would  not  be  sufficient  to  warrant  the 
seizure  under  the  right  of  eminent  domain.  Eefreshment  stands,  din- 
ing places,  bookstalls,  and  like  conveniences,  may  be  provided  by 
railroad  companies  for  the  use  of  travelers  and,  as  we  believe,  em- 
ployes, and  as  there  is  power  to  provide  such  things  there  is  also 
power  to  acquire  land  for  such  purposes.  But  the  power  to  acquire 
by  purchase  does  not  necessarily  imply  the  power  to  seize  under  the 
right  of  eminent  domain. 

§  400.  Acquisition  of  the  fee  by  private  grant. — A  railroad  com- 
pany may  acquire  a  fee  in  lands  by  grant,  unless  forbidden  by  statute 
or  by  some  rule  of  law.37  Where  there  is  authority  to  receive  and  hold 
real  estate  by  private  grant,  and  there  is  neither  an  express  nor  an 
implied  limitation  upon  the  authority,  a  fee  may  be  taken.  But  where 
there  is  an  implied  restriction,  as  is  often  the  case  in  regard  to  the 
right  of  way,  or  the  like,  of  a  railroad  company,  the  grant  does  not 

35  Diamond,  &c.  Co.  v.  Powers,  51  Hickory  Farm  Oil  Co.  v.  Buffalo,  &c. 

Mich.  145,  16  N.  W.  314.  R.  Co.  32  Fed.  22. 

38  Lancaster  v.  Amsterdam,  &c.  Co.  "  Hill  v.   Western,  &c.  R.   Co.  32 

140  N.  Y.  576,  24  L.  R.  A.  322;  Bank  Vt.  68;  State  v.  Brown,  27  N.  J.  L. 

of  Toledo  v.  International  Bank,  21  13;    Holt  v.   Somerville,   127  Mass. 

N.  Y.  542;  Methodist,  &c.  Church  v.  408. 
Pickett,   19   N.   Y.    482.     See,   also, 


§  400] 


REAL  ESTATE. 


572 


ordinarily  vest  a  fee  in  the  company,  but  vests  such  an  estate,  usually 
an  easement,  as  is  requisite  to  effect  the  purpose  for  which  the  prop- 
erty is  required.  Where  the  grant  is  of  "surplus  real  estate,"38  as  it 
is  often  called,  that  is  of  real  estate  not  forming  part  of  the  railroad 
or  its  appendages,  a  deed  effective  to  vest  a  fee  in  a  natural  person  will 
vest  that  estate  in  a  railroad  company.  The  acquisition  of  land  for  a 
corporate  purpose,  such  as  the  use  in  constructing  and  operating  a  rail- 
road, conveys  the  property  for  the  time  the  company  has  a  right  to 
operate  the  road,  but  unless  the  fee  is  clearly  granted  we  suppose  that 
the  title  does  not  extend  beyond  that  period.  It  is  held  that  even 
though  the  corporation  is  chartered  for  a  limited  period,  it  may  take  a 
conveyance  of  lands  in  fee  in  so  far  that  it  can  convey  the  fee  to  an- 
other, although  for  the  purposes  of  enjoyment,  its  estate  must  neces- 
sarily be  limited  to  the  term  of  its  corporate  existence.39  It  has  been 
doubted,  however,  whether  the  doctrine  of  the  cases  referred  to  can  be 
sustained.40  It  may  well  be  held  that  where  the  statute  gives  a  right 
to  renew  or  extend  the  term  of  the  corporate  existence  the  grant  ex- 


that  the  use  of  the  land  taken  was 
not  limited  to  the  fifty  years  of  cor- 
porate existence,  but  was  to  continue 
as  long  as  it  should  be  devoted  to 
such  public  purpose;  and  that,  as 
this  company  was  afterwards  con- 
solidated by  legislative  act  with  an- 
other company,  the  owners  of  the 
fee  cannot  recover  the  land  at  the 
expiration  of  the  fifty  years.  Miner 
v.  New  York,  &c.  R.  Co.  46  Hun  (N. 
Y.)  612;  Davis  v.  Memphis,  &c.  R. 
Co.  87  Ala.  633,  6  So.  140.  Since 
a  corporation  organized  under  the 
general  railroad  act  (2  Rev.  St.  N. 
Y.  7th  ed.  1569)  ceases  to  exist  with- 
in five  years  after  its  articles  of  as- 
sociation are  filed,  unless  it  begins 
the  construction  of  its  road,  a  grant 
to  such  a  corporation  ten  years  after 
its  organization,  and  before  it  had 
constructed  any  road  conveys  no 
title.  Greenwood  Lake,  &c.  R.  Co. 
v.  New  York,  &c.  R.  Co.  55  Hun  (N. 
Y.)  606,  8  N.  Y.  S.  26. 
40 1  Redfield  Railways,  §  265. 


v.  Midland,  &c.  R.  Co. 

11  Ch.  Div.  611.    See,  as  to  the  au- 
thority   to    hire    out    property    not 
needed  by  the  company,  Forrest  v. 
Manchester,  &c.  R.  Co.  30  Beav.  40; 
Brown  v.  Winnisimmet  Co.  11  Allen 
(Mass.)    326;    Hartford   F.   Ins.  Co. 
v.  Chicago,  &c.  R.  Co.  175  U.  S.  91, 
99,  20  Sup.  Ct.  33. 

39Nicoll  v.  New  York,  &c.  R.  Co. 

12  N.   Y.   121;    Rives  v.   Dudley,   3 
Jones  Eq.    (N.  C.)    126.     See,  also, 
Morrill  v.  Wabash,  &c.  R.  Co.  96  Mo. 
174,  9  S.  W.  657.    The  charter  of  the 
Tonawanda  R.  Co.  (Laws  N.  Y.  1832, 
241)    limited   its  existence  to  fifty 
years,  and  authorized  the  company 
to  acquire  lands  by  eminent  domain 
"for  the  use  or  accommodation   of 
such   railroad   or  its   appendages;" 
and  "to  appropriate  so  much  of  such 
lands  as  may  be  necessary  to  its 
own  use  for  the  purposes  contem- 
plated  by  this   act."     It  also  con- 
ferred the  "right  to  construct  and 
during  its  existence  to  maintain  and 
continue  a  railroad."     It  was  held 


573  ACQUISITION"  OP  TITLE  BY  ADVERSE  POSSESSION.  [§'  401 

tends  to  that  time,  for  the  law  in  force  at  the  time  of  the  execution  of 
the  contract  enters  into  it  as  a  silent  but  important  factor ;  but  where 
there  is  an  express  limit  to  the  term  of  the  corporate  existence,  there 
is  some  reason  for  questioning  whether  it  can  be  justly  held  that  the 
grant  extends  beyond  that  period.  A  grant  to  a  corporation  is  a  grant 
for  the  purpose  specified  in  the  charter,  and  when  the  right  of  the  cor- 
poration to  use  the  property  ceases  there  is  at  least  some  reason  for 
saying  that  the  estate  terminates.403  We  are  not  speaking  of  "surplus 
real  estate,"  nor  of  deeds  where  there  is  an  express  conveyance  of  an 
absolute  fee,  but  of  cases  where  from  the  situation  and  agreement  of 
the  parties  it  satisfactorily  appears  that  the  land  was  granted  for  use 
in,  constructing  and  operating  the  road,  and  not  absolutely  and  un- 
conditionally. Where  the  fee  is  acquired  it  may,  of  course,  be  trans- 
ferred, and  so  may  any  other  estate.41  But  it  is  to  be  understood  that, 
as  to  the  conveyance  of  property  essential  to  enable  the  company  to 
perform  the  duties  imposed  upon  it  by  law,  the  right  to  transfer  does 
not  exist  unless  conferred  by  statute,  for,  as  we  have  elsewhere  shown, 
a  railroad  company  cannot  disable  itself  from  discharging  its  duty  by 
transferring  its  property,  except  in  cases  where  the  transfer  is  author- 
ized by  statute.42 

§  401.  Acquisition  of  title  by  adverse  possession. — There  can  be  no 
doubt  that  title  to  surplus  real  estate  may  be  acquired  by  limitation. 
It  may  upon  the  same  principle  acquire  an  easement  by  possession.43 

*°a  See,  however,  People  v.  O'Brien,  railroad  company,  with  the  consent 

111  N.  Y.  1,  18  N.  E.  692,  2  L.  R.  A.  of  a  land-owner,  staked  off  a  strip 

255,  7  Am.  St.  684;  Detroit  Citizens'  of  ground  as  a  right  of  way,  and  en- 

St.  R.  Co.  v.  Detroit,  64  Fed.  634,  26  tered  thereon  and  occupied  so  much 

L.  R.  A.  673 ;  Detroit  v.  Detroit  Citi-  thereof  as  was  needed  for  the  con- 

zens'  St.  R.  Co.  184  U.  S.  368,  22  Sup.  struction  of  its  road,  and  remained 

Ct.  410;  Brown  v.  Schleier,  118  Fed.  in  possession  thereof  under  claim  of 

984.  title  to  the  entire  strip,  exercising 

fl  New  Jersey,  &c.  R.  Co.  v.  Van  over  it  such  acts  of  ownership  as  the 

Syckle,  37  N.  J.  L.  496 ;  Pollard  v.  nature  of  the  property  permitted  for 

Maddox,  28  Ala.  321;  Harrison  v.  twenty  years,  the  railroad  company 

Lexington,  &c.  R.  Co.  9  B.  Mon.  acquired  a  title  to  the  entire  strip 

(Ky.)  470.  laid  off.  Hargis  v.  Kansas  City,  &c. 

42  The  subject  of  acquisition  of  the  R.'  Co.  100  Mo.  210,  13  S.  W.  680. 

right  of  way  by  purchase  is  dis-  See,  also,  Florida  Southern  R.  Co. 

cussed  in  the  chapter  entitled  "Pur-  v.  Loring,  51  Fed.  932;  Texas,  &c.  R. 

chase  of  right  of  way."  Co.  v.  Scott,  77  Fed.  726;  Newcastle 

13  Sherlock  v.  Louisville,  &c.  R.  Co.  v.  Lake  Erie,  &c.  R.  Co.  155  Ind.  18, 

115  Ind.  22,  17  N.  E.  171.  Where  a  57  N.  E.  516;  Waggoner  v.  Wabash 


§  401] 


EEAL  ESTATE. 


574 


We  suppose  that  where  the  possession  consists  in  the  use  of  the  lands 
as  a  right  of  way  an  easement  and  not  the  fee  would  be  acquired.44 
The  general  rule  is  that  where  an  easement  is  claimed  by  user  the 
easement  can  be  no  broader  than  the  use.  The  extent  of  the  easement 
in  such  a  case  is  to  be  determined  by  the  actual  use  and  possession. 
Upon  the  general  principle  stated  it  is  held  that  adverse  use  of  rail- 
road tracks  for  more  than  twenty  years  is  not  shown  if  it  appears  that 
the  particular  tracks,  the  use  of  which  constituted  a  nuisance,  had 
been  laid  a  much  shorter  time  than  that,  although  other  tracks  had 
been  used  a  longer  time.45  The  quantity  of  land  taken  under  a  grant 
is  determined  from  the  terms  of  the  deed  or  from  the  attendant  cir- 
cumstances and  not  simply  from  actual  user.  Thus  it  is  held  in 
Pennsylvania  that  a  railroad  company  authorized  to  take  for  its  right 
of  way  a  strip  not  exceeding  sixty  feet  in  width  is,  in  the  absence  of 
any  designation  of  its  boundaries,  presumed  to  have  taken  the  full 
sixty  feet,  though  the  road  be  located  in  a;  street  less  than  sixty  feet 
wide,  and  the  company  in  the  construction  of  its  road  does  not  take 
actual  possession  of  the  land  outside  of  the  street.46  But  where  the 


R.  Co.  185  111.  154,  56  N.  E.  1050; 
Fortune  v.  Chesapeake,  &c.  R.  Co. 
(Ky.)  58  S.  W.  711. 

44  Organ  v.  Memphis,  &c.  R.  Co.  51 
Ark.  235,  11  S.  W.  96,  39  Am.  &  Eng. 
R.  Gas.  75.  Text  quoted  in  La  Crosse 
v.  Cameron,  80  Fed.  264,  275.  See, 
also,  Consumers'  Gas  T.  Co.  v.  Amer- 
ican Plate  Glass  Co.  162  Ind.  393,  68 
N.  E.  1020;  Peoria,  &c.  R.  Co.  v.  At- 
tica, &c.  R.  Co.  154  Ind.  218,  56  N.  E. 
210.  In  Texas,  &c.  R.  Co.  v.  Wilson, 
83  Texas  153,  18  S.  W.  325,  51  Am.  & 
Eng.  R.  Cas.  364,  it  was  held  that  if 
the  company  was  a  mere  trespasser 
it  could  not  acquire  title.  The  court 
cited  Hays  v.  Texas,  &c.  R.  Co.  62 
Texas  397.  But  see  Texas,  &c.  R.  Co. 
v.  Gaines  (Tex.  Civ.  App.),  27  S.  W. 
266.  As  to  what  acts  are  sufficient  to 
constitute  possession,  see  Emery  v. 
Raleigh,  &c.  R.  Co.  102  N.  C.  209,  9 
S.  E.  139,  11  Am.  St.  727,  37  Am.  & 
Eng.  R.  Cas.  253.  See,  generally, 
American  Bank  Note  Co.  v.  New 
York,  &c.  R.  Co.  50  Am.  &  Eng.  R. 


Cas.  292;  Erie,  &c.  R.  Co.  v.  Rous- 
seau, 17  Ont.  App.  483,  46  Am.  & 
Eng.  R.  Cas.  539;  Chicago,  &c.  R.  Co. 
v.  Gait,  133  111.  657,  23  N.  E.  425,  44 
Am.  &  Eng.  R.  Cas.  43. 

^Thompson  v.  Pennsylvania  R. 
Co.  14  Atl.  897,  on  appeal,  Pennsyl- 
vania R.  Co.  v.  Thompson,  45  N.  J. 
Eq.  870,  19  Atl.  622. 

46  Jones  v.  Erie,  &c.  R.  Co.  144  Pa. 
St.  629.  In  Indiana  it  has  been  held 
that  the  court  will  presume,  from 
the  fact  that  a  railroad  appropriated 
a  right  of  way  under  the  general 
railroad  law,  that  it  took  the  full 
width  (100  feet)  which  that  law  au- 
thorized it  to  take.  Campbell  v. 
Indianapolis,  &c.  R.  Co.  110  Ind.  490, 
11  N.  E.  482.  And  the  same  is  true 
where  the  land  was  taken  posses- 
sion of  under  a  special  charter.  In- 
dianapolis, &c.  R.  Co.  v.  Rayl,  69 
Ind.  424;  Prather  v.  Western  Union 
Tel.  Co.  89  Ind.  501.  To  the  same 
effect  see  Duck  River  Valley,  &c.  R. 
Co.  v.  Cochrane,  3  Lea  (Tenn.)  478; 


575 


POSSESSION   OF  LAND — TO   WHAT  EIGHT  REFERRED.       [§   402 


railroad  claims  under  a  grant  or  release  of  the  right  of  way  by  a  pri- 
vate landowner,  in  which  the  width  is  not  specified,  the  width  of  the 
strip  conveyed  may  be  shown  by  proof  of  the  contemporaneous  acts 
and  declarations  of  the  parties.47 

§  402.  Possession  of  land — To  -what  right  referred. — Where  there 
is  a  right  to  take  land  for  a  designated  purpose  and  the  land  is  used 
for  that  purpose,  the  possession  will  be  referred  to  that  right.48  From 
this  doctrine,  which  we  regard  as  well-founded,  it  follows  that  a  rail- 
road company,  in  taking  possession  of  land,  will  ordinarily  take  an 
easement  and  not  the  fee,  for  the  reason  that  the  right  to  take  an 
easement  is  the  right  to  which  possession  must  be  referred.  The  fee 
is  not  acquired  by  possession  unless  the  right  to  which  the  possession 
is  referable  authorizes  the  acquisition  of  a  fee.49  A  corporation  cannot,, 
by  exceeding  its  power,  enlarge  its  rights. 


Day  v.  Railroad  Co.  41  Ohio  St.  392. 
But  compare  Peoria,  &c.  R.  Co.  v. 
Attica,  &c.  R.  Co.  154  Ind.  218,  56 
N.  E.  210;  Jones  v.  Erie,  &c.  R.  Co. 
169  Pa.  St.  333,  32  Atl.  535,  47  Am. 
St.  916. 

47  Indianapolis,  &c.  R.  Co.  v.  Reyn- 
olds, 116  Ind.  356,  19  N.  E.  141;  In- 
dianapolis, &c.  R.  Co.  v.  Lewis,  119 
Ind.  218,  21  N.  E.  660.  If  the  grant 
of  a  right  of  way  by  a  private  land- 
owner does  not  specify  the  width  of 
the  strip  granted,  the  railroad  com- 
pany will  only  acquire  a  right  to 
such  land  as  is  actually  taken  and 
used.  Fort  Wayne,  &c.  R.  Co.  v. 
Sherry,  126  Ind.  334,  25  N.  E.  898, 
10  L.  R.  A.  48;  Vickshurg,  &c.  R.  Co. 
v.  Barrett,  67  Miss.  579,  7  So.  549. 
Where  a  right  of  way  is  granted, 
"with  right  to  use  such  additional 
land  as  may  be  necessary  for  the 
construction  and  maintenance"  of 
the  road,  the  company  is  bound  only 
to  use  ordinary  care  in  constructing 
its  road;  and  the  necessity  for  tak- 
ing additional  land  is  to  be  deter- 
mined by  ordinary  care.  Gulf,  &c. 
R.  Co.  v.  Richards,  83  Tex.  203,  18 
S.  W.  611.  Staking  off  the  full  width 


permitted  by  law,  with  the  land- 
owner's permission,  and  the  subse- 
quent occupation  of  so  much  as  the 
needs  of  the  road  required,  under 
claim  of  title  to  the  whole,  gives  a 
railroad  company  a  right  of  way  of 
the  width  originally  staked  off.  Har- 
gis  v.  Kansas  City,  &c.  R.  Co.  100 
Mo.  210. 

48  Proprietors,  &c.  v.  Nashua,  &c. 
R.  Co.  104  Mass.  1,  6  Am.  R.  181. 

49Peirce  v.  Boston,  &c.  R.  Co.  141 
Mass.  481,  6  N.  E.  96.  In  speaking 
of  the  use  and  occupancy  of  prop- 
erty, the  court  said:  "The  manner 
in  which  it  shall  be  used  for  the 
designated  purposes  is  in  the  discre- 
tion of  the  corporation  and  is  no 
concern  of  the  land-owner.  Even  if 
the  corporation  exceeds  its  franchise 
in  the  manner  of  such  occupancy,  it 
does  not  thereby  disseize  the  owner 
of  the  fee.  If  a  railroad  corporation 
fits  its  station-house  with  conven- 
iences for  furnishing  lodging  and 
food  necessary  for  the  comfort  of  its 
passengers,  it  does  not  claim  the  fee 
of  the  land,  allowing  others  than 
passengers  to  use  them.  It  is  not  a 
claim  in  the  fee  of  the  land  that  it 


§   403]  REAL  ESTATE.  576 

§  403.  Bights  of  company  where  land  is  owned  in  fee. — Where  a 
railroad  company  becomes  the  owner  of  land  in  fee  simple  it  generally 
has  all  the  ordinary  rights  of  a  natural  person,  except  in  so  far  as 
those  rights  are  abridged  by  statutory  provisions.  The  difficulty  is  to 
determine  when  the  title  of  the  company  is  in  fee,  for,  as  we  have  seen, 
a  conveyance  which  would  convey  an  absolute  fee  to  a  natural  person 
does  not  always  convey  such  an  estate  to  a  railroad  company,  since 
the  situation  of  the  parties  and  attendant  circumstances  may  exert 
an  important  influence,  as,  for  instance,  where  a  deed  is  made  of  land 
for  a  right  of  way  and  the  company  is  not  authorized  to  take  a  fee, 
or  where  the  term  of  the  corporate  existence  is  limited  to  a  specified 
term  of  years.  In  all  such  cases  the  law  is  to  be  considered  as  an  ele- 
ment of  the  contract,  for  the  law  is  always  a  part  of  the  contract 
unless  excluded  by  valid  stipulations,50  so  that  a  conveyance,  although 
apt  words  for  the  creation  of  a  fee,  and  such  as  would  create  a  fee  if 
the  transaction  were  between  natural  persons,  are  used,  will  not  in- 
variably vest  a  fee  in  the  corporation.  Some  of  the  courts  make  a  dis- 
tinction between  cases  where  there  is  a  grant  of  the  fee  for  a  right  of 
way  and  cases  where  the  right  of  way  is  acquired  under  the  eminent 
domain.  Thus  in  one  case  it  was  held  that  a  statute  prohibiting  a 
railroad  company  from  erecting  buildings  on  its  right  of  way  did  not 
apply  where  the  right  of  way  was  acquired  by  grant.51 

§  404.  Effect  of  conveyance  of  property  the  company  is  not  author- 
ized to  acquire. — As  we  have  seen,  a  railroad  company  does  acquire  a 
title  to  land  conveyed  to  it,  although  the  title  is  a  peculiar  one.  As  it 
acquires  a  title  it  possesses  something  which  it  may  convey  in  a  proper 

does    not   distinguish    between   the  does  not  thereby  claim  the  fee  in  the 

public  and  its  passengers  in  the  use  land  on  which  it  stands."     In  Con- 

of  the  refreshment  table,  news  stand  Burners'    Gas    T.    Co.    v.    American 

or  telegraph  office  kept  there.     The  Plate  Glass  Co.  162  Ind.  393,  68  N.  E. 

building  is  none  the  less  a  station-  1020,  1021,  the  text  is  cited  with  ap- 

house,  and  the  fitting  it  for  use  and  proval  and  it  is  held  that  a  railroad 

providing  conveniences   for  passen-  company    which    enters    and    holds 

gers  and  the  public  alike,  is  an  inci-  possession    without    color    of    title 

dent  of  its  use  for  the  business  of  acquires  only  an  easement, 

the   corporation,   and,    in    doing   it,  ^Foulks  v.  Falls,  91  Ind.  315,  321; 

the  corporation  asserts  no  right  ex-  Long  v.  Straus,  107  Ind.  94,  6  N.  E. 

cept  to  maintain  a  station-house  and  123,  7  N.  E.  763,  57  Am.  R.  87. 

what  it  deems  incidental  to  that.   It  M  Calcasieu,  &c.  Co.  v.  Harris,  77 

may  exceed  its  corporate  rights  in  Texas  18,  13  S.  W.  453,  43  Am.  & 

the  use  of  the  station-house,  but  it  Eng.  R.  Cases  570. 


577  QUESTIONING  THE  RIGHT   TO   HOLD  REAL  ESTATE.        [§    405 

case,  so  that,  in  cases  where  it  does  convey,  the  question  is  as  to  the 
title  its  grantee  takes  under  the  deed.  The  adjudged  cases  hold,  and 
with  reason,  that  the  conveyance  carries  to  the  grantee  a  full  and  valid 
title.52  The  conveyance  cannot,  it  is  obvious,  have  such  an  effect,  how- 
ever, unless  made  before  the  state  has  assailed  the  right  of  the  company 
to  hold  the  land. 

§  405.  Questioning  the  right  to  hold  real  estate. — The  rule  that 
the  right  to  hold  land  can  only  be  questioned  by  the,  state  is  a  familiar 
one.53  The  legislature  may,  of  course,  authorize  an  individual  having 
an  interest  or  suffering  an  injury  to  assail  the  right  of  a  railroad 
company  to  hold  land.  But  where  there  is  no  legislation  modifying 
the  rule  the  right  to  hold  land  can  be  successfully  challenged  only  by 
a  proceeding  in  the  name  of  the  state  in  the  nature  of  a  quo  warranto. 
The  attack  must  be  direct  and  not  collateral.  Upon  this  principle  it  is 
held  that  a  party  against  whom  a  railroad  company  seeks  an  injunction 
to  restrain  interference  with  land  of  which  it  is  in  possession  by  grant 
cannot  successfully  defend  upon  the  ground  that  the  railroad  company 
had  no  power  to  acquire  the  land.54 

§  406.  Enjoining  purchase  of  real  estate  where  no  power  to  receive 
and  hold. — The  familiar  and  long-settled  rule  stated  in  the  preceding 
section  does  not  preclude  a  stockholder  from  enjoining  the  purchase  of 
property  which  the  company  has  no  power  to  receive  and  hold.  It  is 
one  thing  to  prevent  the  expenditure  of  corporate  funds  for  an  un- 
authorized purpose  and  quite  another  to  question  the  right  to  hold 

62  Walsh  v.  Barton,  24  Ohio  St.  28;  44    Cal.    89;    Freeland   v.    Pennsyl- 

Ragan  v.  McElroy,  98  Mo.  349,  11  S.  vania,  &c.  Co.  94  Pa.  St.  504;  Keene 

W.  735.  v.  Van  Reuth,  48  Md.  184;  Denver, 

53  Cowell   v.   Colorado   Spring   Co.  &c.  R.  Co.  v.  Denver,  &c.  Co.  2  Colo. 
100  U.  S.  55;   Jones  v.  Habersham,  673;   Pixley  v.  Roanoke,  &c.  Co.  75 
107  U.  S.  174,  2  Sup.  Ct.  336;  Fritts  Va.   320;    North  v.   State,  107    Ind. 
v.  Palmer,  132  U.  S.  282,  10  Sup.  Ct.  356,  8  N.  E.  159;  Cincinnati,  &c.  R. 
93;  Mackall  v.  Chesapeake,  &c.  Co.  Co.  v.   Danville,  &c.  R.  Co.  75  111. 
94  U.  S.  308;   Fayette  Land  Co.  v.  113;    Northeastern   Tel.   &c.   Co.   v. 
Louisville,  &c.  R.  Co.  93  Va.  274,  24  Hepburn  (N.  J.  Ch.),  65  Atl.  747. 
S.   E.   1016;    Toledo,  &c.  R.  Co.  v.        "Kansas  City,  &c.  R.  Co.  v.  Kan- 
Johnson,  49  Mich.  148,  13  N.  W.  492;  sas  City,  &c.  Co.  118  Mo.  599,  34  S. 
Van  Wyck  v.  Knevals,  106  U.  S.  360,  W.  478.    See,  also,  Russell  v.  Texas, 
1  Sup.  Ct.  33'6.    See,  generally,  Hack-  &c.  R.  Co.  68  Tex.  646,  5  S.  W.  686; 
ensack  Water  Co.  v.  De  Kay,  36  N.  Southern   Pac.   R.   Co.  v.   Orton,   6 
J.  Eq.  548;  Osborn  v.  People,  103  111.  Sawy.  (U.  S.)  157. 
224;   Truckee,  &c.  Co.  v.  Campbell, 
ELL.  RAILROADS — 37 


§    407]  REAL   ESTATE.  578 

property  already  acquired  by  the  corporation.    There  is,  therefore, 
sound  reason  for  discriminating  between  the  two  classes  of  cases. 

§  407.  Executory  contract  of  purchase  not  enforceable  where  there 
is  no  power  to  hold  the  land. — The  general  principle  that  an  indi- 
vidual cannot  question  the  power  of  a  corporation  to  hold  real  estate 
except  in  cases  where  the  statute  authorizes  it55  does  not  apply  to  a  case 
where  a  corporation  seeks  to  enforce  a  contract  for  real  estate  which 
it  has  no  power  to  hold.56  A  corporation  cannot  invoke  judicial  aid 
where  the  purpose  of  the  suit  or  action  is  to  secure  property  of  which 
the  law  does  not  permit  it  to  become  the  owner.  It  would  be  strange, 
indeed,  if  a  corporation  could  obtain  a  judgment  or  decree  investing  it 
with  land  which  the  law  commands  it  not  to  take,  since  such  a  judg- 
ment or  decree  would  make  the  court  the  agent  of  a  party  in  violating 
the  law.  "Better  is  the  condition  of  the  defendant"  in  such  a  case. 

§  408.  Estoppel  of  parties  to  deeds  to  deny  corporate  existence. — 
The  well-known  general  rule  is  that  a  person  who  contracts  with  a  cor- 
poration is  estopped  to  deny  that  it  is  a  corporation,  and  this  rule  ap- 
plies to  a  grantor  who  conveys  land  to  a  corporation.57  It  may  be  true 
that  where  there  is  no  statute  authorizing  the  organization  of  a  cor- 
poration of  such  a  general  class  or  nature  as  that  named  as  grantee 
there  cannot  be  an  estoppel,  but  if  there  can  be  a  corporation  of  the 
general  class  or  nature  then  the  grantor  will  be  estopped.  In  other 
words,  if  there  can  be  a  de  facto  corporation  the  doctrine  of  estoppel 
will  effectively  operate.  An  estoppel  cannot  arise  where  there  is  a  clear 
and  explicit  statute  governing  the  subject  and  its  provisions  are  such 
as  to  preclude  the  operation  of  an  estoppel.58 

§  409.  Deed  to  company  not  in  existence. — The  doctrine  of  many 
of  the  cases  is  that  as  a  deed  is  a  contract  there  must  be  two  parties, 
and  hence  there  must  be  a  grantee.59  This  doctrine  has  been  applied 

65  Martindale  v.  Kansas  City,  &c.  v.  Michigan,  &c.  R.  Co.  24  Mich.  389. 

R.  Co.  60  Mo.  508.  In  Winget  v.  Quincy  Building  Assn. 

68  Case  v.  Kelly,  133  U.  S.  21,  10  128  111.  67,  21  N.  E.  12,  it  is  held 

Sup.  Ct.  216,  13  Am.  &  Eng.  R.  Cas.  that  there  is  an  estoppel,  even  if  the 

70.    But  see  as  to  selling  and  recov-  statute  be  unconstitutional, 

ering  price,  Natoma  Water,  &c.  Co.  v.  58  Workingmen's  Bank  v.  Converse, 

Clarkin,  14  Cal.  544;  Jones  v.  Haber-  29  La.  Ann.  369. 

sham,  107  U.  S.  174,  2  Sup.  Ct.  336.  M  Harriman  v.    Southam,  16   Ind. 

"Close  v.  Glenwood  Cemetery,  107  190;  Lyles  v.  Lescher  et  al.  108  Ind. 

U.  S.  466,  2  Sup.  Ct.  267;  Swartout  382,  9  N.  E.  365;  Huss  v.  Stephens, 


579 


DEED   TO    COMPANY    NOT   IN    EXISTENCE. 


•[§  409 


to  deeds  to  corporations  not  having  a  legal  existence.60  There  is  rea- 
son for  holding  that  where  it  appears  that  there  is  no  statute  authoriz- 
ing the  creation  of  any  such  corporation  as  the  one  named  in  the  deed 
the  grant  is  ineffective,  but  where  there  is  a  statute  authorizing  the 
organization  of  any  such  corporation,  with  power  to  make  such  a  con- 
tract, it  seems  to  us  that  the  deed  cannot  be  regarded  as  void  or  even 
voidable  in  all  cases.  If  there  is  a  statute  under  which  such  a  corpora- 
tion may  exist,  the  doctrine  of  estoppel  may  well  be  applied  in  many 
instances.  A  deed  is  valid  if  the  corporation  be  one  de  facto.61  There 
is  some  diversity  of  opinion  as  to  whether  a  deed  executed  before  the 
formation  of  a  corporation  which  is  subsequently  organized  is  valid.62 
Our  opinion  is  that  such  a  deed  may  be  valid  where  the  parties  all 
know  that  a  corporation  is  to  be  organized,  intend  that  the  deed  shall 
be  effective  when  the  corporation  comes  into  existence,  and  the  corpo- 
ration is  organized,  as  all  the  parties  intended  it  should  be.63  If  a 


51  Pa.  St.  282;  Stephens  v.  Huss,  54 
Pa.  St.  20;  Hall  v.  Leonard,  1  Pick. 
(Mass.)  27.  See  Hogan  v.  Page,  2 
Wall.  (U.  S.)  605;  Gage  v.  Newmar- 
ket, &c.  R.  Co.  18  Q.  B.  457;  Hunter 
v.  Watson,  12  Cal.  363,  73  Am.  Dec. 
543;  Morris  v.  Stephens,  46  Pa.  St. 
200;  Douthitt  v.  Stinson,  63  Mo.  268; 
German,  &c.  Assn.  v.  Scholler,  10 
Minn.  331;  Russell  v.  Topping,  5 
McLean  (U.  S.)  194;  3  Washburn 
Real  Prop.  (5th  ed.)  567. 

60  In  Harriman  v.  Southam,  16  Ind. 
190,  the  court  held  that  a  deed  to  a 
corporation  which  had  no  existence 
was  a  nullity  and  did  not  estop  the 
grantor,  hut  in  Snyder  v.  Stude- 
baker,  19  Ind.  462,  81  Am.  Dec.  415, 
the  earlier  case  was  overruled  and 
it  was  held  that  the  grantor  was  es- 
topped to  deny  the  existence  of  the 
corporation  to  which  the  deed  was 
made.  See  Rifssell  v.  Topping,  5 
McLean  (U.  S.)  194;  Douthitt  v.( 
Stinson,  63  Mo.  268;  German,  &c.' 
Association  v.  Scholler,  10  Minn. 
331;  Jackson  v.  Cory,  8  Johns.  (N. 
Y.)  385;  3  Elliott  Ev.  §  1940.  The 
court,  in  the  case  of  Provost  v.  Mor- 
gan, &c.  R.  Co.  42  La.  Ann.  809,  8 


So.  584,  46  Am.  &  Eng.  R.  Gas.  535, 
reaches  a  correct  conclusion  upon 
the  facts,  but  we  doubt  the  sound- 
ness of  some  of  the  broad  statements 
contained  in  the  opinion.  See  2  Am. 
Law  Reg.  &  Rev.  296;  2  Morawetz 
Corp.  Chap.  IX. 

61  Myers  v.  Croft,  13  Wall.  (U.  S.) 
291;  Smith  v.  Sheeley,  12  Wall.  (U. 
S.)     358.      As    we    have    elsewhere 
shown  such  a  deed  does  pass  title, 
and   as   no    one  but  the   state   can 
question  the  right  to  exercise  corpo- 
rate powers  or  hold  property  a  deed 
to  a  de  facto  corporation  cannot  be 
treated  as  a  nullity. 

62  Clifton  Heights,  &c.  Co.  v.  Ran- 
dell,  82  Iowa  89,  47  N.  W.  905;  Phila- 
delphia, &c.  Assn.  v.  Hart,  4  Wheat. 
(U.    S.)    1;    Rotch's   Wharf   Co.    v. 
Judd,  108  Mass.  224.    See,  also,  post, 
§  933. 

""Rathbone  v.  Tioga,  &c.  Co.  2 
Watts  &  S.  (Pa.)  74.  We  do  not  be- 
lieve, however,  that  where  there  is 
no  statute  authorizing  the  organiza- 
tion of  such  a  corporation  as  that 
contemplated  a  deed  would  be  valid. 
Subscriptions  to  a  contemplated 
corporation  may  be  valid  and  upon 


410] 


REAL   ESTATE. 


580 


deed  is  delivered  in  escrow  to  be  held  until  the  formation  of  the  pro- 
posed corporation,  it  will  be  valid  if  the  corporation  is  formed  as 
contemplated  and  a  delivery  made  to  it  after  its  organization.64 

§  410.  Formal  execution  of  conveyances  and  agreements  relating 
to  real  estate. — The  ancient  and  well-known  rule  is  that  where  the 
statute  prescribes  a  specific  mode  for  the  execution  of  corporate  con- 
tracts that  mode  must  be  substantially  pursued,66  but  it  does  not  fol- 
low that  in  all  cases  the  failure  to  pursue  the  prescribed  rule  will  ren- 
der the  contract  voidable.  Where  no  specific  mode  is  prescribed  the 
company  may  contract  in  the  usual  mode.  Where  the  law  requires  a 
seal  then  the  contract,  in  order  to  be  effective,  should  be  attested  by 
the  seal  of  the  corporation,  but  even  in  cases  where  a  seal  is  required 
the  conveyance  may  be  upheld,  although  no  seal  is  attached.  If  its  en- 
forcement be  required  by  the  general  principles  of  equity  the  absence 


the  same  principle  a  deed  may  be 
valid. 

64  In  the  case  of  Spring  Garden 
Bank  v.  Hulings  Lumber  Co.  32  W. 
Va.  357,  9  S.  E.  243,  3  L.  R.  A.  583, 
the  court  conceded  the  rule  to  be 
that  if  there  is  no  grantee  in  esse 
the  deed  would  be  inoperative,  citing 
Hulick  v.  Scovil,  4  Gilm.  (111.)  159; 
Harriman  v.  Southam,  16  Ind.  190, 
and  Russell  v.  Topping,  5  McLean 
(U.  S.)  194,  but  held  that  a  delivery 
in  escrow  made  the  deed  operative. 
In  the  course  of  the  opinion  the 
court  quoted  from  the  opinion  in 
Rotch's  Wharf  Co.  v.  Judd,  108  Mass. 
224,  228,  the  following:  "The  ac- 
ceptance of  the  deed  will  be  pre- 
sumed as  soon  as  the  plaintiffs  (the 
corporation)  were  competent  to  take 
it.  Concord  Bank  v.  Bellis,  10 
Gush.  (Mass.)  276;  Bank  of  U.  S. 
v.  Dandridge,  12  Wheat.  (U.  S.)  64, 
70."  The  case  of  Drury  v.  Foster, 
2  Wall.  (U.  S.)  24,  was  also  cited. 
In  support  of  the  rule  that  it  is  the 
duty  of  the  court  to  uphold  rather 
than  destroy  deeds  the  court  cited 
Sherwood  v.  Whiting,  54  Conn.  330, 
8  Atl.  80,  1  Am.  St.  116;  Plagg  v. 


Eames,  40  Vt.  16,  94  Am.  Dec.  363; 
African,  &c.  Church  v.  Conover,  27 
N.  J.  Eq.  157;  Shed  v.  Shed,  3  N.  H. 
432. 

65Beatty  v.  Marine,  &c.  Co.  2 
Johns.  (N.  Y.)  109,  3  Am.  Dec.  401; 
Salem  Bank  v.  Gloucester  Bank,  17 
Mass.  1,  9  Am.  Dec.  Ill;  note  to  Leg- 
gett  v.  New  Jersey  Mfg.  Co.  (1  Saxt. 
Ch.  541)  23  Am.  Dec.  742.  The 
courts  are  generally  reluctant  to  ad- 
judge a  contract  ineffective  because 
of  a  defect  in  the  mode  of  executing 
it.  Some  of  the  courts  hold  that  the 
rule  that  contracts  must  be  executed 
in  the  mode  prescribed  applies  only 
to  executory  contracts.  Pixley  v. 
Western  Pacific,  &c.  R.  Co.  33  Cal. 
183,  91  Am.  Dec.  623;  Cincinnati  v. 
Cameron,  33  Ohio  St.  336;  Foulke  v. 
San  Diego,  &c.  R.  Co.  51  Cal.  365. 
See  Rumbough  v.  Southern,  &c.  R. 
Co.  106  N.  C.  461,  11  S.  E.  528;  Cur- 
tis  v.  Piedmont,  &c.  Co.  109  N.  C.  401, 
13  S.  E.  944.  In  the  absence  of  stat- 
utory restrictions  a  corporation  may 
make  every  kind  of  a  deed.  Angell 
&  A.  Corp.  (llth  ed.)  §  220.  See, 
also,  note  in  23  Am.  Dec.  742  et  seq. 


581  CONTRACTS  UNDER  CORPORATE  SEAL — EFFECT  AS  EVIDENCE.  [§   411 

of  a  seal  will  not  defeat  the  title  of  the  grantee.  The  requirement  of 
the  statute  of  frauds  that  conveyances  of  land  shall  be  under  seal  ap- 
plies to  corporations,  and  deeds  conveying  real  estate  should  be  under 
the  corporate  seal,  but  while  such  an  unsealed  deed  does  not  satisfy 
the  statute  there  may  often  be  such  circumstances  connected  with  the 
execution  as  will  operate  to  estop  the  corporation  from  alleging  its 
invalidity.  A  deed  defectively  executed  is  voidable,  not  void,  for  as 
the  general  power  to  execute  deeds  exists  the  act  of  the  corporation  in 
executing  it  is  not  ultra  vires.  A  defectively  executed  deed  may  be 
made  good  by  ratification.  Where  the  statute  requires  conveyances 
of  land  to  be  under  seal,  corporate  deeds  must  be  under  the  seal  of 
the  corporation.68  Where  there  is  an  agreement  and  part  perform- 
ance, although  the  agreement  may  not  be  such  as  to  satisfy  the  statute 
of  frauds,  the  grantee  may  enforce  the  contract  substantially  under  the 
same  rules  as  those  which  govern  similar  contracts  between  indi- 
viduals. An  agreement  to  convey  land,  although  not  under  the  corpo- 
rate seal,  may  be  enforced  where  the  rules  which  apply  to  contracts 
between  natural  persons  entitle  the  party  to  enforce  a  contract  of  a 
similar  nature.67  A  distinction  is  made  between  an  agreement  to 
convey  or  lease  land  and  the  deed  or  lease,  and  it  is  held  that  although 
the  deed  in  the  one  case  must  be  executed  under  seal  an  unsealed 
agreement  is  effective.68 

§411.    Contracts  under  corporate  seal — Effect  as  evidence. — An 

agreement  evidenced  by  the  corporate  seal  is  prima  facie  evidence  that 
the  instrument  was  executed  by  the  corporation.69  Where  the  seal  is 
affixed  to  an  instrument  which  is  within  the  power  of  the  corporation 
to  execute,  that  is,  where  there  is  not  an  entire  absence  of  power  to 

*  Crawford  v.  Longstreet,  43  N.  J.  Simpson,  77  Cal.  286,  19  Pac.  426; 
L.  325.  A  valuable  collection  of  au-  Reed  v.  Bradley,  17  111.  321;  Leggett 
thorities  upon  the  subject  of  the  ef-  v.  New  Jersey,  &c.  Co.  1  N.  J.  Eq. 
feet  of  the  statute  upon  the  execu-  541,  23  Am.  Dec.  728;  Burrill  v.  Na- 
tion of  leases  will  be  found  in  Mr.  hant  Bank,  2  Mete.  (Mass.)  163,  35 
Freeman's  note  to  Wallace  v.  Scog-  Am.  Dec.  395;  Morse  v.  Beale,  68 
gins,  17  Am.  St.  752.  Iowa  463,  27  N.  W.  461;  Indianapo- 

87  Banks  v.  Poitiaux,  3  Rand.  (Va.)'  lis,  &c.  R.  Co.  v.  Morganstern,  103 
136,  15  Am.  Dec.  706;    Legrand  v.  111.  149;   Union,  &c.  Co.  v.  Bank,  2 
Hampden,  &c.  College,  5  Munf.  (Va.)  Colo.   226;    Boyce  v.   Montauk,   &c. 
324.  Co.  37  W.  Va.  73,  16  S.  E.  501;  Mis- 

88  Conant  v.  Bellow's  Falls,  &c.  Co.  souri,  &c.  Works  v.  Ellison,  30  Mo. 
29  Vt.  263.  App.  67;  Mickey  v.  Stratton,  5  Saw- 

88  Crescent    City,    &c.    R.    Co.    v.    yer  (U.  S.)  475. 


§  412] 


REAL   ESTATE. 


582 


execute  it,  the  presumption  is  that  it  was  duly  executed  by  the  corpo- 
ration. But,  of  course,  a  seal  will  not  give  even  prima  facie  validity 
to  the  instrument  where  it  appears  from  an  inspection  of  the  instru- 
ment itself  that  the  contract  in  question  is  ultra  vires  in  the  proper 
sense  of  the  term.  If  the  person  who  affixes  the  seal  has  no  authority 
to  do  so  the  seal  will  not  make  the  contract  effective.70  Where  the 
signatures  of  the  officers  are  shown  to  be  genuine  the  authenticity  of 
the  seal  will  be  presumed.71 

§  412.  Acceptance  of  deed. — A  deed  may  be  accepted  by  parol.72 
A  parol  acceptance  of  a  deed  binds  the  grantee  accepting  it  to  a  per- 
formance of  the  covenants  and  conditions  written  in  the  deed.73  The 
statute  of  frauds  cannot  be  made  available  to  defeat  the  performance 
of  the  agreements  which  the  deed  contains.  The  authorities  establish 
the  doctrine  that  the  person  for  whose  benefit  the  promise  is  made 
may  enforce  it.74 

§  413.    Distinction  between  a  donation  of  lands  and  a  sale. — The 

courts  make  a  distinction  between  a  donation  of  land  to  a  railroad  com- 
pany and  a  sale  of  land  to  it.75  The  distinction  exerts  an  important 
influence  in  many  cases.  Where  property  is  purchased  the  estate  of  the 
purchasing  company  is,  ordinarily,  greater  than  it  is  in  cases  where 


18  In  Luse  v.  Isthmus,  &c.  R.  Co.  6 
Oreg.  125,  25  Am.  R.  506,  the  presi- 
dent affixed  the  seal  to  a  mortgage 
of  one  of  the  company's  locomotives, 
and  it  was  held  that  he  had  no  au- 
thority to  use  the  seal.  The  court 
cited  Fink  v.  Canyon,  &c.  Co.  5 
Oreg.  301;  Hoyt  v.  Thompson,  5  N. 
Y.  320;  Angell  &  A.  Corp.  (llth  ed.) 
§§  223,  224.  A  somewhat  similar 
ruling  was  made  in  Gibson  v.  Gold- 
thwaite,  7  Ala.  281,  42  Am.  Dec.  592. 

71  Josey  v.  Wilmington,  &c.  R.  Co. 
12  Rich.  L.  (S.  Car.)  134;  Phillips 
v.  Coffee,  17  111.  154,  63  Am.  Dec. 
357;  Solomon's  Lodge  v.  Montmollin, 
58  Ga.  547;  Evans  v.  Lee,  11  Nev. 
194;  Susquehanna,  &c.  Co.  v.  Gen. 
Ins.  Co.  3  Md.  305,  56  Am.  Dec.  740; 
Barned's  Banking  Co.,  Re,  L.  "R.  3 
Ch.  105. 

"Smith's  Appeal,  69  Pa.  St.  474; 


Tripp  v.  Bishop,  56  Pa.  St.  424; 
Swisshelm  v.  Swissvale,  &c.  Co.  95 
Pa.  St.  367.  So,  as  elsewhere  shown, 
acceptance  may  often  be  presumed. 
See,  also,  1  Elliott  Ev.  §  108;  post, 
§  417. 

73  Harlan  v.  Logansport,  &c.  R.  Co. 
133   Ind.   323,   32   N.   E.   930;    Lake 
Erie,  &c.  R.  Co.  v.  Priest,  131  Ind. 
413,  31  N.  E.  77. 

74  Lawrence  v.  Fox,  20  N.  Y.  268; 
Moore  v.  Ryder,  65  N.  Y.  438;  Doug- 
lass v.  Wells,  57  How.  Pr.    (N.  Y.) 
378;  Stevens  v.  Flannagan,  131 'Ind. 
122,  30  N.  E.  898;  Jones  Mortgages, 
§§  763,  764. 

75  Roberts  v.  Northern  Pacific,  &c. 
R.  Co.  158  U.  S.  1,  15  Sup.  Ct.  756; 
Northern  Pacific  R.  Co.  v.  Roberts, 
42  Fed.   734.     See,  as  to   donation, 
Bravard  v.  Cincinnati,  &c.  R.  Co.  115 
Ind.  1,  17  N.  E.  183. 


583  DEEDS   OF    COMPANY — BY   WHOM   EXECUTED.  [§    414 

the  land  is  acquired  by  condemnation,  so  the  use  to  which  property 
acquired  by  purchase  may  be  devoted  is  often  less  limited  than  it  is  in 
cases  where  the  acquisition  is  by  virtue  of  the  power  of  eminent  do- 
main, and  so,  too,  the  power  to  purchase  property  for  a  corporate  pur- 
pose is  much  less  fettered  than  the  power  to  acquire  it  by  proceedings 
to  condemn.76 

§  414.  Deeds  of  company — By  whom  executed. — Where  the  statute 
expressly  designates  the  officers  or  agents  by  whom  deeds  shall  be  exe- 
cuted its  provisions  should  be  followed.  We  do  not  mean  to  say  that 
a  deed  executed  by  other  officers  or  agents  would  be  void,  for  deeds 
executed  within  the  corporate  power  are  not  void,  although  executed 
by  other  officers  or  agents  than  those  designated  by  statute.  Such  deeds 
may  be  ratified  and  so,  too,  they  may  become  practically  effective  where 
there  are  present  the  requisite  elements  of  an  estoppel.  A  deed  executed 
by  officers  other  than  those  designated  by  the  statute  is  not  an  ultra 
vires  act.  Where  the  power  to  perform  the  act  exists,  the  fact  that  it 
is  not  performed  by  the  proper  officers  is  a  defective  or  improper  exe- 
cution of  a  power,  but  it  is  nothing  more.  There  is  a  clear  distinction 
between  the  defective  execution  of  a  power  and  an  act  beyond  the  scope 
of  the  powers  of  the  corporation.  A  railroad  company  having  power  to 
convey  property  may,  in  the  absence  of  statutory  provisions,  con- 
vey it  by  such  officers  or  agents  as  it  may  select.77  There  is  no  con- 
flict upon  the  general  question,  and  the  doctrine  is  so  well  settled 
that  we  deem  it  unnecessary  to  cite  many  authorities. 

§  415.     Construction  of  deeds  to  railroad  companies — Generally. — 

Deeds,  conveying  to  a  railroad  company  what  is  called  "surplus  real 
estate,"  that  is,  real  estate  not  essential  to  the  construction  or  operation 
of  the  road  are  to  be  construed  by  substantially  the  same  rules  as 
those  which  govern  the'  construction  of  ordinary  private  grants,  but 
conveyances  granting  to  the  company  property  essential  to  the  con- 
struction and  operation  of  the  road  are,  in  many  respects,  so  peculiar 
that  the  ordinary  rules  for  the  construction  of  deeds  do  not  supply  the 
means  of  solving  questions  which  arise  in  cases  involving  the  con- 
struction and  effect  of  such  conveyances.  Many  deeds  convey  land  for 
"a  right  of  way,"  and  the  extent  of  the  estate  conveyed  by  such  a  deed 
is  to  be  determined  by  ascertaining  what  constitutes  a  right  of  way. 

78  Ante,  §  399.  TT  Morris  v.  Keil,  20  Minn.  531,  Ba- 

son v.  King's,  &c.  Co.  90  N.  C.  417. 


§'  415] 


EEAL   ESTATE. 


584 


In  an  Iowa  case  the  landowner  conveyed,  by  deed  of  quit  claim,  "a 
right  of  way  for  all  purposes  connected  with  the  construction,  use  or 
occupation  of  said  railroad,"  and  it  was  adjudged  that  the  grantee 
could  not  take  sand  from  the  land  for  use  in  the  erection  of  a  round- 
house, and  that  the  grantor  might  take  sand  for  any  purpose,  provided 
he  did  not  interfere  with  the  legitimate  use  of  the  land  by  the  com- 
pany.78 The  decision  in  the  case  cited  may  be  supported  upon  the 
theory  that  the  words  "right  of  way"  are  controlling,  and  are  not  modi- 
fied or  limited  by  the  words  with  which  they  are  associated.  It  cannot 
be  supported  upon  the  theory  that  the  construction  of  a  roundhouse 
is  not  a  purpose  connected  with  the  construction,  use  and  operation 
of  a  railroad.  Providing  a  place  for  sheltering  the  locomotives  used 
in  operating  the  road  is  executing  a  purpose  reasonably  connected  with 
the  construction  and  use  of  the  road.79  The  rulings  in  similar  cases 
authorize  and  support  this  conclusion.80  The  necessity  which  will 
authorize  a  railroad  company  to  receive  and  hold  land  need  not  be  an 
absolute  one,  nor  need  it  appear  that  the  land  is  indispensable  to  the 
construction  or  operation  of  the  road,  but  it  is  sufficient  if  there  is  a 
reasonable  necessity  for  taking  and  holding  the  land,81  so  that  where  a 
conveyance  is  made  granting  such  property  as  is  necessary  for  the  con- 
struction and  operation  of  the  road,  it  conveys  such  property  and  es- 
tate as  is  reasonably  necessary  for  the  construction  or  operation  of  the 
road.  The  term  "right  of  way,"  it  has  been  held,  describes  the  tenure 
and  not  the  land  granted.82  We  suppose,  however,  that  the  term  "right 


78Vermilya  v.  Chicago,  &c.  R.  Co. 
66  Iowa  606,  24  N.  W.  234,  55  Am. 
R.  279,  23  Am.  &  Eng.  R.  Cas.  108. 

78  New  York,  &c.  R.  Co.  v.  Kip,  46 
N.  Y.  546,  7  Am.  R.  385;  Hannibal, 
&c.  R.  Co.  v.  Muder,  49  Mo.  165. 

80  Mallett  v.  Simpson,  94  N.  C.  37, 
55  Am.  R.  594;  Lyde  v.  Eastern,  &c. 
R.  Co.  36  Beav.  10;  Grand  Trunk  R. 
Co.  v.  Richardson,  91  U.  S.  454;  Old 
Colony,  &c.  R.  Co.  v.  Evans,  6  Gray 
(Mass.)  25,  66  Am.  Dec.  394;  Cum- 
berland, &c.  R.  Co.  v.  McLanahan, 
59  Pa.  St.  23;  Spofford  v.  Bucksport, 
&c.  R.  Co.  66  Me.  26;  Chicago,  &c. 
R.  Co.  v.  Wilson,  17  111.  123;  Stro- 
hecker  v.  Alabama,  &c.  R.  Co.  42  Ga. 
509. 


81  State  v.   Hancock,   35   N.   J.   L. 
537;  State  v.  Commissioners,  &c.  23 
N.   J.   Law   510,   57   Am.   Dec.   409; 
Worcester  v.  Western  R.  Co.  4  Mete. 
(Mass.)    564;    Curtis  v.  Leavitt,  15 
N.  Y.  9. 

82  Atlantic,  &c.  R.  Co.  v.  Lesueur 
(Ariz.),  19  Pac.  157,  37  Am.  &  Eng. 
R.  Cas.  368.     In  the  case  cited,  in 
speaking  of  the  argument  of  counsel, 
the  court  used  this  language:    "It  is 
said  that  the  term  right  of  way  is 
used  to  describe  the  land  granted; 
that  is,  that  these  are  words  of  de- 
scription rather  than  of  tenure.   We 
cannot  concur  with  this  view,  and 
no  authority  can  be  found  which  so 
holds." 


585  DEEDS   TO   RAILROAD   COMPANIES — CONSTRUCTION   OF.      [§   416 


of  way"  may  sometimes  mean  the  land  occupied  by  the  company,83 
but  ordinarily,  perhaps,  it  cannot  be  regarded  as  descriptive  of  the  real 
estate  conveyed.  The  meaning  of  the  term  may  be  controlled  by  asso- 
ciated words  and  sometimes  by  the  circumstances  under  which  the  deed 
is  executed.84 

§  416.  Deeds  to  railroad  companies — Construction  of — Conditions. 
— The  acceptance  of  a  deed  containing  conditions  imposes  upon  the 
company  accepting  it  the  duty  of  performing  such  covenants  and  con- 
ditions.85 Thus  a  condition  in  a  deed  granting  land  to  a  railroad  com- 
pany for  a  right  of  way,  "providing  the  same  does  not  interfere  with 
buildings,"  and  providing  also  that  in  the  event  that  the  right  of  way 
shall  interfere  with  buildings  the  grantee  shall  pay  damages,  is  bind- 
ing upon  the  grantee.86  In  one  case  it  was  held  that  where  the  convey- 
ance contained  a  condition  requiring  the  company  to  construct  cattle 
guards  at  crossings  the  grantor  might  enforce  specific  performance  of 
the  contract  or  enforce  a  lien  for  the  expense  of  constructing  proper 
cattle  guards.87  A  condition  that  the  grantee  shall  fence  is  operative 
upon  the  grantee  although  there  is  nothing  more  than  a  parol  accept- 
ance of  the  deed.88  The  result  to  which  the  authorities  lead  is  this :  a 
railroad  company  cannot  be  permitted  to  enjoy  the  easement  and  yet 
refuse  to  perform  the  conditions  of  the  contract  which  created  the 
easement  or  vested  the  estate  conveyed  in  the  grantee.89  The  condi- 


88  See  ante,  §  5. 

"Reidinger  v.  Marquette,  &c.  R. 
Co.  62  Mich.  29,  28  N.  W.  775,  14  Am. 
&  Eng.  Corp.  Cas.  394;  Hall  v.  Ionia, 
38  Mich.  493. 

85  Cambridge  v.  Charlestown,  &c. 
R.  Co.  7  Mete.  (Mass.)  70.  See,  also, 
Harlan  v.  Logansport,  &c.  R.  Co. 
133  Ind.  323,  32  N.  E.  930;  Louis- 
ville, &c.  R.  Co.  v.  Power,  119  Ind. 
269,  21  N.  E.  751;  Chattanooga,  &c. 
R.  Co.  v.  Davis,  89  Ga.  708,  15  S.  E. 
626;  Gray  v.  Chicago,  &c.  R.  Co.  189 
111.  400,  59  N.  E.  950. 

""Rathbone  v.  Tioga,  &c.  Co.  2 
Watts  &  S.  (Pa.)  74. 

87  Dayton,  &c.  R.  Co.  v.  Lewton,  20 
Ohio  St.  401.  In  Davies  v.  St.  Louis, 
&c.  R.  Co.  56  Iowa  192,  9  N.  W.  117, 
it  was  held  that  the  grantor  has  a 


vendor's  lien  if  the  grantee  fails  to 
pay  the  purchase  money.  See,  on 
the  general  subject,  Kansas  Pacific 
R.  Co.  v.  Hopkins,  18  Kans.  494. 

88  Midland,   &c.   R.   Co.   v.   Fisher, 
125  Ind.  19,  24  N.  E.  756,  8  L.  R.  A. 
604,  21  Am.  St.  189,  43  Am.  &  Eng. 
R.  Cas.  578.     See,  generally,  Louis- 
ville, &c.  R.  Co.  v.  Power,  119  Ind. 
269,  21  N.  E.  751. 

89  Donald  v.  St.  Louis,  &c.  R.  Co. 
52  Iowa  411,  3  N.  W.  462;  Huston  v. 
Cincinnati,  &c.  R.  Co.   21  Ohio   St. 
235;    Atlantic  Dock  Co.  v.  Leavitt, 
50  Barb.   (NY.)   135;  Duffy  v.  New 
York,  &c.  R.  Co.   2  Hilton    (N.  Y.) 
496;   Cincinnati   (Pittsburg),  &c.  R. 
Co.  v.  Bosworth,  46  Ohio  St.  81,  38 
Am.  &  Eng.  R.  Cas.  290;   Midland, 

.&c.  R.  Co.  v.  Fisher,  125  Ind.  19,  24 


§    417]  EEAL   ESTATE.  586 

tion  must,  of  course,  be  a  valid  one,  for  an  illegal  condition  has  no 
effect.90 

§  417.  Grants — Beneficial — Presumption  of  acceptance. — The  gen- 
eral rule  is  that  where  a  grant  to  a  railroad  company  is  beneficial  no 
formal  acceptance  is  required,  and  that  in  the  absence  of  countervail- 
ing facts  an  acceptance  of  a  beneficial  grant  will  be  presumed.91  If 
the  statute  requires  an  acceptance  to  be  evidenced  in  a  prescribed  mode 
there  must,  as  a  rule,  be  an  acceptance  in  the  mode  prescribed ;  in  other 
words,  there  must  be  a  substantial  compliance  with  the  provisions  of 
the  statute.  The  rule  is  that  deeds  will  be  upheld  where  it  can  be 
justly  and  reasonably  done,  and  presumptions  in  favor  of  their  effect- 
iveness are  generally  made. 

§  418.  Incidents  pass  with  principal  thing  granted. — Where  there 
is  a  grant  of  a  principal  thing  all  the  necessary  incidents  essential  to 
the  enjoyment  of  the  principal  thing  usually  pass  to  the  grantee.92 
"Where  there  is  a  grant  of  land  for  use  by  a  railroad  company  in  operat- 
ing its  road  the  grant  conveys  the  right  to  use  the  land  for  that  purpose 
and  the  grantee  cannot  recover  damages  for  injuries  caused  by  a  rea- 
sonably careful  operation  of  the  road.93  The  principle  asserted  in  the 

N.  E.  756,  21  Am.  St.  189,  43  Am.  &  &  Eng.  R.  Cas.  611;  Babcock  v.  West- 

Eng.  R.  Cas.  578.    See,  also,  Semple  ern,  &c.  Corp.  9  Metcf.   (Mass.)  553, 

v.  Cleveland,  &c.  R.  Co.  172  Pa.  St.  43  Am.  Dec.  411.     See,  also,  Louis- 

369,  33  Atl.  564;   Gratz  v.  Highland  ville,  &c.  R.  Co.  v.  French,  100  Tenn. 

Scenic  R.  Co.  165  Mo.  211,  65  S.  W.  209,  43  S.  W.  771,  66  Am.  St.  752. 

223;  Knoxville,  &c.  R.  Co.  v.  Beeler,  93  Chicago,  &c.  R.  Co.  v.  Smith,  111 

90   Tenn.   548,   18    S.   W.   391;    post,  111.  363,  29  Am.  &  Eng.  R.  Cas.  558, 

§  939  et  seq.  citing  Chicago,  &c.  R.  Co.  v.  Spring- 

90  St.  Louis,  &c.  R.  Co.  v.  Mathers,  field,  &c.  R.  Co.  67  111.  142 ;  Keiths- 

71  111.  592,  22  Am.  R.  122;  Hammond  burg,  &c.   R.   Co.  v.   Henry,   79    111. 

v.  Port  Royal,  &c.  R.  Co.  15  S.  Car.  290;   Norris  v.  Vermont,  &c.  R.  Co. 

10;   Lynn  v.  Mount  Savage,  &c.  R.  28   Vt.   99.     See,  also,   Chicago,  &c. 

Co.   34  Md.   603;    Kettle  River,   &c.  Co.  v.  Loeb,  118  111.  203,  8  N.  E.  460, 

R.    Co.    v.   Eastern,   &c.   R.    Co.    41  59  Am.  R.  341;  Lafayette,  &c.  v.  New 

Minn.  461,  43  N.  W.  469,  40  Am.  &  Albany,  &c.  Co.  13  Ind.  90,  74  Am. 

Eng.  R.  Cas.  449.                                     .  Dec.  246;   Swinney  v.  Fort  Wayne, 

91Bangor,  &c.  R.  Co.  v.  Smith,  47  &c.  R.   Co.   59   Ind.  205;    Lafayette, 

Me.    34;    Charles    River    Bridge    v.  &c.    Co.   v.    Murdock,    68    Ind.    137; 

Warren  Bridge,  7  Pick.  (Mass.)  344;  Indiana,   &c.    R.    Co.    v.   Allen,    113 

Rathbone    v.    Tioga,    &c.    R.    Co.    2  Ind.  308,  15  N.  E.  451,     3  Am.  St. 

Watts  &  S.  (Pa.)  74.  650;    White  v.   Chicago,  &c.  R.  Co. 

»2Reidinger  v.   Marquette,  &c.   R.  122  Ind.  317,  23  N.  E.  782. 
Co.  62  Mich.  29,  28  N.  W.  775,  29  Am. 


587. 


DESIGNATION  OF  PURPOSE  IN  DEED. 


[§  419 


cases  to  which  we  have  referred  is  one  of  practical  importance  and 
leads  to  material  results.  It  prevents  a  grantor  from  successfully  as- 
serting a  claim  for  damages  for  injuries  from  noise,  smoke  and  the 
like,  resulting  from  the  proper  operation  of  the  road,  and  it  precludes 
him  from  successfully  prosecuting  an  action  for  a  nuisance,  although 
annoyance  from  smoke,  noise  and  similar  things  necessarily  incident 
to  the  operation  of  the  road  is  suffered  by  him.94  But  the  grant  does 
not  exonerate  the  company  from  liability  for  injury  caused  by  its 
negligence,  nor,  it  may  be  said  in  passing,  do  the  damages  assessed  in 
condemnation  proceedings  cover  loss  caused  by  the  negligence  of  the 
company. 

§  419.  Effect  of  designating  in  the  deed  the  purpose  for  which 
land  is  granted. — The  designation  of  the  purpose  for  which  the  land 
is  granted  is  sometimes  regarded  as  creating  a  condition  subsequent 
and  as  defining  and  limiting  the  title  of  the  grantee.95  The  effect  of 
a  deed  is  not,  as  a  rule,  to  be  determined  from  a  single  clause,  but  the 
whole  instrument  must  be  considered.  It  is  to  be  read  by  the  light  of 
surrounding  circumstances,96  and  given  such  effect  as  the  parties  in- 
tended it  should  have.97 


MDunsmore  v.  Central  R.  Co.  72 
Iowa  182,  33  N.  W.  456;  Handle  v. 
Pacific,  &c.  R,  Co.  65  Mo.  325 ;  Cosby 
v.  Owensboro,  &c.  R.  Co.  10  Bush 
(Ky.)  288;  Struthers  v.  Dunkirk, 
&c.  R.  Co.  87  Pa.  St.  282. 

""Ottumwa,  &c.  R.  Co.  v.  McWil- 
liams,  71  Iowa  164,  32  N.  W.  315,  29 
Am.  &  Eng.  R.  Gas.  544;  Robinson 
v.  Missisquoi  R.  Co.  59  Vt.  426,  10 
Atl.  522,  30  Am.  &  Eng.  R.  Gas.  299. 
See,  generally,  Gadberry  v.  Shep- 
pard,  27  Miss.  203;  Adams  v.  Logan 
Co.  11  111.  336;  Harris  v.  Shaw,  13  111. 
456;  State  v.  Brown,  27  N.  J.  L.  13; 
Wiggins  Ferry  Co.  v.  Ohio,  &c.  R. 
Co.  94  111.  83;  Morrill  v.  Wabash, 
Ac.  R.  Co.  96  Mo.  174,  9  S.  W.  657. 

96  It  has  been  held  that  a  deed  for 
a  nominal  consideration,  to  railroad 
companies,  which  recites  that  the 
conveyance  is  "for  the  erection  and 
maintenance  thereon  of  the  freight- 


houses  which  said  companies  or  ei- 
ther of  them  *  *  *  and  for  such 
other  general  railroad  purposes  as 
may  be  necessary" — conveys  abso- 
lute title,  and  is  not  conditioned 
upon  the  erection  of  said  freight- 
houses,  so  as  to  enable  the  grantor 
to  have  it  canceled  upon  failure  to 
erect  them.  Noyes  v.  St.  Louis,  &c. 
R.  Co.  (111.)  21  N.  E.  487. 

97  Louisville,  &c.  R.  Co.  v.  Koelle, 
104  111.  455,  11  Am.  &  Eng.  R.  Gas. 
301;  Koelle  v.  Knecht,  99  111.  396; 
Hadden  v.  Shoutz,  15  111.  582;  Ne- 
waygo,  &c.  Co.  v.  Chicago,  &c.  R. 
Co.  64  Mich.  114,  30  N.  W.  910,  29 
Am.  &  Eng.  R.  Gas.  505.  In  Lock- 
wood  v.  Ohio  River  R.  Co.  103  Fed. 
243,  it  is  said  that  an  agreement 
prepared  by  the  company  should  be 
construed  most  strongly  against  it 
in  case  of  ambiguity  and  doubt 


§'  420] 


REAL    ESTATE. 


588 


§  420.  Covenants  that  run  with  the  land. — Many  covenants  pecu- 
liar to  conveyances  to  railroad  companies  run  with  the  land.  If  the 
covenant  is  a  direct  and  not  a  collateral  one  it  runs  with  the  land  and 
hinds  remote  grantees.88  The  weight  of  authority  is  that  a  covenant 
to  fence  runs  with  the  land."  A  parol  agreement  to  maintain  a  fence 
does  not  run  with  the  land.100 

§  421.  Merger  of  preliminary  agreement  in  deed. — The  general 
rule  is  that  a  preliminary  agreement  providing  for  the  conveyance 'of 
land  is  merged  in  the  deed.101  This  rule  applies  to  a  contract  made 
with  a  railroad  company  for  the  conveyance  of  land.102  The  rule  is  a 
familiar  one  and  is  one  of  great  practical  importance  in  cases  where 
the  question  relates  to  the  grant  of  a  right  of  way. 


"Easter  v.  Little  Miami,  &c.  R. 
Co.  14  Ohio  St.  48;  Kellogg  v.  Rob- 
inson, 6  Vt.  276,  27  Am.  Dec.  550; 
Hazlett  v.  Sinclair,  76  Ind.  488,  40 
Am.  R.  254,  and  authorities  cited; 
Hartung  v.  Witte,  59  Wis.  285,  18  N. 
W.  175;  Bronson  v.  Coffin,  108  Mass. 
175, 11  Am.  R.  335;  Burbank  v.  Pills- 
bury,  48  N.  H.  475;  Countryman  v. 
Deck,  13  Abb.  N.  C.  (N.  Y.)  105; 
Cincinnati  (Pittsburg),  &c.  Co.  v. 
Bosworth,  46  Ohio  St.  81,  38  Am.  & 
Eng.  R.  Cas.  290;  Blain  v.  Taylor, 
19  Abb.  Pr.  (N.  Y.)  228;  Midland, 
&c.  R.  Co.  v.  Fisher,  125  Ind.  19,  24 
N.  E.  756,  8  L.  R.  A.  604,  21  Am.  St. 
180,  43  Am.  &  Eng.  R.  Cas.  578; 
Fresno,  &c.  Co.  v.  Rowell.  80  Cal. 
114,  22  Pac.  53,  13  Am.  St.  112; 
Scott  v.  Stetler,  128  Ind  385, 
27  N.  E.  721.  See,  generally,  as 
to  what  covenants  do  and  what 
do  not  run  with  the  land,  Mo- 
bile, &c.  R.  Co.  v.  Gilmer,  85  Ala. 
422,  5  So.  138;  Lyford  v.  North  Pac. 
&c.  R.  Co.  92  Cal.  93,  28  Pac.  103; 
Chappell  v.  New  York,  &c.  R.  Co. 
62  Conn.  195,  24  Atl.  997;  Elizabeth- 
town,  &c.  R.  Co.  v.  Wright,  21  Ky. 
L.  128,  50  S.  W.  1105;  Hammond  v. 
Port  Royal,  &c.  R.  Co.  16  S.  Car.  573; 
post,  §  945. 

"Cincinnati    (Pittsburg),    &c.    R. 


Co.  v.  Bosworth,  46  Ohio  St.  81,  38 
Am.  &  Eng.  R.  Cas.  290;  Midland, 
&c.  R.  Co.  v.  Fisher,  125  Ind.  19,  24 
N.  E.  756,  8  L.  R.  A.  604,  21  Am.  St. 
189,  43  Am.  &  Eng.  R.  Cas.  578; 
Countryman  v.  Deck,  13  Abb.  N.  C. 
(N.  Y.)  105;  post,  §§  945,  1149,  1188, 

100  Kentucky  Central,  &c.  R.  Co.  v. 
Kenney,  10  Ky.  L.  251,  8  S.  W.  201, 
20  Am.  &  Eng.  R.  Cas.  458;   Morss 
v.  Boston,  &c.  R.  Co.  2  Gush.  (Mass.) 
536;  Wilder  v.  Maine  Central  R.  Co. 
65  Me.  332,  20  Am.  R.  698;   Vande- 
grift  v.  Delaware,  &c.  R.  Co.  2  Houst. 
(Del.)   287;    Pitkin  v.  Long  Island, 
&c.  R.  Co.  2  Barb.  Ch.   (N.  Y.)   221, 
47  Am.  Dec.  320;  Day  v.  New  York 
Central  R.  Co.  31  Barb.  (N.  Y.)  548. 

101  Twyf ord  v.  Wareup,  Cases  temp. 
Finch    310;    Bailey    v.    Snyder,    13 
Sergt.  &  R.   (Pa.)   160;  Williams  v. 
Morgan,  15  Q.  B.  782;  Frederick  v. 
Campbell,  13  Sergt.  &  R.  (Pa.)  136; 
Smith  v.  Evans,  6  Binney  (Pa.)  102, 
6    Am.    Dec.    436;    Houghtaling    v. 
Lewis,  10  Johns.  (N.  Y.)  297;  Hag- 
gerty   v.    Fagan,    2    Penrose   &  W. 
(Pa.)  533;  Phillbrook  v.  Emswiler, 
92  Ind.  590. 

102Waldron  v.  Toledo,  &c.  R.  Co. 
55  Mich.  420,  21  N.  W.  870,  20  Am. 
&  Eng.  R.  Cas.  348;  Druse  v. 
Wheeler,  22  Mich.  439. 


589  BONDS   FOR   CONVEYANCE — SPECIFIC   PERFORMANCE.       [§   422 

§  422.  Bonds  for  conveyance — Specific  performance. — A  railroad 
company  acting  within  the  scope  of  its  authority  may  take  a  bond, 
often  called  "a  title  bond,"  for  the  conveyance  qf  land.  If  the  bond  is 
sufficiently  specific  and  certain,  presents  the  necessary  equitable  ele- 
ments and  the  conditions  on  the  part  of  the  company  are  performed, 
specific  performance  will  be  decreed.103  The  rule  which  requires  con- 
tracts to  be  specific  and  certain  will  defeat  a  specific  performance  where 
the  price  is  not  agreed  upon  but  is  left  to  be  fixed  by  an  umpire.104 
If,'  however,  the  price  has  been  definitely  and  finally  fixed  by  the  um- 
pire, specific  performance  may  be  decreed.105  There  must  be  such  a 
consideration  as  the  court  can  justly  regard  as  equitable ;  but  where  the 
contract  recites  that  the  agreement  to  build  the  road  forms  part  of  the 
consideration,  the  fact  that  the  land  agreed  to  be  conveyed  is  much 
more  valuable  than  the  price  named  will  not  defeat  the  suit.106  It  has 
been  held  that  the  fact  that  the  road  has  not  been  completed  within 
the  time  limited  by  the  statute  will  not  avail  the  obligor  as  a  defense 
for  the  reason  that  only  the  state  can  make  that  question,107  but  the 
failure  may,  as  it  seems  to  us,  be  of  such  a  character  as  to  render  it 
inequitable  to  enforce  the  contract,  and  if  that  be  so,  then,  upon  well- 
established  principles,  specific  performance  will  not  be  decreed.108 

108  Walker  v.  Eastern,  &c.  R.  Co.  6  See  Tillett  v.  Charing  Cross  Co.  26 

Hare    594;     Sanderson    v.    Cocker-  Beav.  419. 

mouth,   &c.   R.    Co.   11   Beav.   497;  10B  Brown     v.     Bellows,     4     Pick. 

Boston,   &c.    R.    Co.   v.    Babcock,    3  (Mass.)  179. 

Cush.   (Mass.)   228;  Chicago,  &c.  R.  108Ottumwa,  &c.  R.  Co.  v.  McWil- 

Co.  v.  Swinney,  38  Iowa  182;  Byers  liams,  71  Iowa  164,  32  N.  W.  315,  29 

v.  Denver,  &c.  R.  Co.  13  Colo.  552,  Am.  &  Eng.  R.  Cas.  544.    But  fraud 

22  Pac.  951.     As  to  what  is  a  suffi-  will   justify   the   court   in   refusing 

cient  description  of  the  land,  see  Ot-  specific  performance.    Grand  Tower, 

tumwa,  &c.  R.  Co.  v.  McWilliams,  71  &c.  R.  Co.  v.  Walton,  150  111.  428,  37 

Iowa  164,  32  N.  W.  315,  29  Am.  &  N.  E.  920. 

Eng.  R.  Cas.  544,  citing  Pursley  v.  1OTRoss  v.  Chicago,  &c.  R.  Co.  77 

Hayes,  22  Iowa  11,  92  Am.  Dec.  350;  111.  127.    See  Atlantic,  &c.  R.  Co.  v. 

Beal  v.  Blair,  33  Iowa  318;  Barlow  St.  Louis,  66  Mo.  228. 

v.  Chicago,  &c.  R.  Co.  29  Iowa  276;  108Coe  v.  New  Jersey  Midland  R. 

Spangler  v.  Danforth,  65   111.   152;  Co.  31  N.  J.  Eq.  105;  Webb  v.  Direct 

Telford  v.  Chicago,  &c.  R.  Co.  172  London,   &c.    R.    Co.    9    Hare    129; 

111.    559,    50   N.    E.    105;    Mead   v.  CJarke  v.  Rochester,  &c.  R.  Co.  18 

Parker,   115   Mass.   413,  15   Am.   R.  Barb.    (N.  Y.)    350;   Gooday  v.  Col- 

110;  Hurley  v.  Brown,  98  Mass.  545,  Chester,  &c.  R.   Co.   17   Beav.   132; 

96  Am.   Dec.   671.     See,  also,  post,  Edwards  v.  Grand  Junction,  &c.  R. 

§§  935,  936.  Co.  1  Myl.  &  C.   650    (13  Eng.  Ch. 

^Milnes  v.  Gery,  14  Vesey  400.  559);  Hawkes  v.  Eastern,  &c.  R.  Co. 


§   423]  REAL  ESTATE.  590 

§  423.  Presumption  that  there  is  power  to  hold  the  land. — Where 
a  corporation  is  authorized  to  hold  land  for  certain  purposes,  a  convey- 
ance of  land  to  it  will -be  presumed  to  be  for  some  purpose  within  the 
corporate  powers,  unless  the  contrary  is  clearly  shown.109  The  pre- 
sumption cannot  obtain  where  it  appears  upon  the  face  of  the  deed  and 
from  a  reference  to  the  statute  that  the  company  had  no  power  to  ac- 
quire and  hold  the  property,  but  there  are  very  few  cases  in  which  the 
presumption  will  not  be  made. 

§  424.  Power  to  convey  real  estate. — A  railroad  company  has 
power  to  convey  lands  of  which  it  is  the  owner,  except  where  some  rule 
of  law  or  some  statute  prohibits  it  from  conveying  its  property.  It  is 
to  be  remembered,  however,  that  the  rule  to  which  we  have  often  re- 
ferred, prohibiting  a  railroad  company  from  disabling  itself  from  per- 
forming its  duties,  operates  as  a  limitation  upon  the  power  of  disposi- 
tion. The  power  of  a  railroad  company  is,  therefore,  not  so  unfettered 
as  that  of  a  purely  private  corporation.  The  right  to  convey  its  sur- 
plus land,  that  is,  land  not  essential  to  enable  it  to  perform  its  cor- 
porate duties,  is  substantially  the  same  as  that  of  a  strictly  private 
business  corporation.  A  private  business  corporation  has  general  power 
to  convey,110  and  it  follows  from  what  we  have  said  that  as  to  surplus 
property  the  power  of  railroad  companies  is  one  of  a  general  nature. 

§  425.  Dedication  of  land  for  use  as  a  highway. — A  railroad  cor- 
poration may  dedicate  to  public  use  a  highway  across  lands  owned  by 
it  and  used  for  its  railroad  tracks.111  Indeed,  it  is  a  general  rule  that 

1  DeG.,  M.  &  G.  737;  Wycombe,  &c.  Co.  114  Mass.  37;  Buell  v.  Bucking- 

R.  Co.  v.  Donnington  Hospital,  L.  R.  ham,  16  Iowa  284,  85  Am.  Dec.  516; 

1  Ch.  268.  Newark  v.  Elliott,  5  Ohio  St.   113; 

109  McCarty  v.  St.  Paul,  &c.  R.  Co.  Miners',    &c.    Co.    v.    Zellerbach,    37 

31  Minn.  278,  17  N.  W.   616;    Ohio,  Cal.  543,  99  Am.  Dec.  300. 

&c.  R.  Co.  v.  McCarthy,  96  U.  S.  258;  1U  Central  R.  Co.  v.   Bayonne,  52 

Yates   v.   Van   DeBogert,    56   N.   Y.  N.   J.   L.   503,   20  Atl.   69;    Hast  v. 

526;  Gilmer  v.  Stone,  120  U.  S.  586,  7  Piedmont,  &c.  R.  Co.  52  W.  Va.  396, 

Sup.  Ct.  689;  Brewer,  &c.  Co.  v.  Bod-  44    S.    E.    155,    156     (citing    text); 

die,  181  111.  622,  55  N.  E.  49.  Southern  Pac.   Co.  v.   Pomona,   144 

""Patent,  &c.  Co.,  In  re,  L.  R.  6  Ch.  Cal.  339,  77  Pac.  929   (citing  text). 

83;   Aurora,  &c.  Co.  v.  Paddock,  80  See,  also,  Matthews  v.  Seaboard  Air 

111.    263;    White   Water,   &c.    Co.   v.  Line  R.  67  S.  Car.  499,  46  S.  E.  335, 

Vallette,  21  How.  (U.  S.)  414;  Barry  336,  65  L.  R.  A.  286    (citing  text), 

v.  Merchants',  &c.  Co.  1  Sandf.  Ch.  In    the   West   Virginia    case    above 

(N.  Y.)   280;  Dupee  v.  Boston,  &c.  cited,   however,   it  is   further  held 


591  PROPERTY   CORPORATION   CANNOT   TAKE — ESCHEAT.       [§426 

either  public  or  private  corporations  may  make  dedications  unless  they 
are  forbidden  by  their  charter  or  the  governing  statute.112  Thus,  where 
the  Northern  Pacific  Eailroad  Company  made  an  addition  to  a  town 
on  a  section  of  land  granted  to  it  by  congress,  and  sold  lots  with  refer- 
ence to  a  recorded  plat  thereof,  it  was  held  that  a  street  which  was 
shown  on  the  plat  as  extending  across  the  railroad  track  must  be  re- 
garded as  dedicated  to  the  public  use,  that  this  was  not  ultra  vires  as 
an  alienation  of  its  right  of  way  so  as  to  interfere  with  the  purpose  of 
the  grant  made  by  congress,  and  that  it  had  no  right  to  block  the 
street  by  the  erection  of  a  depot  at  that  point.113  So,  where  a  railroad 
company  for  eighteen  years  permitted  the  public  to  use  a  crossing  as 
a  street,  parted  its  trains  to  let  vehicles  through,  allowed  it  to  be  im- 
proved as  a  street,  and  made  a  map  showing  the  existence  of  such  a 
street,  it  was  held  that  a  valid  dedication  was  shown  and  that  the  com- 
pany was  estopped  from  denying  the  existence  of  the  street,  especially 
as  persons  had  bought  lots  and  built  houses  on  both  sides  of  the  street 
upon  the  faith  that  it  extended  across  the 'company's  right  of  way.114 
In  another  case  it  was  held  that  the  dedication  of  a  portion  of  its  land 
by  a  railroad  company  to  the  public  as  a  highway  was  not  ultra  vires, 
and  that  its  uninterrupted  use  as  a  highway  for  four  years  by  the 
public  was  sufficient  tc  show  a  complete  dedication  and  acceptance.115 

§  426.  Disposition  of  property  corporation  has  no  power  to  receive 
and  hold — Escheat. — The  question  as  to  what  disposition  shall  be  made 
of  property  purchased  by  a  company  which  it  has  no  power  to  receive 
and  hold  is  an  interesting  one.  Whether  the  property  shall  escheat 
to  the  state  upon  judgment  in  a  proceeding  by  the  state  assailing  the 
right  of  the  company  to  hold  it,  may,  of  course,  be  controlled  by  stat- 
ute, but  if  there  be  no  statute  then  the  question  is  to  be  determined 
upon  general  principles.  We  suppose  that  if  there  is  a  statute  provid- 

that  to  bind  the  corporation  beyond  29  Conn.  157;   Grand  Surrey  Canal 

revocation  it  must  be  made  by  the  v.  Hall,  1  M.  &  Gr.  392.     The  rule 

directors  or  be  ratified  by  them  or  stated    in   the   text-book   above   re- 

by  such  public  use  for  such  time  ferred  to  was  approved  in  Lake  Erie, 

and  under  such  circumstances  as  to  &c.  R.  Co.  v.  Boswell,  137  Ind.  336, 

justify  the   inference  of  such  rati-  36  N.  E.  1103. 

fication.    See,  also,  Williams  v.  New  U3  Northern   Pac.    R.    Co.   v.    Spo- 

York,  &c.  R.  Co.  39  Conn.  509.  kane,  56  Fed.  915. 

u2  Elliott  Roads   and   Streets    (2d  u*  Lake  Erie,  &c.  R.  Co.  v.  Boswell, 

ed.),  §  146,  citing,  as  to  private  cor-  137  Ind.  336,  36  N.  E.  1103. 

porations,  Williams  v.  New  York,  &c.  "*  People  v.  Eel  River,  &c.  R.  Co. 

Co.  39  Conn.  509;  Green  v.  Canaan,  98  Cal.  665,  33  Pac.  728. 


§  426] 


EEAL  ESTATE. 


592 


ing  that  it  shall  escheat  to  the  state,  creditors  dealing  with  the  corpora- 
tion, as  well  as  stockholders,  must  take  notice  of  the  statute  and  must 
know,  as  matter  of  law,  that  they  cannot  successfully  assert  a  right  to 
the  property.  In  considering  the  effect  of  a  dissolution  we  have  dis- 
cussed the  cases  bearing  upon  the  question  and  stated  the  general  doc- 
trine relating  to  the  disposition  of  property  upon  the  dissolution  of  the 
corporation.116  In  Pennsylvania  the  question  came  before  the  court, 
and  it  was  held  that  the  property  did  not  escheat  to  the  state  but  went 
to  the  stockholders.117 


116  Greenwood  v.  Freight  Co.  105  U. 
S.  13;  Owen  v.  Smith,  31  Barb.  (N. 
Y.)   641;   Heath  v.  Barmore,  50  N. 
Y.  302;    McCoy  v.  Farmer,  65  Mo. 
244. 

117  Commonwealth  v.  New  York,  &c. 
R.  Co.  132  Pa.  St.  591,  19  Atl.  291, 
7  L.  R.  A.  634;    Commonwealth  v. 
New  York,  &c.  R.  Co.  114  Pa.  St.  340, 
7  Atl.  756.    See,  also,  Sioux,  &c.  Co. 
v.  Trust  Co.  82  Fed.  124;  Brown  v. 
Schleier,  118  Fed.  981;  Detroit  Citi- 
zens' St.  R.  v.  Detroit,  64  Fed.  628; 


Keith  v.  Johnson,  59  S.  W.  487; 
Miner  v.  New  York,  &c.  R.  Co.  123 
N.  Y.  242,  25  N.  E.  339.  See,  gen- 
erally, Heman  v.  Britton,  88  Mo. 
549;  St.  Louis,  &c.  Coal  Co.  v.  San- 
dival,  &c.  Co.  116  111.  170,  5  N.  E. 
370;  Hightower  v.  Thornton,  8  Ga. 
486,  52  Am.  Dec.  412;  Asheville,  &c. 
v.  Aston,  92  N.  C.  578;  Burrall  v. 
Bushwick  R.  Co.  75  N.  Y.  211; 
Wheeler  v.  Pullman,  &c.  Co.  143  111. 
197,  32  N.  E.  420,  17  L.  R.  A.  818; 
3  Purdy's  Beach  Priv.  Corp.  §  1327. 


CHAPTER  XVIII. 


LEASES. 


Sec.  Sec. 

427.  Power  to  lease — Generally.  448. 

428.  What  the  legislature  may  pre- 

scribe. 449. 

429.  Power  to  lease  not  an  implied     450. 

one  —  Legislative    authority 
requisite.  451. 

430.  The  power  to  lease — General 

rule.  452. 

431.  The  foundation  of  the  rule. 

432.  Power  to  accept  a  lease.  453. 

433.  Statutes    asserted    to    confer 

power  to  lease  are  not  aided 

by  construction.  454. 

434.  Statutes    strictly    construed —    455. 

Illustrative  instances.  456. 

435.  Statutes — Construction  of.  457. 

436.  What   is   included   in  the  au- 

thority to  execute  a  lease. 

437.  Scope  of  authority  to  lease.          458. 

438.  Statutes   conferring  power  to 

lease   must   be   strictly   fol- 
lowed. 459. 

439.  Consent  of  stockholders — Stat- 

utory requirement  must  be 
obeyed.  460. 

440.  Concurrence    of    stockholders 

necessary.  461. 

441.  What  number  of  stockholders 

must  assent  to  the  lease. 

442.  Consent   of   stockholders —    462. 

Waiver  of  objections. 

443.  Lease  where  parties  are  corpo-    463. 

rations  of  different  states. 

444.  Authority  to  execute  lease  has    464. 

no   extra-territorial  effect. 

445.  Rights  of  foreign  lessors. 

446.  Leases  to  connecting  lines.  465. 

447.  Lease  to  competing  lines — Ef-     466. 

feet  of  statutes  prohibiting. 
ELL.  RAILROADS — 38  593 


Effect  of  executing  unauthor- 
ized lease. 

Lease — Construction. 

Lease — Dependent  and  inde- 
pendent contracts. 

Contract  to  permit  use  of  track 
not  necessarily  a  lease. 

Traffic  contract  not  valid  if  it 
is  in  effect  a  lease. 

Contracts  granting  right  to 
use — Effect  and  construc- 
tion of. 

Part  performance — Effect  of. 

Duration  of  a  lease. 

Effect  of  lease  on  taxation. 

Public  duties  of  lessee  under 
an  unauthorized  lease — Man- 
damus. 

Authorized  lease — Duty  of  les- 
see to  operate  the  road — 
Mandamus. 

Lessee  not  liable  for  wrongs 
committed  prior  to  the  exe- 
cution of  the  lease. 

Effect  of  a  lease  upon  rights  of 
creditors. 

Authorized  lease — Rights  and 
duties  to  which  lessee  com- 
pany succeeds. 

Contract  obligation  of  lessor — 
Lessee  not  liable  thereon. 

Recovery  of  rent  under  unau- 
thorized lease. 

Improvements  of  road  by  les- 
see operating  under  an  un- 
authorized lease. 

Receiver's  power  to  lease. 

Unauthorized  lease — Liability 
of  lessor — Generally. 


LEASES.  594 

Sec.  Sec. 

467.  Authorized  lease — Liability  of    472.    Unauthorized    lease — Liability 

lessor  for  injuries  caused  by  of  lessor  to  employes  of  les- 

negligence   of   lessee — Cases  see — Generally. 

holding  lessor  liable.  473.     Unauthorized    lease — Liability 

468.  Authorized  lease — Liability  of  of  lessor — General  rule. 

lessor  for  negligence  of  les-  474.    Liability  of  lessee  for  injuries 
see  in  operating  the  road —  resulting  from  negligence  in 

Authorities.  operating  the  road. 

469.  Authorized  lease — Liability  of  475.    Contracts  of  the  lessee. 

lessor  for  negligence  of  les-  476.     Joint  liability. 

see  in  operating  the  road —  477.     Liability  of  company  where  it 

Views  of  the  authors.  permits  another  company  to 

470.  Control  reserved  by  lessor.  use  track  in   common  with 

471.  Liability   of   lessee   under  au-  itself. 

thorized     lease — Illustrative    478.    Fraudulent  leases, 
cases.  479.    Unauthorized     lease  —  Injunc- 

tion. 

§  427.  Power  to  lease — Generally. — The  legislative  power  respect- 
ing the  creation  of  railroad  corporations  is  of  such  a  plenary  nature 
that  statutes  may  be  enacted  authorizing  one  company  to  lease  its  road, 
equipments  and  appurtenances  to  another  company.  The  whole  sub- 
ject is  in  the  main  a  legislative  one.  Where  there  is  no  constitutional 
provision  interdicting  it  the  authority  to  lease  may  be  conferred  by  a 
special  act,  but  where  the  constitution  of  the  state  requires  that  all 
laws  for  the  organization  and  government  of  corporations  shall  be 
general  and  not  special  or  local,  the  authority  to  execute  a  lease  of  a 
railroad  and  its  equipments  must  be  conferred  by  a  general  law.  The 
authority  to  lease  the  road  is  to  be  discriminated  from  the  authority  to 
lease  property  not  forming  part  of  the  railroad  or  essential  to  its  oper- 
ation, for  a  railroad  company  authorized  to  own  and  hold  property  not 
forming  part  of  its  line  of  railroad  or  essential  to  the  operation  there- 
of, is,  as  to  such  property,  invested  with  the  rights  of  an  ordinary 
owner  of  land,  and  as  such  owner  may  lease  or  sell  it.1  Property  form- 
ing part  of  the  railroad,  or  essential  to  its  operation,  is  not  held  as 
property  is  held  by  ordinary  owners,  but  is  held  under  the  grant  to  the 
corporation  for  the  purpose  of  enabling  it  to  perform  its  corporate 
duties  and  functions,  and,  as  the  law  forbids  a  railroad  corporation 
from  conveying  or  transferring  such  of  its  property  as  would  disable 

'See  Pierce  v.  Emery,  32  N.   H.     Ct.  33;  Chicago,  &c.  R.  Co.  v.  Union 
484;  Hartford  F.  Ins.  Co.  v.  Chicago,    Pac.  R.  Co.  47  Fed.  15,  51  Fed.  309. 
&c.  R.  Co.  175  U.  S.  91,  99,  20  Sup. 


595  WHAT   THE   LEGISLATURE    JIAY    PRESCRIBE.  [§    428 

it  from  performing  such  duties  and  functions  it  has  no  power  to  trans- 
fer by  way  of  lease  property  essential  to  enable  it  to  perform  such 
functions  or  duties. 

§  428.  What  the  legislature  may  prescribe. — Within  the  limita- 
tions imposed  by  the  constitution  the  legislature  may  prescribe  by 
whom  and  to  whom  leases  may  be  executed.  The  legislative  determi- 
nation, where  no  constitutional  provision  is  violated,  is  conclusive. 
The  legislative  judgment  (when  expressed  in  a  valid  enactment),  as 
to  the  parties  to  whom  leases  may  be  made,2  as  to  the  terms  and  con- 
ditions of  leases,  and  as  to  the  duties  and  obligations  of  parties  thereto 
cannot  be  reviewed  by  the  courts.  If  the  power,  which  the  legislature 
assumes  to  exercise,  is  vested  in  it  by  the  organic  law,  it  is  master  of 
its  own  discretion  and  is  the  exclusive  judge  of  all  questions  of  ex- 
pediency or  policy. 

§429.  Power  to  lease  not  an  implied  one — Legislative  authority 
requisite. — As  the  power  to  lease  property  essential  to  the  operation  of 
a  railroad  is  not  an  implied  or  incidental  power,  it  would  seem  to  neces- 
sarily follow  that  it  does  not  exist  except  by  virtue  of  an  effective 
statute.  The  rule  that  a  railroad  company  cannot  execute  a  lease  is 
generally  placed  upon  the  ground  of  public  policy,  but  it  is  frequently 
said  that  in  the  absence  of  a  statute  there  is  no  power  to  execute  a  lease. 
One  who  asserts  that  a  railroad  corporation  has  power  to  lease  its  rail- 
road or  property  essential  to  the  operation  thereof  must  show  an  effect- 
ive legislative  enactment  granting  the  power  to  lease,  otherwise  his 
assertion  will  be  unavailing.3 

2  Where  the  statute  authorized  a  Y.  27,  36  Am.  R.  572;  Cox  v.  Terre 

lease  to  another  company  but  gave  Haute,  &c.  R.  Co.  133  Fed.  371,  66  C. 

no  express  authority  to  lease  to  an  C.  A.  433. 

individual  it  was  held  that  such  a  alt  seems   that  there  are   really 

lease  was  neither  malum  in  se  nor  two  grounds  upon  which  the  prevail- 

malum  prohibitum,  that  it  was  not  ing    doctrine     may    be     supported, 

void   as   contrary   to   public   policy,  namely,   the   rule   of   public   policy, 

and  that,  after  the  individual  lessee  and  the  rule  that  corporate  charters 

had    operated    the   road   under   the  are  to  be  strictly  construed  and  cor- 

lease,  he  could  not  defend  against  'porations  possess  only  such  powers 

an  action  to  recover  the  stipulated  as    their    charters    confer.      In    St. 

rent.    Woodruff  v.  Erie  R.  Co.  93  N.  Louis,  &c.  Co.  v.  Terre  Haute,  &c. 

Y.   609.     But  the  decision   referred  Co.  145  U.  S.  393,  12  Sup.  Ct.  953, 

to  is  of  doubtful  soundness.    See  Ab-  the  court,  speaking  of  the  contract 

bott  v.  Johnstown,  &c.  R.  Co.  80  N.  between  the  two  corporations,  said: 


§  430] 


LEASES 


596 


§  430.  The  power  to  lease — General  rule. — Whatever  difference  of 
opinion  there  may  be  as  to  the  grounds  upon  which  the  rule  rests,  the 
rule  itself  is  firmly  established.  That  rule,  as  asserted  in  very  numer- 
ous cases,  is  that  a  railroad  corporation  cannot,  without  express  legis- 
lative permission,  lease  its  road,  franchises  and  equipments  to  another 
corporation  and  transfer  to  its  lessee  the  privilege  of  operating  the 
road.4  It  cannot,  by  way  of  lease,  transfer  a  corporate  franchise  or 


"In  short,  by  this  contract  one  rail- 
road company  undertook  to  transfer 
its  whole  railroad  and  equipments 
and  its  privileges  and  franchises  to 
maintain  and  operate  the  road  to 
another  company  for  a  term  of  999 
years  in  consideration  of  the  pay- 
ment from  time  to  time  by  the  lat- 
ter to  the  former  of  a  portion  of  the 
gross  receipts.  This  was,  in  sub- 
stance and  effect,  a  lease  'of  the  rail- 
road and  franchise  for  a  term  of  al- 
most a  thousand  years,  and  was  a 
contract  which  neither  of  the  com- 
panies had  power  to  enter  into  un- 
less expressly  authorized  by  the 
state  which  created  it,  and  which, 
if  beyond  the  scope  of  the  lawful 
powers  of  either  corporation  was 
wholly  void,  could  not  be  ratified  or 
validated  by  either  or  both,  and 
would  support  no  action  or  suit  by 
either  against  the  other."  See,  also, 
Chicago,  &c.  R.  Co.  v.  Hart,  209  111. 
414,  70  N.  E.  654,  66  L.  R.  A.  75,  79, 
citing  text. 

*  Thomas  v.  West  Jersey  R.  Co.  101 
U.  S.  71 ;  Pennsylvania  R.  Co.  v.  St. 
Louis,  &c.  R.  Co.  118  U.  S.  290,  6 
Sup.  Ct.  1094;  Oregon  R.  &c.  Co.  .v. 
Oregonian,  &c.  R.  Co.  130  U.  S.  1,  9 
Sup.  Ct.  409;  Oregon  R.  &c.  Co.  v. 
Oregonian  R.  Co.  145  U.  S.  52,  12 
Sup.  Ct.  814;  Pittsburg,  &c.  R.  Co. 
v.  Allegheny  Co.  63  Pa.  St.  126;  Mid- 
dlesex R.  Co.  v.  Boston,  &c.  R.  Co. 
115  Mass.  347;  Board  Com'rs  Tip- 
pecanoe  Co.  v.  Lafayette,  &c.  R.  Co. 
50  Ind.  85;  Memphis,  &c.  R.  Co.  v. 


Grayson,  88  Ala.  572,  7  So.  122,  16 
Am.  St.  69;  Mills  v.  Central  R.  Co. 
41  N.  J.  Eq.  1;  International,  &c.  R. 
Co.  v.  Underwood,  67  Tex.  589,  4  S. 
W.  216;  Troy,  &c.  R.  Co.  v.  Boston, 
&c.  R.  Co.  86  N.  Y.  107;  State  v. 
Atchison,  &c.  R.  Co.  24  Neb.  143,  38 
N.  W.  43,  8  Am.  St.  164;  Great 
Northern  R.  Co.  v.  Eastern  Counties 
R.  Co.  12  Eng.  L.  &  Eq.  224;  Fisher 
v.  West  Virginia,  &c.  R.  Co.  39  W. 
Va.  366,  19  S.  E.  578,  23  L.  R.  A. 
758;  Earle  v.  Seattle,  &c.  R.  Co.  56 
Fed.  909;  Rieketts  v.  Chesapeake, 
&c.  R.  Co.  33  W.  Va.  433,  10  S.  E. 
801,  7  L.  R.  A.  354,  25  Am.  St.  901, 
1  Lewis'  Am.  R.  &  Corp.  455,  25 
Am.  St.  901;  Frazier  v.  East  Tenn. 
&c.  R.  Co.  88  Tenn.  138,  12  S.  W. 
537 ;  International,  &c.  R.  Co.  v.  Eck- 
ford,  71  Tex.  274,  8  S.  W.  679;  Grand 
Tower,  &c.  Co.  v.  Ullman,  89  111.  244; 
Abbott  v.  Johnstown,  &c.  R.  Co.  80 
N.  Y.  27,  36  Am.  R.  572;  People  v. 
Albany,  &c.  R.  Co.  77  N.  Y.  232; 
East  Anglian,  &c.  R.  Co.  v.  Eastern, 
&c.  R.  Co.  11  Com.  B.  775;  Pittsburg, 
&c.  R.  Co.  v.  Columbus,  &c.  R.  Co. 
8  Biss.  (U.  S.)  456;  Briscoe  v.  South- 
ern Kansas,  &c.  R.  Co.  40  Fed.  273; 
Wabash,  &c.  R.  Co.  v.  Payton,  106 
111.  534,  46  Am.  R.  705;  Norwich,  &c. 
R.  Co.  v.  Worcester,  147  Mass.  518, 
18  N.  E.  409 ;  Hamilton  v.  Savannah, 
&c.  Co.  49  Fed.  412;  Harmon  v.  Co- 
lumbia, &c.  R.  Co.  28  S.  Car.  401,  5 
S.  E.  835,  13  Am.  St.  686;  Memphis, 
&c.  R.  Co.  v.  Grayson,  88  Ala.  572,  7 
So.  122,  16  Am.  St.  69;  Hays  v.  Ot- 


597 


THE  FOUNDATION   OF   THE  RULE. 


[§'  431 


privilege  to  another  company  nor  impose  upon  another  its  own  cor- 
porate duties  except  in  cases  where  the  statute  so  provides.5 

§  431.  The  foundation  of  the  rule. — It  seems  to  us,  as  we  have  said, 
that  the  rule  forbidding  a  railroad  company  from  leasing  its  railroad 
may  be  rested  on  two  grounds.  The  rule,  however,  is  usually  put  upon 
the  ground  that  public  policy  forbids  one  company  from  transferring 
its  railroad  to  another.  It  is  unquestionably  true  that  a  railroad  cor- 
poration has  no  power  to  relieve  itself  of  the  duties  and  obligations 
which  it  owes  to  the  public  by  a  voluntary  surrender  of  its  property 
and  franchises.6  A  railroad  company  cannot  escape  its  charter  obli- 
gations by  an  abandonment  of  its  road,  or  the  like,  for  that  public 
policy  forbids,7  and  there  is  no  reason  why  the  same  general  principle 
should  not  apply  to  transfers  by  way  of  lease. 

§  432.  Power  to  accept  a  lease. — The  principle  which  underlies  the 
doctrine  that  a  railroad  company  cannot  lease  its  railroad  without  di- 
rect legislative  authority  supports  the  rule  that  a  railroad  company 


tawa,  &c.  R.  Co.  61  111.  422;  Stewart 
&  Foltz's  Appeal,  56  Pa,  St.  413; 
Nelson  v.  Vermont,  &c.  R.  Co.  26  Vt. 
717,  62  Am.  Dec.  614. 

6  Text  cited  in  Chicago,  &c.  R.  Co. 
v.  Hart,  209  111.  414,  70  N.  E.  654, 
66  L.  R.  A.  75,  79;  also  cited  in 
Georgia  R.  &c.  Co.  v.  Maddox,  116 
Ga.  64,  42  S.  E.  315,  317;  Georgia 
R.  &c.  Co.  v.  Haas  (Ga.),  56  S.  E. 
313. 

8  Gulf,  &c.  R.  Co.  v.  Morris,  67  Tex. 
692,  4  S.  W.  156;  International,  &c. 
R.  Co.  v.  Moody,  71  Tex.  614,  9  S. 
W.  456;  Harmon  v.  Columbia,  &c.  R. 
Co.  28  S.  Car.  401,  5  S.  E.  835,  13 
Am.  St.  686;  Balsley  v.  St.  Louis, 
&c.  R.  Co.  119  111.  68,  8  N.  E.  859,  59 
Am.  R.  784;  Palmer  v.  Utah,  &c.  R. 
Co.  2  Idaho  290,  16  Pac.  553,  36  Am. 
&  Eng.  R.  Cas.  443;  Ricketts  v. 
Chesapeake,  &c.  R.  Co.  33  W.  Va. 
433,  10  S.  E.  801,  7  L.  R.  A.  354,  25 
Am.  St.  901.  The  obligation  of  one 
of  two  contracting  railroads  to  ful- 
fill the  duties  of  its  charter  by  com- 


pleting the  unbuilt  part  of  its  road  is 
inconsistent  with  a  contract  for  a 
long  time — such  as  twenty  years — 
by  which  it  contracts  to  deliver  all 
its  traffic  over  that  part  of  its  road  to 
another  company.  Des  Moines,  &c. 
R.  Co.  v.  Wabash,  &c.  R.  Co.  135  U. 
S.  576,  10  Sup.  Ct.  736,  43  Am.  & 
Eng.  R.  Cas.  694. 

7  The  principle  to  which  we  refer 
is  illustrated  by  such  cases  as  State 
v.  Dodge  City,  &c.  R.  Co.  53  Kans. 
377,  36  Pac.  755,  42  Am.  St.  295,  61 
Am.  &  Eng.  R.  Cas.  631;  Erie,  &c. 
Railroad  Co.  v.  Casey,  26  Pa.  St. 
287;  State  v.  Sioux  City,  &c.  R.  Co. 
7  Neb.  357;  People  v.  Louisville,  &c. 
R.  Co.  120  IH.  48,  10  N.  E.  657.  See, 
generally,  Railroad  Commissioners 
v.  Portland,  &c.  R.  Co.  63  Me.  269, 
18  Am.  R.  208;  Gates  v.  Railroad,  53 
Conn.  333,  5  Atl.  695;  Pierce  v.  Em- 
ery, 32  N.  H.  484;  People  v.  New 
York,  &c.  R.  Co.  28  Hun  (N.  Y.) 
543. 


§  433] 


LEASES. 


598 


cannot,  without  legislative  authority,  take  a  grant  or  lease  of  the  prop- 
erty and  franchises  of  another  company.8  The  power  to  accept  fran- 
chises granted  to  another  company  is  not  an  implied  or  incidental 
power.  Public  policy  forbids  that  one  company  should,  without  legis- 
lative sanction,  assume  the  duties  imposed  by  law  upon  another  cor- 
poration.8 

§  433.  Statutes  asserted  to  confer  power  to  lease  are  not  aided  by 
construction. — The  power  to  lease  is  not,  as  a  rule,  favored  by  the 
courts,  at  least  they  are  not  inclined  to  adjudge  that  it  exists  unless 
the  statute  in  clear  terms  confers  it.  The  power  to  lease  does  not  exist 
unless  it  clearly  appears  that  the  legislature  intended  to  confer  it  upon 
the  corporation.  Construction  will  be  strict,  not  liberal,  as  against  a 
party  who  asserts  that  the  corporation  has  power  to  lease  its  railroad 
and  equipments.10  The  power  to  transfer  property  essential  to  the 


8  Oregon  R.  &c.  Co.  v.  Oregonian 
R.  Co.  130  U.  S.  1,  9  Sup.  Ct.  409; 
St.  Louis,  &c.  R.  Co.  v.  Terre  Haute, 
&c.  R.  Co.  145  U.  S.  393,  12  Sup.  Ct. 
953;  Pennsylvania,  &c.  R.  Co.  v.  St. 
Louis,  &c.  R.  Co.  118  U.  S.  290,  6 
Sup.  Ct.  1094;  State  v.  Montana  R. 
Co.  21  Mont.  221,  53  Pac.  623,  45  L. 
R.  A.  271.  See,  also,  Central  Trans- 
portation Co.  v.  Pullman's,  &c.  Co. 
139  U.  S.  24,  11  Sup.  Ct.  478.  We 
mean  by  the  statement  in  the  text 
that  one  corporation  cannot  take,  by 
lease,  property  of  another  corpora- 
tion in  cases  where  the  property  as- 
sumed to  be  leased  is  essential  to 
the  performance  of  corporate  duties 
by  the  company  which  undertakes 
to  execute  the  lease,  but  we  do  not 
mean  that  corporate  property  other 
than  that  of  the  character  indicated 
may  not  be  leased. 

8  In  Georgia  R.  &c.  Co.  v.  Maddox, 
116  Ga.  64,  42  S.  E.  315,  317,  the 
text  is  cited  with  approval  and  the 
court  says:  "To  make  this  lease 
valid  the  lessor  must  have  had  the 
power  to  make  the  lease,  and  the 
lessee  the  power  to  accept  it,  for  if 
the  lease  was  beyond  the  power  of 


either  it  was  as  invalid  as  if  be- 
yond the  power  of  both." 

"Oregon  R.  &c.  Co.  v.  Oregonian 
R.  Co.  130  U.  S.  1,  9  Sup.  Ct.  409; 
Thomas  v.  West  Jersey,  &c.  R.  Co. 
101  U.  S.  71.  In  the  first  case  cited 
the  court  commented  upon  the  doc- 
trine that  corporate  charters  are  to 
be  strictly  construed,  referred  to  the 
cases  Charles  River  Bridge  v.  War- 
ren River  Bridge,  11  Pet.  420;  Du- 
buque,  &c.  R.  Co.  v.  Litchfield,  23 
How.  (U.  S.)  66,  and  Turnpike  Co. 
v.  Illinois,  96  U.  S.  63,  and,  in  the 
course  of  the  opinion,  said:  "One 
of  the  most  important  powers  with 
which  a  corporation  can  be  invested 
is  the  right  to  sell  out  its  whole 
property,  together  with  the  fran- 
chises under  which  it  is  operated,  or 
the  authority  to  lease  its  property 
for  a  long  term  of  years.  In  the 
case  of  a  railroad  company  these 
privileges,  next  to  the  privilege  to 
build  and  operate  its  raidroad, 
would  be  the  most  important  which 
could  be  given  it,  and  this  idea 
would  impress  itself  upon  the  legis- 
lature. Naturally,  we  should  look 
for  the  authority  to  do  these  things 


599 


STATUTES   STRICTLY   CONSTRUED — ILLUSTRATIONS.         [§   434 


operation  of  a  railroad  is  one  of  great  importance  and  the  policy  of  the 
law  has  always  been  against  such  transfers,  so  that  there  is  strong 
reason  for  the  conclusion  that  the  power  must  be  clearly  and  expressly 
conferred. 

§  434.    Statutes    strictly    construed — Illustrative    instances. — A 

power  conferred  upon  a  corporation  to  consolidate  with  other  roads,11 
or  to  sell  its  road,12  or  to  acquire  other  lines  of  railroad  by  purchase,13 
or  to  make  contracts  with  another  railroad  company  for  the  use  of  its 
road,14  does  not  necessarily  include  authority  to  lease  its  road.  A  gen- 
eral statute  authorizing  the  formation  of  a  corporation  for  any  lawful 
purpose  does  not  authorize  a  railroad  company  to  insert  in  its  articles 
of  association  authority  to  make  such  a  lease.15 


in  some  express  provision  of  the 
law.  We  would  suppose  that  if  the 
legislature  saw  fit  to  confer  such 
rights  it  would  do  so  in  terms  which 
could  not  be  misunderstood." 

11  Archer  v.  Terre  Haute,  &c.  R. 
Co.  102  111.  493;  Mills  v.  Central  R. 
Co.  41  N.  J.  Eq.  1;  St.  Louis,  &c.  R. 
Co.  v.  Terre  Haute,  &c.  R.  Co.  145 
U.  S.  393,  12  Sup.  Ct.  953;  State  v. 
Vanderbilt,  37  Ohio  St.  590;  Board, 
&c.  v.  Lafayette,  &c.  R.  Co.  50  Ind. 
85. 

"Oregon,  &c.  R.  Co.  v.  Oregonian 
R.  Co.  130  U.  S.  1,  9  Sup.  Ct.  409; 
Pennsylvania  Co.  v.  St.  Louis,  &c. 
R.  Co.  118  U.  S.  290,  6  Sup.  Ct.  1094; 
Thomas  v.  West  Jersey,  &c.  R.  Co. 
101  U.  S.  71. 

13  Mills  v.  Central  R.  Co.  &c.  41  N. 
J.  Eq.  1. 

"Rev.  St.  Ind.  1881,  §§  3971,  3973, 
authorize  any  railroad  company  of 
Indiana  "to  intersect,  join  and 
unite"  with  any  railroad  of  an  ad- 
joining state  constructed  to  the  state 
line,  and  "to  make  such  contracts 
and  agreements  with  any  such  road 
*  *  *  for  the  transportation  of 
freight  and  passengers,  or  for  the 
use  of  road,  as  to  the  board  of  di- 
rectors may  seem  proper."  This 
statute  has  been  held  not  to  au- 
thorize one  railroad  corporation  to 


lease  the  road  of  another.  St.  Louis, 
&c.  R.  Co.  v.  Terre  Haute,  &c.  R.  Co. 
145  U.  S.  393,  12  Sup.  Ct.  953.  See, 
also,  Troy,  &c.  R.  Co.  v.  Boston,  &c. 
R.  Co.  86  N.  Y.  107.  The  power  con- 
ferred by  the  New  York  act  of  1839 
upon  a  railroad  corporation  to  con- 
tract with  another  for  the  use  of 
their  respective  roads  in  such  man- 
ner as  the  contract  may  prescribe 
has  been  held  to  involve  the  power 
to  make  a  lease  for  a  term  of  years. 
Beveridge  v.  New  York  Elev.  R.  Co. 
112  N.  Y.  1,  19  N.  E.  489,  2  L.  R.  A. 
648;  Woodruff  v.  Erie  R.  Co.  93  N. 
Y.  609.  By  the  laws  of  New  York, 
1839,  c.  218,  providing  that  "it  shall 
be  lawful  hereafter  for  any  railroad 
corporation  to  contract  with  any 
other  railroad  for  the  use  of  their 
respective  roads,  and  thereafter  to 
use  the  same  in  such  manner  as  may 
be  prescribed  in  such  contract,"  a 
railroad  company  is  authorized  to 
lease  its  road  and  franchise  to  an- 
other railroad  company,  though  the 
roads  of  the  lessor  and  lessee  are 
•parallel  and  competing  lines,  and 
their  merger  or  consolidation  is  pro- 
hibited by  the  laws.  New  York, 
1869,  c.  917,  §  9;  Gere  v.  New  York, 
&c.  R.  Co.  19  Abb.  N.  C.  193. 

"Oregon  R.  &c.  Co.  v.  Oregonian 
R.  Co.  130  U.  S.  1,  9  Sup.  Ct.  409.    In 


§  435] 


LEASES. 


GOO 


§•  435.  Statutes — Construction  of. — While  the  construction  of  stat- 
utes conferring  the  power  to  execute  leases  is,  as  against  the  power, 
always  strict,  still  the  legislative  intention  is  not  to  be  defeated  by  an 
unreasonably  strict  construction.16  The  grant  of  a  principal  power 
•will  carry  with  it  such  necessary  incidental  powers  as  are  requisite  to 
effectuate  it.  In  accordance  with  this  principle  a  grant  of  power 
wherein  is  manifested  the  intention  of  the  legislature  to  enable  a  rail- 
road company  to  secure  a  continuous  line  of  transportation  and  to 
make  contracts  with  other  railroad  companies  or  with  steamboat  lines 
to  effect  that  object  authorizes  the  railroad  corporation  to  contract  with 
a  steamboat  line  and  confers  authority  to  execute  and  accept  a  lease.17 
The  express  grant  of  a  right  to  lease  a  railroad  authorizes  the  transfer 
by  way  of  lease  of  all  such  incidents  and  appurtenances  as  are  reaSon- 
ably  necessary  to  the  operation  of  the  demised  road.18  This  must,  on 


announcing  the  opinion  of  the  court 
in  this  case  Mr.  Justice  Miller  said: 
"Another  important  consideration  to 
be  observed,  peculiarly  applicable  to 
the  acts  of  corporations  formed  by 
the  corporators  themselves,  declar- 
ing what  business  they  are  about  to 
pursue,  and  the  powers  which  they 
purpose  to  exercise  in  carrying  it 
on,  is,  that  while  the  thing  to  be 
done  may  be  lawful,  in  a  general 
way,  there  are  and  must  be  limita- 
tions upon  the  means  by  which  it 
is  to  be  done  or  the  purpose  carried 
out,  which  the  articles  cannot  re- 
move or  violate.  A  company  might 
be  authorized  by  its  articles  to  estab- 
lish a  large  manufactory  in  a  par- 
ticular locality,  and  might  be  held 
to  be  a  valid  incorporation  with  suf- 
ficient powers  to  prosecute  the  busi- 
ness described;  but  such  articles,  al- 
though mentioning  the  particular 
place,  would  not  empower  the  com- 
pany in  the  exercise  of  the  power 
thus  conferred  to  carry  on  a  busi- 
ness injurious  to  the  health  or  com- 
fort of  those  living  in  that  vicinity. 
Instances  might  be  multiplied  in 
which  powers  described  in  general 
terms  as  belonging  to  the  objects 
of  the  parties  who  thus  become  in- 


corporated would  be  valid;  but  the 
corporation,  in  carrying  out  this 
general  purpose,  would  not  be  au- 
thorized to  exercise  the  powers  nec- 
essary for  so  doing  in  any  mode 
which  the  law  of  the  state  would  not 
justify  in  any  private  persons  or 
any  unincorporated  body.  The  man- 
ner in  which  these  powers  shall  be 
exercised,  and  their  subjection  to 
the  restraint  of  the  general  laws  of 
the  state  and  its  general  principles 
of  public  policy,  are  not  in  any 
sense  enlarged  by  inserting  in  the 
articles  of  association  the  authority 
to  depart  therefrom." 

"See  State  v.  Richmond,  &c.  R. 
Co.  72  N.  Car.  634;  Hampe  v.  Pitts- 
burg,  &c.  Co.  165  Pa.  St.  468,  30  Atl. 
931. 

"Green  Bay,  &c.  R.  Co.  v.  Union, 
&c.  Co.  107  U.  S.  98,  2  Sup.  Ct.  221, 
13  Am.  &  Eng.  R.  Gas.  658;  Pitts- 
burg,  &c.  R.  Co.  v.  Keokuk,  &c.  R. 
Co.  131  U.  S.  371,  9  Sup.  Ct.  770,  39 
Am.  &  Eng.  R.  Cas.  213;  Branch  v. 
Jesup,  106  U.  S.  468,  1  Sup.  Ct.  495, 
9  Am.  &  Eng.  R.  Cas.  558. 

18  Simpson  v.  Denison,  10  Hare  51, 
16  Jurist  828,  1  Redfield  R.  616,  2 
Shelf ord  R.  (Ben.  ed.)  694. 


601  AUTHORITY  TO   EXECUTE  A   LEASE.  [§    436 

principle,  be  the  correct  rule.  If  the  legislature  authorizes  the  execu- 
tion of  a  lease  it  is  necessarily  implied  that  the  lease  shall  be  an  ef- 
fective one,  and  in  order  to  make  it  effective  it  is  essential  that  all 
incidents  necessary  to  a  proper  operation  of  the  road  shall  pass  to  the 
lessee.  The  legislative  sanction  implies  the  authority  to  properly  oper- 
ate the  leased  road,  and  so,  too,  the  public  welfare  demands  that  it 
shall  be  properly  operated.  It  must  be  true  that  necessary  incidents 
pass  to  the  lessee,  since  the  lessor,  by  executing  a  lease  under  legisla- 
tive sanction,  parts  with  all  control  and  the  lessee  must  operate  the 
road  or  else  it  must  cease  to  do  business.  That  it  must  cease  to  da 
business  cannot  be  affirmed,  since  the  cessation  of  business  would  be 
the  defeat  of  the  legislative  purpose  in  creating  the  corporation  and 
authorizing  it  to  lease  its  road. 

§  436.    What  is  included  in  the  authority  to  execute  a  lease. — In 

a  preceding  paragraph  of  this  chapter  we  said  that  authority  to  exe- 
cute a  lease  carried  such  incidental  powers  as  were  necessary  to  make 
the  lease  effective,  and  this  principle  authorizes  the  conclusion  that 
authority  to  lease,  given  in  general  and  unrestricted  terms,  confers 
authority  to  assign  a  lease  or  accept  an  assignment.  The  matter  of 
form  is  of  comparatively  little  importance,  for  the  courts  will  look 
through  the  form  to  the  substance.  Upon  this  principle  it  is  held  that 
a  railroad  company  which  is  authorized  to  take  a  lease  of  another  line 
may  take  an  assignment  of  such  a  lease  from  the  lessees  of  such  other 
line,19  and  that  giving  authority  to  one  company  to  lease  the  property 
of  another  certain  company  authorizes  the  latter  to  make  the  lease.20 

"Stewart  v.  Long  Island  R.  Co.  road.  Frank  v.  New  York,  &c.  R. 
102  N.  Y.  601,  8  N.  E.  200,  55  Am.  Co.  122  N.  Y.  197,  23  N.  E.  332; 
R.  844.  Where  a  railroad  is  sold  Jacksonville,  &c.  R.  Co.  v.  Louisville, 
under  foreclosure  a  new  corporation  &c.  R.  Co.  47  111.  App.  414,  150  111. 
acquiring  all  of  the  property  of  the  480,  37  N.  E.  924.  A  railroad  corn- 
old  except  a  leased  line,  not  included  pany,  having  issued  to  plaintiff  a 
in  the  transfer,  but  of  which,  never-  perpetual  pass  over  its  road  in  con- 
theless,  the  new  company  actually  sideration  of  a  right  of  way  given 
takes  possession  and  operates,  the  it  through  plaintiff's  land,  subse- 
new  company  must  be  regarded  as  quently  sold  its  road,  the  purchaser 
the  assignee  of  the  lease,  and,  by  assuming  none  of  its  debts  or  obli- 
virtn©  Of  its  possession,  is  liable  for  gations,  and  not  using  the  right  of 
the  rent,  which  in  this  case  was  the  way.  Held,  that  the  purchaser  was 
interest  on  first  mortgage  bonds,  not  bound  to  honor  plaintiff's  pass, 
which  the  original  lessee  had  agreed  Dickey  v.  Kansas  City,  &c.  R.  Co. 
to  pay;  and  the  succeeding  company  122  Mo.  223,  26  S.  W.  685. 
is  liable  as  long  as  it  occupies  the  20  Pinkerton  v.  Pennsylvania  Trac- 


437] 


LEASES. 


G02 


§  437.  Scope  of  authority  to  lease. — Some  of  the  cases  give  a  very 
wide  and  liberal  construction  to  the  express  grant  of  authority  to  exe- 
cute a  lease.  In  some  of  the  cases  very  broad  language  is  used,  broader 
than  true  principle  warrants.  While  it  is  true  that  incidents  pass  by 
the  grant  of  a  principal  power,  purely  collateral  powers  do  not.  The 
courts  hold  that  under  a  statute  giving  a  railroad  company  power  to 
lease,  maintain  and  operate  another  railroad  upon  such  terms  and  con- 
ditions as  may  be  agreed  upon  between  the  companies  respectively,21 
the  lessee  company  may  guarantee  the  payment  of  interest  coupons 
of  bonds  issued  by  the  lessor  company,  which  are  equal  in  amount  and 
times  of  payment  to  the  reserved  rent.22  The  general  authority  to  lease 
implies  the  incidental  authority  to  agree  upon  the  consideration,  terms 
and  conditions  of  the  lease,  and  hence  the  contracting  companies  may 
agree  that  part  or  all  of  the  consideration  agreed  upon  may  be  yielded 
by  guarantying  payment  of  bonds. 

§438.  Statutes  conferring  power  to  lease  must  be  strictly  fol- 
lowed.— It  is  held  that  statutes  conferring  power  upon  a  railroad  com- 
pany to  lease  its  road  must  be  strictly  followed,23  but  we  suppose  that 


tion  Co.  193  Pa.  St.  229,  44  Atl.  284; 
Huntting  v.  Hartford  St.  R.  Co.  73 
Conn.  179,  181,  46  Atl.  824. 

21  This  is  substantially  the  lan- 
guage of  the  statute  in  New  Hamp- 
shire, Vermont,  New  York,  New  Jer- 
sey, Pennsylvania,  Nebraska,  West 
Virginia,  California,  Oregon,  Idaho, 
Wyoming,  Utah,  South  Carolina, 
Georgia,  New  Mexico  and  Arizona. 
Stimson  Am.  Stat.  (1892)  §  8722. 

52  Eastern  Townships  Bank  v.  St. 
Johnsbury,  &c.  R.  Co.  40  Fed.  423, 
40  Am.  &  R.  Cas.  566;  Day  v.  Ogdens- 
burg,  &c.  R.  Co.  107  N.  Y.  129,  13  N. 
E.  765,  aff'g  42  Hun  (N.  Y.)  654.  An 
agreement  by  the  lessor  company, 
guaranteeing  to  the  lessee  a  sum  of 
money  equal  to  ten  per  cent,  of  the 
latter's  capital  stock,  to  be  paid  in 
equal  quarterly  instalments,  and  an 
unsigned  clause  printed  on  the  mar- 
gin of  such  stock,  in  pursuance  of 
the  agreement,  that  lessor  "has 
agreed  to  pay  to  [the  lessee]  an 


amount  equal  to  ten  per  cent,  per 
annum  on  the  capital  stock,"  do  not 
constitute  any  contract  to  which  a 
holder  of  such  stock  is  a  party  or 
privy.  Beveridge  v.  New  York  El.  R. 
Co.  112  N.  Y.  1,  19  N.  E.  489,  2  L.  R. 
A.  648.  An  agreement  by  a  railroad 
company,  in  leasing  property  and 
franchises  from  another  company, 
to  pay  as  rent  the  interest  on  cer- 
tain liabilities  of  the  lessor  during 
term  of  the  lease,  and  to  pay  the 
principal  of  such  liabiliaties  at  the 
expiration  of  the  lease  is  not  ultra 
vires.  Gere  v.  New  York,  &c.  R.  Co. 
19  Abb.  N.  C.  (N.  Y.)  193. 

23  In  Humphreys  v.  St.  Louis,  &c. 
R.  Co.  37  Fed.  307,  the  president  of 
the  company  signed  a  certificate  that 
a  majority  of  the  shareholders  had 
assented  to  the  lease,  and  it  was  evi- 
dence of  the  assent  of  all  sharehold- 
ers and  was  a  compliance  with  the 
statutory  requirement  that  the  as- 
sent of  a  majority  of  the  sharehold- 


603    CONSENT  OP  STOCKHOLDERS — STATUTORY  REQUIREMENT.     [§'  439 


if  all  the  material  requirements  of  the  statute  are  substantially  com- 
plied with  the  lease  would  not  be  void.  The  power  to  lease  is,  how- 
ever, not  favored,  and  a  material  departure  from  the  provisions  of  the 
statute  would  make  the  lease  ineffective.  Where  conditions  are  im- 
posed by  the  statute  they  must  be  complied  with  or  the  lease  may  be 
avoided.24 

§  439.  Consent  of  stockholders — Statutory  requirement  must  be 
obeyed. — Many  of  the  states  make  the  consent  of  a  designated  number 
of  the  stockholders  requisite  to  the  effective  execution  of  a  lease.25 
Where  the  mode  of  assenting  is  prescribed  by  statute  there  must  be 
a  substantial  compliance  with  its  requirements.  It  has  been  decided 
that  where  the  statute  requires  that  "no  lease  shall  be  perfected  until 
a  meeting  of  the  stockholders  shall  have  been  called  by  the  directors/' 
and  the  "holders  of  at  least  two-thirds  of  the  stock,"  voting  "at  such 
meeting,  shall  have  assented  thereto,"  the  requirement  that  the  assent 
shall  be  given  by  voting  at  a  stockholders'  meeting  is  of  the  essence, 
and  the  assent  of  the  individual  stockholders  given  otherwise  than  in 
such  meeting  is  of  no  effect.28 

§  440.  Concurrence  of  stockholders  necessary. — We  regard  the  con- 
currence of  the  stockholders  as  essential  to  the  validity  of  the  lease  of 
a  railroad  and  its  equipment.  There  is,  however,  conflict  of  authority 
upon  this  question  which  cannot  be  reconciled.  It  is  held  in  a  New 


ers  to  the  execution   of  the   lease 
should  be  given  in  writing. 

24  Peters  v.  Lincoln,  &c.  R.  Co.  14 
Fed.  319;   Peters  v.  Lincoln,  &c.  R. 
Co.  12  Fed.  513;  Kent,  &c.  R.  Co.  v. 
London,  &c.  Co.  L.  R.  3  Ch.  R.  656. 

25  Two-thirds  are  required  to  vote 
for  the   lease   in   New   Hampshire, 
Connecticut,   New   York,   Nebraska, 
West  Virginia,  Colorado,  New  Mex- 
ico   and    Arizona.      Three-fifths    in 
Montana  and  a  majority  in  Massa- 
chusetts   and    Wyoming.      Stimson 
Am.  St.  (1892)  §  8722.    A  certificate 
signed  by  the  president,  who  owns 
nearly  all  the  stock,  to  the   effect 
that  a  majority  of  the  stockholders 
have  assented  to  the  lease  is  suffi- 
cient evidence  of  a  compliance  with 


the  statute  of  Missouri,  which  re- 
quires the  majority  of  the  stockhold- 
ers to  give  their  assent  in  writing. 
Humphreys  v.  St.  Louis,  &c.  R.  Co. 
37  Fed.  307.  See  Peters  v.  Lincoln, 
&c.  R.  Co.  12  Fed.  513. 

28  Peters  v.  Lincoln,  &c.  R.  Co.  12 
Fed.  513.  See  Smith  v.  Kurd,  12 
Mete.  (Mass.)  371;  Humphreys  v. 
McKissock,  140  U.  S.  304,  11  Sup. 
Ct.  779.  See,  generally,  as  to  such 
assent  and  waiver  or  estoppel,  Rog- 
,ers  v.  Nashville,  &c.  R.  Co.  91  Fed. 
299;  St.  Louis,  &c.  R.  Co.  v.  Terre 
Haute,  &c.  R.  Co.  145  U.  S.  393,  12 
Sup.  Ct.  953;  Latimer  v.  Richmond* 
&c.  R.  Co.  39  S.  Car.  44,  17  S.  E. 
258;  Boston,  &c.  R.  Co.  v.  Graham, 
179  Mass.  62,  60  N.  E.  405. 


§  440] 


LEASES. 


604 


York  case  that  where  a  general  power  to  lease  its  road  is  given  by  the 
law  of  its  incorporation  to  a  railroad  company  whose  directors  are 
charged  with  the  government  and  direction  of  its  affairs,  a  contract 
for  such  leasing  is  within  the  original  power  of  the  board  of  directors, 
and  may  be  exercised  without  the  concurrence  of  the  stockholders.27 
We  cannot  assent  to  the  doctrine  of  the  case  referred  to.  The  execu- 
tion of  a  lease  of  the  entire  road  is  a  matter  in  its  nature  fundamental 
and  organic,  and  where  there  is  a  mere  grant  of  authority  to  execute 
a  lease,  we  think  that  the  consent  of  the  stockholders  is  necessary,  but 
if  the  power  is  by  statute  lodged  in  the  governing  board  then,  of  course, 
the  concurrence  of  the  stockholders  is  not  required.  The  New  York 
case  to  which  reference  has  just  been  made,28  does  not,  we  venture  to 
say  with  due  respect  for  the  able  court  by  which  the  case  was  decided, 
correctly  express  the  general  rule  of  law.  We  do  not  believe  that  the 
board  of  directors  is,  in  name  or  in  power,  the  corporation,  for  as  we 
have  elsewhere  shown,29  the  board  is  the  representative  of  the  cor- 
poration. The  courts  do  certainly  apply  to  corporate  directors  the  rule 
respondent  superior,  and  this  is  a  recognition  of  the  fact  that  they  are 
the  mere  agents  of  the  corporation.30  Their  powers  to  a  great  extent 

"Beveridge  v.  New  York  El.  R. 
Co.  112  N.  Y.  1,  19  N.  E.  489,  2  L. 
R.  A.  648.  It  was  held  in  the  case 
cited  that  an  agreement  on  the  part 
of  the  lessor  company,  made  in  good 
faith  and  on  account  of  the  financial 
embarrassment  of  the  lessee,  to  re- 
duce the  amount  of  rental  under 
the  lease,  is  within  the  powers  of 
the  directors.  We  think  that  some 
of  the  statements  in  the  opinion 
made  in  the  case  above  cited,  and 
in  the  cases  of  Leslie  v.  Lorillard, 
110  N.  Y.  536,  18  N.  E.  363,  and 
Hoyt  v.  Thomson,  19  N.  Y.  216,  go 
much  too  far.  We  do  not  believe 
that  merely  conferring  upon  the 
board  of  directors  the  power  to  man- 
age corporate  affairs  constitutes  the 
board  the  corporation  or  invests  it 
with  power  to  make  fundamental  or 
organic  changes  in  the  constitution 
of  the  corporation.  If  it  can  be  said 
that  the  statute  vests  the  whole  and 
entire  power  of  conducting  the  cor- 
porate business  in  the  board  of  di- 


rectors, including  that  of  radically 
changing  the  corporate  objects,  then 
it  may  properly  be  held  that  a  lease 
of  the  whole  road  may  be  made 
without  the  concurrence  or  assent 
of  the  stockholders,  but  if  the  power 
is  to  manage  ordinary  corporate  af- 
fairs, we  think  the  assent  of  the 
stockholders  is  necessary. 

^Beveridge  v.  New  York,  &c.  R. 
Co.  112  N.  Y.  1,  19  N.  E.  489,  2  L. 
R.  A.  648. 

29  Ante,  §§  236,  237,  249,  252,  254. 

30  The  New  York  cases  assert  the 
doctrine  stated  in  the  text.    Abbott 
v.   American   Hard   Rubber  Co.   33 
Barb.  (N.  Y.)  578;  Cumberland,  &c. 
Co.  v.  Sherman,  30  Barb.    (N.  Y.) 
553;   Metropolitan,  &c.  Co.  v.  Man- 
hattan,  &c.   Co.,   11   Daly    (N.   Y.) 
377,    15    Am.    &    Eng.    R.    Cas.    1; 
Twin,     &c.     Co.     v.     Marbury,     91 
U.  S.  587;  Angell  &  A.  Corp.  §  771; 
Stark  Bank  v.  United  States,  &c.  Co. 
34  Vt.  144;   State  v.  Smith,  48  Vt. 
266;  Branch,  Bank  v.  Collins,  7  Ala. 


605 


CONCURRENCE  OF   STOCKHOLDERS   NECESSARY. 


[§   440 


are  delegated  and  not  original  powers.  Doubtless  the  directors  do  ac- 
quire power  from  the  corporate  charter,  but  not  such  power  as  is  re- 
quired to  make  an  organic  and  fundamental  change  in  the  objects  and 
purposes  of  a  corporation.31  The  object  of  the  formation  of  a  railroad 
company  is  to  itself  operate  the  road  and  not  to  lease  to  another  com- 
pany and  thereby  cease  to  conduct  the  business  for  which  the  corpora- 
tion was  organized  and  assume  the  position  of  a  landlord.  The  effect 
of  a  railroad  lease  is  an  organic  change.  The  law  forbids  the  leasing 
of  a  railroad,  except  where  the  power  is  given  by  express  legislative 
enactment,  and  one  of  the  grounds  upon  which  this  rule  of  law  rests 
is  that  the  execution  of  a  lease  is  an  act  fundamental  and  organic  in 


95;  Simons  v.  Vulcan  Oil,  &c.  Co.  61 
Pa.  St.  202,  100  Am.  Dec.  628; 
Brokaw  v.  New  Jersey,  &c.  Co.  32 
N.  J.  L.  328,  90  Am.  Dec.  659;  Bank 
of  Middlebury  v.  Rutland,  &c.  Co.  30 
Vt.  159;  Lindley  Company  Law  (5th 
ed.)  155;  Burmester  v.  Norris,  6 
Exch.  796;  Colman  v.  Eastern,  &c. 
R.  Co.  10  Beav.  1;  Rollins  v.  Clay, 
33  Me.  132;  Clay  v.  Rufford,  19  Eng. 
L.  &  E.  350. 

81  Railroad  Co.  v.  Allerton,  18  Wall. 
(U.  S.)  233;  Cass  v.  Manchester,  &c. 
R.  Co.  9  Fed.  640;  Penobscot,  &c. 
R.  Co.  v.  Dunn,  39  Me.  587;  Bedford, 
&c.  Co.  v.  Bowser,  48  Pa.  St.  29; 
Burke  v.  Smith,  16  Wall.  (U.  S.) 
390;  Bank  v.  St.  John,  25  Ala.  566; 
Alford  v.  Miller,  32  Conn.  543;  Marl- 
borough,  &c.  Co.  v.  Smith,  2  Conn. 
579;  White  Mountain,  &c.  Co.  v. 
Eastman,  34  N.  H.  124;  Gill  v.  Balis, 
72  Mo.  424;  State  v.  Chamber  of 
Commerce,  20  Wis.  68;  Alford  v. 
Miller,  32  Conn.  543.  Mr.  Taylor 
ably  discusses  the  general  subject; 
says  that  there  are  four  things  the 
board  of  directors  cannot  do,  and 
affirms  that  it  "cannot,  ordinarily, 
lease  the  whole  plant  of  the  corpo- 
ration," and  refers  to  Cass  v.  Man- 
chester, &c.  Co.  9  Fed.  640.  See 
Taylor  Priv.  Corp.  §  229.  The  case 
referred  to  directly  decides  that 
even  if  the  corporation  has  author- 


ity to  lease  its  property  the  board  of 
directors  cannot  execute  a  lease  if 
the  stockholders  protest.  In  Ste- 
vens v.  Davison,  18  Gratt.  (Va.)  819, 
98  Am.  Dec.  692,  the  court  held  that 
a  lease  does  involve  a  franchise,  and 
that  it  could  not  be  executed  by  the 
board  of  directors  under  a  statute 
providing  that  no  contract  shall  be 
made  "involving  the  franchise  of 
said  road,"  without  the  consent  of 
the  stockholders.  See  Kersey,  &c. 
Co.  v.  Oil  Creek,  &c.  R.  12  Phila. 
(Pa.)  374;  Bedford,  &c.  R.  Co.  v. 
Bowser,  48  Pa.  St.  29,  37;  Penob- 
scot, &c.  R.  Co.  v.  Dunn,  39  Me.  587, 
601.  Judge  Rorer  says  that:  "The 
leasing  of  a  railroad  with  authority 
in  the  lessee  to  take  tolls  involves 
the  franchise  and  requires  the  ac- 
tion and  consent  of  the  stockhold- 
ers formally  expressed,  at  a  stock- 
holders' meeting."  Rorer  Railroads 
603.  The  opinion  of  Mr.  Wood  is 
thus  expressed:  "The  consent  of  a 
majority  of  the  stockholders,  fairly 
obtained,  is  always  essential  to  the 
validity  of  a  lease.  The  consent 
must  be  expressed  at  a  stockholders' 
meeting."  3  Wood  Railroads  (2d 
ed.)  2053,  note.  See,  also,  Rog- 
ers v.  Nashville,  &c.  R.  Co.  91  Fed. 
299,  322 ;  Waldoborough  v.  Knox,  &c. 
R.  Co.  84  Me.  469,  24  Atl.  942. 


§    441]  LEASES.  606 

its  nature.32  In  granting  authority  to  lease,  the  legislature  grants  au- 
thority to  radically  change  the  character  of  corporate  business,  rights 
and  liabilities,  and  it  seems  to  us  that  the  directors  must  have  the  con- 
currence of  the  stockholders.  We  do  not  mean  to  say  that  the  stock- 
holders can  directly  execute  a  lease,  but  what  we  mean  is  that  the 
directors  cannot  execute  a  lease  without  the  concurrence  of  the  stock- 
holders. The  directors  must,  as  we  believe,  formally  execute  the  con- 
tract, and  must  directly  represent  and  act  for  the  corporation  in  mak- 
ing it,33  but  they  must  also  have  the  assent  of  the  stockholders.  Where, 
as  we  have  elsewhere  remarked,  the  board  of  trustees,  or  the  board  of 
directors  is  incorporated  there  is  reason  for  a  different  rule  from  that 
which  we  have  here  stated  to  be  the  sound  one.  Incidental  or  ordinary 
corporate  powers  may,  as  a  rule,  be  exercised  by  the  board  of  directors 
without  any  interference  on  the  part  of  the  stockholders,  and  a  contract 
for  the  right  to  use  part  of  a  railroad  may,  perhaps,  be  regarded  as 
an  ordinary  corporate  contract,34  but  a  lease  for  a  long  period  of  years 
vesting  entire  and  exclusive  possession  and  control  in  another  corpora- 
tion is  essentially  different  from  trackage,  traffic,  or  other  contracts  of 
a  similar  nature. 

§441.    What  number  of  stockholders  must  assent  to  the  lease. — 

Where  the  statute  designates  the  number  of  stockholders  that  must  as- 
sent to  a  lease  in  order  to  render  it  effective  there  is  no  difficulty,  for 
it  is  clear  that  the  assent  of  the  prescribed  number  will  make  the  lease 
effective,  although  the  number  may  be  less  than  the  whole  number  of 
stockholders.  But  where  no  number  is  designated  by  the  statute,  and 
a  general  authority  to  lease  is  granted  there  is  difficulty.  Some  of  the 
courts  hold  that  where  a  general  authority  is  granted  to  execute  a 
lease,  the  lease  is  not  effective  unless  the  stockholders  unanimously  as- 
sent to  its  execution.35  Other  courts  hold  that  where  there  is  gen- 

32  If  the  power  to  lease  were  an  or-  131  Mass.  258,  41  Am.  R.  221;  York, 

dinary  corporate  power  it  would  not  &c.  R.  Co.  v.  Winans,  17  How.   (U. 

be  necessary  to  enact  a  statute  con-  S.)    30;    Pearce  v.   Madison,  &c.  R. 

ferring  the  power,  but  a  statute  is  Co.    21    How.     (U.    S.)     441.     See, 

necessary  because  the  power  is  in  generally,    Eastern,    &c.    R.    Co.    v. 

its  nature  fundamental  and  organic.  Hawkes,  5  H.  L.  Cas.  331,  371-381; 

Thomas  v.  West  Jersey,  &c.  R.  Co.  Ashbury,  &c.  Co.  v.  Riche,  L.  R.  7 

101  U.  S.  71,  and  cases  cited.  H.  L.  653;  MacGregor  v.  Dover,  &c. 

83  Ante,  §  170.  R.  Co.  18  Q.  B.  618;   East  Anglian, 

34  Green  Bay,  &c.  R.  Co.  v.  Union,  &c.  R.   Co.  v.   Eastern  Counties   R. 

&c.  Co.  107  U.  S.  98,  2  Sup.  Ct  221.  Co.  11  C.  B.  775. 

See  Davis  v.  Old  Colony,  &c.  R.  Co.  M  Mills  v.  Central  R.  Co.  41  N.  J, 


607        CONSENT  OF  STOCKHOLDERS — WAIVER  OF  OBLIGATIONS.      [§   442 

eral  authority  to  execute  the  lease  and  no  provision  is  made  as  to  the 
number  that  must  assent,  a  majority  may  authorize  the  execution  of 
the  lease.36  It  seems  to  us  that  where  the  lease  transfers  the  entire 
road  for  a  long  term  of  years  the  consent  of  all  the  stockholders  is  re- 
quired unless  the  statute  otherwise  provides.  The  general  rule  is  that 
after  the  shareholders  have  entered  into  a  contract  among  themselves, 
tinder  legislative  sanction,  and  have  made  investments  and  expended 
their  money  in  execution  of  the  plan  agreed  upon,  the  plan  cannot, 
even  by  virtue  of  legislative  enactment,  be  radically  changed  by  the 
act  of  a  bare  majority.  A  lease  does  work  a  radical  change  in  many  re- 
spects, notably  in  the  respect  that  the  character  of  the  stockholders' 
investment  is  radically  altered,  for  the  lease  places  them  substantially 
in  the  position  of  a  landlord  whose  income  is  derived  from  rents, 
whereas  the  income  of  a  stockholder  is  derived  from  the  profits  of  the 
road.  There  is,  however,  reason  for  a  different  conclusion  from  that 
which  we  favor.  A  lease  for  a  limited  period  is  not  the  same  thing  as 
a  sale,  but  in  cases  where  the  term  is  a  long  one  it  is  not  very  different 
in  its  practical  consequences  from  a  sale;  for  it  yields  possession  and 
control  to  the  lessee,  and  takes  the  entire  operation  and  control  from 
the  lessor,  although  it  does  not  terminate  the  lessor's  ownership.  But 
while  the  ownership  remains,  its  rights  and  incidents  for  the  term 
fixed  by  the  lease  are  entirely  different  from  those  which  attach  to  the 
ownership  of  a  railroad  where  there  is  no  lease. 

§  442.  Consent  of  stockholders — Waiver  of  objections,  formal  exe- 
cution of  lease. — The  provisions  of  a  statute  requiring  the  consent  of 
the  stockholders  confer  a  personal  privilege  which  it  seems  they  may 
waive  by  acquiescence  in  a  lease  executed  without  their  consent.37 
The  fact  that  the  board  of  directors  agree  upon  the  terms  of  the  lease 
before  submitting  it  to  the  stockholders  does  not  invalidate  the  lease 
where  the  stockholders  assent  to  its  execution.38  Where  no  special 
mode  for  executing  a  lease  is  provided  by  statute,  an  authorized  lease 

Eq.  1.  See  Boston,  &c.  R.  Co.  v.  New  953.  The  lease  had  been  suffered 

York,  &c.  R.  Co.  13  R.  I.  260;  Zabris-  to  stand  for  seventeen  years,  and 

kie  v.  Hackensack,  &c.  R.  Co.  18  N.  the  court  held  the  stockholders 

J.  Eq.  178,  90  Am.  Dec.  617.  '  barred  by  laches.  See,  also,  Latimer 

86  Waldoborough  v.  Knox,  &c.  R.  v.  Richmond,  &c.  R.  Co.  39  S.  Car. 

Co.  84  Me.  469,  24  Atl.  942.  44,  17  S.  E.  258. 

37  St.  Louis,  &c.  R.  Co.  v.  Terre  M  Jones  v.  Concord,  &c.  R.  Co.  67 

Haute,  &c.  R.  Co.  33  Fed.  440,  af-  N.  H.  234,  30  Atl.  614,  68  Am.  St. 

firmed  145  U.  S.  393,  12  Sup.  Ct.  650. 


§  443]  LEASES.  608 

executed  in  the  usual  form,  or  in  such  a  form  as  to  express  the  contract 
of  the  parties  will  be  sufficient. 

§  443.    Lease  where  parties  are  corporations  of  different  states. — 

As  appears  from  what  has  been  said  in  a  preceding  section,  and  as  is 
indeed  clear  upon  general  principles,  in  order  to  make  an  effective 
lease,  it  is  necessary  that  there  should  be  power  in  the  one  company 
to  execute  a  lease  and  in  the  other  to  accept  it.  If  the  company  to 
which  the  lease  is  made  has  no  power  to  accept  a  lease,  the  lease  is 
ineffective.  This  principle  governs  cases  where  leases  are  executed 
by  corporations  of  different  states.  In  a  very  ably  reasoned  opinion  it 
was  affirmed  by  the  supreme  court  of  the  United  States  that  a  lease 
executed  by  an  Illinois  railroad  company  to  an  Indiana  company  was 
not  valid  for  the  reason  that  the  Indiana  company  was  not  authorized 
by  statute  to  accept  a  lease  from  the  Illinois  corporation.39 

§  444.    Authority  to  execute  lease  has  no  extraterritorial  effect. — 

State  laws,  as  is  well  known,  have  no  force  or  effect  outside  of  the 
limits  of  the  state.  Laws  conferring  authority  upon  a  corporation  to 
do  prescribed  acts,  operate  only  upon  state  corporations.  We  do  not 
mean,  of  course,  that  a  state  has  no  control  over  foreign  corporations 
doing  business  within  its  borders;  our  meaning  is  that  its  laws  con- 
ferring authority  upon  a  corporation  do  not  carry  that  authority  into 
other  states.  The  principle  stated  requires  the  conclusion  that  a  state 
cannot,  by  chartering  a  corporation,  confer  upon  it  a  legal  right  to  act 
within  the  jurisdiction  of  another  state,40  and  that  authority  granted 
to  a  corporation  to  lease  its  road  cannot  have  any  effect  outside  of  the 
state  giving  such  authority.41  The  authority  does  not  extend  beyond 
the  state  limits.  Upon  the  principle  stated,  it  was  held  that  the  charter 
granted  by  the  state  of  Kansas  to  a  railroad  corporation  formed  under 
its  laws,  conferred  upon  such  corporation  no  power  to  lease  that  part 
of  its  road  lying  in  the  Indian  territory ;  and  that,  in  the  absence  of  a 
grant  of  power  to  lease  contained  in  the  act  of  congress  authorizing 

39  St.  Louis,  &c.  R.  Co.  v.  Terre  and  it  is  held  that  under  this  statute 
Haute,  &c.  R.  Co.  145  U.  S.  393,  12  a   lease  to   a  domestic   corporation 
Sup.    Ct.   953,    6   Lewis'   Am.   R.   &  whose  stock  is  owned  by  a  foreign 
Corp.  439.  corporation  is  invalid.     Stockton  v. 

40  2  Morawetz  Priv.  Corp.  (2d  ed.)  Central  R.  Co.  50  N.  J.  Eq.  52,  24 
§  958.    The  law  of  New  Jersey  pro-  Atl.  964. 

hibits  the  lease  of  a  railroad  within  tt  Oregon  R.  &c.  Co.  v.  Oregonian 
the  state  to  a  foreign  corporation,  R.  Co.  130  U.  S.  1,  9  Sup.  Ct.  409. 


609  EIGHTS   OF   FOREIGN   LESSORS.  [§'  445 

the  building  of  that  part  of  the  road,  a  lease  of  its  whole  road  would 
be  invalid  as  to  the  part  lying  in  the  territory.42  And,  ordinarily,  a 
statute  which  provides  that  railroad  companies  may  lease  the  property 
of  other  railroad  companies  refer  only  to  domestic  corporations,  and 
does  not  authorize  a  lease  to  a  foreign  corporation.43  But  it  has  been 
held  that  a  statute  providing  for  a  forfeiture  of  the  franchise  and  all 
charter  rights  of  any  company  acquired  under  a  lease  not  made  in 
conformity  with  the  statute  is  applicable  to  a  foreign  company  operat- 
ing in  the  state  under  a  lease,44  and  that  a  domestic  company,  author- 
ized to  lease,  may  take  a  lease  from  a  foreign  company  if  the  foreign 
company  had  authority  to  make  the  lease.45 

§  445.  Rights  of  foreign  lessors. — The  rights  of  a  corporation  of 
one  state  that  becomes  the  lessee  of  a  railroad  of  another  state  are  such 
as  are  conferred  by  the  laws  of  the  state  from  which  the  lessor  received 
its  charter.46  This  must  necessarily  be  true,  for  the  lessor  derives  all 
its  powers  from  the  state  in  which  it  was  incorporated,  and,  of  course, 
can  grant  no  other  rights  than  such  as  were  conferred  upon  it  by  the 
statute  to  which  it  owes  its  existence  and  powers.  What  the  lessor  was 
required  to  do  by  the  state  which  created  it  must  be  done  by  its  lessee. 

§  446.  Leases  to  connecting  lines. — In  some  of  the  states  the  stat- 
utes grant  a  right  to  lease  to  connecting  lines.  Where  there  is  such  a 
grant,  then,  upon  the  principle  that  statutes  granting  authority  to 
execute  a  lease  are  to  be  strictly  construed,  it  is  implied  that  there  is 
no  authority  to  lease  to  other  lines.  It  is  held  that  under  such  a  stat- 
ute it  is  not  essential  to  the  validity  of  a  lease  that  the  leased  road 
shall  be  an  extension  from  either  terminus  of  the  main  line,  but  it 
may  be  merely  a  collateral  branch,  forming  a  continuous  road,  by  way 

**  Briscoe  v.  Southern  Kansas  R.  107  N.  Y.  129,  13  N.  E.  765.  See  also, 

Co.  40  Fed.  273,  40  Am.  &  Eng.  R.  Ackerman  v.  Cincinnati,  &c.  R.  Co., 

Cas.  599.  .  143  Mich.  58,  106  N.  W.  558.  And  a 

"McCabe  v.  Maysville,  &c.  R.  Co.  consolidated  company  formed  by 

112  Ky.  861,  66  S.  W.  1054;  Archer  consolidation  of  a  foreign  company 

v.  Terre  Haute,  &c.  R.  Co.  102  111.  with  a  domestic  company  has  been 

493;  Van  Steuben  v.  Central  R.  Co.  held  a  domestic  company  authorized 

178  Pa.  St.  367,  35  Atl.  922;  Howard  to  take  a  lease  from  another  com- 

v.  Chesapeake,  &c.  R.  Co.  11  App.  pany.  Peters  v.  Boston,  &c.  R.  Co. 

Cas.  (D.  C.)  300.  114  Mass.  127. 

44  Louisiana,  &c.  R.  Co.  v.  State,  75  "  McCandless    v.    Richmond,    &c. 
Ark.  435,  88  S.  W.  559.  R.  Co.  38  S.  C.  103,  16  S.  E.  429,  18 

45  Day  v.  Ogdensburgh,  &c.  R.  Co.  L.  R.  A.  440,  61  Am.  &  Eng  R.  Cas. 

ELL.  RAILROADS — 39  524- 


LEASES. 


610 


of  the  junction,  to  either  terminus  of  such  main  line,  in  as  direct  a 
route  as  the  average  railroad.47  The  pivotal  question  under  such  stat- 
utes is  whether  the  line  to  which  the  lease  is  executed  is  a  connecting 
line.48 


§  447.  Lease  to  competing  lines — Effect  of  statutes  prohibiting. — 
Many  of  the  states  now  provide  by  general  laws  for  the  transfer  by 
lease,49  of  a  railroad  to  another  corporation  which  does  not  own  a 
parallel  or  competing  line.50  The  effect  of  these  statutes  is,  generally 


47  Hancock  v.  Louisville,  &c.  R.  Co. 
145  U.  S.  409,  12  Sup.  Ct.  969,  con- 
struing the  Kentucky  Act  of  Janu- 
ary 22,  1858.  The  court  says:  "The 
main  line  of  the  lessee's  road  ex- 
tends in  a  northeasterly  direction 
from  Louisville  to  Cincinnati.  At 
Anchorage,  about  twelve  miles  east 
of  Louisville,  the  Shelbyville  road 
touches  it.  At  the  time  of  the  lease 
the  latter  road  was  completed  from 
the  place  of  junction  to  Shelbyville, 
a  distance  of  about  eighteen  miles, 
the  general  course  being  a  trifle 
south  of  east.  There  was  a  physical 
connection  between  the  two  roads 
at  Anchorage,  the  latter  being  the 
western  terminus  of  the  Shelbyville 
road.  From  this  point  the  main  line 
of  the  lessee  road  extends  north- 
easterly, and  the  Shelbyville  road 
southeasterly,  making  two  forks  of 
the  letter  'V.'  Shelbyville  is  nearly 
due  east  from  Louisville,  and  the 
Shelbyville  road,  together  with 
twelve  miles  of  the  lessee's  road, 
makes  a  continuous  line  between 
Shelbyville  and  Louisville  in  a  route 
about  as  straight  as  the  average 
railroad.  But  Anchorage  is  not  a 
terminus  of  the  lessee  road,  and  the 
contention  is  that,  under  the  statute, 
the  leased  line  must  touch  one  of 
the  termini  of  the  lessee's  road  so 
as  to  make  an  extension  of  it. 
*  *  *  We  think  it  is  enough  that 
by  the  lease  the  connected  roads 


form  a  continuous  line,  and  it  is  not 
essential  that  the  leased  line  be  an 
extension  from  either  terminus  of 
the  lessee's  road.  The  evil  which 
was  intended  to  be  guarded  against 
by  this  limitation  was  the  placing 
of  parallel  and  competing  roads  un- 
der one  management  and  the  control 
by  one  company  of  the  general  rail- 
road affairs  of  the  state  through  the 
leasing  of  roads  remote  from  its 
own  and  with  which  it  has  no  physi- 
cal or  direct  business  connection.  It 
was  not  intended  to  prevent  a  com- 
pany with  a  long  road,  like  the  les- 
see company,  from  leasing  branches 
by  means  of  which  it  establishes 
continuous  lines  from  their  several 
termini  to  each  of  its  own." 

48  Text  quoted  in  Georgia  R.  &c. 
Co.  v.  Maddox,  116  Ga.  64,  42  S.  E. 
315,  320. 

^Stimson  Am.  Stat.  (1892)  §8722. 

B0  Leases  of  parallel  or  competing 
lines  are  forbidden  by  the  constitu- 
tions of  Pennsylvania,  West  Vir- 
ginia, Missouri,  Arkansas  and  Texas. 
Stimson  Am.  Stat.  §  467.  A  line  of 
railroad  may  be  competing  within 
the  meaning  of  a  statute  which  for- 
bids railroad  companies  from  pur- 
chasing or  leasing  a  competing  line, 
though  the  competing  points  are 
reached  by  trackage  arrangements 
with  other  lines.  Hafer  v.  Cincin- 
nati, H.  &  D.  R.  Co.  (Ohio  Com.  PL) 
29  Wkly.  Law  Bui.  68. 


611          LEASE  TO   COMPETING  LINES — STATUTE  PROHIBITING.     [§   447 


speaking,  to  confer  power  to  lease  to  any  other  than  competing  or 
rival  lines,  so  that  the  validity  of  the  lease  depends  upon  whether  the 
lines  are  rival  or  competing  lines  within  the  meaning  of  the  statute. 
Such  statutes  are  to  be  strictly  construed;  as  some  of  the  courts  say, 
a  railroad  company  is  required  to  "be  able  to  point  to  the  exact  pro- 
visions granting  authority"  to  make  any  given  lease.51  It  is  clear  from 
the  trend  of  the  judicial  decisions  that  as  in  favor  of  the  power  to 
lease,  there  is  no  elasticity  in  such  statutes.  A  statute  authorizing  a 
railroad  to  lease  its  track  to  another  company,  when  the  respective  lines 
"are  continuous  or  connected,"  authorizes  a  lease  only  when  the  two 
roads  form  one  continuous  line,  between  points  not  otherwise  con- 
nected by  either  separately,52  over  which,  according  to  some  authori- 
ties, freight  and  passengers  may  be  carried  without  transfer,53  and 
will  usually  be  construed  as  not  permitting  a  lease  of  parallel  and  com- 
peting lines.54  The  principle  asserted  by  the  courts  in  the  cases  re- 
ferred to,  as  in  many  others,  forbids  transfers  to  rival  lines  except 
where  the  statute  clearly  and  unequivocally  confers  the  right  to  make 
such  transfers,  but  where  there  is  a  valid  statutory  power  +he  transfer 


81  State  v.  Atchison,  &c.  R.  Co.  24 
Neb.  143,  38  N.  W.  43,  8  Am.  St. 
164;  Pennsylvania,  &c.  R.  Co.  v.  St. 
Louis,  &c.  R.  Co.  118  U.  S.  290,  6 
Sup.  Ct.  1094.  A  railroad  corpora- 
tion, whose  power  of  eminent  do- 
main necessary  to  the  construction 
of  a  branch  road  conferred  by  char- 
ter is  exinct  by  reason  of  non-user 
during  the  term  prescribed  for  its 
exercise,  cannot  purchase  or  lease 
the  branch  road  subsequently  built, 
on  the  foundation  of  the  right  of 
eminent  domain  which  is  extinct. 
Such  lease  is  therefore  ultra  vires. 
Camden,  &c.  R.  Co.  v.  May's  Land- 
ing, &c.  R.  Co.  48  N.  J.  L.  530,  7  Atl. 
523.  It  was  held  that  neither  Rev. 
St.  Ohio,  §  3300,  providing  that  any 
railroad  may  lease  or  purchase  the 
road  of  another  company,  not  com- 
peting, nor  §  3409,  providing  that  a 
company,  not  able  to  complete  the 
construction  of  its  line,  may  trans- 
fer its  property  to  another,  which 
transfer  "shall  include  all  work 


done,  together  with  all  rights,  privi- 
leges and  easements,"  confers  au- 
thority to  sell  and  transfer  a  com- 
pany's contracts  of  subscription  pay- 
able on  completion  of  the  road.  To- 
ledo, &c.  R.  Co.  v.  Hinsdale,  45  Ohio 
556,  15  N.  E.  665. 

"State  v.  Atchison,  &c.  R.  Co.  24 
Neb.  143,  38  N.  W.  43,  8  Am.  St.  164; 
Smith  v.  Reading  City,  &c.  R.  Co. 
13  Pa.  Co.  Ct.  49.  It  was  held  in 
Pennsylvania  that  two  lines  which 
cannot  be  operated  together  without 
a  transfer  of  passengers  and  freight 
do  not  form  a  "continuous  line." 
Hampe  v.  Mt.  Oliver  I.  R.  Co.  (Pa. 
Com.  PI.)  24  Pittsb.  Leg.  J.  (N.  S.) 
330.  But  this  case  has  been  reversed. 
Hampe  v.  Pittsburg,  &c.  Co.  165  Pa. 
St.  468,  30  Atl.  931. 

63  State  v.  Vanderbilt,  37  Ohio  St. 
590. 

MSee  Eel  River  R.  Co.  v.  State, 
155  Ind.  433,  57  N.  E.  388.  See,  also, 
Pearsall  v.  Great  Northern  R.  Co. 
161  U.  S.  646,  16  Sup.  Ct.  709. 


448] 


LEASES. 


612 


to  a  rival  line  is  valid.55  It  is  held  that  a  statute  which  forbids  rail- 
road companies  to  purchase  or  lease  competing  lines  renders  void  a 
lease  of  a  railroad  by  another,  which  reaches  competing  points  by 
means  of  trackage  arrangements  with  other  lines.66 

§  448.  Effect  of  executing  unauthorized  lease. — The  authorities 
generally  affirm  that  an  unauthorized  lease  is  void,57  but  some  of  the 
cases  seem  to  hold  that  rent  provided  for  by  such  a  lease  may  be  re- 
covered where  the  road  is  operated  under  the  lease  and  benefit  is 
actually  received  by  the  company  which  has  possession  and  use  of  the 
road.  Our  opinion,  elsewhere  expressed  and  elaborated,  is  that  such  a 
lease  is  void58  and  no  recovery  can  be  had  upon  it,  but  that  in  the 


55  In  the  case  of  the  Catawissa,  &c. 
R.  Co.  v.  Philadelphia,  &c.  R.  Co.  14 
Pa.  Co.  280,  it  was  held  that  where 
one  railroad  company  acquired,  by 
virtue  of  a  valid  lease,  the  right  to 
the  railroad  of  another  company, 
the  former,  in  building  a  line  paral- 
lel with  the  road  acquired,  did  not 
violate  the  constitutional  provision, 
prohibiting  one  company  from  ac- 
quiring the  rights  of  a  parallel  and 
competing  road.  In  the  course  of 
the  opinion,  it  was  said:  "Was  it 
in  any  sense  a  competing  road  the 
acquisition  of  which  is  prohibited  by 
Article  XVII,  of  the  constitution? 
The  object  of  the  prohibition  was 
clearly  to  prevent  one  independent 
corporation  from  acquiring  the  pos- 
session of  the  road  of  another  com- 
pany which  is  operating  a  compet- 
ing line.  It  was  to  prevent  the 
buying  up  by  one  railroad  corpora- 
tion of  a  competing  line  and  the 
establishment  thereby  of  a  monop- 
oly. The  building  of  one  road  by 
another  for  the  purpose  of  facilitat- 
ing and  enlarging  its  own  business, 
can  by  no  fair  process  of  reasoning 
be  contended  to  be  within  the  con- 
stitutional prohibition,  unless,  in- 
deed, a  man  be  said  to  compete  with 
himself,  when  he  enlarges  his  own 
business  or  enters  into  a  new  one." 


B6Hafer  v.  Cincinnati,  &c.  R.  Co. 
(Ohio  Com.  Pis.  1893)  29  Weekly 
Law  Bui.  68.  But  see  Hancock  v. 
Louisville,  &c.  R.  Co.  145  U.  S.  409, 
12  Sup.  Ct.  969;  Black  v.  Delaware, 
&c.  Canal  Co.  22  N.  J.  Eq.  402.  In 
the  case  of  Louisville,  &c.  R.  Co.  v. 
Commonwealth,  97  Ky.  672,  31  S. 
W.  476,  it  was  held  that  a  statute  au- 
thorizing a  railroad  company  to  pur- 
chase and  own  a  road  constructed 
by  another  company  did  not  confer 
authority  to  purchase  a  competing 
line  in  violation  of  a  constitutional 
provision  adopted  subsequent  to  the 
enactment  of  the  statute  prohibiting 
railroad  companies  from  purchasing 
competing  lines.  See  Missouri  Pa- 
cific, &c.  Co.  v.  Sidell,  67  Fed.  464; 
State  v.  Montana  R.  Co.  21  Mont. 
221,  53  Pac.  623,  45  L,  R.  A.  271; 
Chesapeake,  &c.  R.  Co.  v.  Howard, 
14  App.  Cas.  (D.  C.)  262,  affirmed  in 
178  U.  S.  153,  20  Sup.  Ct.  880. 

"We  think  that  principle  and  au- 
thority require  the  conclusion  that 
the  unauthorized  lease  by  which  a 
railroad  seeks  to  turn  over  its  en- 
tire road  to  another  is  ultra  vires 
and  void,  and  may  be  set  aside  at 
the  suit  of  a  dissenting  stockholder. 
Ante,  §§  368,  373. 

58  State  v.  Atchison,  &c.  R.  Co.  24 
Neb  143,  38  N.  W.  43,  8  Am.  St. 


613 


LEASE — CONSTRUCTION. 


[§  449 


proper  case  there  may  perhaps  be  a  recovery  upon  an  implied  contract. 
Some  of  the  courts  hold  that  the  abandonment  of  -its  road  to  the  lessee 
is  sufficient  ground  for  the  institution  of  quo  warranto  proceedings 
on  the  part  of  the  state.59 

§  449.  Lease — Construction. — The  doctrine  of  some  of  the  courts  is 
that  the  terms  of  a  lease  made  under  legislative  authority  will  be 
strictly  construed,  and  their  meaning  will  not  be  extended  by  implica- 
tion.60 We  can  see  no  reason,  however,  for  applying  to  railroad  leases 
any  other  rules  of  construction  than  those  which  govern  in  the  con- 
struction of  similar  contracts  executed  under  statutory  authority.  The 
terms  must,  of  course,  be  such  as  the  statute  authorizes,  but,  within 
the  limits  of  the  power  conferred,  the  contracting  parties  may  agree 
upon  such  terms  and  conditions  as  they  deem  proper,  provided,  of 
course,  no  rule  of  law  is  violated. 

§450.  Lease — Dependent  and  independent  contracts. — The  ques- 
tion whether  a  contract  relating  to  a  lease  and  in  a  measure  connected 


164.  An  Illinois  railroad  corpora- 
tion is  bound  to  take  notice  that  its 
lease  to  an  Indiana  corporation  is 
ultra  vires  of  the  latter,  so  that 
where  the  lease  becomes  an  executed 
contract  by  the  delivery  of  the 
leased  property  the  lessor  is  in  pari 
delicto  with  the  lessee,  and  cannot 
maintain  a  suit  to  recover  posses- 
sion. So  far  as  the  lessor  corpora- 
tion can  be  regarded  as  represent- 
ing its  non-consenting  stockholders 
in  their  efforts  to  set  aside  the  lease, 
it  and  they  are  barred  by  laches  in 
failing  to  bring  an  action  to  set  it 
aside  for  seventeen  years,  and  by 
accepting  the  rentals  during  that 
time.  St.  Louis;  &c.  R.  Co.  v.  Terre 
Haute,  &c.  Co.  145  U.  S.  393,  12  Sup. 
Ct.  953.  In  Cox  v.  Terre  Haute,  &c. 
R.  Co.  133  Fed.  371,  it  is  held  that  a 
lease  void  as  against  public  policy 
cannot  be  the  foundation  for  recov- 
ery of  rental. 

59  Board  Comrs.  v.  Lafayette,  &c. 
R.  Co.  50  Ind.  85.  But,  it  is  held 
that  a  contract  whereby  another 
railroad  is  permitted  to  use  a  track 


jointly  with  a  lessor,  in  such  a  man- 
ner as  not  to  interfere  with  the 
lessor's  use  thereof,  is  valid  unless 
expressly  forbidden.  Union  Pac.  R. 
Co.  v.  Chicago,  &c.  R.  Co.  51  Fed. 
309.  Such  a  contract  is  not  within 
the  rule  forbidding  a  railroad  com- 
pany from  transferring  property  es- 
sential to  the  performance  of  its 
corporate  duties,  since  the  company 
does  not  by  permitting  another  com- 
pany to  make  a  limited  and  qualified 
use  of  its  tracks,  disable  itself  from 
performing  the  duties  imposed  upon 
it  by  law. 

60  Chicago,  &c.  R.  Co.  v.  Denver, 
&c.  R.  Co.  143  U.  S.  596,  12  Sup.  Ct. 
479.  For  contract  held  to  be  a  lease, 
and  construction  thereof,  see  Moors- 
head  v.  United  Rys.  Co.  (Mo.  App.) 
96  S.  W.  261,  distinguishing  St.  Jo- 
seph, &c.  R.  Co.  v.  St.  Louis,  &c.  R. 
Co.  135  Mo.  173,  36  S.  W.  602,  33  L. 
R.  A.  607.  See,  also,  Terre  Haute, 
&c.  R.  Co.  v.  Cox,  102  Fed.  825;  Con- 
tinental Ins.  Co.  v.  New  York,  &c.  R. 
Co.  187  N.  Y.  225,  79  N.  E.  1026. 


§•  450]  LEASES.  614 

with  it  is  dependent  or  independent,  is  sometimes  an  important  one, 
for  a  lease  may  be  void  and  the  contract  relating  to  the  same  subject, 
executed  by  the  same  parties,  may  be  valid.61  If  the  contract  is  inde- 
pendent of  the  lease  it  may  be  valid,  although  the  lease  is  void.  Kefer- 
ence  in  the  independent  contract  to  the  lease  does  not  necessarily  make 
the  lease  part  of  it,  but,  of  course,  the  reference  may  be  such  as  to 
incorporate  the  lease  in  the  contract,  and  whether  it  does  or  not  is  to 
be  determined  in  each  particular  case  from  the  language  employed  in 
the  instrument.62  Whether  the  contract  is  or  is  not  a  dependent  one 
depends,  of  course,  upon  the  language  employed  by  the  parties,  and 
the  ordinary  doctrines  of  law,  applicable  to  the  subject  of  dependent 
and  independent  contract  provisions  govern  cases  in  which  the  con- 
struction of  such  leases  are  involved  and  supply  the  rules  of  decision. 
In  an  Illinois  case,  the  agreement  in  the  form  of  a  lease  was  that  the 
railroad  company  should  deliver  to  the  other  party  a  designated  quan- 
tity of  grain,  which  the  other  should  accept  and  store,  and  it  was  held 
that  the  promises  to  deliver  and  to  accept  and  store  were  dependent 
promises.63  Covenants  in  leases  executed  by  railroad  companies  are 
construed  and  enforced  as  are  covenants  in  leases  executed  by  natural 
persons,  that  is,  the  same  general  principles  of  law  govern  in  such 
cases,64  but  the  nature  of  the  business  of  such  companies  and  the  lim- 
ited powers  with  which  they  are  invested,  necessarily  render  their 
leases  different  in  some  respects  from  those  of  natural  persons.  A 
reasonable  construction  is  to  be  given  covenants  in  railroad  leases,  and 

61  Pittsburgh,  &c.  R.  Co.  v.  Keokuk,  person  so  signing  in  effect  signs  a 
&c.  Co.  155  U.  S.  156,  15  Sup.  Ct.  42;  document  containing  the   terms   of 
Pittsburgh,  &c.  R.  Co.  v.  Keokuk,  &c.  the  one  referred  to."     The  rule  ap- 
Co.  131  U.  S.  371,  7  Sup.  Ct.  770,  39  plies  to  references  made  by  acts  of 
Am.  &  Eng.  R.  Gas.  213.  parliament.     North  British,  &c.  Co. 

62  Pittsburgh,  &c.  R.  Co.  v.  Keokuk,  v.  Tod,  12  Cl.  &  Fin.  722;  Ware  v. 
&c.  Co.  131  U.  S.  371,  9  Sup.  Ct.  770,  Regente's  Canal  Co.  28  L.  J.  Ch.  153; 
39  Am.  &  Eng.  R.  Gas.  213.    Ordina-  Galwey  v.  Baker,  5  Cl.  &  Fin.  157; 
rily  the  reference  would  make  the  Brain  v.  Harris,  10  Exch.  908;  Reg. 
lease  part  of  the  contract.    The  max-  v.  Caledonia  R.  C.  16  Q.  B.  19. 

im  is,  "Instruments  to  which  refer-  ^Dunlap   v.    Chicago,   &c.   R.   Co. 

ence  is  made  in  another  instrument  151  111.  409,  33  N.  E.  89,  citing  Hough 

have  the  same  effect  and  operation  v.    Rawson,   17   111.   588;    Porter   v. 

as  if  they  were  inserted  in  the  clause  Rose,  12  Johns.   (N.  Y.)  209,  7  Am. 

referring  to  them."  In  applying  this  Dec.  306. 

ancient  and  well-settled  rule  in  the  M  Boston,  &c.  R.  Co.  v.  Boston,  &c. 

case  of  Fitzmaurice  v.  Bayley,  9  H.  R.  Co.  65  N.  H.  393,  23  Atl.  529,  51 

L.  Cases  78,  Compton,  J.,  said:     "By  Am.  &  Eng.  R.  Gas.  106.    See  Grand 

referring  in  a  document  signed  by  Trunk,  &c.  R.  Co.  v.  Chicago,  &c.  R. 

the  party  to  another  document,  the  Co.  141  Fed.  785. 


615    PERMISSION   TO   USE  TRACK  NOT   NECESSARILY  A  LEASE.     [§   451 

such  covenants  are  held  to  require  that  to  be  done  which  "is  reason- 
able and  which  would  be  so  accounted  by  reasonable  men."65  In  a 
New  Hampshire  case,  the  subject  of  covenants  in  leases  executed  by 
one  railroad  company  to  another  is  very  fully  discussed,  and  the  effect 
of  such  covenants  clearly  stated.66  Where  the  contracting  parties  have, 
by  a  settled  course  of  dealing,  given  a  construction  to  the  lease,  that 
construction  will  be  upheld  by  the  courts,  unless  it  is  in  violation  of 
the  clear  words  of  the  contract  or  infringes  the  rights  of  others.  Thus, 
where  a  railroad  company  which  has  granted  to  another  company  the 
right  to  the  joint  use  of  its  track  and  depots,  allows  the  grantee  and 
assignee  of  the  latter  to  enter  upon  and  continue  in  such  possession 
and  use,  it  is  practically  a  construction  of  the  power  of  the  company 
to  assign  its  rights  under  the  contract.67 

§  451.     Contract  to  permit  use  of  track  not  necessarily  a  lease. — A 

contract  between  two  railroad  companies  wherein  one  company  agrees 
to  permit  another  company  to  use  its  tracks,  station,  buildings  or  the 
like,  is  not  necessarily  a  lease  within  the  meaning  of  the  rule  prohibit- 
ing a  railroad  company  from  transferring  its  property  by  way  of  lease. 
There  is  a  distinction  between  a  lease  and  a  traffic,  or  trackage  con- 
tract.68 A  lease  transfers  control  from  the  lessor  to  the  lessee,  and  the 

65  In  the  case  of  Catawissa,  &c.  R.  can  only  be  determined  when  ques- 

Co.  v.   Philadelphia,   &c.   R.   Co.   14  tions  arise  in  regard  to  the  particu- 

Pa.  Co.  Ct.  280,  the  lease  contained  lar  actions  and  conduct  of  the  party, 

a  covenant  that  the  lessee  should  and  their  result."     We  agree  with 

maintain   the   leased   road   in   good  the  court  that  the  solution  of  the 

condition,  operate  it  with  reasonable  question  generally  depends  upon  the 

care,  and  "use  all  proper  and  reason-  facts  of  the  particular  case,  but  it 

able  means  to  maintain  and  increase  seems  to  us  that  a  covenant  such  as 

the  business  thereof."     It  was  held  that  contained   in  the  lease  before 

that  this  covenant  was  not  broken  the  court  prohibits  the  lessee  from 

by    the    construction    of    a   parallel  building  a  road  parallel  with  that 

road.     The   court   said,   inter   alia:  leased  to  it. 

"The  defendants  are  required  to  use  °6  Boston,  &c.  R.  Co.  v.  Boston,  &c. 
all  reasonable  means  to  maintain  R.  Co.  65  N.  H.  393,  23  Atl.  529,  51 
and  increase  the  business  of  the  Am.  &  Eng.  R.  Cas.  106. 
road.  This  means  that  they  will  do  "  Chicago,  &c.  R.  Co.  v.  Denver, 
what  is  usually  accounted  reasona-  &c.  R.  Co.  46  Fed.  145.  See,  also,  Co- 
ble, and  what  ought  to  be  so  account-  lumbus,  &c.  R.  Co.  v.  Pennsylvania 
ed  by  reasonable  men.  It  is  difficult,  Co.  143  Fed.  757.  But  compare  Pere 
perhaps  impossible,  to  bring  within  Marquette  R.  Co.  v.  Wabash  R.  Co. 
the  limits  of  a  precise  definition  ex-  141  Mich.  215,  104  N.  "W.  650. 
actly  what  is  required  by  an  under-  ""Ante,  §§  356,  357,  358,  359; 
taking  in  such  general  terms.  It  Union  Pac.  R.  Co.  v.  Chicago,  &c.  R. 


§  451] 


LEASES. 


616 


former  is  thereby  disabled  from  performing  the  duties  imposed  upon 
it  by  law,  whereas  a  contract  granting  the  privilege  of  using  tracks, 
station  buildings  and  the  like  does  not  divest  the  company  granting 
such  use  or  control,  nor  disable  it  from  discharging  its  corporate  duties 
or  exercising  its  corporate  functions.69  There  is  solid  foundation  for 
the  distinction  between  a  contract  whereby  one  company  simply  per- 
mits use  to  be  made  of  its  railroad,  and  a  contract  whereby  the  one 
company  transfers  to  the  other  its  railroad  through  the  instrumentality 
of  a  lease.  The  right  to  do  such  things  as  are  reasonably  necessary  to 
the  successful  operation  of  a  railroad  is  implied  in  the  grant  of  a 
franchise  to  build  and  operate  a  railroad,  and  it  may  well  be  held  in 
cases  where  the  object  to  be  attained  advances  the  interests  of  the 
contracting  companies  and  the  contract  which  they  enter  into  does  not 
disable  either  from  performing  its  corporate  duties,  that  in  making 
such  a  contract  the  companies  have  not  exceeded  the  power  conferred 
upon  them.  There  is,  it  is  obvious,  no  rule  of  public  policy  which 
forbids  one  company  from  granting  to  another  a  mere  right  to  use 
tracks,  depots  or  the  like.  If,  however,  under  the  guise  of  a  contract 


Co.  51  Fed.  309,  2  C.  C.  A.  174,  51 
Am.  &  Eng.  R.  Gas.  162;  Chicago,  &c. 
Co.  v.  Union  Pac.  Co.  47  Fed.  15. 
See  Langley  v.  Railroad  Co.  10  Gray 
(Mass.)  103;  Humphreys  v.  St. 
Louis,  &c.  R.  Co.  37  Fed.  307.  See, 
also,  Coney  Island,  &c.  R.  Co.  v. 
Brooklyn  Cable  Co.  53  Hun  (N.  Y.) 
169,  6  N.  Y.  S.  108;  Archer  v.  Terre 
Haute,  &c.  R.  Co.  102  111.  493;  South 
Carolina,  &c.  R.  Co.  v.  Carolina,  &c. 
R.  Co.  93  Fed.  543.  A  contract  where- 
in one  company  agrees  to  permit  an- 
other company  at  the  expense  of  the 
latter  to  connect  with  the  main 
track  of  the  former,  the  object  being 
to  facilitate  an  interchange  of  busi- 
ness is  more  than  a  mere  revocable 
license.  It  is  an  enforceable  con- 
tract founded  on  a  valuable  consid- 
eration. Louisville,  &c.  R.  Co.  v. 
Kentucky,  &c.-  Co.  95  Ky.  550,  26  S. 
W.  532. 

68  The  reasoning  upon  which  a  de- 
nial of  the  right  of  a  railroad  com- 
pany to  transfer  its  property  and 


franchises  so  as  to  disable  itself  to 
perform  its  public  duties  is  based 
does  not,  it  is  obvious,  apply  to  a 
contract  whereby  a  railroad  com- 
pany lets  another  company  into  joint 
possession  of  part  of  its  line  for  a 
term  of  years  at  an  agreed  rental; 
and  such  a  contract  is  not,  as  be- 
tween the  parties,  ultra  vires,  where 
such  joint  possession  does  not  inter- 
fere with  the  present  use  of  such 
line  by  the  company  that  owns  it. 
Chicago,  &c.  R.  Co.  v.  Union  Pac.  R. 
Co.  47  Fed.  15,  aff'd,  51  Fed.  309,  10 
U.  S.  App.  98.  It  has  been  held  that 
a  contract  whereby  a  railroad  com- 
pany is  granted  "the  perpetual  and 
free  use"  of  the  right  of  way  of  an- 
other railroad  company,  within  a 
specified  distance,  means  that  the 
grantee  of  such  privilege  is  to  have, 
not  merely  the  uninterrupted  use  of 
such  right  of  way  but  is  to  have  it 
free  of  compensation.  Alabama,  &c. 
R.  Co.  v.  South,  &c.  R.  Co.  84  Ala. 
570,  3  So.  286,  5  Am.  St.  401. 


617  TRAFFIC  CONTRACT NOT  VALID  IF  IT  IS  IN  EFFECT  A  LEASE.  [§  452 

permitting  one  company  to  use  the  property  of  another,  there  should, 
in  fact,  be  a  transfer  from  one  to  the  other,  the  contract  would  be 
ultra  vires,  and  against  public  policy. 

§  452.    Traffic  contract — Not  valid  if  it  is  in  effect  a  lease. — A 

traffic  contract  may  be  rightfully  entered  into,  but,  under  the  guise  of 
a  traffic  contract,  a  railway  company  cannot,  except  where  the  statute 
authorizes  it,  turn  over  its  road  to  another  company.  In  other  words, 
a  railroad  company  cannot,  under  the  form  of  a  traffic  contract,  make 
a  lease  of  its  road,  except  where  there  is  statutory  authority  to  execute 
the  lease.70  If  the  professed  traffic  contract  is,  in  fact,  a  lease,  it  is 
ultra  vires,  but  where  the  contract  is  in  the  proper  sense  a  traffic  con- 
tract, then,  as  we  believe,  it  may  be  effective. 

§453.     Contracts  granting  right  to  nse — Effect  and  construction 

of. — It  is  held  that  an  agreement  between  two  railroad  companies,  con- 
ferring on  each  the  right  to  run  its  cars  over  the  tracks  of  the  other, 
each  retaining  absolute  control  over  its  road  for  all  other  purposes, 
confers  no  interest  which  can  be  assigned  or  leased.71  It  is  obvious 
that  such  a  contract  cannot  be  regarded  as  a  lease  since  there  is  noth- 
ing more  than  an  agreement  permitting  one  company  to  use  the  tracks 
of  another,  but  it  is  difficult  to  determine  just  what  the  specific  na- 
ture of  the  contract  is  and  what  are  the  rights  of  the  parties.  It  is  a 
contract  for  joint  use,  and  the  company  owning  the  road  does  not 
fully  part  with  possession  or  control,  so  that  the  rights  and  obligations 
of  the  parties  are  not  the  same  as  those  of  a  lessor  and  lessee  in  an 

70  In  the  case  of  Nashua,  &c.  R.  Co.  the  court  cited  Slater  Woollen  Co. 

v.  Boston,  &c.  164  Mass.  222,  41  N.  v.  Lamb,  143  Mass.  420,  9  N.  E.  823; 

E.  268,  49  Am.  St.  454,  the  question  Nims    v.    Mount    Hermon,    &c.    160 

was    stated    but   not    decided.     The  Mass.  177,  35  N.  E.  776,  22  L.  R.  A. 

court,  however,  referred  to  the  cases  364,  39  Am.  St.  467;   L'Herbette  v. 

of  Burke  v.  Concord,  &c.  R.  Co.  61  Pittsfield,  &c.  Bank,  162  Mass.  137, 

N.  H.  160,  and  Boston,  &c.  R.  Co.  v.  38  N.  E.  368,  44  Am.  St.  354;  Central, 

Boston,  &c.  R.  Co.  65  N.  H.  393,  23  &c.  Co.  v.  Pullman's,  &c.  Co.  139  U. 

Atl.  529.     In  the  first  of  the  cases  S.  24,  11  Sup.  Ct.  478;   Manchester, 

cited  the  court  held  that  the  joint  &c.  R.  Co.  v.  Concord,  &c.  R.  Co.  66 
manager  of  two  roads  both  operated  ,  N.  H.  100,  20  Atl.  383,  9  L.  R.  A.  689, 

by  one   company  under  a  contract  49  Am.  St.  582;  Central  Trust  Co.  v. 

had  no  right  to  use  the  joint  funds  Ohio,  &c.  R.  Co.  23  Fed.  306. 

in  improving  the  road  of  the  oper-  "  Brooklyn    Crosstown    R.    Co.    v. 

ating  company  and  that  the  other  Brooklyn   City  R.   Co.  51  Hun    (N. 

company  might  recover  it  in  a  prop-  Y.)  600,  3  N.  Y.  S.  901. 
er  action.    In  support  of  this  ruling 


§'  453] 


LEASES. 


618 


authorized  lease.  Some  of  the  courts  hold  that  an  agreement  by  one 
railroad  company  that  another,  "and  its  assigns/*  may  use  one  of  its 
tracks  on  certain  conditions,  is  a  mere  license  and  not  a  lease.72  We 
incline  to  the  opinion  that  where  there  is  a  valid  consideration  for 
such  an  agreement  it  is  not  a  mere  revocable  license  but  is  an  en- 
forceable contract.73  If  there  is  a  sufficient  consideration  for  the  agree- 
ment, we  can  see  no  reason  why  it  should  not  be  regarded  as  a  contract 
in  all  that  the  term  implies.  If,  however,  there  is  no  consideration  the 
agreement  may  well  be  treated  as  a  mere  license.  If  there  is  nothing 
more  than  a  license  then  there  is  reason  for  holding  that  the  licensee 
cannot  enjoy  the  privileges  conferred  by  such  agreement  and  at  the 
same  time  confer  the  right  to  do  so  on  other  companies,  since  this 
would  be  to  impose  greater  burdens  on  the  licensor  than  the  agreement 
contemplated.74  We  do  not  believe  that  there  can  be  an  assignment, 
even  if  there  be  a  contract,  where  the  original  company  also  retains  the 


72  Coney  Island,  &c.  R.  Co.  v.  Brook- 
lyn Cable  Co.  53  Hun  (N.  Y.)  169,  6 
N.  Y.  S.  108.  In  a  reported  case  the 
president  of  the  plaintiff  railroad 
company  testified  that  the  vice-presi- 
dent of  the  defendant  railroad  com- 
pany promised  that  plaintiff  should 
have,  free  of  charge,  full  terminal 
facilities  at  the  junction  of  the  two 
roads.  A  director  of  plaintiff  testi- 
fied that  it  was  assumed,  rather 
than  expressly  agreed,  that  plaintiff 
should  have  such  terminal  facilities. 
Several  officers  of  plaintiff  testified 
that  they  had  heard  of  no  claim  that 
said  agreement  had  been  made  until 
about  twenty  years  after  the  organ- 
ization of  plaintiff,  when  it  was  de- 
prived of  such  terminal  facilities. 
It  appeared  that  the  plaintiff  com- 
pany had  been  operated  by  defend- 
ant for  five  years,  and  that  on  being 
reorganized,  it  consented  that  a 
charge  should  be  made  for  the  use 
of  the  terminal  facilities;  that  at  a 
subsequent  reorganization  a  higher 
charge  was  paid  for  eighteen 
months;  and  that  two  years  later 
the  charge  was  increased,  and  one 
payment  made  under  protest.  No 


action  was  ever  taken  by  the  direct- 
ors'of  either  company  upon  the  sub- 
ject. It  was  held,  in  an  action  for 
damages  for  severing  the  connection 
between  the  two  companies,  and  de- 
priving the  plaintiff  of  such  facili- 
ties, that  the  evidence  justified  a 
finding  that  the  agreement  was  tem- 
porary and  permissive  only.  Port 
Jervis,  &c.  R.  Co.  v.  New  York,  &c. 
R.  Co.  132  N.  Y.  439,  30  N.  E.  855. 
Where  one  railroad  company  has 
permission  by  parol  to  extend  its 
track  upon  the  right  of  way  of  an- 
other company  for  the  purpose  of 
making  a  connection  such  permis- 
sion is  a  mere  license,  and,  although 
valuable  improvements  have  been 
made,  may  be  revoked  at  the  will  of 
the  licensing  company.  Richmond, 
&c.  R.  Co.  v.  Durham,  &c.  R.  Co.  104 
N.  C.  658,  10  S.  E.  659,  40  Am.  &  Eng. 
R.  Cas.  488. 

73  Louisville,   &c.   R.    Co.   v.   Ken- 
tucky, &c.  R.  Co.  95  Ky.  550,  26  S. 
W.  532. 

74  Coney  Island,  &c.  R.  Co.  v.  Brook- 
lyn Cable  Co.  53  Hun  (N.  Y.)  169,  6 
N.  Y.  S.  108. 


619  PART  PERFORMANCE — EFFECT  OF.  [§  454 

right  to  make  use  of  the  right  or  privilege  granted  it,  for  the  grant 
implies  that  the  right  to  exercise  the  privilege  is  only  conferred  upon 
the  company  to  which  it  is  granted.  The  parties  may,  of  course,  pro- 
vide for  an  assignment  by  the  stipulations  of  the'  contract.75 

§  454.  Part  performance — Effect  of. — The  partial  performance  of 
a  contract  of  lease,  executed  without  legislative  authority,  confers  no 
rights  under  the  lease.  Thus,  where  a  void  lease  is  "made  by  a  railroad 
company  for  a  term  of  ninety-six  years,  at  a  certain  yearly  rental,  the 
use  of  the  road  by  the  lessee  and  payment  of  the  rental  for  three  years, 
does  not  make  the  contract  so  far  an  executed  one  as  to  estop  the  lessee 
to  deny  its  validity.76  This  doctrine  results  from  the  principle  else- 
where considered  that  where  the  contract  is,  in  a  proper  sense,  ultra 
vires,  no  right  can  be  founded  on  the  contract  itself.  If  the  contract 
be  absolutely  void  and  not  merely  voidable,  it  cannot  be  made  effective 
by  the  acts  of  the  contracting  parties.77 

§  455.  Duration  of  a  lease. — Where  there  is  no  authority  to  sell, 
there  is,  as  it  seems  to  us,  no  right  to  execute  a  lease  the  practical 
effect  of  which  is  equivalent  to  a  sale.78  This  principle  would  pro- 
hibit a  railroad  company  from  leasing  its  road  for  such  a  length  of 
time  as  would  clearly  deprive  it  of  possession  and  use  for  a  palpably 
unreasonable  period.  We  do  not  believe  that  a  transfer  can  be  made 
which  is  in  substance  a  sale,  although  in  form  a  lease.  Of  course, 
where  there  is  authority  to  sell,  a  sale  may  be  made.  It  has  been  held 
in  New  York  that  a  lease  of  its  road  by  a  railroad  company  for  a 
longer  term  than  the  period  of  its  corporate  existence  is  not  void, 
since  the  laws  of  that  state  provide  for  an  extension  of  the  charter.79 

75  As    to    assignments    of    leases,  R.  Co.  145  U.  S.  52,  12  Sup.  Ct.  814. 

see,  generally,  Terre  Haute,  &c.  R.  See,  also,  East  St.  Louis,  &c.  R.  Co. 

Co.  v.  Peoria,  &c.  R.  Co.  61  111.  App.  v.  Jarvis,  92  Fed.  735;  Ogdensburgh, 

405,  167  111.  296,  47  N.  E.  573;  Bos-  &c.  R.  Co.  v.  Vermont,  &c.  R.  Co.  63 

ton,  &c.  R.  Co.  v.  Boston,  &c.  R.  Co.  N.  Y,  176.     But  see  where  authority 

65  N.  H.  393,  23  Atl.  529;  Frank  v.  was  afterwards   conferred   and   the 

New  York,  &c.  R.  Co.  122  N.  Y.  197,  lease  recognized.     Terre  Haute,  &c. 

25  N.  E.  332;   Indianapolis  Mfg.  &c.  R.  Co.  v.  Cox,  102  Fed.  825. 

Union  v.   Cleveland,   &c.   R.   Co.   45  "Ante,    §§  372,    383,   and    §§  356, 

Ind.  281;    St.  Joseph,  &c.  R.  Co.  v.  357,  358,  359. 

St.  Louis,  &c.  R.  Co.  135  Mo.  173,  36  7S  St.   Louis,  &c.  R.  Co.  v.   Terre 

S.  W.  602,  33  L.  R.  A.  607.  Haute,  &c.  R.  Co.  145  U.  S.  393,  12 

78  Oregon  R.   &   Nav.  Co.  v.   Ore-  Sup.  Ct.  953,  and  cases  cited, 

gonian  R.  Co.  130  U.  S.  1,  9  Sup.  Ct.  TO  Gere  v.  New  York,  &c.  R.  Co.  19 

409;  Oregon  R.  &c.  Co.  v.  Oregonian  Abb.  N.  C.    (N.  Y.)   193.     The  fact 


§  456] 


LEASES. 


620 


There  is,  as  it  seems  to  us,  reason  for  the  conclusion  that  a  railroad 
corporation  cannot  make  a  lease  extending  beyond  its  corporate  life. 
One  would  think  that  in  authorizing  a  lease  the  legislature  had  in 
mind  the  statute  fixing  the  duration  of  corporate  existence,  and  that 
it  did  not  mean  that  any  corporate  act  should  be  effective  after  cor- 
porate death.  But  there  is  also  some  reason  for  the  other  view,  and 
as  already  shown,  the  courts  seem  inclined  to  adopt  the  view  that  such 
a  lease  is  not  void.8'0 

§456.  Effect  of  lease  on  taxation. — Where  the  statute  authorizes 
the  execution  of  a  lease  and  also  provides  that  the  leased  road  shall 
become  the  property  of  the  lessee  company,  the  road  is  assessable  as 
the  property  of  the  lessee  and  not  as  the  property  of  the  lessor.81  It 
may  well  be  doubted  whether  this  result  would  follow  where  the  lessor 
remains  the  owner  and  only  transfers  the  road  for  a  limited  time.  If 
the  lessor  remains  the  owner  the  principle  which  ordinarily  prevails 
would  require  that  taxes  be  assessed  against  it  and  not  against  its 
lessee.  We  suppose  that  where  there  is  simply  an  authority  to  lease 
and  no  provision  vesting  the  lessee  with  the  ownership  the  property 
must  be  treated  for  the  purpose  of  taxation  as  that  of  the  lessor.  Au- 


that  a  lease  by  a  railroad  company 
was  for  999  years,  while  the  charter 
of  the  lessee  would  expire  in  about 
forty  years,  did  not  render  it  void, 
especially  as  the  charter  contained 
a  provision  that  it  might  be  renewed 
from  time  to  time,  and  as  the  lease 
was  expressly  made  binding  upon 
the  assigns  and  successors  of  the 
parties.  Union  Pac.  R.  Co.  v.  Chi- 
cago, &c.  R.  Co.  51  Fed.  309,  10  U.  S. 
App.  98,  163  TJ.  S.  564,  599,  16  Sup. 
Ct.  1173. 

80  See,  also,  as  to  such  leases  and 
leases  for  a  long  term  distinguished 
from  a  sale  or  consolidation.  Union 
Pac.  R.  Co.  v.  Chicago,  &c.  R.  Co. 
163  U.  S.  564,  569,  16  Sup.  Ct.  1173; 
Morrison  v.  St.  Paul,  &c.  R.  Co.  63 
Minn.  75,  65  N.  W.  141,  30  L.  R.  A. 
546;  Chicago,  &c.  R.  Co.  v.  People, 
153  111.  409,  38  N.  E.  1075,  29  L.  R. 
A.  69;  Sioux  City,  &c.  Co.  v.  Trust 
Co.  82  Fed.  124;  State  v.  Montana 


R.  Co.  21  Mont  221,  53  Pac.  623,  45 
L.  R.  A.  271,  and  see,  generally,  Ack- 
erman  v.  Cincinnati,  &c.  R.  Co. 
143  Mich.  58,  106  N.  W.  558. 

81Huck  v.  Chicago,  &c.  R.  Co.  86 
111.  352;  Hagan  v.  Hardie,  8  Heisk. 
(Tenn.)  812.  See,  generally,  Phila- 
delphia, &c.  R.  Co.  v.  Appeal  Tax 
Court,  50  Md.  397;  Appeal  Tax  Court 
v.  Western,  &c.  R.  Co.  50  Md.  274.. 
Such  a  contract  is  practically  a  con- 
tract of  sale,  or  rather,  in  its  prac- 
tical effect  is  equivalent  to  a  sale  in 
cases  where  the  term  is  one  of  great 
length;  while  nominally  a  lease  it 
is  practically  a  sale  in  its  effects 
and  consequences.  Where  the  con- 
tract is  for  a  short  term  it  is  a 
lease  rather  than  a  sale,  but  if  for 
a  great  number  of  years  it  would  be 
substantially  a  sale  of  the  property. 
St.  Louis,  &c.  R.  Co.  v.  Penn.  Co. 
118  U.  S.  290,  6  Sup.  Ct.  1094. 


621  LESSEE   UNDER   UNAUTHOKIZED   LEASE — MANDAMUS.       [§    457 

thority  to  execute  a  lease  implies  that  the  lessor  retains  the  ownership 
of  the  demised  property,  but  grants  to  the  lessee  use,  possession  and 
control  for  a  designated  term.  A  person,  natural  or  artificial,  who 
executes  a  lease,  does  not  sell  or  convey  the  property,  but  simply  trans- 
fers use,  possession  and  control  for  the  term  designated  in  the  lease. 
It  is  competent  for  the  legislature  in  conferring  authority  to  lease 
to  prescribe  the  terms  and  conditions  upon  which  the  authority  shall 
be  exercised,  and  hence  it  may  provide  that  the  lessee  company  shall 
be  treated  as  the  owner  or  that  it  shall  pay  all  taxes.  In  every  author- 
ized lease  there  are  two  estates,  that  of  the  lessor  and  that  of  the 
lessee,  and  where  both  are  of  value  both  may  be  assessed,  but  each 
estate  must  be  assessed  against  its  owner  unless  the  statute  otherwise 
provides.  It  is  probably  true  that  if  under  the  form  of  a  lease  a  sale 
is  made,  the  company  acquiring  the  property  is  liable  to  taxation  as 
owner,82  but  to  have  this  effect  the  contract,  although  in  form  a  lease, 
must  be,  in  legal  contemplation,  a  sale.  Where  the  statute  provides 
for  a  tax  upon  the  earnings  of  the  road  the  lessee  company  is,  ordi- 
narily, the  party  against  which  the  assessment  should  be  made.83  The 
earnings  are  part  of  the  estate  of  the  lessee  company  and  not  of  the 
estate  of  the  lessor.  The  earnings  are  derived  from  the  possession  and 
use  of  the  road,  and  hence  are  the  property  of  the  lessee.  The  ques- 
tion, however,  is  one  depending  almost  entirely  upon  the  statute  gov- 
erning the  particular  case,  for,  as  we  have  said,  the  legislature  may 
lay  the  tax  upon  either  company  as  it  deems  proper,  since  it  has  full 
power  to  prescribe  the  terms  and  conditions  upon  which  the  authority 
to  lease  shall  be  exercised. 

§  457.  Public  duties  of  lessee  under  an  unauthorized  lease — Man- 
damus.— It  by  no  means  follows  from  the  rule  that  the  lessee  operating 
a  road  under  an  unauthorized  lease  is  liable  for  torts  in  the  manage- 
ment of  the  leased  road,  that  it  can  be  compelled  to  perform  the  duties 
imposed  upon  the  lessor  company.  It  is  evident  that  it  may  be  liable 
for  its  torts  in  operating  the  road  and  yet  not  bound  to  perform  the 
obligations  which  the  law  requires  the  lessor  to  perform.  If  the  lease 
is  void  it  neither  confers  a  right  nor  creates  a  duty.  In  a  well-reasoned 
opinion  it  was  adjudged  that  where  a  lease  was  executed  without  au- 
thority the  lessee  could  not  be  compelled  to  operate  the  leased  road 
and  that  mandamus  would  not  lie.84 

82  Commonwealth  v.  Nashville,  Ac.  &c.  R.  Co.  63  Vt  1,  21  Atl.  262,  731, 

R.  Co.  93  Ky.  430,  20  S.  W.  383,  54  46  Am.  &  Eng.  R.  Gas.  646. 

Am.  &  Eng.  R.  Cas.  254.  **  People  v.  Colorado,  &c.  R.  Co.  42 

**  Vermont,  &c.  R.  Co.  v.  Vermont,  Fed.  638.    In  the  course  of  the  opin- 


§  458] 


LEASES. 


622 


§  458.  Authorized  lease — Duty  of  lessee  to  operate  the  road — Man- 
damus.— Where  the  lease  is  authorized  a  very  different  question  is  pre- 
sented from  that  which  arises  in  cases  where  the  lease  is  unauthorized.. 
If  it  is  the  imperative  duty  of  the  lessor  company  to  operate  the  road 
and  it  has  no  discretionary  power  in  the  matter  and  that  duty  was 
transferred  to  the  lessee  by  the  lease,  it  would  seem  clear  that  the 
lessee  could  be  compelled  by  mandamus  to  perform  the  duty.  This 
conclusion  is  supported  by  decisions  in  analogous  cases.85  It  is  settled 
that  a  railroad  company  in  possession  of  its  road  may  be  compelled 
by  mandamus  to  operate  its  road  in  accordance  with  the  positive  re- 
quirements of  its  charter,  and  we  can  see  no  reason  why  this  principle 
should  not  apply  to  a  company  in  full  possession  of  a  road  under  an 
authorized  lease.  In  authorizing  the  lease  the  legislature  empowered 
the  transfer  of  the  duty  of  operating  the  road  to  the  lessee,  and,  with 
the  duty,  authorized  the  transfer  of  important  rights  and  privileges, 
so  that  the  duty  of  the  lessee  accepting  the  lease  with  its  benefits  be- 
comes imperative.  The  lessor  having  rightfully  transferred  possession 
to  the  lessee  company  cannot  operate  the  road,  and  hence  the  duty  nec- 
essarily devolves  on  the  lessee.86 


ion  Caldwell,  J.,  said:  "As  the  re- 
lator  and  the  respondents  are  agreed 
that  the  lease  was  void  that  ends  the 
case  as  to  the  Union  Pacific  Railroad 
Company,  for  if  the  lease  is  void  it 
imposes  no  obligation  on  the  Union 
Pacific  Railroad  Company  to  operate 
the  road."  The  decision  was  placed 
on  the  ground  that  the  lease  was 
void,  for  it  was  affirmed  that  man- 
damus lies  where  there  is  a  duty  to 
operate  a  railroad.  The  court  cited 
State  v.  Sioux  City,  &c.  R.  Co.  7 
Neb.  357;  Commonwealth  v.  Fitch- 
burgh,  &c.  R.  Co.  12  Gray  (Mass.) 
180. 

85  State  v.  Sioux  City,  &c.  R.  Co.  7 
Neb.  357;  Commonwealth  v.  Fitch- 
burg,  &c.  R.  Co.  12  Gray  (Mass.) 
180;  Farmers',  &c.  Co.  v.  Henning, 
17  Am.  Law  Reg.  (N.  S.)  266;  State 
v.  Nebraska  Tel.  Co.  17  Neb.  126,  52 
Am.  R.  404;  Mobile,  &c.  R.  Co.  v. 
Wisdom,  5  Heisk.  (Tenn.)  125; 
State  v.  Hartford,  &c.  R.  Co.  29 


Conn.  538;  Union  Pacific  R.  Co.  v. 
Hall,  91  U.  S.  343;  King  v.  Severn, 
&c.  R.  Co.  2  Barn.  &  Aid.  646;  Peo- 
ple v.  Albany,  &c.  Co.  24  N.  Y.  261, 
82  Am.  Dec.  295;  People  v.  Rome, 
&c.  R.  Co.  103  N.  Y.  95,  8  N.  E.  369; 
Railroad  Commissioners  v.  Portland, 
&c.  R.  Co.  63  Me.  269,  18  Am.  R.  208; 
State  v.  New  Haven,  &c.  R.  Co.  41 
Conn.  134;  New  Haven,  &c.  R.  Co. 
v.  State,  44  Conn.  376;  Chicago,  &c. 
R.  Co.  v.  People,  56  111.  365,  8  Am. 
R.  690;  Chicago,  &c.  R.  Co.  v.  Crane, 
113  U.  S.  424,  5  Sup.  Ct.  578;  People 
v.  New  York,  &c.  R.  Co.  28  Hun  (N. 
Y.)  543;  Talcott  v.  Township  of 
Pine  Grove,  1  Flip.  (U.  S.)  120. 
See,  also,  Southern  R.  Co.  v.  Frank- 
lin, &c.  R.  Co.  96  Va.  693,  32  S.  E. 
485,  44  L.  R.  A.  297;  State  v.  Mobile, 
&c.  R.  Co.  86  Miss.  172,  38  So.  732; 
Litchfield,  &c.  R.  Co.  v.  People,  222 
111.  242,  78  N.  E.  589. 

88  There  may,  possibly,  be  excep- 
tional cases,  as  where  the  operation 


623     LIABILITY  FOE  WROXGS  PRIOR  TO  EXECUTION  OF  LEASE.      [§   459 

§  459.  Lessee  not  liable  for  wrongs  committed  prior  to  the  execu- 
tion of  the  lease. — The  lessee  does  not  become  liable  for  injuries  in- 
flicted by  the  lessor  before  the  execution  of  the  lease,  unless  it  ex- 
pressly assumes  such  liability.87  Where  there  is  an  assumption  of 
liability  the  extent  and  nature  of  the  liability  of  the  lessee  company 
depends  upon  the  provisions  of  the  contract.  In  saying  that  the  lessee 
is  not  liable  for  wrongs  committed  prior  to  the  execution  of  the  lease 
we  do  not  mean  to  convey  the  impression  that  for  a  continuing  wrong 
the  lessee  is  not  liable,  for  our  opinion  is  that  where  the  lessor  com- 
pany is  the  original  wrongdoer  and  the  lessee  continues  the  wrong 
after  the  execution  of  the  lease  it  is  liable.88  But  this  rule  cannot 
apply  where  there  was  a  single  transient  wrong  and  the  injury  was 
complete  prior  to  the  execution  of  the  lease. 

§460.  Effect  of  a  lease  upon  rights  of  creditors. — The  question 
whether  a  railroad  company  which  acquires  by  an  authorized  lease  all 
the  property  of  another  company,  can  hold  the  property  free  from  the 
claims  of  the  general  or  unsecured  creditors  of  the  lessor  company,  is- 
not  entirely  free  from  difficulty.89  If  the  lessee  acts  in  good  faith,  and 
the  lease  is  such  as  the  law  authorizes  it  to  take  and  its  lessor  to  exe- 
cute, it  certainly  does  acquire  valuable  property  rights.  Where  there  is 

of  a  line  would  exhaust  the  corpo-  **  Mr.  Minor  says  that  "A  railroad 
rate  capital,  in  which  a  mandamus  company  in  debt  cannot  transfer  its 
would  not  lie.  Commonwealth  v.  entire  property  by  lease  so  as  to 
Fitchburg,  &c.  R.  Co.  12  Gray  prevent  the  application  of  it,  at  its 
(Mass.)  180.  But  where  there  is  full  value,  to  the  debts  of  the  corn- 
not  a  clear,  valid  and  sufficient  rea-  pany,  and  when  such  a  transfer  is 
son  shown  excusing  the  company  made,  a  court  of  equity  may  decree 
there  can,  as  we  believe,  be  no  doubt  a  payment  of  a  judgment  debt  of 
of  the  power  to  coerce  a  perform-  the  lessor  by  the  lessee."  19  Am.  & 
ance  of  duty  by  mandamus.  Eng.  Ency.  898.  For  the  reasons 

87  Pittsburgh,  &c.  R.   Co.  v.  Kain,  given    in   the  text,   we  respectfully 
35    Ind.   291;    Little  Miami,   &c.   R.  suggest  that  Mr.  Minor's  statement 
Co.  v.  Hambleton,  40  Ohio  St.  496.  is  too   broad.      It  may  perhaps  be 

88  Little  Miami,  &c.  R.  Co.  v.  Ham-  true    that   a   judgment    debtor    can 
bleton,  40  Ohio  St.  496.     See,  also,  reach  the  property  in  the  hands  of 
Silver  v.  Missouri  Pac.  R.  Co.   101  the  lessee,  for  a  judgment  is  notice, 
Mo.   79,   13   S.  W.   410;    Stickley  v.  but  where  there  is  no  judgment  or 
Chesapeake,  &c.  R.  Co.  93  Ky.  323,  lien  of  any  kind  it  cannot  be  justly 
20  S.  W.  261;  Wabash,  &c.  R.  Co.  v.  said  that  the  rights  of  the  creditors 
Peyton,  106  111.  534,  46  Am.  St.  705 ;  are  superior  to  those  of  the  lessee. 
Wasmer  v.  Delaware,  &c.  R.  Co.  80 

N.  Y.  212,  36  Am.  R.  608. 


§    461]  LEASES.  624 

good  faith,  no  liens,  no  notice,  actual  or  constructive,  and  the  lease  is 
one  the  lessor  has  authority  to  execute  and  the  lessee  to  accept,  it  is 
difficult  to  perceive  any  solid  ground  upon  which  the  rights  of  the 
lessee  can  be  subordinated  to  the  claims  of  general  and  unsecured  cred- 
itors. If  the  lessee  company  acts  in  bad  faith,  or  if  it  secures  property 
under  such  circumstances  as  to  make  it  equitably  chargeable  as  a 
trustee,  then  equity  will  so  charge  it,  and  will  decree  that  the  avails 
of  property  received  under  such  circumstances  may  be  applied  to  the 
payment  of  the  claims  of  the  creditors  of  the  lessor  company.90  But 
we  very  much  doubt  whether  it  can  be  deprived  of  the  leased  property 
in  a  case  where  it  is  entirely  free  from  fault  or  wrong,  and  takes  the 
property  under  an  authorized  lease.  Doubtless  a  court  of  equity  would 
make  such  a  decree  in  the  particular  case  as  the  principles  of  equity 
require,  but  it  seems  to  us  that  it  would  not  decree  that  the  claims  of 
unsecured  creditors  are  in  all  cases  paramount  to  the  rights  of  the 
lessee.  The  rights  of  creditors  should  be  protected,  as  far  as  it  can  be 
done,  without  depriving  the  lessee  of  its  rights,  but  the  rights  of  the 
lessee  when  it  is  entirely  free  from  fault  are  entitled  to  protection. 

§  461.  Authorized  lease,  rights  and  duties  to  which  lessee  company 
succeeds. — What  are  known  as  "prerogative  franchises"  do  not  pass  to 
the  lessee  under  an  authorized  lease,  but  such  rights  as  are  necessary 
to  the  operation  of  the  road  and  the  conduct  of  its  affairs  do  pass  to 
the  lessee.91  In  other  words,  the  lessee  company,  under  such  a  lease, 

"Chicago,  &c.  R.  Co.  v.  Third  Na-  surround   this   doctrine   as  applied 

tional  Bank,  134  U.  S.  276,  10  Sup.  generally,  preferring  to  notice  a  sin- 

Ct.  550,  citing  Central  R.  &c.  Co.  v.  gle  matter  which  is  significant  and 

Pettus,  113  U.  S.  116,  124,  5  Sup.  Ct.  decisive." 

387;     Mellen    v.    Moline,    &c.    Iron  81The  execution  of  a  lease  does 

Works,  131  U.  S.  352,  366,  9  Sup.  Ct.  not,  ordinarily,  confer  upon  the  les- 

981.     See,  also,  Chicago,  &c.  R.  Co.  see  the  franchise  to  be  a  corporation 

v.  Third  National  Bank,  26  Fed.  820.  nor   a   franchise   to    take   property 

In  the  case  first  cited  the  question  under  the  power  of  eminent  domain ; 

we  are  here  dealing  with  was  stated,  but  the  legislature  may,  perhaps,  by 

but  not  decided.    We  quote  from  the  express  and  apt  words  confer  such 

opinion  the  following:    "Can  a  cor-  franchises.     Such  franchises  do  not 

poration  in  debt  transfer  its  entire  pass  under  authority   conferred   in 

property  by  lease,  so  as  to  prevent  general   terms  to   execute  a  lease, 

the  application  of  the  property  at  its  The  general  authority  does  not  im- 

full  value,  to  the  satisfaction  of  its  ply  that  the  lessee  shall  take  such 

debts?    We  do  not  care  to  pursue  an  high     prerogative     franchises,     al- 

inquiry  into  this  question  at  length,  though  it  does  imply  that  the  lessee 

or  consider  what  limitations  would  shall  have  power  to  do  such  things 


€25 


EIGHTS  AXD  DUTIES  TO  WHICH  LESSEE  SUCCEEDS.         [§   461 


succeeds  to  the  charter  rights  of  the  lessor  company,  so  far  as  such 
rights  are  necessary  to  the  operation  of  the  road  under  the  lease.92  In 
granting  the  principal,  that  is,  the  right  to  lease,  the  incidental  rights 
essential  to  the  exercise  of  the  principal  right  is  also  granted.  As  a 
general  rule  it  is  safe  to  say  that  the  lessee  is  bound  to  perform  all  of 
the  public  duties  imposed  by  law  upon  the  lessor  company.  The  lessee 
company  takes  the  burdens  with  the  benefits.93  In  a  recent  case  a 
lease  by  a  domestic  company  to  a  foreign  company,  authorized  by  the 
legislature,  giving  the  lessee  the  right  to  have,  hold  and  exercise  all  the 
rights,  powers,  privileges  and  franchises  which  could  be  lawfully  held, 


as  are  reasonably  necessary  to  en- 
able it  to  properly  operate  the 
road. 

92  Fisher  v.  New  York  Central  R. 
Co.  46  N.  Y.  644,  where  the  lessee 
was   held    entitled    to   charge   such 
rates  as  were  legal  for  the  company 
owning    the   leased    line.      But   the 
right  to  appropriate  property  under 
the   right  of  eminent  domain  does 
not  pass   to  the  lessee.     Mayor  v. 
Norwich,  &c.  R.  Co.  109  Mass.  103; 
Chicago,  &c.  R.  Co.  v.  Illinois  Cen- 
tral R.  Co.  113  111.  156.    In  Nebraska 
it  is  permitted  to  institute  proceed- 
ings   in    the    name    of    the    lessor. 
Dietrichs  v.  Lincoln,  &c.  R.  Co.  13 
Neb.  361;  Gottschalk  v.  Lincoln,  &c. 
R.  Co.  14  Neb.   389,  13  N.  W.  624. 
See  Kip  v.  New  York,  &c.  R.  Co.  67 
N.  Y.  227.     See  Chattanooga  R.  Co. 
v.  Felton,  69  Fed.  273;   Pittsburgh, 
&c.  R.  Co.  v.  Moore,  33  Ohio  St.  384, 
31  Am.  R.  543. 

93  Pennsylvania  R.  Co.  v.   Sly,  65 
Pa.  St.  205;  Commonwealth  v.  Penn- 
sylvania R.  Co.  117  Pa.  St.  637,  12 
Atl.  38;  Dryden  v.  Grand  Trunk  R. 
Co.  60  Me.  512;  McMillan  v.  Michi- 
gan Southern,  &c.  R.  Co.  16  Mich. 
79,  93  Am.  Dec.  208;  State  v.  Mobile, 
&c.  R.  Co.  86  Miss.  172,  38  So.  732; 
New  York,  &c.  Co.,  In  re,  49  N.  Y. 
414;   South  Carolina  R.  Co.  v.  Wil- 
mington, &c.  R.  Co.  7  S.  Car.  410. 
The  lessee  may  be  compelled  to  OP- 
ELL.  RAILROADS — 40 


erate  the  road  along  such  places  as 
had  extended  aid  to  the  lessor  com- 
pany. State  v.  Central  Iowa  R.  Co. 
71  Iowa  410,  32  N.  W.  409,  60  Am. 
R.  806.  See  Chicago,  &c.  R.  Co.  v. 
Crane,  113  U.  S.  424,  5  Sup.  Ct. 
578.  It  must  maintain  all  fences, 
cattle-guards,  etc.,  which  the  lessor 
company  was  required  by  law  to 
maintain.  Curry  v.  Chicago,  &c.  R. 
Co.  43  Wis.  665.  It  must  give  all 
statutory  signals,  etc.,  required  of 
the  lessor  company.  Linfield  v.  Old 
Colony,  &c.  R.  Co.  64  Mass.  562,  57 
Am.  Dec.  124.  And  it  is  bound  to 
make  alterations  in  a  highway  cross- 
ing required  by  statute.  West 
brook's  Appeal,  51  Conn.  95,  17 
Atl.  368.  The  corporation  tax  law 
of  Vermont,  1882,  imposes  a  tax  up- 
on the  entire  gross  earnings  of  all 
railways  operated  in  the  state,  and 
provides  that  when  a  railway  is  op- 
erated under  a  lease  the  tax  shall 
be  paid  by  the  lessee.  Where  the 
lessee  had  paid  the  tax  and  deducted 
it  from  the  rent,  while  such  legisla- 
tion was  upheld  by  the  decisions  of 
the  United  States  Supreme  Court, 
the  lessor  was  not  permitted  to  re- 
cover from  the  lessee  because  of  a 
later  decision  by  that  court  that 
silch  tax  was  unconstitutional.  Ver- 
mont, &c.  R.  Co.  v.  Vermont  Cent. 
R.  Co.  63  Vt.  1,  21  Atl.  262i  731,  10  L. 
R.  A.  562. 


§'  462]  LEASES. 

exercised  and  enjoyed  in  connection  with  such  railroad  as  fully  as  the 
same  could  be  held,  exercised  or  enjoyed  by  the  lessor,  was  held  to  give 
the  lessee  the  right  to  lay  water  mains  along  the  right  of  way  where 
the  lessor  had  that  right.94 

§  462.    Contract  obligations  of  lessor — Lessee  not  liable  thereon. — 

It  is  obvious  that  it  would  be  a  violation  of  principle  to  hold  that  the 
lessee  under  an  authorized  lease  is  liable  on  the  contracts  of  the  lessor 
company  in  the  absence  of  an  express  provision  to  that  effect.95  The 
legislative  sanction  protects  the  lessee  from  any  imputation  of  wrong, 
and  in  taking  possession  of  the  road  under  the  lease  it  does  what  it 
has  a  lawful  right  to  do.  It  cannot  be  held  that  by  simply  accepting  a 
lease  it  binds  itself  by  contracts  made  by  the  lessor  before  the  execu- 
tion of  the  lease.  The  legislature  may  make  it  a  condition  of  the  exer- 
cise of  the  power  to  take  a  lease  that  the  lessee  company  shall  per- 
form the  contracts  of  the  lessor,  but  where  the  power  is  granted  in 
general  terms  the  duty  to  perform  prior  contracts  entered  into  by  the 
lessor  does  not  necessarily  devolve  upon  the  lessee  company. 

§  463.  Recovery  of  rent  under  unauthorized  lease. — The  question 
of  the  right  of  the  lessor  to  recover  rent  under  an  unauthorized  lease/ 
is  one  upon  which  there  is  a  diversity  of  opinion.  Some  of  the  courts 
hold  that  rent  may  be  recovered,96  while  others  deny  that  there  is  a 
right  of  recovery  on  the  lease,  and  in  a  recent  case  it  is  held  that  a 
lease  which  is  ultra  vires  and  void  cannot  be  the  foundation  of  any  re- 
covery of  rentals.97  We  think  that  there  can  be  no  recovery  upon  the 

94  Canton   v.    Canton,   &c.    Co.    84  liable  for  the  stipulated  rent.    The 

Miss.  268,  36  So.  266,  65  L.  R.  A.  561,  case  of  Abbott  v.  Johnstown,  &c.  R. 

105  Am.  St.  428.  Co.  80  N.  Y.  27,  36  Am.  R.  572,  is  dis- 

85  An  agreement  by  the  lessor  com-  tinguished,  and  the  cases  of  Bissell 
pany  to  give  an  annual  pass  to  plain-  v.  Michigan,  &c.  R.  Co.  22  N.  Y.  258. 
tiff  in  consideration  of  a  release  of  and  Whitney,  &c.  Co.  v.  Barlow,  63 
the  right  of  way  through  his  land  N.  Y.  62,  20  Am.  R.  504,  are  followed, 
is  not  binding  upon   another  com-  See  Board  v.  Reynolds,  50  Ind.  85; 
pany  to  which  that  company  leases  Ogdensburg,  &c.  Co.  v.  Vermont,  &c. 
the  road.    Pennsylvania  Co.  v.  Erie,  R.  Co.  4  Hun    (N.  Y.)   268;    Union 
&c.  R.  Co.  108  Pa.  St.  621.  Bridge  Co.  v.  Troy,  &c.  Co.  7  Lans. 

86  Woodruff  v.  Erie,  &c.  R.  Co.  93  (N.  Y.)  240;  Farmers'  Grain,  &c.  R. 
N.   Y.    609,    holding  that   although  Co.  v.  St.  Joseph,  &c.  Co.  2  Fed.  117. 
there  is  no  power  to  execute  a  lease        87  Cox  v.  Terre  Haute,  &c.  R.  Co.. 
to  an  individual,  yet  if  a  lease  is  133  Fed.  371,  66  C.  C.  A.  433. 
executed  to  an  individual,  he  will  be 


627  IMPROVEMENTS  BY  LESSEE  UNDER  UNAUTHORIZED  LEASE.  {§   464 

lease  for  the  reason  that  it  is  void,  but  it  does  not  necessarily  follow 
from  the  fact  the  lease  is  void  that  there  can  be  no  recovery  of  com- 
pensation for  the  reasonable  rental  value  of  the  leased  property.  If  it 
could  be  justly  said  that  the  lessee  was  estopped  then  there  would  be 
little  difficulty  in  solving  the  question.  But  it  is  not  easy  to  find  any 
principle  upon  which  a  conclusion  that  the  lessee  is  estopped  can  be 
rested.98  Both  parties  do  what  they  have  no  right  to  do,  both  parties 
have  equal  means  of  knowledge,  and  the  question  whether  there  was 
or  was  not  power  to  execute  the  lease  is  one  of  law  and  not  of  fact. 
We  are  here  speaking  of  cases  where  there  is  an  entire  absence  of 
power,  not  simply  a  defective  or  improper  exercise  of  power.  Where 
there  is  power  to  lease,  then,  although  the  lease  may  be  defectively 
executed,  there  may  be  an  estoppel,  but  we  do  not  think  there  can  be 
an  estoppel  where  there  is  an  entire  absence  of  power.  There  is  an 
important  distinction  between  a  lease  not  properly  executed  and  a 
lease  executed  where  there  is  an  utter  and  entire  absence  of  power  to 
execute  a  lease,  but  this  distinction  is  often  lost  sight  of  and  the  result 
is  confusion  and  error. 

§  464.  Improvements  of  road  by  lessee  operating  under  an  unau- 
thorized lease. — It  has  been  held  that  a  lessee  operating  a  railroad  un- 
der an  unauthorized  lease  cannot  recover  for  improvements  made  while 
in  possession  of  the  road  under  the  lease."  If  such  a  lease  is  absolutely 
void  then  it  cannot  confer  any  rights  upon  the  lessee,  and,  unless 
there  is  some  controlling  element  of  estoppel  or  some  protecting  stat- 
ute, the  lessee  cannot  recover  money  expended  in  improving  the  road. 
Whether  the  lessee  company  can  be  regarded  as  an  occupying  claimant 
under  the  statutes  protecting  such  claimants  must  depend  upon 
whether  the  void  lease  confers  color  of  title  upon  a  company  that  was 
itself  a  wrongdoer  in  accepting  the  lease.  The  lease,  being  void,  will 
not,  of  itself,  give  a  right  of  action  nor  be  sufficient  foundation  for  an 
enforceable  claim  or  demand.  In  the  case  referred  to  the  court  vir- 
tually held  that  the  lessee  was  not  "holding  possession  in  good  faith 
and  under  color  of  title/'100 

98  Ante,  §§  371,  372,  373.  as  against  the  landowner  where  it 

99  State  v.  McMinnville,  &c.  R.  Co.  enters  and  makes  improvements  un- 
6  Lea  (Tenn.)  369,  4  Am.  &  Eng.  R.  der  a  license  or  as  a  trespasser,  see 
Cas.  95.  note  in  66  L.  R.  A.  33  et  seq. 

100  As  to  the  right  of  the  company 


§  465]  LEASES.  628 

§  465.  Receiver's  power  to  lease. — The  receiver  of  a  railroad  com- 
pany cannot  execute  a  lease  unless  the  statute  grants  permission.101  If 
the  railroad  company  has  no  power  to  execute  a  lease  it  seems  clear 
that  a  receiver  appointed  by  the  court  cannot  make  a  valid  lease.  It 
seems  to  us,  too,  that  in  the  absence  of  a  statute  granting  permission 
to  execute  a  lease  of  a  railroad  the  courts  could  not  confer  such  a 
power  upon  a  receiver  of  the  corporation  owning  the  road,  for  the 
power  to  lease  is  statutory. 

§  466.    Unauthorized  lease — Liability  of  lessor — Generally. — The 

question  whether  a  lease  is  or  is  not  authorized  is  an  important  one  in 
cases  where  claims  for  injury  are  sought  to  be  enforced  against  the 
company  which  assumes  to  lease  its  railroad.  If  the  lease  is  unauthor- 
ized, that  is,  made  without  legislative  authority,  it  is,  in  our  judg- 
ment, absolutely  void,  and  if  void,  the  lessor  has  not  transferred  any 
of  its  public  duties  or  obligations.102  A  transfer  of  a  duty  or  obliga- 
tion cannot  be  made  by  a  void  act.  If  there  is  no  transfer  of  duty  it 
rempins  where  the  law  cast  it,  and  if  there  is  a  culpable  breach  of 
duty  resulting  in  injury  the  fact  that  there  was  an  attempt  to  transfer 
the  duty  will  not  relieve  the  party  upon  whom  the  law  imposed  the 
duty  from  liability.  If  the  duty  remains  unaffected  by  a  transfer,  as 
it  does  where  the  transfer  is  void,  the  breach  of  duty  is  the  wrong  of 
the  party  upon  whom  the  duty  was  imposed  by  law.  It  clearly  and 
necessarily  results  from  the  principles  stated  that  where  the  lease  is 
unauthorized  a  wrongful  breach  resulting  in  injury  imposes  a  liability 
upon  the  company  that  assumes,  without  power,  to  execute  a  lease. 
But  while  it  is  clear  that  there  is  a  liability  on  the  part  of  the  lessor 
where  the  lease  is  unauthorized,  that  is,  where  there  is  no  power  to 
execute  it,  there  is  doubt  whether  this  liability  extends  to  the  servants 
employed  by  the  lessee  in  operating  the  road.103  The  weight  of  au- 

101  State  v.  McMinnville,  &c.  R.  Co.  A.    216,    applying   the    doctrine    of 
6  Lea  (Tenn.)  369;  McMinnville,  &c.  East  Line,  &c.  Railroad  Co.  v.  Cul- 
R.  Co.  v.  Huggins,  3  Baxt.   (Tenn.)  berson,  72  Tex.  375,  10  S.  W.  706,  13 
177.     But  see  Mercantile  T.  Co.  v.  Am.  St.  805,  and  distinguishing  Ma- 
Missouri,  &c.  R.  Co.  41  Fed.  8;  Gil-  con,  &c.  R.  Co.  v.  Mayes,  49  Ga.  355, 
bert  v.  Washington  City  R.  Co.  33  15  Am.  R.  678.     Judge  Cooley  illus- 
Gratt.   (Va.)   586,  to  the  effect  that  trates  the  general  doctrine  and  says: 
the  court  may  authorize  him  to  do  "The    general    duty    of    a   railroad 
so.  company  to  run  its  trains  with  care 

102  See  post,  §  473.  becomes  a  particular  duty  to  no  one 

103  Baltimore,   &c.  R.   Co.   v.  Paul,  until  he  is  in  a  position  to  have  a 
143  Ind.  23,  40  N.  E.  519,  28  L.  R.  right  to  complain  of  the  neglect." 


629 


LIABILITY  OF  LESSOR  FOR  NEGLIGENCE  OF  LESSEE.         [§467 


thority  at  present  perhaps  is  that  the  lessor  is  liable  to  the  servants 
of  the  lessee,  but  it  is  not  clear  that  this  doctrine  is  sound.  It  is  ele- 
mentary learning  that  there  is  no  negligence  where  there  is  no  duty, 
and  that  a  party  who  bases  an  asserted  right  of  action  upon  the  negli- 
gence of  the  defendant  must  show  the  breach  of  a  specific  duty  owing 
him,104  and  where  the  relation  of  master  and'  servant  exists  the  only 
duty  is  that  created  by  the  contract  of  employment,  so  that  it  would 
seem  that  the  employer  is  the  only  person  liable. 

§  467.  Authorized  lease — Liability  of  lessor  for  injuries  caused  by 
negligence  of  lessee — Cases  holding  lessor  liable. — There  is  a  wide 
diversity  of  opinion  upon  the  question  whether  a  company  that  leases 
its  railroad  to  another  company  under  authority  of  law  is  liable  for 
the  negligence  of  the  lessee  in  operating  the  road  under  the  lease. 
Many  of  the  courts  and  some  of  the  text-writers  affirm  that  the  lessor 
is  liable  although  the  lease  is  executed  under  authority  of  law,  unless 
the  statute  which  grants  the  right  to  lease  exempts  the  lessor  from 
liability.105  The  theory  of  some  of  the  cases  which  hold  the  lessor 


Cooley  Torts,  660.  In  the  case  of 
Kahl  v.  Love,  37  N.  J.  Law  5,  the 
rule  was  thus  stated:  "Actionable 
negligence  exists  only  when  the 
party  whose  negligence  occasions 
the  loss  owes  a  duty,  arising  from 
contract  or  otherwise,  to  the  person 
sustaining  such  loss."  The  court  in 
Lary  v.  The  Cleveland,  &c.  Co.  78 
Ind.  323,  329,  41  Am.  R.  572,  quoted 
a  very  similar  statement  of  the  rule 
with  approval.  The  statement 
quoted  is  this:  "Actionable  negli- 
gence exists  only  where  the  one 
whose  act  causes  or  occasions  the 
injury  owed  the  injured  person  a 
duty  created  either  by  contract  or 
by  operation  of  law,  which  he  has 
failed  to  discharge."  Many  cases 
are  cited  in  the  case  from  which  we 
have  quoted.  Indianapolis,  &c.  R. 
Co.  v.  Pitzer,  109  Ind.  179,  182,  6  N. 
E.  310,  10  N.  E.  70,  58  Am.  R.  387; 
Evansville,  &c.  R.  Co.  v.  Griffin,  100 
Ind.  221,  50  Am.  R.  783;  Nave  v. 
Flack,  90  Ind.  205,  207,  46  Am.  R. 


205;  The  State  Travelers'  Ins.  Co. 
v.  Harris,  89  Ind.  363,  366,  46  Am. 
R.  169.  This  subject  is  further  con- 
sidered post,  §  472. 

104  See  post,  §  472. 

105  In  Logan  v.  North  Carolina  R. 
Co.    116    N.    C.    940,    21    S.    E.    959, 
the  court  referred  to  the  cases  of 
State  v.   Richmond,   72   N.   C.   634; 
Gooch  v.  McGee,  83  N.  C.  59,  35  Am. 
R.   558;    Hughes  v.   Commissioners, 
107  N.  C.  598,  12  S.  E.  465,  and  other 
cases   holding  that  express   legisla- 
tive  authority    is   requisite   to   the 
validity  of  a  lease  and  adjudged  that 
even   though  there   was  legislative 
authority  for  the  execution  of  the 
lease,  the  lessor  company  was  liable 
for    injuries    caused    by   the    negli- 
gence of  the  lessee.     The  court  ap- 
proved the  case  of  Braslin  v.  Somer- 
ville,  &c.  R.  Co.  145  Mass.  64, 13  N.  E. 
65.    As  sustaining  the  doctrine  that 
the  lessor  was  liable  for  an  injury 
to  a  person  employed  by  the  lessee, 
the  court  cited  National  Bank,  &c. 


§'  467] 


LEASES. 


630 


liable  for  the  negligence  of  the  lessee  in  operating  the  road  is  that  a 
railroad  company  is  never  exonerated  except  where  there  is  an  express 
statutory  provision  relieving  it  from  liability.  The  cases  to  which  we 
refer  deny  that  there  can  be  exoneration  by  implication,  and  assert 
that  the  authority  to  lease  does  not  protect  the  lessor.106  Other  courts 
hold  that  the  lessor  is  exonerated  from  liability  for  the  negligence  of 
the  lessee  in  operating  the  road,  but  is  liable  for  injuries  resulting 
from  a  breach  of  duty  owing  to  the  public,  as,  for  instance,  negli- 
gence in  the  construction  of  tracks,  station  buildings  and  the  like.107 


v.  Atlanta,  &c.  R.  Co.  25  S.  Car.  216 ; 
Harmon  v.  Columbia,  &c.  R.  Co.  28 
S.  Car.  401,  5  S.  E.  835,  13  Am.  St. 
686;  Naglee  v.  Alexandria,  &c.  R.  Co. 
83  Va.  707,  3  S.  E.  369,  5  Am.  St.  308; 
Acker  v.  Alexandria,  &c.  Railroad 
Co.  84  Va.  648,  5  S.  E.  688;  Balsley  v. 
St.  Louis,  &c.  R.  Co.  119  111.  68,  8  N. 
E.  R.  859,  59  Am.  R.  784;  Singleton 
v.  Southwestern  R.  Co.,  70  Ga.  464, 
48  Am.  R.  574,  21  Am.  &  Eng.  R. 
Cas.  226;  3  Purdy's  Beach  Priv. 
Corp.  §  1046;  Spelling  Corp.  §  135. 
See,  also,  Georgia,  &c.  R.  Co.  v. 
Haas  (Ga.),  56  S.  E.  313;  Markey  v. 
Louisiana,  &c.  R.  Co.  185  Mo.  348,  84 
S.  W.  61;  Driscoll  v.  Norwich,  &c. 
R.  Co.  65  Conn.  230,  32  Atl.  354; 
Green  v.  Coast  Line  R.  Co.  97  Ga. 
15,  24  S.  E.  814,  33  L.  R.  A.  806,  54 
Am.  St.  379;  Harden  v.  North  Caro- 
lina R.  Co.  129  N.  Car.  354,  40  S.  E. 
184,  55  L.  R.  A.  784,  85  Am.  St.  747; 
Chollette  v.  Omaha,  &c.  R.  Co.  26 
Neb.  169,  41  N.  W.  1106,  4  L.  R.  A. 
135;  Davis  v.  Atlanta,  &c.  R.  Co.  63 
S.  Car.  370,  41  S.  E.  468;  Stephens 
v.  Railroad  Co.  36  Iowa  327;  Bower 
v.  Burlington,  &c.  R.  Co.  42  Iowa 
546. 

106  Balsley  v.  St.  Louis,  &c.  R.  Co. 
119  111.  68,  8  N.  E.  859,  59  Am.  R. 
784;  Wabash,  &c.  R.  Co.  v.  Peyton, 
106  111.  534,  46  Am.  R.  705,  18  Am.  & 
Eng.  R.  Cas.  1;  Chollette  v.  Omaha, 
&c.  R.  Co.  26  Neb.  159,  41  N.  W. 
1106,  37  Am.  &  Eng.  R.  Cas.  16.  It 


is  so  held  even  as  to  an  employe  of 
the  lessee  company  in  the  recent 
case  of  Chicago,  &c.  R.  Co.  v.  Hart, 
209  111.  414,  70  N.  E.  654,  66  L.  R.  A. 
75,  where  authorities  on  both  sides 
are  collected  and  reviewed  in  the 
prevailing  and  dissenting  opinions. 
And  in  Parr  v.  Spartanburg,  &c.  R. 
Co.  43  S.  Car.  197,  49  Am.  St.  826, 
the  lessor  company  was  held  liable 
for  a  tort  in  the  negligent  operation 
of  the  road  by  a  receiver  of  its  les- 
see, appointed  in  an  action  to  which 
it  was  not  a  party.  South  Carolina 
has  a  statute  making  a  consolidated 
company  liable  for  injury  to  an  em- 
ploye of  its  lessee.  Reed  v.  South- 
ern R.  (S.  Car.),  55  S.  E.  218. 

107  Nugent  v.  Boston,  &c.  R.  Co.  80 
Me.  62,  12  Atl.  797,  6  Am.  St.  151,  38 
Am.  &  Eng.  R.  Cas.  52;  St.  Louis 
&c.  R.  Co.  v.  Curl,  28  Kans.  622,  11 
Am.  &  Eng.  R.  Cas.  458;  Bay  City 
R.  Co.  v.  Austin,  21  Mich.  390; 
Kearney  v.  Central,  &c.  R.  Co.  167 
Pa.  St.  362,  31  Atl.  637;  Kansas,  &c. 
Railroad  Co.  v.  Wood,  24  Kans.  619; 
Texas,  &c.  R.  Co.  v.  Moore  (Texas 
Civ.  App.),  27  S.  W.  962;  Central, 
&c.  R.  Co.  v.  Phinazee,  93  Ga.  488, 
21  S.  E.  66.  See,  also,  Lakin  v. 
Railroad  Co.  13  Oreg.  436,  11  Pac. 
68,  57  Am.  St.  25;  Lee  v.  Southern 
Pac.  R.  Co.  116  Cal.  97,  58  Am.  St. 
140,  and  note.  Not  for  acts  of  the 
lessee  in  the  maintenance  and  repair 
of  the  road.  Ackerman  v.  Cincin- 


<331 


LIABILITY  OF   LESSOR  FOE   NEGLIGENCE  OF  LESSEE.       [§   468 


§  468.  Authorized  lease — Liability  of  lessor  for  negligence  of 
lessee  in  operating  the  road — Authorities  denying  liability. — As  said 
in  the  preceding  section  some  of  the  cases  make  a  distinction  between 
negligence  in  the  operation  of  the  road  and  negligence  in  its  con- 
struction or  in  the  performance  of  a  duty  to  the  public,  and  adjudge 
that  the  lessor  company  is  not  liable  for  the  negligence  of  the  lessee 
in  operating  the  road.108  The  text-writers  generally  favor  the  doctrine 
ihat  for  negligence  in  operating  the  road  the  lessor  is  not  liable.109 


nati,  &c.  R.  Co.  (Mich.)  106  N.  W. 
558;  Shores  v.  Southern  R.  Co.  72 
S.  Car.  244,  51  S.  E.  699. 

108  Arrowsmith  v.  Nashville,  &c.  R. 
Co.  57  Fed.  165.  In  the  case  cited 
the  court,  after  a  very  full  review 
of  the  authorities,  adopted  the  doc- 
trine of  the  cases  of  Mahoney  v. 
Atlantic,  &c.  R.  Co.  63  Me.  68,  and 
Nugent  v.  Boston,  &c.  R.  Co.  80  Me. 
62,  12  Atl.  797,  6  Am.  St.  151,  38 
Am.  &  Eng.  R.  Gas.  52,  and  quoted 
from  the  latter  case  as  expressive  of 
the  true  rule  the  following:  "And 
herein,  as  we  think,  lies  the  true 
distinction  which  marks  the  divid- 
ing line  of  the  lessor's  responsibil- 
ity. In  other  words  an  authorized 
lease,  without  any  exemption  clause, 
absolves  the  lessor  from  the  writs 
of  the  lessee  resulting  from  the  neg- 
ligent operation  and  handling  of 
trains  and  the  general  management 
of  the  leased  road  over  which  the 
lessor  could  have  no  control.  But 
for  an  injury  resulting  from  the 
negligent  omission  of  some  duty 
owed  to  the  public,  such  as  the 
proper  construction  of  the  road,  sta- 
tion houses,  etc.,  the  charter  com- 
pany cannot,  in  the  absence  of  stat- 
utory authority,  discharge  itself  of 
legal  responsibility."  The  court  in 
the  case  first  named  cited  as  sup- 
porting its  conclusion  the  following 
authorities:  Wood  Railroads,  §  490; 
Ditchett  v.  Spuyten,  &c.  R.  Co. 
67  N.  Y.  425;  Miller  v.  New  York, 


&c.  R.  Co.  125  N.  Y.  118,  47  Am.  & 
Eng.  R.  Gas.  369;  St  Louis,  &c.  R. 
Co.  v.  Curl,  28  Kans.  622,  11  Am.  & 
Eng.  R.  Gas.  458;  Briscoe  v.  South- 
ern, &c.  R.  Co.  40  Fed.  273 ;  Virginia, 
&c.  R.  Co.  v.  Washington,  86  Va. 
629,  7  L.  R.  A.  344,  43  Am.  &  Eng. 
R.  Cas.  688.  See,  also,  Heron  v.  St. 
Paul,  &c.  R.  Co.  68  Minn.  542,  71 
N.  W.  706  (citing  text) ;  Little  Rock, 
&c.  R.  Co.  v.  Daniels,  68  Ark.  171, 
56  S.  W.  874;  Caruthers  v.  Kansas 
City,  &c.  R.  Co.  59  Kans.  629,  54 
Pac.  673,  44  L.  R.  A.  737;  Hayes  v. 
Northern  Pac  R.  Co.  74  Fed.  279; 
Harper  v.  Newport  News,  &c.  R.  Co. 
90  Ky.  359,  14  S.  W.  346;  Miller  v. 
Railroad  Company,  125  N.  Y.  118,  26 
N.  E.  35 ;  New  York  v.  Twenty-third 
St.  R.  Co.  113  N.  Y.  311,  21  N.  E.  60. 
The  same  view  is  taken  in  Yeates  v. 
Illinois  Cent.  R.  Co.  137  Fed.  943, 
945  (citing  text)  where  it  is  also 
held  that  the  question  is  one  of  gen- 
eral law  in  regard  to  which  a  fed- 
eral court  is  not  controlled  by  state 
decisions.  See,  also,  Williams  v. 
Spartanburg  R.  Co.  124  Fed.  796; 
Curtis  v.  Cleveland,  &c.  R.  Co.  140 
Fed.  777. 

109  Mr.  Hutchinson  thus  expresses 
his  opinion:  "An  authorized  lease, 
not  otherwise  providing,  will  ab- 
solve the  lessor  from  the  torts  of 
the  lessee,  resulting  from  the  neg- 
ligent operation  and  handling  of 
trains  and  the  general  management 
of  the  leased  road  over  which  the 


§  469] 


LEASES. 


633 


§469.  Authorized  lease — Liability  of  lessor  for  negligence  of 
lessee  in  operating  the  road — Views  of  the  authors. — Our  opinion  is 
that  where  the  lease  is  executed  under  the  provisions  of  a  statute,  in 
accordance  with  its  requirements,  and  is  made  to  a  company  having  au- 
thority to  accept  it,  and  is  made  in  good  faith  and  not  for  the  pur- 
pose of  transferring  duties  or  obligations  to  an  irresponsible  party, 
the  lessor  company  is  not  liable  for  injuries  caused  by  the  negligence 
of  the  lessee  and  not  attributable  to  a  breach  of  any  public  duty  of 
the  company  that  executed  the  lease.  It  must  be  assumed  that  in 
granting  the  authority  to  execute  a  lease  the  legislature  had  in  mind 
former  statutes  as  well  as  the  established  rules  of  the  common  law.110 
When  power  to  execute  a  lease  is  conferred  upon  a  corporation  the 


lessor  has  no  control."  Hutchinson 
Carriers,  §  575  B.  Mr.  Wood's 
views  are  expressed  in  this  lan- 
guage: "But  where  the  statute  au- 
thorizes the  lease,  the  lessee  assumes 
during  the  existence  of  the  lease, 
all  the  duties  and  obligations  of  the 
lessor,  and  from  the  time  that  it 
enters  into  the  possession  of  the 
road  becomes  solely  liable  for  all 
injuries  resulting  from  its  manage- 
ment unless  operating  the  road  in 
the  name  of  the  lessor."  Wood 
Railroads,  §  400.  Mr.  Pierce  says: 
"The  lease  of  a  railroad  under  due 
authority  of  law  effects  a  transfer 
of  rights  and  liabilities  in  its  man- 
agement, so  that  the  corporation 
owning  the  railroad  is  discharged 
from  liability  for  the  lessee's  torts." 
Pierce  Railroads,  §  283.  Some  of 
the  courts  say  that  the  statements 
of  the  author  quoted  from  are  so 
coupled  with  conditions  and  qualifi- 
cations as  not  to  oppose  the  doctrine 
of  the  cases  which  hold  that  there 
is  no  exemption  unless  there  is  an 
express  statutory  provision  grant- 
ing it,  but  those  courts  are  in  error. 
As  shown  in  Arrowsmith  v.  Nash- 
ville, &c.  R.  Co.  57  Fed.  165,  Mr. 
Pierce  recognizes  two  classes  of 
leases,  authorized  and  unauthorized, 


and  affirms  of  the  former  class  that 
the  lessor  is  not  liable.  The  cases 
of  Mahoney  v.  Atlantic,  &c.  R.  Co. 
63  Me.  68;  Ditchett  v.  Spuyten,  &c. 
R.  Co.  67  N.  Y.  425,  5  Hun  (N.  Y.) 
165,  declare  the  doctrine  he  affirms 
so  that  there  is  no  reason  to  doubt 
his  meaning.  Mr.  Patterson's  opin- 
ion is  given  in  this  language:  "On 
the  other  hand,  where  a  railway  un- 
der due  authority  of  law  has  leased 
its  line  to  another,  the  lessor  rail- 
way is  not  liable  for  torts  committed 
by  the  lessee  railway  in  the  opera- 
tion of  the  line."  Patterson's  R. 
Ace.  Law,  §§  130,  131.  Some  of  the 
cases  assert  that  Judge  Redfield  dif- 
fers from  the  authors  to  whom  we 
have  referred,  but,  as  is  shown  by 
Judge  Linton  in  Arrowsmith  v. 
Nashville,  &c.  R.  Co.  57  Fed.  165, 
they  are  in  error.  Judge  Rorer  does 
not,  as  we  understand  him,  express 
any  opinion  upon  the  direct  ques- 
tion. He  cites  some  of  the  opposing 
cases,  so  that  it  cannot  be  deter- 
mined what  view  he  adopts.  1 
Rorer  Railroads,  §§  605,  606. 

no  «The  legislature  are  presumed 
to  know  existing  statutes  and  the 
state  of  the  law  relating  to  the  sub- 
jects with  which  they  deal."  Suth- 
erland Stat.  Const.  §  287. 


633  LIABILITY   OF   LESSOR   FOE   NEGLIGENCE   OF   LESSEE.       [§    469 

legislature  must,  in  the  absence  of  countervailing  language,  be  deemed 
to  intend  to  authorize  the  execution  of  such  an  instrument  as  the 
established  law  regards  as  a  lease.  The  law  enters  as  a  silent  factor 
into  every  contract,  and  hence  of  every  lease  it  is  an  important  ele- 
ment. The  legal  effect  of  a  lease  is  to  transfer  for  a  prescribed  period 
of  time  the  possession  and  control  of  the  property  to  the  lessee.  In 
authorizing  the  execution  of  a  lease  the  legislature  grants  the  right 
to  execute  and  carry  into  effect  such  an  instrument  as  divests  the 
lessor  of  possession  and  control  and  places  it  in  the  lessee  to  the  ex- 
clusion of  the  lessor.  The  possession  of  the  one  party  is  excluded  and 
that  of  the  other  is  made  complete  by  the  legislative  sanction.  If  a 
sale  is  made  under  valid  legislative  authority  the  company  that  ac- 
quires the  property  acquires  an  exclusive  right  and  interest,  and  the 
lessee  by  virtue  of  the  lease  acquires  a  similar  right  so  far  £fs  posses- 
sion, control  and  management  are  concerned,  for  the  term  for  which 
the  property  was  leased.  It  cannot  be  doubted  that  a  statute  conferring 
general  authority  to  sell  means  a  complete  and  effective  sale,  and  upon 
the  same  principle  it  must  be  concluded  that  the  power  to  lease, 
unless  qualified  and  limited  by  statute,  is  a  power  to  make  a  complete 
and  effective  lease.  A  complete  and  effective  lease  certainly  vests  the 
right  of  possession,  control  and  management  in  the  lessee,  since  no 
other  effect  can  be  assigned  such  a  lease  without  a  direct  and  palpable 
violation  of  long  and  well  established  principles  of  law.  The  lessor 
company  does  no  wrong  in  executing  a  lease  which  the  law  of  the  land 
gives  it  full  power  to  execute,  so  that  in  executing  the  lease  there  is 
no  improper  motive,  no  illegal  act,  nor  any  wrongful  attempt  to  escape 
a  duty.  In  granting  authority  to  lease,  the  legislature  empowers  the 
lessor  company  to  transfer  the  duty  of  operating  the  road  to  the  lessee, 
and  in  doing  what  the  legislature  authorizes  no  rule  of  public  policy 
is  violated.  It  is,  indeed,  inconceivable  that  there  can  be  a  violation 
of  a  rule  of  public  policy  where  the  act  done  by  a  party  is  done  under 
a  legislative  enactment  and  in  accordance  with  its  provisions.  The 
cases  which  hold  the  lessor  liable,  although  the  lease  is  an  authorized 
one,  upon  the  ground  that  there  must  be  an  express  exemption  from 
liability  in  order  to  exonerate  the  lessor,  concede,  what  could  not  be 
denied  without  leaving  the  domain  o£  reason,  that  the  legislature  may 
by  express  enactment  exonerate  the  lessor,  so  that,  even  upon  that  the- 
ory (which  we  believe  to  be  unsound)  the  question,  at  bottom,  is  one  of 
statutory  construction.  The  courts  which  assert  the  theory  mentioned 
tacitly  assume  that  in  granting  authority  to  lease,  the  legislature 
granted  something  less  than  an  authority  to  lease.  We  believe  that 


£  470] 


LEASES. 


634 


the  only  theory  that  can  be  defended  on  principle  is  that  in  granting 
authority  to  execute  a  lease  the  legislature  conferred  authority  to 
execute  an  effective  instrument  with  all  the  qualities  and  incidents 
with  which  the  law  invests  a  lease.  If  this  be  true  then  the  lease  does 
transfer  possession  and  control  from  the  one  party  to  the  other  for 
the  term  of  the  lease,  and  the  rights  and  obligations  of  the  parties  are 
such,  and  such  only,  as  the  law  annexes  to  the  relation  of  lessor  and 
lessee.  For  negligence  in  managing  and  using  the  demised  premises 
the  lessor  is  not  responsible.  If  it  has  performed  its  duty  in  con- 
structing tracks  and  necessary  structures  it  can  not  be  held  responsible 
for  the  negligence  of  the  lessee  in  employing  incompetent  servants,  or 
in  negligently  handling  trains,  or  in  negligently  overloading  cars,  or 
in  negligently  failing  to  provide  a  sufficient  number  of  persons  to 
manage  trains,  or  for  any  negligence  which  relates  solely  to  the  mode 
of  operating  the  leased  road.110a 

§  470.  Control  reserved  by  lessor. — Where  the  lessor  company,  in 
an  authorized  lease,  retains  control  of  the  road,  there  is  reason  for 
holding  it  liable  for  the  negligence  of  the  lessee  in  operating  the  road. 
The  fact  that  exclusive  control  is  not  transferred  to  the  lessee  is  an 
influential  factor,  and  may  well  be  held  to  constitute  the  basis  of 
an  exception  to  what  we  conceive  to  be  the  general  rule.  If  the  lessor 
company  does  retain  control  its  duty  is  to  exercise  that  control  as  the 
law  requires.111 


1I0aThis  section  is  quoted  almost 
in  full  and  the  views  of  the  authors 
taken  in  Heron  v.  St.  Paul,  &c.  R. 
Co.  68  Minn.  542,  71  N.  W.  706,  707, 
708.  It  is  also  approved  in  Yeates 
v.  Illinois  Cent.  R.  Co.  137  Fed.  943, 
945;  and  in  elaborate  opinions  in 
Moorshead  v.  United  R.  Co.  (Mo. 
App.)  96  S.  W.  261,  274,  280,  281 
(affirmed  in  100  S.  W.  611,  612,  quot- 
ing text  at  length),  where  it  is 
said  to  be  "illuminating,  exhaust- 
ive and  conclusive."  In  Chicago, 
&c.  R.  Co.  v.  Weber,  219  111.  372, 
76  N.  E.  489,  4  L.  R.  A.  (N.  S.) 
272,  limits  of  the  broad  doctrine  of1 
liability  in  Illinois  are  pointed  out, 
and  it  is  held  that  servants  or 
agents  of  the  lessee  are  not  agents 
of  the  lessor  to  receive  service  of 


process  in  personal  injury  cases; 
that  in  such  a  case  it  may  be  shown 
by  parol  that  at  the  time  of  the  ac- 
cident the  road  was  operated  by  a 
lessee,  and  that  the  lessor  is  not 
bound  by  declarations  in  a  time 
table,  put  out  by  the  lessee,  where 
it  is  not  shown  that  the  lessor  had 
any  knowledge  of  it  or  authorized 
it  in  any  way. 

luDriscoll  v.  Norwich,  &c.  Co.  65 
Conn.  230,  32  Atl.  354.  In  the  case 
cited  the  lessor  reserved  to  itself 
the  control  of  ,the  road  while  in  the 
hands  of  the  lessee,  so  that  there 
can  be  no  doubt  that  the  conclusion 
asserted  by  the  court  is  sound.  See, 
also  Central  Trust  Co.  v.  Colorado 
Midland  R.  Co.  89  Fed.  560;  Central 
Trust  Co.  v.  Denver,  &c.  R.  Co.  97 


635 


LIABILITY   OF   LESSEE  UNDER  AUTHORIZED  LEASE.        [§   471 


§  471.  Liability  of  lessee  nnder  authorized  lease — Illustrative 
cases. — An  authorized  lease,  that  is,  a  lease  executed  under  power 
granted  by  the  legislature,  imposes  upon  the  lessee  the  duty  of  oper- 
ating and  conducting  the  road  as  the  statute  from  which  the  lessor 
company  derived  its  powers  prescribes.112  The  lessee  is  under  a  duty 
to  provide  fences,  as  the  charter  of  the  company  from  which  it  ac- 
quired its  title  requires;113  to  exercise  ordinary  care  and  diligence  to 
prevent  the  escape  of  fire,  and  to  give  signals  at  crossings,  as  provided 
in  the  statute  governing  the  lessor  company.114  A  lessee  is  liable  for 
maintaining  a  nuisance  after  notice  to  abate,  although  the  nuisance 
existed  at  the  time  the  lease  was  executed.115  The  lessee  is,  as  a  rule, 
liable  for  injuries  resulting  from  a  failure  to  properly  operate  and 
maintain  the  road,116  and  for  the  negligent  acts  of  its  servants  in  the 
operation  of  the  road.117  It  is  liable  for  the  failure  to  carry,  safely 
and  promptly,  any  persons  or  goods  entrusted  to  it  for  carriage.118  It 


Fed.  239;  Braslin  v.  Somerville,  145 
Mass.  64,  13  N.  E.  65. 

112  New  York,  &c.  R.  Co.,  In  re,  49 
N.   Y.  414;    South  Carolina,  &c.  R. 
Co.  v.  Wilmington,  &c.  R.  Co.  7  S. 
Car.  410;  Ogdensburg,  &c.  R.  Co.  v. 
Vermont,   &c.    R.    Co.   4    Hun    712; 
Pennsylvania  R.  Co.  v.  Sly,  65  Pa. 
St.  205;   Commonwealth  v.  Pennsyl- 
vania R.  Co.  117  Pa.  St.  637,  12  Atl. 
38;    State  v.  Central,  &c.  R.  Co.  71 
Iowa  410,  60  Am.  R.  806. 

113  Cook  v.  Milwaukee,  &c.  R.  Co. 
36  Wis.  45;  McCall  v.  Chamberlain, 
13  Wis.  637;   Curry  v.  Chicago,  &c. 
R.  Co.  43  Wis.  665;   Liddle  v.  Keo- 
kuk,  &c.  R.  Co.  23  Iowa  378. 

u*Linfield  v.  Old  Colony,  &c.  R. 
Co.  64  Mass.  562,  57  Am.  Dec.  124. 

115  Western,  &c.  R.  Co.  v.  Cox,  93 
Ga.  561,  20  S.  E.  68. 

119  St.  Louis,  &c.  R.  Co.  v.  Curl,  28 
Kans.  622,  11  Am.  &  Eng.  R.  Gas. 
458.  But,  as  already  shown,  it  is 
not  ordinarily  liable  for  injuries  to 
land  caused  by  defects  in  the  original 
construction  of  the  road  unknown 
to  it  and  not  caused  by  operating 
it  in  that  condition.  See  Kearney 
v.  Central  R.  Co.  167  Pa.  St.  362,  31 


Atl.  637.  The  lessee  has  been  held 
liable  with  the  original  owner  or 
lessor  for  damages  resulting  from  a 
permanent  injury  to  property  caused 
by  the  construction  of  the  road. 
Stickley  v.  Chesapeake,  &c.  R.  Co. 
93  Ky.  323,  52  Am.  &  Eng.  R.  Cas. 
56.  The  lessee  is  liable  for  the  con- 
tinuance of  a  nuisance  erected  by 
the  lessor.  Dickson  v.  Chicago,  &c. 
R.  Co.  71  Mo.  575.  It  is  liable  for 
injuries  arising  from  a  failure  to 
fence  the  road.  Missouri  Pac.  R.  Co. 
v.  Morrow,  32  Kan.  217;  Cook  v. 
Milwaukee,  &c.  R.  Co.  36  Wis.  45; 
Ditchett  v.  Spuyten,  &c.  R.  Co.  67 
N.  Y.  425;  Illinois  Central  R.  Co.  v. 
Kanouse,  39  111.  272,  89  Am.  Dec. 
307;  Wabash  R.  Co.  v.  Williamson, 
3  Ind.  App.  190. 

UT  A  company  is  liable  for  fires  set 
by  the  engines  of  trains  which  it 
runs  over  a  leased  road.  Cantlon 
v.  Eastern  R.  Co.  45  Minn.  481. 
'  U8Feital  v.  Middlesex,  &c.  R.  Co. 
109  Mass.  398,  12  Am.  R.  720;  Bur- 
roughs v.  Norwich,  &c.  R.  Co.  100 
Mass.  26,  1  Am.  R.  78;  Mahoney  v. 
Atlantic,  &c.  R.  Co.  63  Me.  68;  Phila- 
delphia, &c.  R.  Co.  v.  Anderson,  94 


§  472]  LEASES.  636 

may  be  safely  asserted  as  a  general  rule  that  when  a  road  is  transferred 
by  lease  under  legislative  authority,  the  lessee  company  is  liable  as  if  it 
were  operating  the  road  as  owner.119 

§  472.  Unauthorized  lease — Liability  of  lessor  to  employes  of 
lessee — Generally. — It  is  difficult  without  a  departure  from  sound 
principle  to  support  the  doctrine  of  the  cases  which  hold  that  the 
lessor  is  liable  to  the  employes  of  the  lessee  for  injuries  caused  by  the 
negligence  of  the  lessee  in  maintaining  and  operating  the  leased  road. 
The  case  of  an  employe  is  in  some  important  particulars  essentially 
different  from  the  case  of  persons  using  the  road,  or  of  persons  whose 
goods  are  transported  over  it,  or  of  persons  who  are  themselves  carried 
as  passengers.  The  relations  between  the  lessee  company  and  its  em- 
ployes are  contractual,  and  the  duty  which  the  contract  creates  is 
that  of  employer  to  employe.  The  person  who  takes  service  with  the 
lessee  company  voluntarily  accepts  that  company  as  its  employer  and 
out  of  this  contract  comes  the  duty  which  the  contracting  parties  owe 
to  each  other.  The  employe  of  the  lessee  certainly  owes  no  duty  to-  the 
lessor,  and  it  is  difficult  to  conceive  a  tenable  ground  for  the  conclu- 
sion that  the  lessor  owes  a  duty  to  the  employe.  The  employer  as- 
sumes to  perform  the  duties  imposed  upon  it  by  law,  in  its  character 
of  employer,  and  the  employe  voluntarily  takes  the  lessee  company  as 
his  employer.  The  employe  does  not  contract  with  the  lessee  as  the 
agent  of  the  lessor,  but  contracts  directly  with  the  lessee  as  its  own 
representative  and  not  as  the  representative  of  some  other  person  or 
corporation.  There  is  in  all  that  the  term  implies  a  direct  and  full 
privity  of  contract  between  the  lessee  and  its  employes.  There  is  no 
priority  of  contract  between  the  lessor  and  the  employes  of  the  lessee, 
and  no  implication  that  for  breach  of  the  duty  of  employer,  the  em- 
ploye can  look  to  the  lessor  for  redress.  In  a  recent  case  the  question 
we  are  considering  was  thoroughly  discussed,  and  it  was  held^  that, 
although  the  lease  was  not  authorized  by  statute,  the  lessor  was  not 
liable  to  a  servant  of  the  lessee  injured  while  engaged  in  performing 

Pa.  St.  351,  39  Am.  R.  787;  Wabash,  67  N.  Y.  425;   Davis  v.  Providence, 

&c.  R.  Co.  v.  Peyton,  106  111.  534,  46  fie.  R.  Co.  121  Mass.  134;   Philadel- 

Am.  R.  705;    Patterson  v.  Wabash,  phia,  &c.  R.  Co.  v.  Anderson,  94  Pa. 

&c.  R.  Co.  54  Mich.  91.  St.   351,  39   Am.  R.  787;    Patterson 

""St.  Louis,  &c.  R.  Co.  v.  Curl,  28  v.  Wabash,  &c.  R.  Co.  54  Mich.  91; 

Kans.  622;   International,  &c.  R.  Co.  Mahoney  v.  Atlantic,  &c.  R.  Co.  63 

v.  Dunham,  68  Tex.  231,  2  Am.  St.  Me.  68;  Murch  v.  Concord  R.  Corp. 

484;  Ditchett  v.  Spuyten,  &c.  R.  Co.  29  N.  H.  9,  61  Am.  Dec.  631. 


637  LIABILITY   OF   LESSOE  TO   EMPLOYES   OF  LESSEE.          [§   472 

the  duties  of  his  service  by  reason  of  defects  in  a  locomotive  used  by 
the  lessee  in  operating  the  road.120  The  theory  of  the  court  was  that 
the  lessor  owed  no  duty  to  the  servant  of  the  lessee,  and  as  there  was 
no  duty  there  could  not  be  actionable  negligence.  There  is  unques- 
tionably much  force  in  the  reasoning  of  the  court  in  the  case  under 
immediate  mention,  for  the  settled  rule  is  that  where  there  is  no 
duty  there  is  no  negligence,  and  a  party  cannot  have  a  right  of  action 
unless  there  is  a  breach  of  a  specific  duty  owing  to  him.  In  the  case 
of  an  employer  and  employe  there  is  no  consideration  of  public  policy 
involved,  such  as  there  is  in  cases  of  third  persons,  for  the  employe 
by  a  voluntary  contract  creates  the  relation  of  employer  and  employe. 
His  rights  are  such  as  his  contract  creates,  the  duty  springs  from  the 
contract  and  but  for  the  contract  he  would  really  have  no  right  on 
the  road  or  any  of  its  equipments.  The  difference  between  cases  where 
third  persons  sue  for  injuries,  and  cases  where  the  action  is  by  an  em- 
ploye is  so  wide  that  cases  deciding  that  there  is  a  liability  to  third 
persons  are  hardly  in  point.  We  incline  to  the  opinion  that  the  lessor 
is  not  liable  to  the  servants  of  the  lessee  for  injuries  received  by  them, 
in  cases  where  the  injuries  are  caused  solely  by  the  negligence  of  the 
lessee  in  operating  the  road,121  but  it  is  difficult  to  say  on  which  side 
lies  the  weight  of  authority,  and  in  number  of  decisions,  if  we  con- 
sider those  of  the  same  courts  as  constituting  the  weight  of  authority, 

120  Baltimore,  &c.  R.  Co.  v.  Paul,  souri,  &c.  R.  Co.  v.  Watts,  63  Tex. 

143  Ind.  23,  40  N.  E.  519,  28  L.  R.  A.  549,  22  Am.  &  Eng.  R.  Gas.  277,  it 

216.    It  was  said  by  the  court,  speak-  was  held  that  the  lessor  is  not  liable 

ing  of   the   duty  to  third   persons,  to  the  servant  of  the  lessee  for  in- 

that:    "The  law  will  not  permit  the  juries  received  in  the  line  of  service 

owner  of  the  road  to  shirk  its  duty  required   of  him   in   operating   the 

to  them  by  turning  over  its  road  to  road. 

another  company,  nor  will  it  be  per-        m  It  is  so  held,  and  the  text  is 

mitted  to  deny  its  liability  where  it  cited   with  approval   in  Willard  v. 

has    allowed    such    other    company,  Spartanburg,    &c.    R.    Co.    124    Fed. 

without  authority  of  law,  negligent-  796,  800.     To  the   same  effect  are 

ly    to    injure    wayfarers    over    the  East  Line,  &c.  R.  Co.  v.  Culberson, 

track   or   property    along   the   line.  72  Tex.  375,  10  S.  W.  706,  3  L.  R. 

There  is  no  privity  between  persons  A.   567,   13   Am.   St.   805;    Banks  v. 

injured  in  such  a  case  and  the  op-  Georgia  R.  &c.  Co.  112  Ga.  655,  37 

crating  company.    It  is  not  so  with  S.  E.  992;    Hukill  v.  Maysville,  &c. 

an  employe  who  voluntarily  enters  R.  Co.  72  Fed.  745;  Virginia,  &c.  R. 

the  service  of  the  latter  company  Co.  v.  Washington,  86  Va.  629,  10  S. 

with    a    knowledge    of    the     facts  E.   927,   7   L.   R.   A.   344;    Swice  v. 

and   participates   knowingly   in   the  Maysville,  &c.  R.  Co.  116  Ky.  253,  75 

wrong,   if   wrong   it   be."     In   Mis-  S.  W.  278. 


§  473] 


LEASES. 


638 


it  is  perhaps  against  our  opinion.122  Whether  the  lessor  can  be  held 
liable  to  an  employe  of  the  lessee  for  negligence  in  the  construction  of 
the  track  or  the  like123  is  a  very  different  question  from  the  question 
here  considered,  namely,  the  right  of  an  employe  of  the  lessee  to  hold 
the  lessor  liable  for  negligence  in  operating  the  road. 

§473.    Unauthorized  lease — Liability  of  lessor,  general  rule. — 

The  general  rule  as  declared  by  the  great  weight  of  authority  is  this : 
Where  the  lease  under  which  the  road  is  transferred  is  unauthorized, 
even  though  a  railroad  company  puts  its  road  in  the  possession  of  a 
lessee,  and  surrenders  the  entire  control  and  management  of  its  road, 
it  is  liable  in  general  for  all  damages  caused  by  the  lessee's  negligence 
in  the  management  and  conduct  of  the  railroad  and  its  affairs.124 


122  Logan  v.  North  Carolina  R.  Co. 
116  N.  Car.  940,  21  S.  B.  959;  Har- 
den v.  North  Carolina  R.  Co.  129  N. 
Car.  354,  40  S.  E.  184,  55  L.  R.  A. 
784,  85  Am.  St.  747;  Chicago,  &c.  R. 
Co.  v.  Hart,  209   111.  414,  70  N.  E. 
654,  66  L.  R.  A.  75;   Macon,  &c.  R. 
Co.  v.  Mayes,  49  Ga.  355,  15  Am.  R. 
678;    Davis  v.   Atlanta,   &c.   R.   Co. 
(S.  Car.)  41  S.  E.  468.    It  was  stated 
in  the  first  edition  that  the  weight 
of  authority  is  against  our  opinion, 
which  remains  the  same  as  before 
expressed,   but  this   statement  was 
criticised  as  incorrect  in  the  dissent- 
ing opinion  in  the  Illinois  case  here- 
in   cited.     There    are    other    North 
Carolina  and   Illinois   cases  to   the 
same   effect   as   those   herein    cited, 
and  authorities  upon  both  sides  are 
cited  in  a  leading  article  in  62  Cent. 
Law  Jour.  181,  where  the  view  we 
have  taken  is  regarded  as  the  bet- 
ter one. 

123  The   authorities   are   very  gen- 
erally to  the  effect  that  the  lessor 
may  be  held  liable  in  such  a  case. 
Nugent  v.  Boston,  &c.  R.  Co.  80  Me. 
62,  12  Atl.  797,  6  Am.  St  151;  Trin- 
ity, &c.  R.  Co.  v.  Lane,  79  Tex.  643,  15 
S.  W.  477,  16  S.  W.  18;  Lee  v.  South- 
ern Pac.  R.  Co.  116  Cal.  97,  47  Pac. 


932,  38  L.  R.  A.  71,  58  Am.  St.  140, 
and  note.  And  a  statute  expressly 
declaring  the  lessee  liable  .does  not 
necessarily  exempt  the  lessor  from 
liability.  Chicago,  &c.  R.  Co.  v. 
Crane,  113  U.  S.  424,  5  Sup.  Ct.  578; 
Bean  v.  Atlantic,  &c.  R.  Co.  63  Me. 
293 ;  Bower  v.  Burlington,  &c.  R.  Co. 
42  Iowa  546. 

124  Arrowsmith  v.  Nashville,  &c.  R. 
Co.  57  Fed.  165,  171;  York,  &c.  R.  Co. 
v.  Winans,  17  How.  (U.  S.)  30; 
Ricketts  v.  Birmingham,  &c.  R.  Co, 
85  Ala.  600,  5  So.  353;  Rome,  &c.  R, 
Co.  v.  Chasteen,  88  Ala.  591,  7  So, 
94;  Galveston,  &c.  R.  Co.  v.  Garter- 
ser  (Tex.  Civ.  App.),  29  S.  W.  939; 
Parr  v.  Spartanburg,  &c.  Co.  43  S. 
Car.  197,  20  S.  W.  1009,  49  Am.  St 
826;  Palmer  v.  Utah,  &c.  R.  Co.  2 
Idaho  315,  350,  13  Pac.  425,  36  Am. 
&  Eng.  R.  Cas.  443;  Harmon  v.  Co- 
lumbia, &c.  28  S.  Car.  401,  13  Am. 
St.  686;  International,  &c.  R.  CU.  v. 
Moody,  71  Tex.  614,  9  S.  W.  465; 
Briscoe  v.  Southern  Kansas  R.  Co. 
40  Fed.  273;  Ricketts  v.  Chesapeake, 
&c.  R.  Co.  33  W.  Va.  433,  10  S.  E. 
801,  7  L.  R.  A.  354,  25  Am.  St.  901; 
Louisville,  &c.  R.  Co.  v.  Breedon, 
111  Ky.  729,  64  S.  W.  667;  Abbott 
v.  Johnstown,  &c.  R.  Co.  80  N.  Y, 


639 


UNAUTHOBIZED   LEASE — LIABILITY  OF  LESSOE. 


[§    473 


There  is,  as  we  believe,  and  as  we  have  more  clearly  pointed  out  in 
another  place,  an  important  difference  between  authorized  leases  and 
leases  executed  in  cases  where  there  is  an  entire  want  of  power  to  exe- 
cute them,  and  the  rules  which  govern  the  one  class  of  cases  cannot  be 
justly  held  to  govern  the  other  class.  The  negligence  of  a  lessee  hav- 
ing actual  possession  and  control  of  a  railroad  under  a  lease  which 
the  lessor  had  no  power  to  execute,  does  not  transfer  liability  from 
the  lessor  to  the  lessee,  so  the  lessor  remains  liable  for  the  wrongs 
of  the  lessee,125  except  in  cases  where  by  reason  of  contract  rela- 
tions, the  specific  duty  which  is  violated  is  owing  solely  from  the 
lessee  to  the  injured  person.  The  theory  upon  which  many  of  the  cases 
proceed  is  that  the  persons  operating  a  road  under  an  unauthorized 
lease  are  the  agents  of  the  lessor  company.126  But  whatever  may  be  the 
particular  theory  adopted,  the  great  weight  of  authority  is  that  the 
company  that  executes  such  a  lease  still  remains  liable.127 


27,  36  Am.  R.  572;  Lee  v.  South- 
ern Pac.  R.  Co.  116  Cal.  97,  47 
Pac.  932,  38  L.  R.  A.  71,  58  Am. 
St.  140;  Chattanooga,  &c.  R.  Co.  v. 
Liddell,  85  Ga.  482,  21  Am.  St.  169. 
But,  as  stated  in  the  preceding  sec- 
tion, some  courts  hold  otherwise  as 
to  employes  of  the  lessee.  See, 
also,  Hukill  v.  Maysville,  &c.  R.  Co. 
72  Fed.  745;  Virginia,  &c.  R.  Co.  v. 
Washington,  86  Va.  629,  10  S.  E. 
927,  7  L.  R.  A.  344.  See  review  of 
authorities  in  leading  article  in  62 
Cent.  Law  Jour.  181. 

125  It  is  held  that  the  lessor  is  lia- 
ble for  the  lessee's  refusal  to  carry 
freight  offered  for  transportation. 
Central,  &c.  R.  Co.  v.  Morris,  68  Tex. 
49,  3  S.  W.  457. 

128  Nelson  v.  Vermont,  &c.  R.  Co. 
26  Vt.  717,  62  Am.  Dec.  614;  Briscoe 
v.  Southern  Kansas,  &c.  R.  Co.  40 
Fed.  273.  In  Van  Dresser  v.  Oregon 
R.  &c.  Co.  48  Fed.  202,  the  court 
held  that  the  lessee  of  a  railroad, 
engaged  in  operating  it  under  an 
unauthorized  lease,  must  be  consid- 
ered as  the  agent  of  the  lessor  com- 
pany for  the  purpose  of  service  of 
summons  in  a  suit  against  such 


company.  See,  also,  Smalley  v.  At- 
lanta, &c.  R.  Co.  73  S.  Car.  572,  53 
S.  E.  1000,  1001  (citing  text).  A 
contract  for  the  shipment  of  freight 
over  a  railroad,  made  by  a  lessee  of 
the  road,  does  not  bind  the  railroad 
company  to  do  more  than  its  lessee 
is  bound  to  do.  International,  &c. 
R.  Co.  v.  Thornton,  3  Tex.  Civ.  App. 
197,  22  S.  W.  67. 

^Bouknight  v.  Chicago,  &c.  R. 
Co.  41  S.  Car.  415,  19  So.  915;  Fisher 
v.  West  Virginia,  &c.  Co.  39  W.  Va. 
366,  19  S.  E.  578,  2  L.  R.  A.  758; 
Harmon  v.  Columbia,  &c.  R.  Co.  28 
S.  Car.  401,  5  S.  E.  835,  13  Am.  St. 
686;  Gulf,  &c.  Co.  v.  Morris,  67  Tex. 
692,  35  Am.  &  Eng.  R.  Cas.  94;  Hart 
v.  Charlotte,  &c.  R.  Co.  33  S.  C.  427, 
12  S.  E.  9;  Chollette  v.  Omaha,  &c. 
R.  C*>.  26  Neb.  159,  41  N.  W.  1105, 
37  Am.  &  Eng.  R.  Cas.  16;  Ottawa, 
&c.  R.  Co.  v.  Black,  79  111.  262; 
-Bower  v.  Burlington,  &c.  R.  Co.  42 
Iowa  546;  Braslin  v.  Somerville,  &c. 
R.  Co.  145  Mass.  64,  13  N.  E.  65; 
Freeman  v.  Minneapolis,  &c.  R.  Co. 
28  Minn.  443;  Brown  v.  Hannibal, 
&c.  R.  Co.  27  Mo.  App.  394;  Abbott 
v.  Johnstown,  &c.  R.  Co.  80  N.  Y.  27, 


§  474] 


LEASES. 


640 


§  474.  Liability  of  lessee  for  injuries  resulting  from  negligence 
in  operating  the  road. — The  lessee  is  liable  for  all  injuries  occasioned 
by  its  negligent  operation  of  a  road  under  an  unauthorized  lease,  inas- 
much as  its  liability  for  its  own  torts  is  the  same  whether  it  is  using 
its  own  property  or  that  of  another  when  the  injury  is  done.128  It  is 
clear  that  principle  requires -the  conclusion  that  a  lessee  operating 
under  an  unauthorized  lease  is  liable  for  negligence  in  operating  the 
road.  To  permit  a  mere  intruder  into  the  franchise  of  a  railroad  com- 
pany to  escape  liability  for  his  failure  to  perform  the  duties  which  he 
has  assumed,  upon  the  plea  that  he  is  acting  under  an  invalid  con- 
tract and  is  operating  the  road  without  right,  would  be  to  allow  him  to 
allege  his  own  wrong  in  his  defense.129  If  the  lease  is  void  the  com- 
pany operating  a  railroad  under  it  can  not,  it  is  obvious,  shield  itself 
from  liability  for  injuries  caused  by  its  culpable  negligence.  The  per- 
son injured  is  in  nowise  to  be  prejudiced  by  the  wrongful  act  of  the 
corporation  that  causes  him  injury  in  assuming  powers  and  duties  it 
has  no  right  to  take  upon  itself.  There  is,  however,  such  harmony 


36  Am.  R.  572;  Aycock  v.  Raleigh, 
&c.  R.  Co.  89  N.  C.  321;  Lakin  v. 
Willamette,  &c.  R.  Co.  13  Oreg.  436, 
11  Pac.  68,  57  Am.  R.  25;  Washing- 
ton, &c.  R.  Co.  v.  Brown,  17  Wall. 
(U.  S.)  445.  See,  generally,  Chi- 
cago, &c.  R.  Co.  v.  Whipple,  22  111. 
105;  Palmer  v.  Utah,  &c.  R.  Co.  2 
Idaho  315,  350,  13  Pac.  425,  36  Am. 
&  Eng.  R.  Gas.  443 ;  Pennsylvania  Co. 
v.  Sellers,  127  Pa.  St.  406, 17  Atl.  987; 
East  Line,  &c.  R.  Co.  v.  Culberson, 
72  Tex.  375,  10  S.  W.  706,  3  L.  R.  A. 
567,  13  Am.  St.  805,  38  Am.  &  Eng. 
R.  Gas.  225;  Ohio,  &c.  R.  Co.  v.  Dun- 
bar,  20  111.  623,  71  Am.  Dec.  291; 
Sellers  v.  Richmond,  &c.  R\  Co.  94 
N.  C.  654;  Great  Northern,  &c.  R. 
Co.  v.  Eastern,  &c.  R.  Co.  12  Eng.  L. 
&  E.  224;  Wasmer  v.  Delaware,  &c. 
R.  Co.  80  N.  Y.  212,  36  Am.  Dec. 
608. 

W8Cantlon  v.  Eastern  R.  Co.  45 
Minn.  481,  48  N.  W.  22;  Muntz  v. 
Algiers,  &c.  R.  Co.  Ill  La.  Ann.  423, 
35  So.  624,  64  L.  R.  A.  222,  100  Am. 
St.  4P5;  Wabash,  &c.  R.  Co.  v.  Pey- 


ton, 106  111.  534,  46  Am.  R.  705; 
Philadelphia,  &c.  R.  Co.  v.  Anderson, 
94  Pa.  St.  351,  39  Am.  R.  787.  The 
lessee's  liability  is  in  nowise  affect- 
ed by  the  fact  that  the  lease  was 
without  authority  and  therefore  un- 
lawful. Ricketts  v.  Chesapeake,  &c. 
R.  Co.  33  W.  Va.  433,  10  S.  E.  801, 
7  L.  R.  A.  354,  25  Am.  St.  901,  41 
Am.  &  Eng.  R.  Cas.  42;  Hall  v. 
Brown,  54  N.  H.  495;  Toledo,  &c. 
Co.  v.  Rumbold,  40  111.  143;  McCluer 
v.  Manchester,  &c.  R.  Co.  79  Mass. 
124,  74  Am.  Dec.  624;  Feital  v.  Mid- 
dlesex, &c.  R.  Co.  109  Mass.  398,  12 
Am.  R.  720;  Atlanta,  &c.  R.  Co.  v. 
Ray,  70  Ga.  674;  McMillan  v.  Michi- 
gan, &c.  R.  Co.  16  Mich.  79,  93  Am. 
Dec.  208;  Sprague  v.  Smith,  29  Vt. 
421,  70  Am.  Dec.  424;  Cook  v.  Mil- 
waukee, &c.  R.  Co.  36  Wis.  45;  Haff 
v.  Minneapolis,  &c.  R.  Co.  4  McCrary 
(II.  S.)  622;  Missouri  Pac.  R.  Co.  v. 
Morrow,  32  Kans.  217,  4  Pac.  87. 

129  Sprague  v.  Smith,  29  Vt.  421,  70 
Am.  Dec.  424. 


<>41  CONTRACTS    OF   THE   LESSEE.  [§    475 

among  the  authorities  upon  the  general  question  that  there  is  no 
necessity  for  extended  discussion. 

§  475.  Contracts  of  the  lessee. — The  case  of  one  who  founds  his 
claim  upon  a  contract  with  the  lessee  after  the  execution  of  the  lease 
is  essentially  different  from  that  of  one  who  bases  his  right  on  the  tort 
of  the  lessee.  It  is  obvious  that  the  lessor  cannot  be  held  liable  for  a 
breach  of  the  contracts  entered  into  by  the  lessee.  If  the  action  is 
founded  on  the  contract  there  is  no  privity  between  the  lessor  and  the 
person  with  whom  the  lessee  contracts.  The  contract  gives  the  person 
with  whom  the  lessee  contracts  no  right  of  action  against  the  lessor, 
for  the  latter  has  assumed  no  obligation  whatever.130 

§476.  Joint  liability. — The  lessor  and  lessee  are  usually  jointly 
liable  for  negligence  in  the  management  of  the  road  where  the  lease 
under  which  it  is  operated  is  unauthorized.131  There  is  a  clear  distinc- 
tion between  cases  where  the  lease  is  authorized  and  cases  where  it  is 
unauthorized.  If  the  lease  is  unauthorized  there  is  a  joint  wrong, 
for  both  parties  assume  to  do  what  the  law  forbids.  The  one  attempts 
to  escape  obligations  the  law  imposes  upon  it  by  making  a  contract 
which  it  has  no  power  to  make;  the  other  attempts  to  assume  powers 
it  cannot  rightfully  possess.  The  unauthorized  lease  being  void  the 
lessor  has  not  transferred  any  duty,  and  the  lessee  in  assuming  rights 

130  It  has  been  held  that  under  a  Lockhart  v.  Little  Rock,  &c.  R.  Co. 
lease  transferring  to  the  lessee  all  40  Fed.  631;   Great  Western,  &c.  R. 
of  the  lessor's  contracts,  the  lessor  Co.  v.  Blake,  7  H.  &  N.  987;  Spang- 
cannot  be  held  liable  for  goods  de-  ler  v.  Atchison,  &c.  R.  Co.  42  Fed. 
livered  to  the  lessee  under  a  con-  305;  Buxton  v.  Northeastern,  &c.  R. 
tract    between    the    owner    of    the  Co.  L.  R.  3  Q.   B.  548;    Thomas  v. 
goods  and  the  lessor.    Pittsburg,  &c.  Rhymney  R.  Co.  L.  R.  5  Q.  B.  226, 
R.  Co.  v.  Harbaugh,  4  Brewst.  (Pa.)  and  L.  R.  6  Q.  B.  266;  Muschamp  v. 
115.    But  there  is  reason  for  doubt-  Lancaster,  &c.  R.  Co.  8  M.  &  W.  421 ; 
ing  the  soundness  of  this  decision.  Readhead  v.  Midland,  &c.  R.  Co.  L. 
See  International,  &c.  Co.  v.  Thorn-  R.  2  Q.  B.  412;   Illidge  v.  Goodwin, 
ton,  3  Tex.  Civ.  App.  197,  22  S.  W.  5  C.  &  P.  190;    Skinner  v.  London, 
67;     Georgia    R.    &c.    Co.    v.    Haas  &c.  R.  Co.  15  Jur.  289;   Wisconsin, 
(Ga.),  56  S.  E.  313.  &c.  R.  Co.  v.  Ross,  142  111.  1,  53  Am. 

131  Stickley  y.  Chesapeake,  &c.  R.  &  Eng.  R.  Gas.  73.    It  is  held  in  Chi- 
Co.  93  Ky.  323,  20  S.  W.  261,  52  Am.  cago,  &c.  R.  Co.  v.  Darke,  148  111. 
&  Eng.  R.  Gas.  56;  Little  Miami,  &c.  226,  57  Am.  &  Eng.  R.  Cas.  577,  that 
R.   Co.   v.   Hambleton,   40   Ohio   St.  the    objection   that   the    defendants 
496,   14   Am.   &   Eng.   R.   Cas.   126.  are  not  jointly  liable  must  be  made 
See  Eaton  v.  Boston,  &c.  R.  Co.  11  in  the  trial  court  or  it  will  not  be 
Allen  (Mass.)  500,  87  Am.  Dec.  730;  considered  on  appeal. 

ELL.  RAILROADS — 41 


§  477J 


LEASES. 


and  powers  to  which  it  is  not  entitled  is  really  an  intruder  and  an 
usurper. 

§  477.  Liability  of  company  where  it  permits  another  company  to 
use  track  in  common  with  itself. — It  is  held  by  the  Supreme  Court  of 
the  United  States  that  a  railroad  company  which  permits  another 
to  make  a  joint  use  of  its  track  is  liable  to  a  person  injured  by  the 
negligence  of  the  company  to  which  the  permission  is  granted.132 
The  weight  of  authority  supports  the  doctrine  of  the  case  referred 
to.133  In  the  case  to  which  we  refer  the  question  of  the  effect  of  an 
authorized  lease  was  not  considered,  and,  as  we  believe,  there  was  no 
such  question  in  the  case.  The  case  of  a  joint  use  by  two  companies 
is  essentially  different  from  a  case  where  the  lessor  company  by  an 
authorized  lease  parts  with  possession  and  control  of  the  road.  If  it 
be  true,  as  the  authorities  declare,134  that  the  lease  transfers  posses- 
sion and  control  to  the  lessee  to  the  exclusion  of  the  lessor,  the  case 
is  entirely  different  from  one  wherein  one  company  grants  a  privilege 
of  common  use  to  another  or  suffers  the  latter  company  to  operate 
the  road  in  its  name.  Conceding  the  soundness  of  the  conclusion  in 


132  Railroad  Co.  v.  Barren,  5  Wall. 
(U.   S.)    90.     In  the  course  of  the 
opinion  it  was  said:    "The  question 
is  not  whether  the  Michigan   com- 
pany is  responsible,  but  whether  the 
defendants,  by  giving  to  that  com- 
pany the  privilege  of  using  the  road 
have  thereby,  in  the  given  case,  re- 
lieved themselves  from  responsibil- 
ity.    The  question  has  been  settled, 
and  we  think  rightly,  in  the  courts 
of  Illinois  holding  the  company  lia- 
ble.    The  same  principle  has  been 
affirmed  in  other  states."    The  court 
cited  the  cases  of  Chicago,  &c.  R.  Co. 
v.  McCarthy,  20  111.  385,  71  Am.  Dec. 
285;  Chicago,  &c.  R.  Co.  v.  Whipple, 
20  111.  337;    Chicago,  &c.  R.  Co.  v. 
Whipple,  22  111.  105;  Nelson  v.  Ver- 
mont, &c.  R.  Co.  26  Vt.  717,  62  Am. 
Dec.   614;    McElroy  v.   Nashua,  &c. 
R.   Co.   58   Mass.   400,   50  Am.   Dec. 
794. 

133  Delaware,  &c.  R.  Co.  v.  Salmon, 
39  N.  J.  L.  299,  23  Am.  R.  214;  Fort 
Wayne,    &c.    Co.    v.    Hinebaugh,    43 
Ind.  354;  Stetler  v.  Chicago,  &c.  R. 


Co.  49  Wis.  609,  6  N.  W.  303;  Lakin 
v.  Willamette,  "&c.  R.  Co.  13  Oreg. 
436, 11  Pac.  68,  57  Am.  R.  25;  Peoria, 
&c.  R.  Co.  v.  Lane,  83  111.  448.  And 
the  text  is  cited  and  applied  in  Jef- 
ferson v.  Chicago,  &c.  R.  Co.  117 
Wis.  549,  94  N.  W.  289,  290.  See 
Harper  v.  Newport,  &c.  R.  Co.  90 
Ky.  359,  14  S.  W.  346;  Parker  v. 
Rensselaer,  &c.  R.  Co.  16  Barb.  (N. 
Y.)  315;  Murch  v.  Concord,  &c.  R. 
Co.  29  N.  H.  9,  61  Am.  Dec.  631; 
Hanover  R.  Co.  v.  Coyle,  55  Pa.  St. 
396;  Illinois,  &c.  R.  Co.  v.  Kanouse, 
39  111.  272,  89  Am.  Dec.  307;  Mills 
v.  Orange,  &c.  R.  Co.  1  McArthur 
(D.  C.)  285;  Webb  v.  Portland,  &c. 
R.  Co.  57  Me.  117;  Sprague  v.  Smith, 
29  Vt.  421,  70  Am.  Dec.  424. 

134  New  York,  &c.  R.  Co.,  In  the 
Matter  of,  49  N.  Y.  (4  Sickels)  414, 
420,  10  Am.  R.  389;  Pennsylvania, 
&c.  Co.  v.  Sly,  65  Pa.  St.  205;  State 
v.  Central,  &c.  R.  Co.  71  Iowa  410, 
60  Am.  R.  806;  South  Carolina,  &c. 
R.  Co.  v.  Wilmington,  &c.  R.  Co.  7 
S.  Car.  410. 


643  FRAUDULENT  LEASES.  [§  478 

the  case  decided  by  the  Supreme  Court  of  the  United  States  it  cannot 
be  justly  regarded  as  affirming  that  the  lessor  who  executes  a  lease 
under  due  authority  is  liable  for  the  negligence  of  the  lessee  in  oper- 
ating the  road.135  In  the  one  class  of  cases  there  is  a  change  of 
possession  and  control,  in  the  other  possession  is  not  changed,  nor  is 
the  right  of  control  surrendered. 

§  478.  Fraudulent  leases. — A  contract  of  lease,  like  any  other  con- 
tract, may  be  set  aside  for  the  fraud  of  the  directors  in  executing  it. 
Fraud,  however,  is  not  presumed  but  must  be  affirmatively  proved. 
Circumstances  may  be  established  from  which,  under  familiar  rules, 
fraud  may  be  inferred.  The  circumstances  must  be  such  that  under 
the  rules  applicable  to  cases  of  a  similar  character,  the  court  or  jury 
may  infer  fraud.  Fraud  will  not  be  presumed  from  the  mere  fact  that 
a  larger  rent  is  reserved  than  the  subsequent  earnings  of  the  road 
really  justify,  where  it  appears  that  the  rent  was  fixed  in  accordance 
with  the  report  of  competent  and  disinterested  experts,  to  whom  the 
question  was  referred.136  Nor  will  fraud  be  presumed  from  the  fact 
that  the  directors  failed  to  make  the  continuance  of  the  lease  de- 
pendent upon  the  construction  of  connecting  roads,  which  were  con- 
templated when  the  lease  was  executed,  by  which  the  leased  road  was 
expected  to  become  part  of  an  important  through  line.137  It  is  held 
that  a  lease  by  a  railroad  company  of  a  road  constructed  by  a  syndi- 
cate of  its  directors  is  presumed  fraudulent  and  may  be  set  aside 
at  the  suit  of  a  person  injured  thereby.138  But  such  a  lease  is  voida- 

185  The  decision  In  Railroad  Co.  v.  this  particular,  as  if  there  were  no 

Brown,  17  Wall.    (U.  S.)    445,  does  change  of  possession,  is  not  in  a  po- 

not  oppose  this  conclusion,  for  there  sition   to  raise  any  question   as  to 

was  no  consideration  in  that  case  of  its  liability  for  their  acts." 

the    effect   of   an    authorized    lease.  136  Jesup  v.  Illinois  Cent.  R.  Co.  43 

The  real  point  in  the  case  cited  was  Fed.  483.     See,  also,  Middletown  v. 

that  as  there  was  no  change  of  pos-  Boston,  &c.  R.  Co.  53  Conn.  351,  5 

session   the   company   granting  the  Atl.  706.     Percentage  of  earnings  is 

privilege  to  use  still  remained  lia-  sometimes    stipulated    for   as   rent, 

ble.     The   fact  that  there   was  no  Terre  Haute,  &c.  R.  Co.  v.  Cox,  102 

change    of    possession    clearly    dis-  Fed.  825;  Catawissa  R.  Co.  v.  Phila- 

criminates  the  case  from  one  where  delphia,  &c.  R.  Co.  168  Pa.  St.  544, 

there  is  an  authorized  lease,  for  the  32  Atl.  62. 

central   idea  of  a  lease  is  that  it '  m  Jesup  v.  Illinois  Cent.  R.  Co.  43 

does    change    possession.       In    the  Fed.  483. 

above-named   case   the   court   said:  138Barr  v.  New  York,  &c.  R.  Co. 

"Besides,  the  company,  having  per-  125  N.  Y.  263,  26  N.  E.  145.    An  ap- 

mitted  the  lessees  and  receiver  to  plication  of  stockholders  to  set  aside 

conduct  the  business  of  the  road  in  a    traffic    contract    for    ninety-nine 


479] 


LEASES 


644 


ble  only  and  not  void,  and  may  be  ratified  by  long  acquiescence;  and 
the  lessee  company  cannot  dispute  its  liability  to  pay  the  rent  reserved 
under  such  lease  while  holding  and  operating  the  leased  property.139 
A  lease  fraudulently  executed  may  be  avoided,  but  it  cannot  be  justly 
said  to  be  void. 

§479.  Unauthorized  lease — Injunction. — A  stockholder  of  a  cor- 
poration, or  other  party  having  an  interest  entitled  to  protection,  has 
a  right  to  an  injunction  prohibiting  the  execution  of  an  unauthorized 
lease.140  It  is  true  that  such  a  lease  is  void,  but  as  it  may  cloud  titles 
and  rights,  an  injunction  is  rightly  held  to  be  the  appropriate  remedy. 
The  tendency  of  the  modern  cases  is  to  extend  the  remedy  by  injunc- 
tion,141 and  there  is'  certainly  no  other  remedy  so  effective  or  com- 
plete in  such  cases  as  those  of  which  we  are  speaking  as  an  injunction. 
The  general  doctrine  is  that  where  an  act  is  entirely  beyond  and  out- 
side of  the  scope  of  the  corporate  powers,  and  is  one  which  will  injure 
the  public  or  defeat  public  policy,  an  injunction  will  lie  at  the  suit  of 
the  state  or  its  representative.142 


years,  entered  into  by  one  railroad 
company  with  another  having  only 
a  proposed  road  eighteen  miles  dis- 
tant from  the  first,  which  has  no 
present  authority  to  build  a  con- 
necting branch,  even  if  the  other 
had  a  road,  said  contract  being  en- 
tered into  by  the  directors  and  of- 
ficers for  the  personal  profit  and  ad- 
vantage of  individual  members,  and 
known  to  be  injurious  to  the  com- 
pany, will  be  granted.  Bostwick  v. 
Chapman,  60  Conn.  553,  24  Atl.  32; 
Starbuck  v.  Mercantile  Trust  Co.  60 
Conn.  553,  5  Atl.  706,  24  Atl.  32; 
Shepaug  Voting  Trust  Cases,  60 
Conn.  553,  24  Atl.  32. 

138Barr  v.  New  York,  &c.  R.  Co. 
125  N.  Y.  263,  26  N.  E.  145. 

140  Pond  v.  Vermont,  &c.  R.  Co.  12 
Blatchf.   (U.  S.)   280;   Board  v.  La- 
fayette, &c.  R.  Co.  50  Ind.  85. 

141  Champ    v.    Kendrick,    130    Ind. 
549,  30  N.  E.  787;  Pom.  Eq.  §  1357. 
See,  generally,  Morse  v.  Morse,   44 
Vt.    84;    Watson    v.    Sutherland,    5 


Wall.  (TT.^S.)  74;  Boyce  v.  Grundy, 
3  Pet.  (U.  S.)  210;  Allen  v.  Hanks, 
136  U.  S.  300,  10  Sup.  Ct.  961;  Kil- 
bourn  v.  Sunderland,  130  U.  S.  505, 
9  Sup.  Ct  594;  Gormley  v.  Clark, 
134  U.  S.  338,  10  Sup.  Ct.  554;  Kerr 
Injunctions,  32.  See,  also,  Coe  v. 
East,  &c.  R.  Co.  52  Fed.  531;  Boston, 
&c.  R.  Co.  v.  Boston,  &c.  R.  Co.  65 
N.  H.  393,  23  Atl.  529. 

142  Attorney-General  v.  Delaware, 
&c.  R.  Co.  27  N.  J.  Eq.  631,  633;  At- 
torney-General v.  Chicago,  &c.  R. 
Co.  35  Wis.  425;  Ware  v.  Regent's,  &c. 
Co.  3  DeGex  &  J.  212;  Fishmongers' 
Co.  v.  East  India  Co.  1  Dickens  163 ; 
Browne  v.  Monmouthshare  R.  Co. 
13  Beav.  32;  Attorney-General  v. 
Johnson,  2  Wils.  (Ch.)  87;  Attor- 
ney-General v.  Forbes,  2  Myl.  &  C. 
123;  Attorney-General  v.  Great 
Northern,  &c.  R.  Co.  4  DeGex  &  S. 
75;  Attorney -General  v.  Mid-Kent, 
&c.  R.  Co.  L.  R.  3  Ch.  App.  100;  2 
Redfield  Railroads  307. 


CHAPTER  XIX. 


RAILROAD    SECURITIES. 


Sec. 

480.  Power  of  railroad  -companies 

to  issue  notes  and  bonds. 

481.  Power  to  guaranty  bonds. 

482.  Income  bonds. 

483.  Convertible  bonds. 

484.  Negotiability   of   bonds — Bona 

fide  purchasers. 

485.  Form  and  manner  of  issuing 

bonds — Effect  of  irregulari- 
ties. 

486.  Interest  coupons. 

487.  Payment  of  bonds  and  inter- 

est. 

488.  No  power  to  mortgage  without 

legislative  authority. 

489.  Legislative  authority  to  mort- 

gage. 

490.  Distinction  between  authority 

to  mortgage  franchises  and 
authority  to  mortgage  prop- 
erty. 

491.  Who   may  execute  the  mort- 

gage. 


Sec. 

492.  Ratification  by  stockholders  of 

unauthorized  or  improperly 
executed  mortgage. 

493.  When    ultra    vires    mortgage 

may  be  made  effective. 

494.  Recording  mortgages. 

495.  Generally  as  to  what  property 

is  covered  by  the  mortgage. 

496.  What   is   covered   by  a  mort- 

gage of  the  undertaking. 

497.  Mortgage     of     after-acquired 

property. 

497a.  After-acquired  property  — 
When  lien  attaches — What 
it  includes. 

498.  Fixtures — Rolling  stock. 

499.  Reserved  power  to  create  prior 

lien  or  dispose  of  unneces- 
sary property. 
.500.    Priority  of  mortgages. 

501.  Trust  deeds. 

502.  Equitable  and  defective  mort- 

gage's. 

503.  Statutory  mortgages. 

504.  Debentures. 


§  480.    Power  of  railroad  companies  to  issue  notes  and  bonds. — In 

the  absence  of  any  provision  upon  the  subject  in  the  charter  or  stat- 
ute, a  railroad  company  has  implied  power  to  execute  a  promissory 
note  in  furtherance  of  its  legitimate  business.1  It  likewise  has  im- 


1  Olcott  v.  Tioga,  &c.  R.  Co.  27  N. 
Y.  546,  84  Am.  Dec.  298;  Richmond, 
&c.  R.  Co.  v.  Snead,  19  Gratt.  (Va.) 
354,  10  Am.  Dec.  670  (a  due  bill) ; 
Smead  v.  Indianapolis,  &c.  R.  Co. 
11  Ind.  104,  109;  Hamilton  v.  New- 


castle, &e.  R.  Co.  9  Ind.  359;  Mitchell 
v.  Rome  R.  Co.  17  Ga.  574.  See,  also, 
Louisville,  &c.  R.  Co.  v.  Caldwell,  98 
Ind.  245.  The  rule  seems  to  be 
otherwise  in  England.  Bateman  v. 
Mid-Wales  R.  Co.  L.  R.  1  C.  P.  499, 


645 


480] 


RAILROAD   SECURITIES. 


plied  power  to  issue  bonds.2  As  said  in  a  leading  case:3  "There  seems 
to  be  no  reason  why  a  railroad  corporation  should  not  be  considered 
as  having  power  to  make  a  bond  for  any  purpose  for  which  it  may 
lawfully  contract  a  debt,  without  any  special  authority  to  that  effect, 
unless  restrained  by  some  restriction,  express  or  implied,  in  its  char- 
ter, or  in  some  other  legislative  act.  A  bond  is  merely  an  obligation 
under  seal.  A  corporation  having  the  capacity  to  sue  and  be  sued, 
the  right  to  make  contracts,  under  which  it  may  incur  debts,  and  the 
right  to  make  and  use  a  common  seal,  a  contract  under  seal  is  not  only 
within  the  scope  of  its  powers,  but  was  originally  the  usual  and  pecu- 
liarly appropriate  form  of  corporate  agreement."  So,  as  the  corpora- 
tion has  power  to  issue  such  negotiable  instruments  in  the  first  in- 
stance, it  also  has  the  power  to  indorse  them  when  they  have  been  re- 
ceived in  the  payment  of  debts  due  it,  or  the  like,  in  the  regular  course 
of  its  business.4  Bonds  secured  by  a  mortgage  which  is  unauthorized, 
or  otherwise  invalid,  may  nevertheless  be  valid  as  unsecured  obliga- 
tions,5 and,  so,  on  the  other  hand,  may  bonds  which  are  issued  with- 
out any  accompanying  mortgage  under  a  statute  simply  giving  author- 


35  L.  J.  C.  P.  205;  Peruvian  R.  Co. 
v.  Thames,  &c.  Co.  L.  R.  2  Ch.  617, 

36  L.  J.  Ch.  864.     See,  as  to  accom- 
modation  indorsement,   J.    G.   Brill 
Co.   v.   Norton,   &c.   St.   R.    Co.   189 
Mass.  431,  75  N.  E.  1090,  2  L.  R.  A. 
(N.  S.)   525;  Craft  v.  South  Boston 
R.  150  Mass.  207,  22  N.  E.  920,  5  L. 
R.  A.  641. 

2  Philadelphia,  &c.  R.  Co.  v. 
Lewis,  33  Pa.  St.  33,  75  Am.  Dec. 
574;  Kelly  v.  Alabama,  &c.  R.  Co.  58 
Ala.  489;  Miller  v.  New  York,  &c.  R. 
Co.  18  How.  Pr.  (N.  Y.)  374;  Olcott 
v.  Tioga,  &c.  R.  Co.  27  N.  Y.  546,  84 
Am.  Dec.  298;  Commissioners  of 
Craven  v.  Atlantic,  &c.  R.  Co.  77  N. 
Car.  289;  Willoughby  v.  Chicago 
Junction  R.  Co.  50  N.  J.  Eq.  656,  25 
Atl.  277.  See,  also,  Illinois  Trust, 
&c.  Bank  v.  Pacific  R.  Co.  117  Cal. 
332,  49  Pac.  197;  Memphis,  &c.  R. 
Co.  v.  Dow,  120  U.  S.  287,  7  Sup.  Ct. 
482;  Coe  v.  East,  &c.  R.  Co.  52  Fed. 
531;  Toledo,  &c.  R.  Co.  v.  Conti- 
nental Trust  Co.  95  Fed.  497;  Geddes 


v.  Toronto,  &c.  R.  Co.  14  U.  C.  C.  P. 
513. 

3  Commonwealth  v.  Smith,  10  Al- 
len (Mass.)  448,  87  Am.  Dec.  672. 

4  Olcott  v.  Tioga,  &c.  R.  Co.  27  N. 
Y.   546.     See,  also,  Bonner  v.  New 
Orleans,  2  Woods  (U.  S.)  135;  Flor- 
ida Cent  R.  Co.  v.  Schutte,  103  U. 
S.  118 ;  Tod  v.  Kentucky  Union  Land 
Co.  57  Fed.  47.    The  indorsement  by 
the  company  of  bonds  issued  by  the 
state  to  aid  in  the  construction  of 
the  road,  although  in  the  form  of  an 
express   guaranty,  gives  no  lien  to 
the  bondholders  and  in  no  way  pre- 
vents the  company  from  executing 
a  mortgage  to  secure  its  own  bonds 
which  it  is  authorized  to  issue.   Mc- 
Kittrick   v.  Arkansas   Cent.   R.   Co. 
152  U.  S.  473,  14  Sup.  Ct.  661. 

5  Philadelphia,  &c.  R.  Co.  v.  Lewis, 
33  Pa.  St.  33,  75  Am.  Dec.  574;  Union 
Trust  Co.  v.  New  York,  &c.  R.  Co. 
(Ohio  Com.  PI.)   1  R.  &  Corp.  L.  J. 
50. 


647 


POWER   TO   GUARANTY   BONDS. 


[§  481 


ity  "to  borrow  money  on  mortgage."6  Indeed,  the  power  to  mortgage 
is  said  to  imply  and  include  the  power  to  borrow  money  and  issue 
bonds.7 


§  481.  Power  to  guaranty  bonds. — As  a  general  rule,  one  corpora- 
tion has  no  implied  authority  to  lend  its  credit  to  another  by  guaranty 
of  dividends,  or  the  like,  especially  if  they  are  engaged  in  different 
lines  of  business.8  But,  after  much  litigation,  it  now  seems  to  be 
reasonably  well  settled  that  one  railroad  company  may  guaranty  the 
bonds  of  another  under  certain  circumstances.  Thus,  where  it  has 
power  to  issue  bonds  of  its  own  it  also  has  implied  power  to  guaranty 
the  bonds  of  another  railroad  company,  properly  taken  in  payment  of 
a  debt,  in  order  to  enable  it  to  sell  them  for  an  adequate  price  or  to 
use  them  in  payment  of  its  own  debt.9  And  it  may  be  safely  stated,  we 
think,  as  a  general  rule,  that  such  a  guaranty  may  be  valid,  without 
an  express  grant  of  authority  to  make  it,  if  it  is  supported  by  a  valu- 
able consideration  of  a  kind  that  the  guarantor  company  has  author- 
ity to  receive  or  invest  in.10  Some  courts  have  gone  even  further  in 


"McMasters  v.  Reed,  1  Grant  Gas. 
(Pa.)  36,  approved  and  followed  in 
Philadelphia,  &c.  R.  Co.  v.  Lewis, 
33  Pa.  St.  33,  75  Am.  Dec.  574. 

TGloninger  v.  Pittsburg,  &c.  R. 
Co.  139  Pa.  St.  13,  21  Atl.  211,  46 
Am.  &  Eng.  R.  Gas.  276. 

8  Davis  v.  Old  Colony  R.  Co.  131 
Mass.  258,  41  Am.  R.  221;  Central 
Bank  v.  Empire  Stone  Co.  26  Barb. 
(N.  Y.)  23;  Colman  v.  Eastern,  &c. 
R.  Co.  10  Beav.  1;  Memphis,  &c.  Co. 
v.  Memphis,  &c.  R.  Co.  85  Tenn.  703, 
5  S.  W.  52,  4  Am.  St.  798;  Stark 
Bank  v.  U.  S.  Pottery  Co.  34  Vt. 
144;  Pennsylvania  R.  Co.  v.  St. 
Louis,  &c.  R.  Co.  118  U.  S.  250,  6 
Sup.  Ct.  1094;  Smead  v.  Indian- 
apolis, &c.  R.  Co.  11  Ind.  104;  Lucas 
v.  White,  &c.  Co.  70  Iowa  541,  30  N. 
W.  771,  59  Am.  R.  449;  Humbolt 
Min.  Co.  v.  American,  &c.  Co.  62 
Fed.  356;  Louisville,  &c.  R.  Co.  v. 
Louisville  Trust  Co.  174  U.  S.  552, 
19  Sup.  Ct.  817;  Western  Md.  R.  Co. 
v.  Blue  Ridge  Hotel  Co.  102  Md. 


307,  62  Atl.  351,  3  L.  R.  A.  (N.  S.) 
887;  Green  v.  Middlesborough,  &c. 
Co.  (Ky.)  89  S.  W.  228. 

9  Rogers,   &c.   Works  v.   Southern 
R.  Assn.  34  Fed.  278.     See,  also,  Mc- 
Kittrick  v.   Arkansas  Cent.   R.   Co. 
152  U.  S.  473,  14  Sup.  Ct.  661  (guar- 
anty of  state  railway  aid  bonds); 
Chicago,   &c.   R.    Co.   v.   Howard,   7 
Wall.   (U.  S.)  392;  Atchison,  &c.  R. 
Co.    v.    Fletcher,    35    Kans.    236,   10 
Pac.  596;  Arnot  v.  Erie,  &c.  R.  Co. 
67  N.  Y.  315. 

10  Low  v.  Cent.  Pac.  R.  Co.  52  Cal. 
53,  28  Am.  R.  629;  Arnot  v.  Erie  R. 
Co.   67  N.  Y.   315;    Chicago,  &c.   R. 
Co.  v.  Howard,  7  Wall.  (U.  S.)  392; 
Green  Bay,  &c.  R.  Co.  v.  Union,  &c. 
Co.   107   U.   S.   98,   2   Sup.   Ct.   221; 
Zabriskie  v.  Cleveland,  &c.  R.  Co.  23 
How.  (U.  S.)  381;  Tod  v.  Kentucky 
Union   Land   Co.   57   Fed.   47;    Mar- 
bury  v.  Kentucky  Union   Land  Co. 
62  Fed.  335.     See,  also,  Ellerman  v. 
Chicago,  &c.  Stock  Yards  Co.  49  N. 
J.  Eq.  217,  23  Atl.  292. 


§  482] 


RAILROAD   SECURITIES. 


648 


upholding  such  a  guaranty,11  and  by  some  the  doctrine  of  estoppel  has 
been  applied  in  favor  of  those  who  had  made  investments  and  acted 
upon  the  faith  of  the  guaranty.12  A  railroad  company  authorized  by 
statute  to  make  contracts  for  leasing  and  operating  the  road  of  an- 
other company  has  implied  power  to  include  in  the  lease  a  guaranty 
of  the  interest  coupons  of  the  latter  as  part  of  the  rent  to  be  paid.13 

§482.  Income  bonds. — The  right  to  issue  income  bonds  seems  to 
have  been  conceded  or  assumed  in  many  cases.  Such  bonds,  with  in- 
terest payable  out  of  the  company's  income  or  net  earnings,  are  fre>- 
quently  issued ;  but  the  power  to  issue  irredeemable  bonds,  the  interest 
on  which  is  to  be  paid  only  after  a  specified  dividend  has  been  declared 
on  the  common  stock  is  not  unquestioned.  The  existence  of  such  a 
power,  in  the  absence  of  an  express  grant  of  authority,  has  been  both 
denied14  and  affirmed.15  It  has  been  held  that  the  holder  of  the  bonds 


11  See  Madison,  &c.  R.  Co.  v.  Nor- 
wich Sav.  Society,  24  Ind.  457;  Har- 
rison v.  Union  Pac.  R.  Co.  13  Fed. 
522;  Mathesius  v.  Brooklyn  Heights 
R.  Co.  96  Fed.  792. 

12  See  State  Board  of  Agriculture 
v.    Citizens   St.   R.    47   Ind.   407,   17 
Am.  R.  702;   Cozart  v.  Georgia,  &c. 
R.  Co.  54  Ga.  379 ;  Arnot  v.  Erie,  &c. 
R.  Co.  67  N.  Y.  315.     See,  also,  Con- 
necticut Mut.  L.   Ins.  Co.  v.  Cleve- 
land, &c.  R.  Co.  26  How.  Pr.  (N.  Y.) 
225,  41  Barb.    (N.  Y.)    9;   Atchison, 
&c.  R.  Co.  v.  Fletcher,  35  Kans.  236, 
10  Pac.  596.     But  contra,  see  ante, 
§§  371,  374;  Louisville,  &c.  R.  Co.  v. 
Louisville  Trust  Co.  174  U.  S.  552, 
557,  19  Sup.  Ct.  817. 

"Eastern  Townships  Bank  v.  St. 
Johnsbury,  &c.  R.  Co.  40  Fed.  423, 
40  Am.  &  Eng.  R.  Cas.  566.  See, 
also,  Opdyke  v.  Pacific  R.  Co.  3  Dill. 
(U.  S.)  55.  Louisville  Trust  Co.  v. 
Louisville,  &c.  R.  Co.  75  Fed.  433; 
Zabriskie  v.  Cleveland,  &c.  R.  Co. 
23  How.  (U.  S.)  381;  United  States 
Trust  Co.  v.  Western  Contract  Co. 
81  Fed.  454;  ante,  §  437. 

"Taylor  v.  Philadelphia,  &c.  R. 
Co.  7  Fed.  386,  reported  together 


with  McCalmont  v.  Philadelphia,  &c. 
R.  Co.  3  Am.  &  Eng.  R.  Cas.  163. 

15  Philadelphia  &  Reading  R.  Co.'s 
Appeal  (Pa.),  4  Am.  &  Eng.  R. 
Cas.  118,  21  Am.  L.  Reg.  713.  This 
case  and  those  above  cited  grew 
out  of  the  same  transaction  or 
scheme.  The  federal  court  conceded 
that  the  corporation  had  implied 
power  to  borrow  money,  but  held 
that  the  scheme  in  question  was  not 
a  loan  because  it  was  never  to  be 
paid  back.  A  majority  of  the  state 
court  held  that  it  was  a  loan,  as 
it  was  a  contract  for  the  use  of 
money,  and  that  it  made  no  differ- 
ence that  it  was  perpetual.  The 
scheme,  however,  contemplated  the 
payment  of  six  per  cent  interest  on 
the  face  value  of  each  bond  after 
the  payment  of  a  six  per  cent  divi- 
dend on  the  stock,  and  that  the 
bonds  should  then  rank  pari  passu 
as  to  further  interest  with  the  com- 
mon stock,  although  the  bondholders 
were  to  pay  for  their  bonds  less 
than  one-third  of  their  face  value, 
and  a  minority  of  the  state  court 
were  of  the  opinion  that  this  was 
unauthorized. 


649  INCOME  BONDS.  [§   482 

of  a  railroad  company  "payable  to  bearer,  with  interest  semi-annually, 
secured  on  the  income  from  the  sale  of  its  lands  and  the  operation  of 
its  road  and  line"  is  a  creditor  having  a  specific  lien  upon  the  income, 
which  he  has  a  right  to  pursue,  and  a  bill  in  equity  will  lie  to  reach 
it  in  the  hands  of  another  company  to  which  the  road  and  property 
of  the  old  company  has  passed  by  consolidation.16  Income  bonds  are 
not,  however,  the  most  desirable  investments,  for  practically,  at  least, 
it  is  largely  within  the  power  of  the  company  to  prevent  any  net  in- 
come from  being  realized.  Even  where  the  bonds  are  secured  by  an 
income  mortgage,  as  is  usually  the  case,  although  it  may  pledge  tan- 
gible property  for  the  principal,  the  real  security  for  the  payment  of 
interest  is  little  more  than  the  pledge  of  the  good  faith  of  the  com- 
pany in  the  management  and  operation  of  its  road.17  Much,  of  course, 
depends  upon  the  provisions  of  the  bonds  and  mortgage  in  any  par- 
ticular case,  but,  in  the  absence  of  any  valid  limitation  upon  their 
powers,  the  directors  of  the  company,  necessarily,  have  a  wide  discre- 
tion in  determining  what  shall  be  treated  as  net  income.18  Thus,  if  it 
appears  that  the  income  contemplated  is  the  profit  of  future  trans- 
actions of  the  company  arising  from  all  sources,  the  bondholders  can- 
not complain  if  the  profits  which  would  have  been  realized  by  oper- 
ating the  original  lines  exclusively  have  been  decreased  by  losses  in 
the  operation  of  new  lines  in  conjunction  therewith,  deemed  advis- 
able because  of  competition  or  the  demand  for  greater  facilities.19 
Where,  however,  a  specific  lien  is  provided  for  upon  the  income  from 

"Rutten  v.  Union  Pac.  R.  Co.  17  company  to  conduct  its  operations 

Fed.  480.  Compare,  however,  Thomas  as  it  may  see  fit,  subject  only  to  the 

v.  New  York,  &c.  R.  Co.  139  N.  Y.  conditions  of  its  organic  law,  is  un- 

163,  34  N.  E.  877,  and  Hart  v.  Og-  qualified;     and,     consequently,     the 

densburg,  &c.  R.  Co.  69  Hun  (N.  Y.)  company    can    lawfully    extend    its 

378,  23  N.  Y.  S.  639.  lines,  acquire  new  ones,  discontinue 

17  Spies  v.  Chicago,  &c.  R.  Co.  40  old  ones,  and  thus  essentially  change 
Fed.  34,  38.  In  this*  case  Judge  the  earning  capacity  of  the  prop- 
Wallace,  speaking  of  an  income  erty."  See,  also,  Barry  v.  Missouri, 
mortgage,  says:  "It  necessarily  con-  &c.  R.  Co.  27  Fed.  1. 
templates  such  improvements  as  18  Day  v.  Ogdensburgh,  &c.  R.  Co. 
seem  necessary  to  the  efficient  use  107  N.  Y.  129,  13  N.  E:  765;  Spies 
and  operation  of  such  property,  and  'v.  Chicago,  &c.  R.  Co.  40  Fed.  34, 
such  alterations  in  the  corpus  as  39;  Thomas  v.  New  York,  &c.  R.  Co. 
appear  desirable  are  to  be  made  at  139  N.  Y.  163,  54  N.  Y.  9.  498. 
the  discretion  of  the  directors;  and,  19Day  v.  Ogdensburgh,  &c.  R.  Co. 
unless  it  contains  some  limitations  107  N.  Y.  129,  13  N.  E.  765;  Buck 
Upon  the  powers  of  the  directors,  ex-  v.  Seymour,  46  Conn.  156;  Spies  v. 
press  or  implied,  the  right  of  the  Chicago,  &c.  R.  Co.  40  Fed.  34,  38. 


§    483]  EAILROAD   SECURITIES.  650 

certain  specified  property  or  lines,  to  be  ascertained  by  deducting 
specified  expenses  and  liabilities  from  the  gross  earnings  of  such 
property  or  lines,  a  different  rule  applies  and  the  directors  have  no 
right  to  deduct  expenses,  including  interest  charges,  incurred  in 
operating  new  lines  acquired  by  the  company  out  of  the  earnings  of 
the  original  lines,  from  the  specific  income  fund  to  which  the  bond- 
holders have  a  right  to  look  under  their  contract.20  It  is  the  duty 
of  the  company  to  keep  a  proper  account  and  make  an  honest  effort 
to  ascertain  the  net  earnings  or  income  out  of  which  the  bondholders 
are  entitled  to  receive  their  interest.21  In  the  case  just  cited  an  ac- 
counting was  directed,  and  it  was  held  that  upon  such  accounting 
the  company  should  be  disallowed  any  sums  paid  or  charged  on  ac- 
count of  debts  which  it  had  contracted  prior  to  the  execution  of  the 
income  mortgage,  and  that  it  should  also  be  disallowed  any  charge 
against  income  arising  from  the  sale  of  the  income  bonds  at  less  than 
their  face  value,  as  well  as  interest,  which  it  had  not  paid  or  become 
liable  to  pay,  upon  first  mortgage  bonds,  which  had  been  funded  and 
was  represented  by  the  income  bonds  accepted  by  the  first  mortgage 
bondholders  in  lieu  of  interest.  It  was  also  held  that  the  expenses 
defrayed  or  incurred  in  producing  the  earnings  for  a  given  interest 
period  are  the  only  charges  which  can  enter  into  the  income  account 
for  that  period,  except  the  payment  of  interest  on  prior  incumbrances 
as  stipulated,  and  that  the  holders  of  coupons  for  each  separate  in- 
terest period  should  be  paid  ratably  out  of  the  net  income  of  that 
particular  period.22  It  is  sometimes  provided  that  the  coupons  or  in- 
terest shall  be  paid  in  money  or  in  scrip  at  the  option  of  the  com- 
pany, and,  in  such  a. case,  if  the  company  does  not  elect  to  pay  in 
scrip  when  the  interest  becomes  due,  and  the  income  is  sufficient,  the 
holder  of  the  coupon  may  sue  for  the  money.23 

§  483.     Convertible  bonds. — There  seems  to  be  no  good  reason  why 
a  corporation  authorized  to  increase  its  stock  may  not  lawfully  re- 

20  Spies  v.  Chicago,  &c.  R.  Co.  40  &c.  R.  Co.  107  N.  Y.  129,  13  N.  E. 
Fed.  34.  765.    Much,  of  course,  depends  upon 

21  Barry  v.  Missouri,  &c.  R.  Co.  27  the   particular    contract   or   statute 
Fed.  1,  34  Fed.  829.  involved  in  each  case.    See  State  v. 

22  Barry  v.  Missouri,  &c.  R.  Co.  27  Cowen,  83  Md.  549,  35  Atl.  161,  354, 
Fed.  1.     It  has  also  been  held  that  581. 

income  bondholders  are  not  entitled  M  Marlor  v.  Texas,  &c.  R.  Co.  21 

to  make  up  a  deficiency  in  the  in-  Fed.  383;  Texas,  &c.  R.  Co.  v.  Mar- 

terest  in  one  year  out  of  a  surplus  lor,  123  U.  S.  687,  8  Sup.  Ct.  311. 
in  the  next.     Day  v.  Ogdensburgh, 


651 


CONVERTIBLE  BONDS. 


[§   483 


ceive  its  own  bonds  in  payment  for  new  shares  which  it  issues  under 
such  authority.24  Bonds  are  sometimes  issued  which  expressly  pro- 
vide that  the  holder  may  surrender  them  to  the  company  and  receive 
a  certain  number  of  shares  of  stock  in  exchange.  Where  the  charter 
authorizes  the  issue  of  such  bonds  convertible  into  stock,  it  is  held 
that  the  power  to  increase  the  capital  stock  by  issuing  shares  in  ex- 
change for  the  bonds  is  given  by  necessary  implication.25  If  they 
provide  that  they  may  be  exchanged  for  stock  at  or  before  maturity 
the  holder  will  waive  or  forfeit  his  right  to  exchange  them  for  stock 
if  he  fails  to  present  them  until  after  maturity.26  It  is  said,  however, 
that  he  may  demand  the  stock  in  exchange  at  any  time  before  ma- 
turity, and  that  if  he  makes  such  demand,  just  before  a  dividend 
is  declared  he  is  entitled  to  the  dividend  as  well  as  the  stock.27 
But,  where  he  has  received  interest  up  to  that  time,  it  is  said  to  be 
unreasonable  to  hold  that  he  is  also  entitled  to  the  dividend.28  An 
agreement  merely  extending  the  time  of  payment  of  the  bond,  before 
maturity,  does  not  give  the  holder  any  right  to  insist  that  it  shall  be 
converted  into  stock  after  the  expiration  of  the  time  to  which  his  op- 


24  Lohman  v.  New  York,  &c.  R.  Co. 
2  Sandf.  Super.  Ct.  (N.  Y.)  39;  Reed 
v.  Hayt,  51  N.  Y.  Super.  Ct.  121. 

25  Belmont  v.  Erie  R.  Co.  52  Barb. 
(N.  Y.)  637;  Ramsey  v.  Erie  R.  Co. 
38  How.  Pr.  (N.  Y.)  193.     See,  also, 
Pratt  v.  American  Bell  Tel.  Co.  141 
Mass.  225,  5  N.  E.  307,  55  Am.  R. 
465.     But  compare  Chaffee  v.  Mid- 
dlesex R.  Co.  146  Mass.  224,  16  N. 
E.  34,  holding  that  damages  may  be 
given  but  that  specific  performance 
will  not  be  decreed  if  the  company 
has  no  stock.    In  the  first  case  cited 
it  was   held   that  if  it  clearly  ap- 
peared that  the  bonds  were  about 
to    be    issued    for   the   purpose    of 
fraudulently  increasing  the  capital 
stock,  and  not  to  borrow  money  to 
complete    and     operate    the    road, 
which  was   the   purpose   for   which 
their   issue   was  authorized,   an  in- 
junction would  lie  to  prevent  them 
from   being   issued,    or   to    restrain 
their  conversion  into  stock  while  in 
the  hands  of  persons  having  notice 


of  the  fraud.    But  see  Jones  Corp. 
Bonds  and  Mortg.  §  62. 

28  Chaffee  v.  Middlesex  R.  Co.  146 
Mass.  224,  16  N.  E.  34.  This  case 
holds  that  where  bonds  were  pay- 
able on  the  first  day  of  February, 
1895,  which  happened  to  be  Sun- 
day, it  was  too  late  to  present  them 
and  demand  stock  in  exchange  on 
Monday,  the  second  day  of  Febru- 
ary, but  that  bonds  which  were  pre- 
sented a  few  minutes  after  three 
o'clock  in  the  afternoon  of  Saturday, 
January  31,  were  presented  in  time, 
although  the  usual  hour  of  closing 
the  office  of  the  company  was  three 
o'clock.  The  court  said  that  the 
bonds  could  have  been  presented  at 
"any  reasonable  time  on  that  day." 
, "  Jones  v.  Terre  Haute,  &c.  R.  Co. 
57  N.  Y.  196. 

28  See  Sutliff  v.  Cleveland,  &c.  R. 
Co.  24  Ohio  St.  147;  2  Beach  Railw. 
§  633.  Certainly  this  is  true  as  to 
past  dividends. 


§   484]  RAILROAD   SECURITIES.  652 

tion  was  originally  limited,  or,  in  other  words,  merely  extending  the 
time  of  payment,  does  not,  of  itself,  extend  the  time  within  which 
stock  must  be  demanded  according  to  the  terms  of  the  bond.29  So, 
where  a  decree  of  foreclosure  provided  that  bondholders  who  pur- 
chased at  the  sale  might,  if  they  saw  fit,  exchange  their  bonds  for 
stock,  it  was  held  that  a  bondholder  who  did  not  become  a  purchaser 
and  had  overlooked  the  fact  that  he  owned  bonds  until  after  the  con- 
veyance of  the  property  to  the  purchasers  could  not  then  insist  upon 
receiving  stock  in  exchange,  although  he  was  not  aware  of  the  fore- 
closure suit  and  proceedings.30  It  seems  that  as  the  issue  of  bonds 
convertible  into  stock  amounts,  in  effect,  to  an  issue  of  stock,  they 
cannot,  ordinarily,  be  sold  at  a  discount.31  The  right  to  demand  a 
conversion  of  such  a  bond  into  stock  cannot  be  assigned  without  the 
bond,  and  a  petition  in  an  action  against  the  corporation  for  refusal 
to  allow  the  conversion  must  allege  that  the  plaintiff  is  the  holder 
of  the  bond.32  A  bondholder  who  has  a  right  to  exchange  his  bonds 
for  stock  cannot  be  deprived  of  that  right  by  a  consolidation  without 
being  given  an  opportunity  to'  exercise  it,33  and  where  a  consolidation 
is  effected  by  the  new  consolidated  company  assuming  all  the  debts 
and  liabilities  of  the  old  he  may  usually  demand  stock  in  the  new 
company  in  exchange  for  his  convertible  bonds.34 

§  484.  Negotiability  of  bonds — Bona  fide  purchasers. — Eailroad 
bonds,  payable  at  a  certain  time  and  place,  to  bearer  or  to  order,  are 
regarded  as  negotiable  instruments  whether  under  seal  or  not.35  This,. 

^Muhlenberg  v.  Philadelphia,  &c.  Mass.  302,  23  N.  E.  824.     See,  also, 

R.  Co.  47  Pa.  St.  16.  Cayley   v.   Cobourg,   &c.   R.    Co.   14 

30Landis   v.   Western    Pa.   R.    Co.  Grant  Ch.  (U.  Can.)  571;  John  Han- 

133  Pa.  St.  579,  19  Atl.  556.    Where  cock,   &c.   Co.   v.   Worcester,  &c.   R. 

an    option    to    exchange    stock    for  Co.  149  Mass.  214,  21  N.  B.  364. 

bonds    contains   no   express    limita-  ^  White  v.  Vermont,  &c.  R.  Co.  21 

tion   it  must  nevertheless  be  exer-  How.     (U.    S.)     575;     Zabriskie    v. 

cised  within  some  reasonable  time.  Cleveland,  &c.  R.  Co.  23  How.   (U. 

Catlin  v.  Green,  120  N.  Y.  441.  S.)  381;  Kneeland  v.  Lawrence,  140 

31  Cook  Stock  and  Stockholders,  U.  S.  209,  11  Sup.  Ct.  786,  46  Am.  & 
§  283;  2  Beach  Railw.  §  633.  Com-  Eng.  R.  Gas.  319,  and  note;  Con- 
pare  Van  Allen  v.  Illinois  Cent.  R.  necticut,  &c.  Co.  v.  Cleveland,  &c. 
Co.  7  Bosw.  (N.  Y.)  515.  R.  Co.  41  Barb.  (N.  Y.)  9;  Reid  v. 

82Denney  v.  Cleveland,  &c.  R.  Co.  Bank,  70  Ala.  199,  14  Am.  &  Eng. 

28  Ohio  St.  108.  R.  Cas.  554,  and  note;   Junction  R. 

33Rosenkrans  v.  Lafayette,  &c.  R.  Co.  v.  Cleneay,  13  Ind.  161;    Ide  v. 

Co.  18  Fed.  513.  Passumpsic,  &c.  R.  Co.  32  Vt.  297; 

31  Day  v.  Worcester,  &c.  R.  Co.  151  Carr    v.    LeFevre,    27    Pa.    St.    413. 


653 


NEGOTIABILITY   OF   BONDS — BONA  FIDE  PURCHASERS.       [§   484 


it  seems,  is  true,  also,  of  convertible  bonds  giving  the  holder  the  op- 
tion of  exchanging  them  for  stock,36  and  the  negotiability  of  a  bond 
is  not  destroyed  by  a  provision  that  it  may  be  registered  and  made 
payable  by  transfer  only  on  the  books  of  the  company,37  nor  by  a  pro- 
vision that  it  may  be  paid  before  maturity,38  or  that  it  shall  be 
payable  on  or  before  a  certain  date,39  nor  by  the  fact  that  overdue 
coupons  are  attached  to  it.40  Nor  is  a  mere  recital  in  a  bond  which 
purports  to  be  the  absolute  obligation  of  the  company  and  is  negotiable 
on  its  face,  that  it  is  one  of  a  series  of  bonds  secured  by  a  trust  deed 
necessarily  sufficient  to  destroy  its  negotiability  or  to  put  the  purchaser 
in  good  faith  upon  inquiry  as  to  the  conditions  in  the  deed  qualifying 
the  terms  of  the  bond.41  But  if  the  conditions  in  the  trust  deed  had 


Many  other  authorities  are  referred 
to  in  subsequent  notes  herein,  and 
most  of  the  cases  are  cited  in  the 
note  to  McClelland  v.  Norfolk,  &c. 
R.  Co.  1  L.  R.  A.  299,  and  in  Morris 
Canal,  &c.  Co.  v.  Fisher,  1  Stockt. 
Ch.  (N.  J.)  667,  64  Am.  Dec.  423, 
and  note.  But  coupons  are  not  with- 
in a  statute  allowing  days  of  grace 
on  promissory  notes.  Chaffee  v.  Mid- 
dlesex R.  Co.  146  Mass.  224,  16  N. 
E.  34.  In  Evertson  .v.  Nat.  Bank,  66 
N.  Y.  14,  23  Am.  R.  9,  it  is  held  that 
the  coupons  are  entitled  to  days  of 
grace,  while  in  Arents  v.  Common- 
wealth, 18  Gratt.  (Va.)  750,  it  is 
held  that  they  are  not.  It  is  gen- 
erally held  that  "the  mortgage  fol- 
lows and  partakes  of  the  negotiabil- 
ity of  the  bonds."  Kenicott  v.  Su- 
pervisors, 16  Wall.  (U.  S.)  452;  2 
Cook  Stock  and  Stockholders,  §  770; 
authorities  cited  in  Chicago  R.  &c. 
Co.  v.  Merchants'  Nat.  Bank,  136  U. 
S.  268,  10  Sup.  Ct.  999,  1003.  As 
shown  in  Spence  v.  Mobile,  &c.  R. 
Co.  79  Ala.  576,  the  only  authorities 
to  the  contrary  are  in  Ohio  and  Illi- 
nois. See,  also,  3  Purdy's  Beach 
Priv.  Corp.  §  1145. 

36Hotchkiss  v.  Nat.  Banks,  21 
Wall.  (U.  S.)  354.  See,  also,  Welch 
v.  Sage,  47  N.  Y.  143. 


37  Savannah,   &c.    R.    Co.   v.    Lan- 
caster, 62  Ala.  555. 

38  Union  Cattle  Co.  v.  International 
Trust  Co.  149  Mass.  492,  21  N.  E. 
962;    Ackley   School  Dist.   v.   Hall, 
113  U.  S.  135,  5  Sup.  Ct.  371. 

39  Union,  &c.  Co.  v.  Southern,  &c. 
Co.  51  Fed.  840. 

40  Cromwell  v.  Sac,  96  U.  S.   51; 
Indiana,  &c.  R.  Co.  v.  Sprague,  103 
U.  S.  756;  Morgan  v.  United  States, 
113  U.  S.  476,  5  Sup.  Ct.  588;   Mor- 
ton v.  N.  O.  &c.  R.  Co.  79  Ala.  590; 
State  v.  Cobb,  64  Ala.  127;  McElrath 
v.  Pittsburg,  &c.  R.  Co.  55  Pa.  St. 
189;    Grand  Rapids,  &c.   R.   Co.   v. 
Sanders,  54  How.  Pr.    (N.  Y.)    214. 
But  see   First  Nat.  Bank  v.   Scott 
County    Com'rs,    14    Minn.    77,    100 
Am.  Dec.  194;   Parsons  v.  Jackson, 
99  U.  S.  434.    While  this  is  true  as 
to  the  bond,  the  purchaser  is  not  a 
bona  fide  purchaser  of  the  overdue 
coupons  so  as  to  be  protected  from 
defenses  as  to  them.     Gilbrough  v. 
Norfolk,  &c.  R.   Co.   1  Hughes    (U. 
S.)  410. 

^Guilford  v.  Minneapolis,  &c.  R. 
Co.  48  Minn.  560,  51  N.  W.  658,  31 
Am.  St.  694,  51  Am.  &  Eng.  R.  Cas. 
98.  Distinguishing  Manning  v.  Nor- 
folk, &c.  R.  Co.  29  Fed.  838;  Caylus 
y.  New  York,  &c.  R.  Co.  10  Hun  (N. 


EAILEOAD   SECURITIES. 


654: 


been  incorporated  in  the  bond  or  so  clearly  referred  to  therein  as  to 
notify  the  bondholder  of  their  existence,  and,  in  legal  effect,  import 
them  into  the  bonds,  he  would  doubtless  have  taken  the  bond  subject 
thereto,  and  it  may  be  stated  as  a  general  rule  that  bonds  which  con- 
tain special  stipulations  making  their  payment  subject  to  contin- 
gencies not  within  the  control  of  the  holders,  lose  the  character  of 
negotiable  instruments  and  are  subject  in  the  hands  of  a  transferee 
to  defenses  which  would  have  been  available  if  they  were  still  in  the 
hands  of  the  original  payee.42  The  fact  that  the  name  of  the  payee 
is  omitted  and  that  the  bonds  are  payable  in  blank  does  not  affect 
their  negotiability,  and  the  holder  may  fill  in  his  own  name  and 
maintain  suit  upon  them.43  The  purchaser  of  negotiable  bonds  issued 
by  a  railroad  company  in  good  faith,  before  maturity,  without  notice 
and  for  a  valuable  consideration,  takes  them  free  from  all  defenses 
short  of  an  absolute  want  of  power  in  the  company  to  issue  negotiable 
bonds.44  Thus,  he  is  entitled  to  enforce  them  against  the  company, 
although  they  may  have  been  stolen,45  or  sold  to  a  prior  holder  at  less 


Y.)  295,  and  McClelland  v.  Norfolk, 
&c.  R.  Co.  110  N.  Y.  469,  18  N.  E. 
237.  The  correctness  of  this  de- 
cision is  not,  perhaps,  beyond  ques- 
tion, but  it  seems  to  us  that  as  the 
recital  called  attention  to  nothing 
unusual,  as  such  bonds  are  nearly 
always  secured  by  a  trust  deed,  and 
as  they  are  intended  to  be  negoti- 
able, the  purchaser  was  not  obliged 
to  look  for  unusual  conditions  in 
the  trust  deed.  As  bonds  are  sold 
as  negotiable  instruments  all  over 
the  world  any  other  rule  would  be 
impracticable  and  disastrous.  If 
there  had  been  anything  in  the 
bonds  calling  attention  to  the  un- 
usual provisions  of  the  trust  deed 
the  purchaser  would  doubtless  have 
been  bound  thereby,  but  that  is  a 
different  question.  See  McClelland 
v.  Norfolk,  &c.  R.  Co.  110  N.  Y.  469, 
18  N.  E.  237,  1  L.  R.  A.  299,  6  Am. 
St.  397;  Caylus  v.  New  York,  &c.  R. 
Co.  10  Hun  (N.  Y.)  295. 

42  McClelland  v.  Norfolk,  &c.  R. 
Co.  110  N.  Y.  469,  18  N.  E.  237,  1 
L.  R.  A.  299,  6  Am.  St.  397.  See, 


also,  Reid  v.  Bank.  70  Ala.  199; 
Evertson  v.  Nat.  Bank,  66  N.  Y.  14, 
23  Am.  R.  9. 

43  White  v.  Vermont,  &c.  R.  Co. 
21  How.  (U.  S.)  575;  Chapin  v.  Ver- 
mont, &c.  R.  Co.  8  Gray  (Mass.) 
575;  Hubbard  v.  New  York,  &c.  R. 
Co.  14  Abb.  Pr.  (N.  Y.)  275;  note- 
to  Morris  Canal,'  &c.  Co.  v.  Fisher, 
64  Am.  Dec.  423;  note  to  McClelland 
v.  Norfolk,  &c.  R.  Co.  1  L.  R.  A.  299. 
See,  however,  Evertson  v.  Nat. 
Bank,  66  N.  Y.  14,  23  Am.  R.  9; 
Augusta  Bank  v.  Augusta,  49  Me. 
507. 

"Galveston,  &c.  R.  Co.  v.  Cow- 
drey,  11  Wall.  (U.  S.)  459;  McMur- 
ray  v.  Moran,  134  U.  S.  150,  10  Sup. 
Ct.  427;  Rouede  v.  Mayor,  18  Fed. 
719;  First  Nat  Bank  v.  Wheeler, 
72  N.  Y.  201;  Stoney  v.  American 
Life  Ins.  Co.  11  Paige  (N.  Y.)  635; 
Webb  v.  Com'rs,  L.  R.  5  Q.  B.  642. 
But  see  Chicago,  &c.  R.  Co.  v.  Loew- 
enthal,  93  111.  433,  450;  General 
Estates  Co.,  In  re,  L.  R.  3  Ch.  758. 

45  Purchasers  of  stolen  bonds  were 
held  to  take  a  good  title  in  the  fol- 


655 


NEGOTIABILITY   OF  BONDS — BONA  FIDE  PURCHASERS.      [§   484 


than  par  in  violation  of  the  charter  or  governing  statute.46  He  is 
entitled  to  their  full  value  no  matter  what  he  paid  for  them.47  He 
is  not  affected  in  any  way  by  a  subsequent  misapplication  of  the  pro- 
ceeds by  the  company  to  a  purpose  for  which  it  is  forbidden  to  issue 
bonds,48  and  it  has  been  held  that  the  fact  that  a  merchant  has  taken 
bonds  in  payment  for  goods  does  not  of  itself  prevent  him  from  being 
a  bona  fide  purchaser  or  holder  of  such  bonds.49  Good  faith  upon  the 
part  of  the  holder  will  usually  be  presumed  and  the  burden  of  prov- 
ing fraud  or  bad  faith  is  upon  the  party  charging  it.50  A  bona  fide 
pledgee  of  negotiable  bonds,  for  value  and  before  maturity,  is  entitled 


lowing  cases:  Carpenter  v.  Rommel, 
5  Phila.  (Pa.)  34;  Dutchess,  &c.  Co. 
v.  Hachfield,  73  N.  Y.  226;  Murray 
v.  Lardner,  2  Wall.  (U.  S.)  110; 
Seybell  v.  Nat.  &c.  Bank,  2  Daly  (N. 
Y.)  383;  Raphael  v.  Governor,  &c. 
17  C.  B.  161;  Consolidated  Ass'n  v. 
Avegno,  28  La.  Ann.  552;  Spooner 
v.  Holmes,  102  Mass.  503,  3  Am.  R. 
491.  Notice  to  trustee  of  defenses 
held  not  sufficient  to  destroy  a  bona 
fide  holding  of  bonds  under  the 
trust  deed.  Com'rs  of  Johnson  Co. 
v.  Thayer,  94  U.  S.  631. 

46  Ellsworth  v.  St.  Louis,  &c.  R. 
Co.  98  N.  Y.  553,  approved  in  Gamble 
v.  Queens,  &c.  Co.  9  L.  R.  A.  527; 
Tiedeman  on  Commercial  Paper, 
§  116;  Zabriskie  v.  Cleveland,  &c. 
R.  Co.  23  How.  (U.  S.)  381.  But 
see  Riggs  v.  Pennsylvania,  &c.  R. 
Co.  16  Fed.  804;  Spence  v.  Mobile, 
&c.  R.  Co.  79  Ala.  576.  See,  gen- 
erally, as  tending  to  uphold  such  a 
transaction,  Handley  v.  Stutz,  139 
U.  S.  417,  11  Sup.  Ct.  530;  Memphis, 
&c.  R.  Co.  v.  Dow,  120  U.  S.  287,  7 
Sup.  Ct.  482;  Nelson  v.  Hubbard,  96 
Ala.  238,  11  So.  428,  17  L.  R.  A.  375; 
Thomson,  &c.  Co.  v.  Capital,  &c.  Co. 
65  Fed.  341;  Rafferty  v.  Buffalo,  &c. 
Co.  37  App.  Div.  (N.  Y.)  618,  56  N.  Y. 
S.  288;  Seymour  v.  Spring,  &c. 
Ass'n,  144  N.  Y.  333,  39  N.  E.  365, 
26  L.  R.  A.  859;  Dickerman  v. 
Northern,  &c.  Co.  176  U.  S.  181,  20 


Sup.  Ct.  311;  Savannah,  &c.  R.  Co. 
v.  Lancaster,  62  Ala.  555;  Fidelity 
Ins.  &c.  Co.  v.  Western  Penna.  &c. 
R.  Co.  138  Pa.  St.  494,  21  Atl.  21,  21 
Am.  St.  911. 

47  Cromwell  v.  County  of  Sac,  96  U. 
S.  51;  Grand  Rapids,  &c.  R.  Co.  v. 
Sanders,  17  Hun  (N.  Y.)  552.  But 
it  is  held  that  he  must  pay  value 
for  them  in  order  to  be  protected 
as  a  bona  fide  purchaser.  Baker  v. 
Guarantee  Trust,  &c.  Co.  (N.  J.)  31 
Atl.  174. 

^Peoria,  &c.  R.  Co.  v.  Thompson, 
103  111.  187;  Philadelphia,  &c.  R. 
Co.  v.  Lewis,  33  Pa.  St.  33,  75  Am. 
Dec.  574. 

49Kennicott  v.  Wayne  Co.  6  Biss. 
(U.  S.)  138.  See,  also,  Mercantile 
Trust  Co.  v.  Zanesvflle,  &c.  R.  Co. 
52  Fed.  342. 

50  Murray  v.  Lardner,  2  Wall.  (U. 
S.)  110;  Kneeland  v.  Lawrence,  130 
U.  S.  209,  46  Am.  &  Eng.  R.  Gas. 
319,  322;  Spence  v.  Mobile,  &c.  R. 
Co.  79  Ala.  576;  Wickes  v.  Adiron- 
dack Co.  2  Hun  (N.  Y.)  112;  Chi- 
cago, &c.  Co.  v.  Peck,  112  111.  408; 
Jones  on  Corp.  Bonds  and  Mort. 
§'  200.  But  compare  Simmons  v. 
Taylor,  38  Fed.  682;  Northampton 
Nat.  Bank  v.  Kidder,  106  N.  Y.  221, 
12  N.  E.  577,  60  Am.  R.  443;  Gilman 
v.  New  Orleans,  &c.  R.  Co.  72  Ala. 
566. 


£  484] 


RAILROAD  SECURITIES. 


656 


to  the  same  protection  as  a  bona  fide  purchaser  to  the  extent  of  his 
loan.51  The  pendency  of  a  suit  in  which  the  validity  of  negotiable 
bonds,  not  yet  due,  is  involved,  is  not  constructive  notice  to  one  who 
subsequently  purchases  them  in  good  faith  before  maturity.62  But 
one  who  takes  bonds  after  maturity  or  with  notice  of  their  illegality 
or  other  existing  defenses  is  not  protected  as  a  bona  fide  purchaser  of 
negotiable  paper  before  maturity,  unless  he  succeeds  to  the  rights  of 
such  a  purchaser.  Thus,  one  who  purchases  stolen  bonds  after  ma- 
turity is  not  a  bona  fide  purchaser  entitled  to  be  protected  in  his 
purchase  as  against  the  true  owner  unless  a  bona  fide  purchaser  has 
intervened  before  maturity.53  So,  a  purchaser  having  knowledge  of 
an  equitable  lien  upon  the  bonds  will  usually  be  held  to  have  taken 
them  subject  to  such  lien,54  and  if  he  has  knowledge  that  they  are 
issued  or  being  disposed  of  for  an  unauthorized  purpose  or  the  like, 
he  takes  them  at  his  peril  ;55  but  he  may  be  protected  as  a  bona  fide 
purchaser  of  mortgage  bonds  notwithstanding  the  fact  that  he  has 
knowledge  of  the  claim  of  one  who  furnished  material  for  the  rail- 
road if  he  bought  them  from  a  bona  fide  purchaser  who  had  no  such 
knowledge.56 


51  Allen   v.    Dallas,   &c.   R.   Co.    3 
Woods  (U.  S.)  316;  Claflin  v.  South 
Carolina  R.  Co.  8  Fed.  118;  Morton 
v.  N.  O.  &c.  R.  Co.  79  Ala.  590,  621; 
Atwood    v.    Shenandoah    Valley    R. 
Co.  85  Va.  966,  9  S.  E.  748,  38  Am. 

6  Eng.  R.  Gas.  534;   Jones  Pledges, 
§§  89,  669;   Hayden  v.  Lincoln,  &c. 
R.  Co.  43  Neb.  680,  62  N.  W.  73.    See 
Duncomb  v.  New  York,  &c.  R.  Co. 
84  N.  Y.  190;  Tyrell  v.  Cairo,  &c.  R. 
Co.  7  Mo.  App.  294. 

52  Enfield  v.  Jordan,  119  U.  S.  680, 

7  Sup.   Ct.   358;    Marshal  v.  Elgin, 

8  Fed.  783;  Warren  v.  Marcy,  97  U. 
S.  96;   Farmers',  &c.  Co.  v.  Toledo, 
&c.  Co.  54  Fed.  759. 

53  Northampton  Nat.  Bank  v.  Kid- 
der,  106  N.  Y.  221,  12  N.  E.  577,  60 
Am.  R.  443,  holding  also  that  there 
is  no  presumption  that  the  thief  ne- 
gotiated the  paper  before  it  was  due. 
See,    also,    Hinckley   v.    Merchants' 
Nat.  Bank,  131  Mass.  147. 

54  Hervey  v.  111.  Midland  R.  Co.  28 
Fed.  169.     So,  where  bonds  are  as- 


signed after  levy  of  execution.  Heth- 
erington  v.  Hayden,  11  Iowa  335. 

55  Chew  v.  Henrietta,  &c.  Co.  2  Fed. 
5;  City  of  Chicago  v.  Cameron,  120 
111.  447.  See,  also,  American,  &c. 
Co.  v.  St.  Louis,  &c.  R..Co.  42  Fed. 
819;  Smith  v.  Florida,  &c.  R.  Co.  43 
Fed.  731;  Silliman  v.  Fredericks- 
burg,  &c.  R.  Co.  27  Gratt.  (Va.)  119; 
Trask  v.  Jacksonville,  &c.  R.  Co.  124 
U.  S.  515,  8  Sup.  Ct.  574;  Knoxville 
v.  Knoxville,  &c.  R.  Co.  22  Fed.  758; 
Garrard  v.  Pittsburgh,  &c.  R.  Co.  29 
Pa.  St.  154,  for  instances  in  which 
the  purchaser  was  chargeable  with 
knowledge  preventing  him  from  be- 
ing protected  as  a  bona  fide  pur- 
chaser. 

58  Porter  v.  Pittsburg,  &c.  Co.  122 
U.  S.  267,  7  Sup.  Ct  1206.  See,  also, 
Commissioners  v.  Bolles,  94  U.  S. 
104,  109;  Tiedeman  Commercial 
Paper,  §  295.  Compare  Shellenberg- 
er  v.  Altoona,  &c.  R.  Co.  212  Pa.  St. 
413,  61  Atl.  1000,  108  Am.  St.  876. 


657  FORM   AND   MANNER  OF   ISSUING  BONDS.  [§   485 

,  §485.  Form  and  manner  of  issuing  bonds — Effect  of  irregulari- 
ties.— Kailroad  bonds  are  generally  issued  with  interest  coupons  at- 
tached, which  are  substantially  in  the  form  of  promissory  notes.  They 
are  usually  signed  by  the  president  and  attested  or  countersigned  by 
the  secretary  or  other  proper  officer  according  to  the  statute  or  by- 
laws.57 These  signatures  may  be  either  written  or  printed,58  although 
it  is  better  that  they  should  be  written,  and  it  has  been  held  that  if  the 
bonds  have  been  properly  executed  and  signed  by  both  of  such  officers 
the  coupons  may  be  valid  notwithstanding  the  fact  that  they  are 
signed  by  only  one  of  them.59  The  presence  or  absence  of  a  seal  is 
generally  immaterial,  so  far  as  the  negotiability  of  the  instrument  is 
concerned.60  The  amount  and  time  and  place  of  payment  should  be 
stated  with  certainty  ;61  but  the  figures  denoting  the  number  of  a  par- 
ticular bond  in  a  series  are  not,  ordinarily,  an  essential  or  material 
part  of  it,  and  an  immaterial  alteration  in  such  numbers  will  not 
affect  the  rights  of  a  bona  fide  holder.62  Persons  dealing  in  negotiable 
bonds  of  a  corporation  must  take  notice  of  any  charter  or  statutory 
prohibition  or  want  of  power  to  issue  instruments  of  that  character, 
and  so,  if  the  bonds  show  upon  their  face  that  the  provisions  of  the 
governing  statute  have  not  been  complied  with,  the  purchaser  is 
chargeable  with  notice;63  but,  if  the  corporation  has  power  to  issue 
instruments  of  that  class,  and  the  particular  bonds  in  question  appear 
to  be  regular  and  in  compliance  with  the  law,  a  purchaser  in  good 
faith  has  a  right  to  assume  that  all  the  preliminary  proceedings  were 

57  Of  course  the  name  of  the  corpo-  Woods    (U.   S.)    141;   Maas  v.  Mis- 
ration   is   in   the   body   and   should  souri,  &c.  R.  Co.  83  N.  Y.  223,  3  Am. 
also,    properly,   be   subscribed    "by"  &  Eng.  R.  Gas.  30. 
the  officers  named.  *  Birdsall  v.  Russell,  29  N.  Y.  220; 

MLynde  v.  County,  16  Wall.    (U.  Elizabeth  v.  Force,  29  N.  J.  Eq.  587; 

S.)   6;   McKee  v.  Vernon  County,  3  Commonwealth     v.     Emigrant,     &c. 

Dill.     (U.    S.)    210;    Pennington    v.  Bank,  98  Mass.  12,  93  Am.  Dec.  126; 

Baehr,  48  Cal.  565.  Wylie  v.   Missouri   Pac.  R.   Co.  41 

wThayer    v.    Montgomery    Co.    3  Fed.  623;   Morgan  v.  United  States, 

Dill.  (U.  S.)  389.    The  coupons  may  113  U.  S.  476,  5  Sup.  Ct.  588. 

be  in  almost  any  form  creating  an  w  See    Nesbit   v.    Riverside    Inde- 

indebtedness.      Tiedeman    •Commer-  pendent  Dist.  144  U.  S.  610,  12  Sup. 

cial  Paper,  §  475.  Ct  746;  Spence  v.  Mobile,  &c.  R.  Co. 

60  Tiedeman     Commercial     Paper,  79  Ala.  576 ;  Oilman  v.  New  Orleans, 
§  475;  ante,  §  484;  Cook  Stock  and  &c.   R.    Co.    72   Ala.   566;    Common- 
Stockholders,  §§  721,  768.  wealth  v.  Smith,  10  Allen   (Mass.) 

61  Parsons  v.  Jackson,  99  U.  S.  434;  448,    87    Am.    Dec.    672;     Duke    v. 
Jackson  v.  Vicksburg,  &c.  R.  Co.  2  Brown,  96  N.  Car.  127. 

ELL.  RAILROADS — 42 


§  485] 


RAILROAD   SECURITIES. 


658 


regular.64  Thus,  a  requirement  that  the  issue  of  bonds  shall  be  au- 
thorized or  ratified  by  the  stockholders  or  by  a  resolution  of  the  board 
of  directors  may  be  assumed  to  have  been  complied  with.65  So,  gen- 
erally, if  the  corporation  has  power  under  any  circumstances  to  issue 
negotiable  bonds,  a  bona  fide  holder  has  a  right  to  presume,  in  the 
absence  of  anything  to  the  contrary,  that  they  were  issued  under  those 
circumstances  and  that  all  conditions  within  the  scope  of  the  author- 
ity of  the  officers  of  the  company  have  been  fulfilled.66  This,  it  seems, 
is  true,  and  a  bona  fide  holder  may  enforce  their  payment,  although 
the  bonds  may  have  been  wrongfully  put  in  circulation  in  the  first 
instance67  or  issued  in  excess  of  the  amount  authorized  or  prescribed 
by  statute.68  But  securities  issued  in  a  form  materially  different  from 
that  prescribed  by  the  statute  giving  the  authority,  or  without  com- 
pliance with  a  condition  to  be  performed  by  some  one  other  than  the 
corporation,  may  generally  be  avoided  even  as  against  a  so-called 
bona  fide  purchaser.69  Thus,  where  the  statute  requires  them  to  be 


04  Ellsworth,  v.  St.  Louis,  &c.  R.  Co. 
98  N.  Y.  553;  Bank  v.  Dandridge,  12 
Wheat.  (U.  S.)  64;  Atwood  v.  Shen- 
andoah,  &c.  R.  Co.  85  Va.  966;  Rail- 
way Co.  v.  McCarthy,  96  U.  S.  258; 
Pearce  v.  Madison  R.  Co.  21  How. 
(U.  S.)  441;  Stewart  v.  Lansing,  104 
U.  S.  505;  Land  Credit  Co.,  In  re, 
L.  R.  4  Ch.  460;  Fountaine  v.  Car- 
marthen R.  Co.  L.  R.  5  Eq.  316.  See, 
also,  National  Loan,  &c.  Co.  v.  Rock- 
land  Co.  94  Fed.  335. 

65  Connecticut     Life     Ins.     Co.     v. 
Cleveland,  &c.  R.   Co.  41  Barb.    (N. 
Y.)  9;  Zabriskie  v.  Cleveland,  &c.  R. 
Co.  23  How.  (U.  S.)  381;  Royal  Brit- 
ish Bank  v.   Turquand,   6   E.   &  B. 
327;   Tyson's  Reef  Co.,  In  re,  3  W. 
W.  &  A'B.   (Viet.  Sup.  Ct.)   Cas.  at 
Law  162.    Directors  ordinarily  have 
power  to  authorize  the  execution  of 
bonds  and  mortgages.    Thompson  v. 
Natchez,  &c.  Co.  68  Miss.  423,  9  So. 
821;  Hodder  v.  Kentucky,  &c.  R.  Co. 
7  Fed.  793. 

66  Hackensack  Water  Co.  v.  DeKay, 
36  N.  J.  Eq.  548;  Athenaeum  Soc.,  In 
re,  4  K.  &  J.  549. 

87  Grand  Rapids,  &c.  R.  Co.  v.  San- 


ders, 17  Hun  (N.  Y.)  552;  Webb  v. 
Comrs.  L.  R.  5  Q.  B.  642;  Long  Is- 
land L.  &  T.  Co.  v.  Columbus,  &c.  R. 
Co.  65  Fed.  455.  But  see  Athenaeum, 
&c.  Ins.  Soc.  v.  Pooley,  3  DeG.  &  J. 
294. 

68  Cook    Stock    and    Stockholders, 
§  760;   Baker  v.  Guarantee,  &c.  Co. 
(N.  J.)  31  Atl.  174;  Fidelity,  &c.  Co. 
v.  West  Pa.  &c.  R.  Co.  138  Pa.  St. 
494,  21  Atl.  21,  21  Am.  St.  911;  Al- 
lis  v.  Jones,  45  Fed.  148;  Warfield  v. 
Marshall,  &c.  Co.  72  Iowa  666,  34  N. 
W.    467,    2    Am.    St.    263.     But   see 
Commonwealth   v.   Smith,   10  Allen 
(Mass.)  448,  87  Am.  Dec.  672;  Nes- 
bit  v.   Riverside   Independent   Dist. 
144  U.  S.  610,  12  Sup.  Ct.  746.     All 
the  bona  fide  bondholders  participate 
in  the  mortgage   security,  notwith- 
standing some  of  the  bonds  are  over- 
issued.    Stephens  v.  Benton,  1  Duv. 
(Ky.)  112;  Stanton  v.  Alabama,  &c. 
R.  Co.  2  Woods  (U.  S.)  523. 

69  Hackensack  Water  Co.  v.  DeKay, 
36  N.  J.  Eq.  548;  Singer  v.  St.  Louis, 
&c.  R.  Co.  6  Mo.  App.  427.    See,  also, 
Maas  v.  Missouri,  &c.  R.  Co.  83  N.  Y. 
223. 


659  INTEBEST  COUPONS.  [§  486 

certified  on  their  face  by  a  trust  company  and  registered,  and  provides 
that  no  bond  shall  be  valid  until  it  is  so  certified  and  registered  they 
will  not  be  enforced  even  in  the  hands  of  a  purchaser  in  good  faith.70 

§  486.  Interest  coupons. — Interest  coupons  in  the  ordinary  form, 
having  the  requisite  certainty  of  negotiable  instruments,  may  be  sev- 
ered from  the  bonds  to  which  they  are  attached  and  pass  by  delivery 
from  hand  to  hand  so  as  to  vest  a  complete  title  in  the  bona  fide  pur- 
chaser before  maturity  with  all  the  rights  of  a  holder  of  ordinary 
commercial  paper.71  Their  negotiability  is  not  necessarily  affected  by 
a  statement  that  they  represent  interest  upon  certain  bonds  specified 
by  their  numbers.72  They  are  in  a  sense  independent  securities  and 
may  be  negotiated  as  such,  yet  their  character  as  negotiable  instru- 
ments and  the  rights  of  their  holders  are  sometimes  determined  by  the 
bonds  to  which  the  coupons  are  attached  or  to  which  they  refer,73  and 
a  purchaser  may  be  required  to  take  notice  of  matters  to  which  they 
refer  in  the  bonds  or  mortgage.7*  The  peculiar  relation  of  coupons  to 
their  bonds  is  further  illustrated  by  the  rules  governing  the  applica- 
tion of  the  statute  of  limitations  to  such  instruments.  Thus,  the 
period  of  limitation  applicable  to  the  bond  is  also  applied  to  the 
coupon  and  if,  for  instance,  the  statute  bars  simple  contract  debts, 
such  as  the  coupon  would  be  except  for  its  relation  to  the  bond,  in 

70  Morrison  v.  Inhabitants,  &c.  of  of  Clark,  54  Mo.  58,  holding  partic- 
Bernards,  36  N.  J.  L.  219;   Maas  v.  ular  coupons  negotiable  because  the 
Missouri,  &c.  R.  Co.  83  N.  Y.  223.  bonds  were  negotiable;  Lexington  v. 

71  Commonwealth    v.    Chesapeake,  Butler,  14  Wall.  (U.  S.)  282;  Keno- 
&c.    Co.    32    Md.    501;     Spooner    v.  sha  v.  Lamson,  9  Wall.  (U.  S.)  477; 
Holmes,  102  Mass.  503,  3  Am.  R.  491;  State  v.  Spartanburg,  &c.   R.  Co.  8 
Mercer  County  v.   Racket,  1  Wall.  S.  Car.  129;  Bailey  v.  Buchanan  Co. 
(U.  S.)   83;  Brainerd  v.  New  York,  115  N.  Y.  297,  22  N.  E.  155;  McClure 
&c.  R.  Co.  25  N.  Y.  496;  and  numer-  v.   Oxford,   94   U.    S.   429.     Though 
ous  authorities  cited  in  note  to  Mor-  overdue   they   may   still   be  negoti- 
ris  Canal,  &c.  Co.  v.  Fisher,  64  Am.  ated  like  other  overdue  commercial 
Dec.  423,  432,  and  in  note  to  McClel-  paper  so  long  as  the  bonds  have  not 
land  v.  Norfolk,  &c.  R.  Co.  1  L.  R.  matured.    Thompson  v.  Perrine,  106 
A.  299;   also,  Jones  Corp.  Bonds  &  U.  S.  589,  1  Sup.  Ct.  564,  567;  Grand 
Mort.  §  238.  Rapids,   &c.   R.   Co.   v.   Sanders,   54 

"Evertson  v.  Nat.  Bank,  66  N.  Y.  JHow.  Pr.  (N.  Y.)  214. 

14,  23  Am.  R.  9.    But  see  McClelland  T4  McClelland    v.    Norfolk,    &c.    R. 

v.  Norfolk,  &c.  R.  Co.  liO  N.  Y.  469,  Co.  110  N.  Y.  469,  18  N.  E.  237,  1  L. 

18  N.  E.  237,  1  L.  R.  A.  299,  6  Am.  R.  A.  299,  6  Am.  St.  397;    McClure 

St.  397.  v.  Oxford,  94  U.  S.  429;  Silliman  v. 

73  McCoy  v.  Washington  Co.  3  Wall.  Fredericksburg,  &c.  R.  Co.  27  Gratt 

Jr.  (U.  S.)  381,  and  Smith  v.  County  (Va.)  119. 


§'  486] 


RAILROAD  SECURITIES. 


six  years,  while  it  does  not  bar  debts  in  the  nature  of  the  bond  short 
of  twenty  years,  the  coupon  will  not  be  barred  until  the  expiration  of 
the  twenty  years;75  but  the  statute  begins  to  run  against  a  detached 
coupon  from  its  own  maturity  and  an  action  upon  coupons  may, 
therefore,  be  barred  before  an  action  upon  the  bonds  which  mature 
later,  although  the  length  of  the  period  of  limitation  is  the  same.76 
Coupons  are  so  far  independent  instruments,  however,  that  when  com- 
plete in  themselves,  with  the  requisite  certainties  of  negotiable  paper, 
they  may  be  sued  upon,  and  when  severed  from  the  bond  before  ma- 
turity a  separate  action  may  be  maintained  upon  them,77  even  though 
the  bond  has  been  paid.78  This  rule  has  also  been  applied  by  some  of 
the  courts  in  favor  of  the  holder  of  coupons  that  did  not  contain  words 
of  negotiability  or  any  independent  promise  to  pay  the  bearer  or 
holder,79  but  others  have  held  that  in  such  a  case  the  coupon  must  be 
declared  on  in  connection  with  the  bond.80  Coupons,  although  de- 
tached from  the  bond,  do  not  lose  their  right  to  participate  in  the 
mortgage  security,81  but  the  fact  that  they  are  secured  by  mortgage 


75  City  of  Kenosha  v.  Lamson,  9 
Wall.  (U.  S.)  477,  483;  City  of  Lex- 
ington v.  Butler,  14  Wall.  (U.  S.) 
282;  Huey  v.  Macon  County,  35  Fed. 
481.  See,  also,  Meyer  v.  Porter,  65 
Cal.  67,  2  Pac.  884,  1  West  Coast 
784;  Thompson  v.  Perrine,  106  U.  S. 
589,  1  Sup.  Ct.  564,  568. 

78  Clark  v.  Iowa  City,  20  Wall.  (U. 
S.)  583;  Amy  v.  Dubuque,  98  U.  S. 
470;  Huey  v.  Macon  County,  35  Fed. 
481;  Koshkonong  v.  Burton,  104  U. 
S.  668.  See,  also,  Griffin  v.  Macon 
County,  36  Fed.  885.  Although  the 
bondholders  are  given  the  option  to 
sue  for  both  principal  and  interest 
six  months  after  default  in  the  pay- 
ment of  interest,  this  does  not,  of  it- 
self, set  the  statute  of  limitations 
to  running  against  the  bonds.  Ne- 
braska, &c.  Bank  v.  Nebraska,  &c. 
Co.  14  Fed.  763. 

"Beaver  v.  Armstrong,  44  Pa.  St. 
63;  Commissioners  of  Knox  County 
v.  Aspinwall,  21  How.  (U.  S.)  539 
546;  Thomson  v.  Lee  County,  3  Wall. 
(U.  S.)  327;  Commonwealth  v.  State 


and  Chesapeake,  &c.  R.  Co.  32  Md. 
501;  North  Penna.  R.  Co.  v.  Adams, 
54  Pa.  St.  94,  93  Am.  Dec.  677. 

"National  Exch.  Bank  v.  Hart- 
ford, &c.  R.  Co.  8  R.  I.  375,  5  Am.  R. 
582.  See,  also,  Walnut  v.  Wade,  103 
U.  S.  683,  696,  quoting  from  Clark  v. 
Iowa  City,  20  Wall.  (U.  S.)  583. 

78  Mayor  v.  Potomac  Ins.  Co.  2 
Baxt.  296;  Queensbury  v.  Culver,  19 
Wall.  (U.  S.)  83;  Smith  v.  County 
of  Clark,  54  Mo.  58;  Woods  v.  Law- 
rence County,  1  Black  (U.  S.)  386; 
2  Daniels'  Negot.  Instr.  §§  1511, 
1512. 

80  Crosby  v.  New  London,  &c.  R. 
Co.  26  Conn.  121;   Jackson  v.  York, 
&c.  R.  Co.  48  Me.  147;  Evertson  v. 
Nat.  Bank,  66  N.  Y.  14,  23  Am.  R.  9. 
Approved  in  Jones  Corp.  Bonds  and 
Mortg.  §§  242,  262. 

81  Miller  v.  Rutland,  &c.  R.  Co.  40 
Vt.    399,    94.  Am.    Dec.    413;    Union 
Trust  Co.  v.  Monticello,  &c.  R.  Co. 
63  N.  Y.  311,  20  Am.  Dec.  541;  Ste- 
vens  v.   New   York,   &c.   R.   Co.    13 
Blatchf.     (U.    S.)     412;     Haven    v. 


663 


PAYMENT  OF  BONDS   AND  INTEREST. 


[§  487 


does  not  deprive  the  holder  of  the  right  to  sue  on  them  at  law  when 
due  ;82  nor  is  a  suit  on  one  coupon  a  bar  to  a  subsequent  suit  on  an- 
other which  was  also  due  at  the  time  of  such  suit.83  But  neither  a 
bondholder  nor  the  holder  of  a  coupon  can  enforce  his  judgment  by 
levying  an  execution  upon  the  mortgaged  property  and  selling  it  to 
the  disadvantage  of  the  other  bondholders.84  Overdue  coupons  draw 
interest  at  the  legal  rate,85  and  it  has  been  held  that  such  interest  is 
covered  by  the  mortgage  which  secures  the  bonds  and  coupons.86 

§  487.     Payment  of  bonds  and  interest. — The  authorities  are  con- 
flicting as  to  whether  interest  coupons  are  entitled  to  days  of  grace,87 


Grand  Junction  R.  Co.  109  Mass.  88; 
Champion  v.  Hartford,  &c.  Co.  45 
Kans.  103,  10  L.  R.  A.  754. 

82  Manning  v.  Norfolk,  &c.  R.  Co. 
29  Fed.  838;  Welsh  v.  First  Division, 
&c.  R.  25   Minn.  314;    Montgomery, 
&c.  Soc.  v.  Francis,  103  Pa.  St.  378. 
Where  the  coupons  are  payable  to 
bearer  the  holder  is  not  necessarily 
an  assignee  and  his  right  to  sue  in 
the   United   States   courts   does  not 
depend  upon  the  citizenship  of  any 
particular     holder.       Thompson     v. 
Perrine,  106  U.  S.   589,  1   Sup.   Ct. 
564,  568,  103  U.  S.  806. 

83  Butterfield   v.    Ontario,   44   Fed. 
171.     See,  also,  Cromwell  v.  County 
of   Sac,   94   U.   S.   351;    Stewart  v. 
Lansing,  104  U.  S.  505. 

"Philadelphia,  &c.  R.  Co.  v. 
Woelpper,  64  Pa.  St.  366,  3  Am.  R. 
596;  Butler  v.  Rahm,  46  Md.  541; 
Commonwealth  v.  Susquehanna,  &c. 
R.  Co.  122  Pa.  St.  306;  Fish  v.  New 
York  Paper  Co.  29  N.  J.  Eq.  16; 
Bowen  v.  Brecon  Railw.  L.  R.  3  Eq. 
541,  and  cases  cited  in  Pugh  v.  Fair- 
mount,  &c.  Co.  112  U.  S.  238,  5  Sup. 
Ct.  131,  135.  In  the  first  two  cases 
above  cited  it  was  held  that  injunc- 
tion would  lie  at  the  suit  of  other 
bondholders. 

85  Aurora  City  v.  West,  7  Wall.  (U. 
S.)  82;  Walnut  v.  Wade,  103  U.  S. 


683;  Ashuelot  R.  Co.  v.  Elliott,  57  N. 
H.  397;  Philadelphia,  &c.  R.  Co.  v. 
Smith,  105  Pa.  St.  195;  Langston  v. 
South  Carolina  R.  Co.  2  S.  Car.  248 ; 
Rich  v.  Seneca  Falls,  8  Fed.  852. 
and  numerous  authorities  cited  in 
note  to  Morris  Canal,  &c.  Co.  v.  Fish- 
er, 64  Am.  Dec.  441.  Even  where  the 
bonds  continue  to  draw  interest 
after  maturity  at  the  same  rate  they 
did  before,  which  is  greater  than  the 
rate  fixed  by  statute  in  the  absence 
of  contract.  Cromwell  v.  Sac,  96  U. 
S.  51;  Langston  v.  South  Carolina 
R.  Co.  2  S.  Car.  248;  Spencer  v. 
Pierce,  5  R.  I.  63. 

""Gibert  v.  Washington  City,  &c. 
R.  Co.  33  Gratt.  (Va.)  586.  It  is 
generally  held,  as  shown  by  the  au- 
thorities cited  in  the  preceding  note, 
that  a  demand  is  unnecessary  to 
start  interest  to  running  where  the 
coupons  are  payable  at  a  fixed  time 
and  place;  but  if  no  demand  has 
been  made  Interest  may  be  defeated 
or  abated  by  the  mortgagor  showing 
that  he  had  the  funds  ready  and  was 
able  and  willing  to  pay  at  the  time 
and  place  designated.  North  Penna. 
R.  Co.  v.  Adams,  54  Pa.  St.  94,  93 
Am.  Dec.  656;  Emlen  v.  Lehigh,  &c. 
Co.  47  Pa.  St.  76,  86  Am.  Dec.  518; 
Walnut  v.  Wade,  103  U.  S.  683. 

87  Holding    that    they    are    not: 


§  487] 


RAILROAD   SECURITIES. 


662 


but,  aside  from  this  question,  they  are  payable  at  the  time  fixed  in  the 
coupons  and  bond,  and  a  provision  in  the  bond  that  the  interest  shall 
be  paid  when  the  coupon  is  presented  and  surrendered  does  not  change 
the  rule  as  to  the  maturity  of  the  coupon  or  require  its  presentment 
for  payment  at  the  time  designated  in  order  to  hold  the  maker.88 
Coupons  are  usually  paid  in  the  order  in  which  they  fall  due,89  but, 
ordinarily,  upon  foreclosure  of  the  mortgage  mere  priority  of  maturity 
gives  no  priority  of  satisfaction,  either  over  other  coupons  or  over 
the  bond,  and  the  rule  of  distribution  is  that  the  bonds  and  coupons 
all  share  pro  rata  or  pari  passu  in  the  proceeds.90  Where,  however, 
coupons  have  been  presented  for  payment  and  cashed  they  are  not  en- 
titled to  share  equally  with  the  bondholders  and  coupon  holders  who 
had  reason  to  suppose  that  they  were  paid  and  cancelled,  and  not 
merely  purchased,  although  a  third  person  advanced  the  money  to 
take  them  up  under  an  agreement  with  the  company  that  they  should 
be  kept  alive  and  delivered  to  him.91  But,  as  against  the  corporation, 
they  may  exist  as  valid  securities  and  be  entitled  to  be  paid  out  of  any 
surplus  remaining  after  the  payment  of  the  other  bonds  and  cou- 
pons,92 and  where  the  persons  who  present  the  coupons  for  payment 
have  knowledge  at  the  time  of  facts  showing  that  some  one  else  is 
advancing  the  money  and  that  the  transaction  is,  in  effect,  a  purchase 
rather  than  a  final  payment  of  the  coupons,  they  cannot  complain  if 


Arents  v.  Commonwealth,  18  Gratt. 
(Va.)  750;  2  Daniels'  Negot.  Instr. 
(3d  ed.)  §§  1490a,  1505.  Holding  that 
they  are:  Evertson  v.  Nat.  Bank,  66 
N.  Y.  14,  23  Am.  R.  9;  Jones  Corp. 
Bonds  and  Mort.  §  245.  In  Massa- 
chusetts they  are  not,  under  the 
statute,  and  the  soundness  of  the 
New  York  decision  is  questioned. 
Chaffee  v.  Middlesex  R.  Co.  146 
Mass.  224,  16  N.  E.  34. 

^Arents  v.  Commonwealth,  18 
Gratt.  (Va.)  750,  776;  City  of  Jef- 
fersonville  v.  Patterson,  26  Ind.  15, 
89  Am.  Dec.  448;  Greene  v.  Daniel, 
102  U.  S.  187;  Langston  v.  South* 
Carolina  R.  Co.  2  S.  Car.  248.  See, 
also,  Frank  v.  Wessels,  64  N.  Y.  155. 

89  Jones    Corp.    Bonds    and    Mort. 
§  247. 

^Sewall  v.  Brainerd,  38  Vt.  364; 


State  v.  Spartanburg,  &c.  R.  Co.  8 
S.  Car.  129 ;  Ketchum  v.  Duncan,  96 
U.  S.  659,  671;  Dunham  v.  Cincin- 
nati, &c.  R.  Co.  1  Wall.  (U.  S.)  254. 
But  compare  Stevens  v.  New  York, 
&c.  R.  Co.  13  Blatch.  (U.  S.)  412. 

91  Union  Trust  Co.  v.  Monticello, 
&c.  R.  Co.  63  N.  Y.  311,  20  Am.  R. 
541;  Cameron  v.  Tome,  64  Md.  507; 
Commonwealth  v.  Chesapeake,  &c. 
Co.  32  Md.  501;  Lloyd  v.  Wagner,  93 
Ky.  644,  21  S.  W.  334;  Bockes  v. 
Hathorn,  20  Hun  (N.  Y.)  503;  Fidel- 
ity, &c.  Co.  v.  West,  &c.  R.  Co.  138 
Pa.  494,  21  Atl.  21;  South  Covington, 
&c.  R.  Co.  v.  Gest,  34  Fed.  628. 

82  Haven  v.  Grand  Junction  R.  &c. 
Co.  109  Mass.  88;  Union  Trust  Co. 
v.  Monticello,  &c.  R.  Co.  63  N.  Y.  311, 
20  Am.  R.  541. 


663 


LEGISLATIVE  AUTHORITY   TO   MORTGAGE. 


[§  488. 


such  third  person  is  treated  as  a  bona  fide  purchaser  and  permitted  to 
share  pro  rata  with  them  in  the  mortgage  security.93  The  pledgee  of 
bonds  with  coupons  attached  may  collect  the  coupons  as  they  fall 
due  although  the  debt  secured  thereby  has  not  yet  matured.94  In  a 
proper  case  the  payment  of  a  lost  bond  will  be  enforced,  and  a  court 
of  chancery,  it  seems,  may  even  compel  the  execution  of  a  duplicate 
bond  in  place  of  a  lost  bond  not  yet  due,  upon  proper  indemnity  being 
furnished.95  Bondholders  cannot  be  compelled  to  accept  payment  and 
relinquish  their  lien  before  maturity,96  and  a  clause  in  a  bond  payable 
at  a  certain  time  providing  that  it  "will  be  redeemed,  if  desired,"  at 
an  earlier  date,  is  for  the  benefit  of  the  holder  rather  than  the 
maker.97  Bonds  may  be  made  payable  in  gold,98  but  this  is  not  to  be 
implied  from  the  mere  expectation  of  the  holders  where  there  is  noth- 
ing in  the  contract  to  that  effect  or  justifying  such  an  implication.99 
The  substitution  of  new  bonds  for  the  old  ones  does  not,  necessarily, 
operate  as  a  payment  nor  prevent  the  holders  from  sharing  to  the 
same  extent  in  the  mortgage  security;100  but  the  rule  is  otherwise 
where  a  railroad  company  issues  new  bonds  in  order  to  fund  its  in- 
debtedness and  bondholders  accept  second  mortgage  bonds  in  ex- 
change for  first  mortgage  bonds  knowing  that  the  transaction  is  in- 
tended as  a  satisfaction  of  the  first  mortgage  bonds.101 

§488.    No  power  to  mortgage  without  legislative  authority. — 

Railroad  bonds  are  usually  secured  by  mortgage  or  trust  deed,  and 


•3Ketchum  v.  Duncan,  96  U.  S. 
659.  See,  also,  Claflin  v.  South  Car- 
olina R.  Co.  8  Fed.  118;  Wood  v. 
Guarantee,  &c.  Co.  128  U.  S.  416,  9 
Sup.  Ct.  131;  Hand  v.  Savannah,  &c. 
R.  Co.  17  S.  Car.  219. 

"Warner  v.  Rising  Fawn,  &c.  Co. 
3  Woods  (U.  S.)  514. 

85  Rogers  v.  Chicago,  &c.  R.  Co.  6 
Abb.  N.  Gas.  (N.  Y.)  253;  New  Or- 
leans, &c.  R.  Co.  v.  Mississippi  Col- 
lege, 47  Miss.  560.  See,  also,  Chesa- 
peake, &c.  Co.  v.  Blair,  45  Md.  102; 
Miller  v.  Rutland,  &c.  R.  Co.  40  Vt. 
399;  Adams'  Equity,  166,  168. 

96  Randolph  v.  Middleton,  26  N.  J. 
Eq.  543. 

"Allentown  School  Dist.  v.  Derr, 
115  Pa.  St.  439,  5  Atl.  55.  See,  also, 


Chicago,  &c.  R.  Co.  v.  Pyne,  30  Fed. 
86. 

98  Trebilcock  v.  Wilson,  12  Wall. 
(U.  S.)  687;  State  v.  Hays,  50  Mo. 
34,  11  Am.  R.  402. 

"Knox  v.  Lee,  12  Wall.  (U.  S.) 
457. 

100Gibert  v.  Washington  City  R. 
Co.  33  Gratt.  (Va.)  586;  Ames  v. 
New  Orleans,  &c.  R.  Co.  2  Woods 
(U.  S.)  206;  Farmers',  &c.  Co.  v. 
Green,  &c.  R.  Co.  6  Fed.  100;  Blair 
,v.  St.  Louis,  &c.  R.  Co.  23  Fed.  524; 
Stevens  v.  Mid-Hants,  &c.  R.  Co.  L. 
R.  8  Ch.  1064. 

101  Fidelity,  &c.  Co.  v.  Shenandoah, 
&c.  R.  Co.  86  Va.  I,  9  S.  E.  759,  19 
Am.  St.  858. 


§  488] 


RAILROAD   SECURITIES. 


664 


mortgages  are  frequently  executed  for  other  purposes  as  well.  As  a 
railway  company  receives  from  the  state  special  privileges  because  of 
its  public  purpose,  and  has  public  duties  to  perform  in  person,  and 
as  a  mortgage  may  become  in  effect  an  absolute  conveyance  or  result 
in  a  sale  by  foreclosure,  such  a  company  cannot,  without  legislative 
authority,  mortgage  its  franchises  and  property  essential  to  their 
exercise.102  This  rule  is  not,  however,  applicable  to  property  which  is 
not  essential  to  or  of  use  in  the  fulfillment  of  the  corporation's  public 


102  Carpenter  v.  Black  Hawk  G.  M. 
Co.  65  N.  Y.  43,  50;  Pullan  v.  Cincin- 
nati, &c.  R.  Co.  4  Biss.  (U.  S.)  35; 
Susquehanna  C.  Co.  v.  Bonham,  9  W. 
&  S.  (Pa.)  27;  Pierce  v.  Emery,  32 
N.  H.  484;  Coe  v.  Columbus,  &c.  R. 
Co.  10  Ohio  St.  372,  75  Am.  Dec.  518, 
and  note;  Atkinson  v.  Marietta,  &c. 
R.  Co.  15  Ohio  St.  21;  Stewart  v. 
Jones,  40  Mo.  140;  New  Orleans,  &c. 
R.  Co.  v.  Harris,  27  Miss.  517;  Hall 
v.  Sullivan  R.  21  Law  R.  138;  Wyatt 
v.  St.  Helen's,  &c.  R.  Co.  2  Q.  B. 
364;  Daniels  v.  Hart,  118  Mass.  543; 
Wood  v.  Bedford,  &c.  R.  Co.  8  Phila. 
(Pa.)  94;  Randolph  v.  Wilmington, 
&c.  R.  Co.  11  Phila.  (Pa.)  502; 
State  v.  Mexican  Gulf  R.  Co.  3  Rob. 
(La.)  513;  Commonwealth  v.  Smith, 
10  Allen  (Mass.)  448,  87  Am.  Dec. 
672,  and  note;  East  Boston,  &c.  R. 
Co.  v.  Eastern  R.  Co.  13  Allen  (Mass.) 
422;  Richardson  v.  Sibley,  11  Allen 
(Mass.)  65,  87  Am.  Dec.  700,  and 
note;  Troy,  &c.  R.  Co.  v.  Kerr,  17 
Barb.  (N.  Y.)  581;  Stewart's  Appeal, 
56  Pa.  St.  413;  Hays  v.  Ottawa,  &c. 
R.  Co.  61  111.  422 ;  Black  v.  Delaware, 
&c.  Canal  Co.  22  N.  J.  Eq.  130; 
Naglee  v.  Alexandria,  &c.  R.  Co.  83 
Va.  707,  3  S.  E.  369,  5  Am.  St.  308, 
32  Am.  &  Eng.  R.  Gas.  401;  Frazier 
v.  East  Tenn.  &c.  R.  Co.  88  Tenn. 
138,  12  S.  W.  537,  affirmed  in  139  U. 
S.  288,  11  Sup.  Ct.  517;  Hart  v. 
Eastern  U.  R.  Co.  7  Exchq.  246.  In 
a  number  of  cases  in  the  Supreme 


Court  of  the  United  States,  most  of 
which  involved  the  question  of  the 
power  to  lease,  it  is  stated  in  gen- 
eral terms  that  a  railroad  company 
has  no  implied  power  to  alienate  its 
franchises  in  any  way,  whether  by 
sale,  mortgage  or  lease.  One  of  the 
most  recent  of  these  cases  is  Snell 
v.  City  of  Chicago,  152  U.  S.  191,  14 
Sup.  Ct.  489,  492,  in  which  the  oth- 
ers are  cited.  Some  cases,  however, 
hold  that  railroad  companies  may 
mortgage  their  property  and  fran- 
chises other  than  that  of  existing  as 
a  corporation,  at  least  to  secure  in- 
debtedness incurred  for  the  legiti- 
mate purposes  of  construction  or 
operation.  Savannah,  &c.  R.  Co.  v. 
Lancaster,  62  Ala.  555;  Kelly  v.  Ala. 
&c.  R.  Co.  58  Ala.  489;  Miller  v. 
Rutland,  &c.  R.  Co.  36  Vt.  452;  Mem- 
phis, &c.  R,  Co.  v.  Dow,  22  Blatch. 
(U.  S.)  48,  19  Fed.  388;  Shepley  v. 
Atlantic,  &c.  R.  Co.  55  Me.  395; 
Kennebec,  &c.  R.  Co.  v.  Portland,  &c. 
R.  Co.  59  Me.  9,  23;  Bickford  v. 
Grand  Junction  R.  Co.  1  Sup.  Ct.  of 
Canada  696,  738,  reversing  Grand 
Junction  R.  Co.  v.  Bickford,  23 
Grant's  Ch.  (Ont.)  302;  Bardstown, 
&c.  R.  Co.  v.  Metcalfe,  61  Ky.  199, 
81  Am.  Dec.  541;  Commissioners  v. 
Atlantic,  &c.  R.  Co.  77  N.  Car.  289. 
See,  also,  New  Orleans,  &c.  R.  Co.  v. 
Delamore,  114  U.  S.  501,  5  Sup.  Ct. 
1009. 


665 


LEGISLATIVE  AUTHORITY   TO   MORTGAGE. 


I§   489 


purpose  and  not  necessary  to  enable  the  company  to  perform  its  duties 
to  the  public.103 

§  489.  Legislative  authority  to  mortgage. — In  almost  all  of  the 
states  general  laws  have  been  enacted  authorizing  railroad  companies 
to  mortgage  their  property  and  franchises.104  The  authority  may, 
sometimes,  be  implied  or  inferred  from  the  terms  of  the  statute,105 
although  not  expressly  mentioned;  but,  by  expressly  giving  authority 
to  mortgage  to  a  certain  amount  the  implication  of  an  authority  to 
mortgage  beyond  that  amount  may  be  forbidden.106  Charter  author- 
ity to  mortgage  real  estate  refers  to  real  estate  acquired  in  whatso- 
ever manner  ;107  and  a  part  of  a  railroad  may  be  mortgaged  under  au- 
thority to  mortgage  the  whole.108  It  has  been  held  that  power  to 
pledge  property  also  authorizes  a  mortgage  of  the  property,109  and 
so  does  a  grant  of  power  to  borrow  money  and  execute  "such  securi- 
ties in  amount  and  kind"  as  the  company  may  deem  expedient.110  A 


103  Platt  v.  Union  Pac.  R.  Co.  99  U. 
S.  48,  57;    Tucker  v.  Ferguson,   22 
Wall.    (U.  S.)    527,  572;    Hendee  v. 
Pinkerton,   14   Allen    (Mass.)    381; 
Bickford  v.  Grand  Junction  R.  Co. 
1  Sup.  Ct.  of  Canada  696,  735;  Taber 
v.  Cincinnati,  &c.  R.  Co.  15  Ind.  459; 
Pierce  v.  Emery,  32  N.  H.  484.   See, 
also,  Coe  v.  Columbus,  &c.  R.  Co.  75 
Am.   Dec.  518,  and  note  550.     This 
exception,  it  is  said,  includes  surplus 
land  acquired  by  eminent   domain. 
Jones    Railroad    Bonds    and    Mort- 
gages, 12,  citing  Bickford  v.  Grand 
Junction  R.  Co.  1  Supreme  Court  of 
Canada,  696,  735. 

104  Jones     Corporate     Bonds     and 
Mort.  §  27. 

105  East  Boston,  &c.  R.  Co.  v.  East- 
ern  R.    Co.   13    Allen    (Mass.)    422. 
See,  also,  Branch  v.  Jesup,  106  U. 
S.  468,  1  Sup.  Ct.  495;  Willamette, 
&c.   Co.  v.  Bank,  119   U.   S.   191,   7 
Sup.   Ct.   187;    Farmers'   Loan,   &c, 
Co.  v.   Toledo,  &c.  R.   Co.   54  Fed. 
759;    Pierce   v.   Milwaukee,   &c.    R. 
Co.  24  Wis.  551,  1  Am.  R.  203. 

lw>Brice  Ultra  Vires  (2d  Eng.  ed.), 


273.  It  is  said,  however,  and  riglu- 
ly,  as  we  think,  that  an  express  au- 
thority to  mortgage  for  certain  pur- 
poses does  not  necessarily  negative 
or  qualify  a  general  authority  to 
borrow  for  other  purposes  for  which 
the  implied  powers  of  a  corporation 
are  usually  sufficient.  Jones  Corpo- 
rate Bonds  and  Mortgages  7;  Allen 
v.  Montgomery  R.  Co.  11  Ala.  437; 
Mobile,  &c.  R.  Co.  v.  Talman,  15  Ala. 
472;  Phillips  v.  Winslow,  57  Ky.  431, 
68  Am.  Dec.  729.  See  Pooley  Hall 
Colliery  Co.,  In  re,  21  L.  T.  (N.  S.) 
690. 

107  Galveston,  &c.  R.  Co.  v.  Cow- 
drey,  11  Wall.  (U.  S.)  459. 

108Pullan  v.  Cincinnati,  &c.  R.  Co. 
4  Biss.  (U.  S.)  35,  45;  Chartiers  R. 
Co.  v.  Hodgens,  85  Pa.  St.  501,  506; 
Bickford  v.  Grand  Junction,  &c.  R. 
1  Can.  Sup.  Ct.  696.  But  see  East 
Boston,  &c.  R.  Co.  v.  Hubbard,  10 
Allen  (Mass.)  459,  note. 

109  Mobile,  &c.  R.  Co.  v.  Talman,  15 
Ala.  472. 

110  Pierce  v.  Milwaukee,  &c.  R.  Co. 
24  Wis.  551,  1  Am.  R.  203. 


§  490] 


EAILEOAD  SECUEITIES. 


666 


mortgage,  though  made  with  charter  authority,  has  been  held  not  to 
be  good  against  the  state  which  has  taken  possession  of  the  road  under 
provisions  of  the  charter  entitling  it  to  declare  a  forfeiture.111 

§  490.  Distinction  between  authority  to  mortgage  franchises  and 
authority  to  mortgage  property. — Authority  to  mortgage  a  preroga- 
tive franchise  may  not  be  inferred  from  a  company's  express  right 
to  sell  and  consequent112  right  to  mortgage  its  property.113  But,  from 
the  power  to  mortgage  a  corporation's  franchises  may  be  implied  the 
power  to  transfer  both  franchises  and  property  to  a  purchaser  at  a 
foreclosure  sale.114  Authority  to  mortgage  a  railroad  company's 
"means,  property  and  effects,"  has  been  held  sufficient  to  authorize  a 
mortgage  of  all  its  franchises  except  that  of  being  a  corporation/15 


luSilliman  v.  Fredericksburg,  &c. 
R.  Co.  27  Gratt.  (Va.)  119.  See,  also, 
Farnsworth  v.  Minnesota,  &c.  R.  Co. 
92  U.  S.  49,  66.  But  see  People  v. 
O'Brien,  111  N.  Y.  1,  7  Am.  St.  684; 
Mower  v.  Kemp,  42  La.  Ann.  1007,  8 
So.  830. 

112  Willamette  M.  Co.  v.  Bank  of 
British  Columbia,  119  U.  S.  191,  7 
Sup.  Ct.  187. 

113  McAllister    v.    Plant,    54    Miss. 
106;  Branch  v.  Atlantic,  &c.  R.  Co. 
3  Woods  (U.  S.)   481.    Generally,  it 
would  seem  that  a  statute  authoriz- 
ing a  mortgage  of  corporation  prop- 
erty does  not  by  implication  author- 
ize a  mortgage  of  franchises.    Dun- 
ham v.  Isett,  15  Iowa  284;   Pollard 
v.  Maddox,  28  Ala.  321;    Pullan  v. 
Cincinnati,  &c.   R.   Co.   4   Biss.    (U. 
S.)  35;  Randolph  v.  Wilmington,  &c. 
R.  Co.  11  Phil.   (Pa.)  502.    A  mort- 
gage   covering   property    and    fran- 
chise,   having   been    authorized    by 
charter  as  to  the  former  but  not  as 
to  the  latter,  is  not  entirely  void, 
but  will  operate  to  convey  the  cor- 
poration's   property.      Randolph    v. 
Wilmington,    &c.    R.    Co.    11    Phila. 
(Pa.)    502;    Gloninger  v.  Pittsburg, 
&c.  R.  Co.  139  Pa.  13,  21  Atl.  211,  46 
Am.  &  Eng.  R.  Cas.  276.    See  Butler 


v.  Rahm,  46  Md.  541;  Carpenter  v. 
Black  Hawk  G.  M.  Co.  65  N.  Y.  43; 
Central  G.  M.  Co.  v.  Platt,  3  Daly 
(N.  Y.)  263. 

114  Galveston,  &c.  R.  Co.  Y.  Cow- 
drey,  11  Wall.  (U.  S.)  459;  New  Or- 
leans, &c.  R.  Co.  v.  Delamore,  114 
U.  S.  501,  5  Sup.  Ct.  1009;  Traer  v. 
Clews,  115  U.  S.  528,  6  Sup.  Ct.  155; 
Phillips  v.  Winslow,  57  Ky.  431,  68 
Am.  Dec.  729.  See,  also,  Chadwick 
v.  Old  Colony  R.  Co.  171  Mass.  239, 
50  N.  E.  629.  But  not,  ordinarily, 
the  franchise  to  be  a  corporation. 
See,  also,  Rogers  v.  Nashville,  &c.  R. 
Co.  91  Fed.  299;  Memphis,  &c.  R.  Co. 
v.  Railroad  Comrs.  112  U.  S.  609, 
619,  5  Sup.  Ct.  299. 

UB  Meyer  v.  Johnston,  53  Ala.  237 ; 
Bradstown,  &c.  R.  Co.  Y.  Metcalfe, 
61  Ky.  199,  81  Am.  Dec.  541.  See, 
also,  Wilmington  R.  Co.  v.  Reid,  13 
Wall.  (U.  S.)  264;  Pullan  v.  Cincin- 
nati, &c.  R.  Co.  4  Biss.  (U.  S.)  35; 
McAllister  v.  Plant,  54  Miss.  106. 
So  authority  to  mortgage  "the  en- 
tire road,  fixtures,  and  equipments, 
with  all  the  appurtenances,  income 
and  resources  thereof,"  does  not  in- 
clude the  right  to  mortgage  the 
franchise  to  be  a  corporation,  but 
does  include,  according  to  another 


667 


WHO   MAY  EXECUTE  MOETGAGE. 


[§   491 


but  the  soundness  of  some  of  these  decisions,  in  so  far  as  they  hold 
that  a  mortgage  of  any  prerogative  or  true  franchise  was  authorized, 
is  not  entirely  beyond  question.  There  must  certainly  be  a  very  clear 
grant  of  power  to  authorize  a  mortgage  of  the  franchise  to  be  a  cor- 
poration. But  it  has  been  held  that  the  power  to  pledge  the  fran- 
chises and  rights  of  a  corporation  implies,  as  incident  thereto,  the 
power  to  pledge  everything  necessary  to  the  enjoyment  of  the  fran- 
chise and  upon  which  its  real  value  depends.116  If  the  statute  con- 
ferring power  to  mortgage  specifies  or  enumerates  the  particular  prop- 
erty to  be  included  it  gives  no  authority  to  include  other  kinds.117 

§  491.  Who  may  execute  the  mortgage. — The  authority  of  a  cor- 
poration to  mortgage  its  property  may,  unless  reserved  to  the  stock- 
holders, be  exercised  by  its  directors,118  even  outside  the  state  of  its 
creation,119  or  outside  the  state  in  which  the  railroad  is  situated.120 


decision,  the  right  to  mortgage  the 
franchise  to  maintain  a  railroad  and 
take  compensation  as  a  carrier.  Coe 
v.  Columbus,  &c.  R.  Co.  10  Ohio  St 
372,  75  Am.  Dec.  518. 

116  Phillips  v.  Winslow,  57  Ky.  431. 

117  See  Taber  v.  Cincinnati,  &c.  R. 
Co.  15  Ind.  459;   Bath  v.  Miller,  51 
Me.  341;    Morris  v.  Cheney,  51  111. 
451;   Lloyd  v.  European,  &c.  R.  Co. 
18  New  Bruns.  194;  Georgia  South- 
ern, &c.  R.  Co.  v.  Barton,  101  Ga. 
466,   28   S.  E.   842.     Compare,  also, 
Gloninger  v.  Pittsburgh,  &c.  R.  Co. 
139  Pa.  St.  13,  21  Atl.  211;  Fidelity 
Ins.  &c.  Co.  r.  Western  Penna.  Co. 
138  Pa.  St.  494,  21  Atl.  21,  21  Am. 
St.   911;    Grand  Junction  R.  Co.  v. 
Bickford,  23  Grant  Ch.  (U.  C.)  302. 

118  Wood  v.   Whelen,  93   111.   153; 
Bank  of  Middlebury  v.  Rutland,  &c. 
R.  Co.  30  Vt.  149 ;  Hendee  v.  Pinker- 
ton,  14  Allen  (Mass.)  381;  Tripp  v. 
Swanzey  Paper  Co.  13  Pick.  (Mass.) 
291;  Hodder  v.  Kentucky,  &c.  R.  Co. 
7  Fed.  793;  Phinizy  v.  Augusta,  &c. 
R.  62  Fed.  678;  Blood  v.  La  Serena, 
&c.  Co.  113  Cal.  221,  41  Pac.  1017,  45 
Pac.  252 ;  Taylor  v.  Agricultural,  &c. 
Assn.  68  Ala.  229;  Burrill  v.  Nahant 


Bank,  2  Met.  (Mass.)  163,  35  Am. 
Dec.  395;  McCurdy's  Appeal,  65  Pa. 
St.  290;  Ohio,  &c.  R.  Co.  v.  McPher- 
son,  35  Mo.  13,  86  Am.  Dec.  128; 
Thompson  v.  Natchez,  &c.  Co.  68 
Miss.  423,  9  So.  821. 

119  Arms  v.  Conant,  36  Vt.  744;  Gal- 
veston  R.  v.  Cowdrey,  11  Wall.  (U. 
S.)  459;  Ohio,  &c.  R.  Co.  v.  McPher- 
son,  35  Mo.  13,  86  Am.  Dec.  128; 
Wright  v.  Bundy,  11  Ind.  398;  Mc- 
Call  v.  Byram  Mfg.  Co.  6  Conn.  428 ; 
Bassett  v.  Monte  Christo  M.  Co.  15 
Nev.  293;  Coe  v.  New  Jersey  Mid- 
land R.  Co.  31  N.  J.  Eq.  105;  Hodder 
v.  Kentucky,  &c.  R.  Co.  7  Fed.  793. 
In  some  of  the  states,  however,  char- 
ters and  general  laws  prohibit  the 
action  of  the  directors  without  the 
authorization  of  the  stockholders. 
Mass.  Pub.  Stat.  Ch.  106,  §  23.  It 
has  been  held  that  this  does  not  ap- 
ply to  a  mortgage  of  property  in 
Massachusetts  owned  by  a  corpora- 
tion of  Vermont.  Saltmarsh  v. 
Spaulding,  147  Mass.  224,  17  N.  E. 
316,  4  R.  &  Corp.  Law  J.  151;  Tex. 
Rev.  Stat.  Art.  4220;  8  Viet.  Ch.  16, 
§  38;  Romford  Canal,  In  re,  24  Ch. 
Div.  85;  Landowners',  &c.  Co.  v. 


£  491] 


EAILEOAD  SECURITIES. 


668 


Even  where  the  authorization  of  the  stockholders  is  required,  it  is 
held  that  the  public  has  no  interest  in  the  requirement;121  that  it 
cannot  be  pleaded  by  the  corporation's  creditors,122  and  that  the  stock- 
holders cannot  complain  after  the  issuance  of  bonds123  to  bona  fide 
purchasers.  The  president  of  a  railroad  company  cannot  mortgage 
its  property  to  secure  its  debt,  even  though  he  be  authorized  gen- 
erally to  act  as  its  financial  agent.124  The  use  of  the  corporate  seal 
in  such  a  case  only  raises  a  rebuttable  presumption  that  the  mort- 
gage has  been  authoritatively  executed.125  The  individual  signature 
of  an  executive  officer,  empowered  to  execute  the  mortgage,  will, 
however,  bind  the  corporation  whose  instrument  it  purports  to  be, 
though  the  corporate  name  be  omitted.126  Where  the  authority  of  the 
agent  to  execute  the  mortgage  is  in  general  terms  he  must  include 
in  it  usual  provisions  only,  and  the  company  will  not,  ordinarily,  be 
bound  by  any  unusual  provisions  which  may  be  included.127 


Ashford,  16  Ch.  Div.  411;  Fountaine 
v.  Carmarthen  R.  Co.  5  Eq.  316; 
Hodges  Railw.  121. 

120Hervey  v.  Illinois  Midland  R. 
Co.  28  Fed.  169. 

121  Thomas  v.  Citizens'  Horse  R. 
Co.  104  111.  462.  See,  also,  Central 
Trust  Co.  v.  Condon,  67  Fed.  84. 

122Hervey  v.  Illinois  Midland  R. 
Co.  28  Fed.  169. 

123  Hodder  v.  Kentucky,  &c.  R.  Co. 
7  Fed.  793;  Texas,  &c.  R.  Co.  v.  Gen- 
try, 69  Tex.  625,  8  S.  W.  98;  McCur- 
dy's  Appeal,  65  Pa.  St.  290. 

124  Despatch  Line  of  Packets  v.  Bel- 
lamy Mfg.  Co.  12  N.  H.  205,  37  Am. 
Dec.  203;   Luse  v.  Isthmus  Transit 
R.  Co.  6  Oreg.  125,  25  Am.  R.  506; 
Hoyt   v.    Thompson,    5    N.    Y.    320; 
Whitwell  v.  Warner,  20  Vt.  425.  But 
it  might  be   otherwise  if  he  were 
authorized    to    horrow    the    money. 
Hatch  v.   Coddington,   95   U.   S.   48. 
And  see  as  to  estoppel  where  the 
money  is  used  by  the  company,  Au- 
gusta, &c.  R.  Co.  v.  Kettel,  52  Fed. 
63. 

^Fidelity  Ins.  Co.  v.  Shenandoah 
Valley  R.  Co.  32  W.  Va.  244,  9  S.  E. 
180;  Wood  v.  Whelen,  93  111.  153; 


Gorder  v.  Plattsmouth  Canning  Co. 
36  Neb.  548,  54  N.  W.  830;  Northern 
C.  R.  Co.  v.  Bastian,  15  Md.  494.  See, 
also,  Koehler  v.  Black  River  Falls 
Iron  Co.  2  Black  (U.  S.)  715;  Reed 
v.  Bradley,  17  111.  321.  It  has  been 
held  that  it  may  be  enforced  as  an 
equitable  mortgage  if  the  requisite 
seal  is  not  attached.  Brown  v. 
Farmers',  &c.  Co.  23  Oreg.  541,  32 
Pac.  548;  Pullis  v.  Pullis  Bros.  157 
Mo.  565,  57  S.  W.  1095. 

^Despatch  Line  of  Packets  v. 
Bellamy  Mfg.  Co.  12  N.  H.  205,  37 
Am.  Dec.  203;  Haven  v.  Adams,  4 
Allen  (Mass.)  80;  Savannah,  &c.  R. 
Co.  v.  Lancaster,  62  Ala.  555.  Of 
course  this  is  not  true  when  the  in- 
strument purports  to  be  the  officers'. 
Brinley  v.  Mann,  56  Mass.  337,  48 
Am.  Dec.  669;  Miller  v.  Rutland,  &c. 
R.  Co.  36  Vt.  452. 

127  Jesup  v.  City  Bank  of  Racine,  14 
Wis.  331;  Pacific  Rolling  Mill  v. 
Dayton,  &c.  R.  Co.  5  Fed.  852.  See, 
also,  Savannah,  &c.  R.  Co.  v.  Lancas- 
ter, 62  Ala.  555;  Hart  v.  Eastern 
Un.  R.  Co.  7  Ex.  246.  But  see  Coe 
v.  New  Jersey  Midland  R.  Co.  31  N. 
J.  Eq.  105. 


669  RATIFICATION   OP   UNAUTHORIZED   MORTGAGE.  [§   492 

§  492.  Ratification  by  stockholders  of  unauthorized  or  improperly 
executed  mortgage. — An  unauthorized  mortgage,  which  the  corpora- 
tion has  power  to  execute,  may  be  ratified  by  the  stockholders,  either 
directly  by  vote  or  indirectly  as  by  the  payment  of  interest  or  the 
receipt  and  retention  of  the  proceeds,  or  other  acts  recognizing  the 
obligation.128  The  receipt  of  the  proceeds  of  an  unauthorized  mort- 
gage has  been  held  to  be  such  a  ratification  that  a  corporation  may  not 
thereafter  repudiate  it,  even  though  executed  in  violation  of  a  statute 
forbidding  a  mortgage  without  the  approval  of  two-thirds  of  the 
stock.129  So,  where  a  corporation  is  authorized  to  increase  its  capital 
stock,  and  attempts  to  do  so,  but  fails  to  give  the  statutory  notice 
required  in  such  a  case,  both  the  corporation  and  its  stockholders  who 
acquiesce  therein,  are  estopped  to  question  the  validity  of  a  mortgage 
executed  to  secure  obligations  greater  in  amount  than  the  original 
capital,  but  less  than  the  capital  as  increased,  although  the  statute 
prohibits  a  mortgage  exceeding  the  amount  of  the  capital  stock,  and 
such  a  mortgage  is  ratified  by  the  acquiescence  of  the  stockholders  for 
several  years,  although  it  was  not  originally  authorized  by  them  at  a 
legally  called  meeting.13 

§  493.    When  ultra  vires  mortgage  may  be  made  effective. — An 

ultra  vires  mortgage  may  be  ratified  by  the  legislature  either  di- 
rectly,131 or  indirectly,  by  an  act  authorizing  the  trustees  to  sell  the 

^Ottawa,  &c.  R.  Co.  v.  Murray,  15  63  N.  Y.  62,  20  Am.  R.  504;  Perkins 

111.  336;  Farmers',  &c.  Co.  v.  Toledo,  v.  Portland,  &c.  R.  Co.  47  Me.  573, 

&c.   R.   Co.   67   Fed.   49;    Thomas  v.  74  Am.  Dec.  507;  City  F.  Insurance 

Citizens'  Horse  R.  Co.  104  111.  462;  Co.  v.  Carrugi,  41  Ga.  660;  Southern, 

McCurdy's  Appeal,  65  Pa.   St.  290;  &c.    Transp.    Co.   v.    Lanier,   5   Fla. 

Harrison  v.  Annapolis,  &c.  R.  Co.  50  110,  58  Am.  Dec.  448;  Hays  v.  Galion 

Md.  490;  Singer  v.  St.  Louis,  &c.  R.  Gas  Light,  &c.  Co.  29  Ohio  St.  330; 

Co.  6  Mo.  App.  427;  Trader  v.  Jarvis,  Foulke  v.  San  Diego,  &c.  R.  Co.  51 

23  W.  Va.   100;    Lewis  v.   Hartford  Cal.  365;   Thompson  v.  Lambert,  44 

Silk  Mfg.  Co.  56  Conn.  25,  12  Atl.  Iowa  239. 

637;  Elwell  v.  Grand  St.  &c.  R.  Co.  129  Texas,  &c.  R.  Co.  v.  Gentry,  69 

67  Barb.    (N.  Y.)    83;   Page  v.  Fall  Texas  625,  8  S.  W.  98;  Forbes  v.  San 

River,  &c.  R.  Co.  31  Fed.  257;  Lester  Rafael  T.  Co.  50  Cal.  340.    See,  also, 

v.  Webb,  1  Allen  (Mass.)  34;  Kelley  Gribble  v.  Columbus,  &c.  Co.  100  Cal. 

v.  Newburyport,  &c.  R.  Co.  141  Mass.  67,  34  Pac.  527.     But  see  Alta,  &c. 

496,  6  N.  E.  745;  Merchants'  Bank  v.  Co.  v.  Alta,  &c.  Co.  78  Cal.  629,  21 

State  Bank,  10  Wall.    (U.   S.)    604;  Pac.  373;  Duke  v.  Markham,  105  N. 

Railway  Co.  v.  McCarthy,  96  U.  S.  Car.  131,  10  S.  E.  1017,  18  Am.  St. 

258;  National  Bank  v.  Matthews,  98  889. 

U.   S.   621;    Mahoney  Mining  Co.  v.  ""Farmers',  &c.  Co.  v.  Toledo,  &c. 

Anglo-Californian   Bank,    104   U.   S.  R.  Co.  67  Fed.  49. 

192;  Whitney  Arms  Co.  v.  Barlow,  131  Richards  v.  Merrimack,  &c.  R. 


493] 


EAILROAD   SECURITIES. 


670 


road132  or  by  other  recognition  of  the  obligation.133  Where  the  want 
of  power  is  not  apparent  in  the  charter,  or  in  any  statute,  or  in  the 
instrument  itself,  it  has  been  held  that  the  corporation  may  not  plead 
ultra  vires  against  an  innocent  holder  for  value.134  An  ultra  vires 
mortgage  may,  however,  be  enjoined  in  a  suit  in  equity  brought  by  a 
stockholder.135  But  stockholders  may  estop  themselves  from  question- 
ing the  validity  of  a  mortgage  either  upon  the  ground  that  the  cor- 
poration was  not  legally  organized  or  upon  the  ground  that  the  mort- 
gage was  not  properly  authorized,  where  they  take  part  in  an  attempt 
to  organize  under  a  valid  law  and  acquiesce  in  the  mortgage.136  A 
statutory  provision  requiring  notice  of  a  meeting  to  authorize  a  mort- 
gage is  for  the  benefit  of  the  stockholders,  and  if  they  do  not  complain 
of  the  failure  to  give  such  notice  no  one  else  can  do  so.137  Creditors- 
holding  debentures  and  standing  in  the  same  right  as  the  mortgagee 
may,  it  has  been  held,  by  a  bill  in  equity  filed  by  any  of  them,  secure 
an  equal  distribution  of  property  mortgaged  ultra  vires.138 


44  N.  H.  127;  Kennebec,  &c.  R.  Co. 
v.  Portland,  &c.  R.  Co.  54  Me.  173; 
Pierce  v.  Milwaukee,  &c.  R.  Co.  24 
Wis.  551,  1  Am.  R.  203;  St.  Paul, 
&c.  R.  Co.  v.  Parcher,  14  Minn.  297; 
White  Water  Valley  Canal  Co.  v. 
Vallette,  21  How.  (U.  S.)  414;  Gross 
v.  United  States,  &c.  Co.  108  U.  S. 
477,  2  Sup.  Ct.  940;  Shaw  v.  Norfolk 
Co.  R.  Co.  5  Gray  (Mass.)  162; 
Shepley  v.  Atlantic,  &c.  R.  Co.  55 
Me.  395;  Hatcher  v.  Toledo,  &c.  R. 
Co.  62  111.  477. 

132  Richards  v.  Merrimack,  &c.  R. 
Co.  44  N.  H.  127. 

133  Troy,  &c.  R.  Co.  v.  Boston,  &c. 
R.  Co.  86  N.  Y.  107;   Ander  v.  Ely, 
158  U.  S.  312,  15  Sup.  Ct.  954;  Gard- 
ner v.  London,  &c.  R.  Co.  Law  R.  2 
Ch.   App.   201;    Shrewsbury,   &c.   R. 
Co.  v.  Northwestern  R.  Co.  6  H.  L. 
Gas.   113;    East   Anglian   R.   Co.   v. 
Eastern  Counties  R.  Co.  11  Com.  B. 
775;    Winch  v.   Birkenhead,  &c.   R. 
Co.  5  DeGex  &  S.  562;   Bagshaw  v. 
Eastern  Union  *R.  Co.  7  Hare  114; 
Great  Northern   R.   Co.   v.   Eastern 
Counties  R.  Co.  21  Law  J.  Ch.  837. 


134  Hays  v.  Galion,  &c.  Co.  29  Ohio 
St.  330;  Bissell  v.  Michigan,  &c. 
R.  Co.  22  N.  Y.  258;  Monument  Na- 
tional Bank  v.  Globe  Works,  101 
Mass.  57,  3  Am.  R.  322;  Whitney 
Arms  Co.  v.  Barlow,  63  N.  Y.  62,  2& 
Am.  R.  504;  Singer  v.  St.  Louis,  &c. 
R.  Co.  6  Mo.  App.  427.  See  Hacken- 
sack  Water  Co.  v.  DeKay,  36  N.  J. 
Eq.  548.  Ratification  of  an  ultra 
vires  mortgage  by  the  stockholders 
is  held  not  to  validate  it  in  Curtin 
v.  Salmon,  &c.  Co.  130  Cal.  345,  62 
Pac.  552,  80  Am.  St.  132,  and  this 
would  seem  to  be  correct  where  they 
themselves  have  no  power  to  make 
a  mortgage. 

135McCalmont  v.  Philadelphia,  &c. 
R.  Co.  27  Int.  Rev.  Rec.  162,  3  Am. 
&  Eng.  R.  Gas.  163. 

138  Farmers',  &c.  Co.  v.  Toledo,  &c. 
R.  Co.  67  Fed.  49.  See,  also,  Boyce 
v.  Montauk  Gas,  &c.  Co.  37  W.  Va. 
73,  16  S.  E.  501;  Texas,  &c.  R.  Co. 
v.  Gentry,  69  Tex.  625. 

137  Central  Trust  Co.  v.  Condon,  67 
Fed.  84. 

138  De  Winton  v.  Brecon,  26  Beav. 


671  RECORDING  MORTGAGES.  [§   494 

§494.  Recording  mortgages. — Kailroad  mortgages,  like  other 
mortgages — and  in  the  case  of  real  property  subject  ordinarily  to  the 
same  laws  and  rules — must  be  recorded  in  order  to  charge  third  par- 
ties with  constructive  notice;  but  a  mortgage  expressly  recognizing 
another  unrecorded  mortgage  is  entitled  to  no  priority  over  it.139  In 
some  states  railroad  mortgages  are  recorded  with  the  secretary  of 
state.  An  unrecorded  mortgage,  drawn  in  the  form  of  a  lease,  cover- 
ing rolling  stock  to  be  paid  for  by  annual  rental,  is  not  good  against 
attachment  and  execution  by  creditors,  nor  against  bona  fide  pur- 
chasers from  the  mortgagor.140  A  state's  interests  will  not  be  preju- 
diced by  the  neglect  of  an  agent  to  record  a  mortgage  made  by  a  rail- 
road corporation  in  pursuance  of  a  public  statute.141  An  agreement 
to  furnish  supplies  to  a  railroad  company,  the  title  remaining  in  the 
vendor  while  they  are  being  paid  for  in  instalments,  if  not  recorded 
in  conformity  with  the  Illinois  chattel  mortgage  act,  gives  the  vendor 
no  lien  against  third  persons.142  Railroad  mortgages  covering  the  cor- 
porate franchises  and  realty,  as  well  as  the  personalty  connected  there- 
with and  used  for  railroad  purposes,  are  not,  ordinarily,  subject  to 
statutes  regarding  the  acknowledgment  and  recording  of  chattel  mort- 
gages.143 And  so  it  has  been  held  that  a  mortgage  covering  both  the 

533,  5  Jur.  N.  S.  882.    See,  also,  Fir-  "*  Peoria,  &c.  R.  Co.  v.  Thompson, 

bank  v.  Humphreys,  18  Q.  B.  Div.  103  111.  187;   Cooper  v.  Corbin,  105 

54.  111.  224;  Hammock  v.  Loan,  &c.  Co. 

139  Coe  v.  Columbus,  &c.  R.  Co.  10  105  U.  S.  77.    Thus  it  has  been  held 
Ohio  St.  372,  75  Am.  Dec.  518.    But  that  they  are  not  subject  to  statutes 
see     Cheesebrough     v.     Millard,     1  requiring  record  in  the  county  where 
Johns.  Ch.   (N.  Y.)  409,  7  Am.  Dec.  the  property  is  situated.    Metropoli- 
494.  tan  Trust  Co.  v.  Pennsylvania,  &c. 

140  Frank  v.  Denver,  &c.  R.  Co.  23  R.  Co.  25  Fed.  760.     But  see  Rade- 
Fed.  123;  Heryford  v.  Davis,  102  U.  baugh  v.   Tacoma,   &c.   R.   8  Wash. 
S.  235,  2  Am.  &  Eng.  R.  Gas.  386;  570,  36  Pac.  460;   Union,  &c.  Co.  v. 
Hervey  v.  Rhode  Island,  &c.  Works,  Southern,  &c.  Co.  51  Fed.  840.    Nor, 
93  U.  S.  664.  where    a    special    statute    provides 

141  Memphis  and  Little  Rock  R.  Co.  that  railroad  companies  may  "mort- 
v.  State,  37  Ark.  632.  gage  their  corporate   property   and 

142  111.  Rev.  Stat.   (1874)   711,  712;  franchises,"   is  a  mortgage  of  per- 
Murch  v.  Wright,  46  111.  487,  95  Am.  sonal   property   in   connection   with 
Dec.  455;  Fosdick  v.  Schall,  99  U.  S.  'the  real  estate  and  franchises  sub- 
235,  250;    Hervey  v.  Rhode  Island,  ject  to  the  provisions  of  a  general 
&c.  Works,  93  U.  S.  664;   Green  v.  chattel    mortgage   statute  requiring 
Van  Buskirk,  5  Wall.    (U.  S.)    307.  an  affidavit  of  good  faith.    Southern 
See,  also,  Heryford  v.  Davis,  102  U.  California,  &c.  Co.  v.  Union,  &c.  Co. 
S.  235.  64  Fed.  450. 


§  495] 


RAILROAD  SECURITIES. 


672 


road  and  the  rolling  stock  and  recorded  as  a  real  estate  mortgage  need 
not  be  also  recorded  as  a  chattel  mortgage/44  but  there  is  conflict 
among  the  authorities  and  it  is  generally  safer  to  record  it  as  both,145 
unless,  as  in  many  of  the  states,  the  question  is  set  at  rest  by  legisla- 
tive enactment.  The  institution  of  foreclosure  proceedings  will  not 
interfere  with  the  right  of  creditors,  without  actual  notice  of  an  un- 
recorded mortgage,  to  levy  upon  the  corporate  property.146 

§  495.    Generally  as  to  what  property  is  covered  by  the  mortgage. 

— The  extent  of  property  covered  by  a  railroad  mortgage  is  a  matter 
of  interpretation  under  the  rules  applicable  to  the  interpretation  of 
mortgages  by  individuals,  reference,  however,  being  had  to  the  au- 
thorizing statute.147  Nothing  appearing  to  the  contrary  in  a  mortgage, 
whose  terms  are  general,  it  will  be  held  that  all  the  property  is  in- 
cluded when  the  statute  authorizes  an  encumbrance  of  the  whole.148 


144  Farmers',  &c.  Co.  v.  St.  Joseph, 
&c.  R.  Co.  3  Dill.  (U.  S.)  412.     But 
see  Hoyle  v.  Plattsburg,  &c.  R.  Co. 
54  N.  Y.  314,  13  Am.  R.  595;   Wil- 
liamson v.  New  Jersey,  &c.  R.   Co. 
29  N.  J.  Eq.  311;  Radebaugh  v.  Ta- 
coma,   &c.   R.   Co.   8  Wash.   570,   36 
Pac.  460;   Palmer  v.  Forbes,  23  111. 
301;  Union,  &c.  Co.  v.  Southern,  &c. 
Co.  51  Fed.  840;  Jones  Corp.  Bonds 
&  Mort.,  Chapter  V,  where  the  ques- 
tion is  discussed  and  the  conflicting 
authorities  are  reviewed.     See,  also, 
ante,  §  389. 

145  See   Bishop  v.    McKillieau,   124 
Cal.  321,  57  Pac.  76,  71  Am.  St.  68; 
Williamson   v.   New   Jersey   So.    R. 
Co.  29  N.  J.  Eq.  211;  Hoyle  v.  Platts- 
burgh,  &c.  R.  Co.  54  N.  Y.  314;  Rade- 
baugh v.  Tacoma,  &c.  R.  Co.  8  Wash. 
570,  36  Pac.  460;   Union,  &c.  Co.  v. 
Southern,  &c.  Co.  51  Fed.  840. 

146  Coe  v.  New  Jersey  Midland  R. 
Co.  31  N.  J.  Eq.  105. 

147  Wilson  v.  Gaines,  103  U.  S.  417; 
Coe  v.  New  Jersey  Midland,  &c.  R. 
Co.  31  N.  J.  Eq.  105. 

148  Coe  v.  New  Jersey  Midland,  &c. 
R.  Co.  31  N.  J.  Eq.  105.     See,  also, 
Columbia,     &c.     Co.     v.     Kentucky 


Union  R.  Co.  60  Fed.  794;  Barnard 
v.  Norwich,  &c.  R.  Co.  4  Cliff.  (N. 
S.)  351,  2  Fed.  Gas.  No.  1007;  Scott 
v.  Clinton,  &c.  R.  Co.  6  Biss.  (U.  S.) 
529,  21  Fed.  Cas.  No.  12527.  But 
compare  Smith  v.  McCullough,  104 
U.  S.  25;  St.  Paul.  &c.  R.  Co.  v. 
United  States,  112  U.  S.  733,  5  Sup. 
Ct.  366;  Emerson  v.  European,  &c. 
R.  Co.  67  Me.  387,  24  Am.  R.  39.  In 
a  recent  case  a  railroad  company 
chartered  to  build  a  road  contracted 
with  a  construction  company  to  pay 
for  the  construction  of  the  road  in 
specified  bonds  secured  by  mortgage. 
Part  of  the  road  was  built,  a  pro- 
portionate part  of  the  bonds  deliv- 
ered, and  a  mortgage  executed  and 
recorded  covering  all  the  property 
of  the  railroad  company  then  owned 
or  afterwards  acquired.  The  contract 
was  then  cancelled  and  the  chief  pro- 
motor  of  the  railroad  company,  who 
was  also  the  president  and  only 
stockholder  of  the  construction  com- 
pany, conveyed  all  the  property  of 
the  construction  company,  includ- 
ing all  rights  of  way  acquired  or 
contracted  for  on  behalf  of  the  rail- 
road company,  by  deed  duly  record- 


673 


PROPERTY   COVERED  BY   MORTGAGE. 


[§   495 


Of  course,  however,  general  words  cannot  extend  the  lien  beyond  the 
limitation  of  the  statute.149  Where  a  railroad  company's  property  has 
been,  without  the  execution  of  a  formal  instrument,  mortgaged  by  the 
legislature,  the  statute  itself  interpreted  with  regard  to  the  condition 
of  the  road  will  determine  the  extent  of  the  lien.150  Only  such  prop- 
erty as  is  helpful  or  essential  in  the  operation  of  the  road  is,  as  a  rule, 
included  in  a  general  mortgage  of  the  railroad,  and,  therefore,  it  has 
been  held  not  to  cover  property  bought  from  a  steamboat  company 
for  the  purpose  of  stifling  competition,151  or  unused  land  bought  for 
shops  and  depots,152  or  a  temporary  track,153  or  woodland.154  A  spe- 
cific enumeration  of  the  property  covered  is  generally  exclusive  of  all 
other  property.155  Thus,  the  words  "all  other  property"  following  a 
grant  of  "all  lands  granted  by  the  United  States"  to  the  company  do 
not  include  other  lands  not  particularly  described,156  nor,  it  seems, 


ed,  to  a  firm  which  then  conveyed  it 
to  a  new  railroad  company  char- 
tered to  build  a  road  between  two 
points  on  the  same  route,  S.  to  L. 
A  similar  disposition  was  made  of 
the  remainder  of  the  property  of 
the  construction  company  south  of 
L.,  which  passed  into  the  hands  of 
a  third  railway  company,  chartered 
to  build  the  road  over  the  remainder 
of  the  proposed  route;  and  the  two 
new  companies  completed  the  road 
on  the  line  originally  projected. 
The  court  held  that  they  took  with 
knowledge  of  the  interest  of  the 
original  company  and  that  the  mort- 
gage executed  by  it  secured  to  its 
bondholders  a  lien  on  the  whole  of 
the  road  as  completed,  prior  to  that 
of  a  mortgage  executed  by  the  new 
companies.  Wade  v.  Chicago,  &c.  R. 
Co.  149  U.  S.  327,  13  Sup.  Ct  892. 

149  Wilson  v.  Gaines,  103  U.  S.  417. 

""State  v.  Florida,  &c.  R.  Co.  15 
Fla.  690. 

151  Beach    Law   of   Railways   763; 
Morgan  v.  Donovan,  58  Ala.  241. 

152  Youngman  v.  Elmira,  &c.  R.  Co. 
65  Pa.  St.  278. 

153  Van  Keuren  v.  Central  R.  Co.  38 
N.  J.  L.  165. 

ELL.  RAILROADS — 43 


^Dinsmore  v.  Racine,  &c.  R.  Co. 
12  Wis.  649. 

135  Smith  v.  McCullough,  104  U.  S. 
25;  Brainerd  v.  Peck,  34  Vt.  496; 
Spies  v.  Chicago,  &c.  R.  Co.  40  Fed. 
34;  Boston,  &c.  R.  Co.  v.  Coflin,  50 
Conn.  150;  Alabama  v.  Montague, 
117  U.  S.  602,  6  Sup.  Ct.  911.  But 
see  Calhoun  v.  Memphis,  &c.  R.  2 
Flip.  (U.  S.)  442.  Thus,  in  the  case 
first  cited,  supra,  it  was  held  that 
a  mortgage  of  "all  the  present  and 
in  future  to  be  acquired  property"  of 
a  railroad  company,  containing  a 
clause  enumerating  many  articles 
having  connection  with  the  manage- 
ment and  operation  of  the  road  after 
its  construction,  did  not  include  mu- 
nicipal bonds  issued  in  aid  of  the 
construction  of  the  road.  See,  also, 
Wilkes  v.  Ferris,  5  Johns.  (N.  Y.) 
335,  4  Am.  Dec.  364,  and  note;  Mims 
v.  Armstrong,  31  Md.  87,  1  Am.  R. 
22;  Price  v.  Haynes,  37  Mich.  487; 
Book  v.  Perkins,  28  Fed.  123;  Dris- 
coll  v.  Fiske,  21  Pick.  (Mass.)  503. 

156  Alabama  v.  Montague,  117  U.  S. 
602,  6  Sup.  Ct.  911.  See,  also,  Wil- 
son v.  Boyce,  92  U.  S.  320;  St.  Louis, 
&c.  R.  Co.  v.  McGee,  115  U.  S.  469,  6 
Sup.  Ct.  123. 


§  495]  RAILROAD  SECURITIES.  674 

do  they  include  choses  in  action  not  specifically  enumerated  in  a  chat- 
tel mortgage.167  Fuel  purchased  with  the  common  earnings  of  a  main 
line  and  its  extension  is  not  subject  to  the  lien  of  a  mortgage  of  all 
the  property  of  the  extension.158  "All  other  corporate  property  *  *  * 
appertaining"  or  "appurtenant"  to  a  railroad  means  only  such  prop- 
erty as  is  indispensable  or  at  least  useful  in  the  exercise  of  the  fran- 
chise;150 and  does  not  include  town  lots/60  or  an  elevator161  or  canal 
boats  used  beyond  the  road's  termini.162  Land  grants  which  the  com- 
pany cannot  accept,163  or  the  conditions  of  which  have  not  been  real- 
ized,16* are  not  included  in  such  a  mortgage.  "All  the  real  and  per- 
sonal property"  has  been  held  to  include  earnings  and  profits  ;165  and 
necessary  office  furniture  is  subject  to  a  mortgage  of  a  road,  its  fran- 
chises and  property.166  A  mortgage  of  a  road  and  its  fixtures,  to- 
gether with  "all  other  property  now  owned  and  which  may  be 
hereafter  owned  by  the  railroad  company,"  includes  cars,  locomotives, 
and  other  rolling  stock  purchased  by  the  company  from  time  to  time 
after  the  making  of  the  mortgage.167  And  a  mortgage  of  an  entire  line 
of  railroad,  "with  all  the  revenue  or  tolls  thereof,"  has  been  held  to 
cover  all  the  rolling  stock  and  fixtures,  whether  movable  or  immov- 
able, essential  to  the  production  of  tolls  and  revenues.168  Net  earnings 

157  Milwaukee,  &c.  R.   Co.  v.   Mil-        161  Humphreys  v.   McKissock,   140 
waukee,  &c.  R.  Co.  20  Wis.  174,  88     U.  S.  304,  11  Sup.  Ct.  779. 

Am.  Dec.  740.  le2  Parish  v.  Wheeler,  22  N.  Y.  494. 

158  Bath  v.  Miller,  53  Me.  308.    See  163  Meyer  v.  Johnston,  53  Ala.  237. 
Hunt  v.  Bullock,  23  111.  320.  1M  Campbell  v.   Texas,  &c.  R.   Co. 

159  State  v.   Glenn,   18   Nev.   34,   1  2  Woods  (U.  S.)  263.    See,  also,  New 
Pac.    186;    Morgan   v.   Donovan,   58  Orleans  Pac.  R.  Co.  v.  Parker,  143 
Ala.  241;  Boston,  &c.  R.  Co.  v.  Coffin,  U.  S.  42,  12  Sup.  Ct.  364,  6  Lewis' 
50  Conn.   150;    Mississippi  Val.   Co.  Am.  R.  &  Corp.  43,  and  authorities 
v.  Chicago,  &c.  R.  Co.  58  Miss.  896,  cited  in  the  opinion  of  the  court. 

38   Am.   R.   348;    Alabama   v.   Mon-  165  Kelly  v.  Alabama,  &c.  R.  Co.  58 

tague,  117  U.  S.  602,  6  Sup.  Ct.  911;  Ala.  489. 

Millard  v.  Burley,  13  Neb.  259,  13  N.  160Wood   v.   Whelen,    93    111.    153; 

W.  278;  New  Orleans  Pac.  R.  Co.  v.  Ludlow  v.  Kurd,  1  Dis.  (Ohio)  552; 

Parker,  143  U.  S.  42,  12  Sup.  Ct.  364,  Raymond   v.    Clark,   46    Conn.    129. 

6  Lewis'  Am.  R.  &  Corp.  43.  See  Hunt  v.  Bullock,  23  111.  320. 

160Calhoun  v.  Memphis,  &c.  R.   2  18T  Meyer  v.  Johnston,  53  Ala.  237, 

Flip.   (U.  S.)  442;  Shamokin  Valley  332,  64  Ala.  603.    See,  also,  Shaw  v. 

R.  Co.  v.  Livermore,  47  Pa.  St.  465,  Bill,  95  U.  S.  10;  Hamlin  v.  Jerrard, 

471,   86  Am.  Dec.   552;    Gardner  v.  72  Me.  62. 

London,  &c.  R.  Co.  L.  R.  2  Ch.  App.  ""Maryland  v.   Northern   Central 

201.     But    see   Knevals   v.    Florida  R.  Co.  18  Md.  193.     See,  also,  Pul- 

Cent.  &c.  R.  Co.  66  Fed.  224.  Ian  v.  Cincinnati,  &c.  R.  Co.  4  Biss. 

(U.  S.)  35,  43. 


675  WHAT   COVERED  BY  MORTGAGE  OF  UNDERTAKING.         [§   496 

may 'be  mortgaged,  but  so  long  as  they  are  retained  by  the  mortgagor 
are  subject  to  trustee  process  in  favor  of  the  road's  general  creditors.169 
In  a  recent  case,170  a  railroad  company  had  leased  its  unfinished  road 
to  a  company  operating  a  connecting  line  and  mortgaged  its  property, 
rights  and  franchises  to  secure  certain  bonds  which  were  to  be  dis- 
posed of  by  the  lessee,  and  the  latter,  in  order  to  insure  the  prompt 
payment  of  interest  and  the  ready  sale  of  the  bonds,  being  advised 
that  it  had  no  power  to  guarantee  them,  mortgaged  to  the  lessor  for 
that  purpose  all  the  net  earnings  of  its  own  lines  which  might  accrue 
to  it  "by  reason  of  business  coming  to  it  from  or  over"  the  lines  of 
the  lessor.  It  was  held  that  this  included  not  only  the  profits  of  the 
business  which  came  literally  from  off  the  lessor's  road  onto  the  les- 
see's road,  but,  also,  the  net  earnings  or  business  which  came  to  the 
latter  from  both  directions  by  reason  of  the  fact  that  the  leased  road 
was  an  important  feeder  and  brought  new  business  to  the  lessee's 
road  by  opening  up  new  markets  and  giving  increased  facilities.  The 
court  also  held  that,  as  there  was  nothing  in  the  mortgage  prescribing 
the  method  of  ascertaining  the  net  earnings,  they  must  be  determined 
in  the  usual  way,  that  is,  from  the  gross  receipts  must  be  deducted 
the  cost  of  producing  them,  and  that  it  knew  of  "no  way  to  arrive 
at  all  this,  save,  approximately,  by  a  proportion  distributing  the  total 
operating  expense  over  the  whole  business,"  thus  treating  the  busi- 
ness of  the  entire  system  as  a  unit.171 

§  496.    What  is  covered  by  a  mortgage  of  the  undertaking. — In 

England  it  is  held  that  neither  a  mortgage  of  a  railroad  "undertak- 
ing"172 nor  one  of  the  "undertaking,  and  all  and  singular  the  rates, 
tolls  and  other  sums  arising,"173  includes  the  land  on  which  the  road 

168  Oilman  v.  Illinois,  &c.  R.  Co.  91  must   first  be   paid.      Parkhurst  v. 

U.  S.  603;  Galveston  R.  Co.  v.  Cow-  Northern  Central  R.  Co.  19  Md.  472, 

drey,  11  Wall.    (U.  S.)   459;   Missis-  18  Am.  Dec.  648. 

sippi,  &c.  R.  v.  United  States  Exp.  1TO  Schmidt  v.  Louisville,  &c.  R.  Co. 

Co.  81  111.  534;  Smith  v.  Eastern  R.  95  Ky.  289,  25  S.  W.  494,  26  S.  W. 

Co.  124  Mass.  154;  Bath  v.  Miller,  51  547,  61  Am.  &  Eng.  R.  Gas.  680. 

Me.  341;  Noyes  v.  Rich,  52  Me.  115;  171St.  John  v.  Railway  Co.  22  Wall. 

Galena,  &c.  R.  Co.  v.  Menzies,  26  111,  (U.  S.)  136;  Pullan  v.  Railroad  Co. 

121;  Ellis  v.  Boston,  &c.  R.  Co.  107  5  Biss.    (U.  S.)   237;   United  States 

Mass.  1;   Emerson  v.  European,  &c.  v.  Kansas  Pac.  R.  Co.  99  U.  S.  455. 

R.  Co.  67  Me.   387,  24  Am.  R.  39;  "2  Doe  v.  St.  Helen's,  &c.  R.  Co.  2 

Dunham  v.  Isett,  15  Iowa  284;  Clay  Eng.  R.  &  Can.  Cas.  756. 

v.  East  Tenn.  &c.  R.  Co.  6  Heisk.  173  Myatt  v.  St.  Helen's,  &c.  R.  Co. 

(Tenn.)    421.      Operating   expenses  2  Q.  B.  364. 


§'  497] 


RAILROAD   SECURITIES. 


676 


is  built;  or  the  surplus  lands;174  or  stock  or  property  belonging  to 
the  company  as  a  common  carrier  of  passengers  or  goods  for  hire;175 
or  future  calls  on  the  shareholders,  they  not  being  mortgageable  with- 
out express  legislative  authority.176  But  it  has  been  held  that  a 
mortgage  of  the  undertaking  may  include  the  rails,  stations,  works 
and  other  buildings.177  The  undertaking  is  a  going  concern  created 
by  the  incorporating  act;178  and  it  cannot  be  broken  up  by  the  mort- 
gagees, nor  can.  they,  by  ejectment,  take  from  the  corporation  property 
essential  to  the  undertaking's  continuance.179  That  which  is  pledged 
under  a  mortgage  of  the  undertaking  is  rather  the  income  of  the 
property  than  the  corpus  of  it.180 

§  497.  Mortgage  of  after-acquired  property. — It  has  been  decided 
that,  on  the  doctrine  of  accession,  a  railroad  company  will,  in  a  mort- 
gage of  all  its  property,  be  held,  even  in  the  absence  of  express  words 
of  futurity,  to  have  included  essential  property  subsequently  acquired 
under  authority  given  before  the  execution  of  the  mortgage.  This 
doctrine,  which  is  not  well  established,181  is  supported  by  the  cases 


1T*  Beach.  Railway  Law  763;  Gajd- 
ner  v.  London,  &c.  R.  Co.  L.  R.  2  Ch. 
App.  201,  217,  36  L.  J.  Ch.  323; 
King  v.  Marshall,  33  Beav.  565; 
Stanley,  Ex  parte,  33  Law  J.  Ch. 
535;  Moor  v.  Anglo-Italian  Bank,  L. 
R.  10  Ch.  Div.  681;  Wickham  v. 
New  Brunswick,  &c.  R.  Co.  L.  R.  1 
P.  C.  64;  1  Cox's  Joint  Stock  Gas. 
519;  Doe  v.  St.  Helen's,  &c.  R.  Co. 
1  Gale  &  D.  663,  2  Q.  B.  364,  42  E. 
C.  L.  715. 

175  Hart  v.  Eastern  Union  R.  Co.  7 
Ex.  246. 

176  British  Provident  L.  &  F.  Assn. 
Co.,  In  re,  4  DeG.,  J.  &  S.  407;  Sankey 
Brook  Coal  Co.,  In  re,  L.  R.  10  Eq. 
381;    Companies   Clauses  Consolida- 
tion Act  1845,  8  and  9  Viet.  Ch.  16, 
§  43;  Gardner  v.  London,  &c.  R.  Co. 
L.  R.  2  Ch.  201,  212;  Browne  &  Theo- 
bald's  Railway  Law  88;    Lewis  v. 
Glenn,  84  Va.  947,  6  S.  E.  866.    But 
see  Pickering  v.  Ilfracombe  R.  Co. 
L.  R.  3  Com.  P.  235.    A  mortgage  of 
"all  the  lands,  tenements  and  estates 


of  the  company,  and  all  their  under- 
takings," was  held  not  to  include 
calls,  either  future  or  existing,  un- 
paid. King  v.  Marshall,  33  Beav. 
565. 

1T7Legg  v.  Mathieson,  2  Giff.  71. 
See  Wickham  v.  New  Brunswick, 
&c.  R.  Co.  Law  R.  1  P.  C.  64. 

178  Gardner  v.  London,  &c.  R.  Co. 
L.  R.  2  Ch.  201.    A  mortgage  of  the 
undertaking    is    different    from     a 
mortgage    of    the    company's    prop- 
erty.    Jones   Corporate   Bonds   and 
Mortgages  62;  Perkins  v.  Pritchard, 

3  Eng.  Ry.  &  Can.  Cas.  95;  Hart  v. 
Eastern  Union  R.  Co.  6  Eng.  R.  & 
Can.  Cas.  818,  7  Exch.  246,  265. 

179  Myatt  v.  St.  Helen's  R.  Co.  2  Q. 
B.  364,  2  Eng.  R.  &  Can.  Cas.  756; 
1  Hodges  Railways  124. 

^Panama,  &c.  Royal  Mail  Co.,  In 
re,  L.  R.  5  Ch.  318,  321. 

181  See  Dinsmore  v.  Racine,  &c.  R. 
Co.  12  Wis.  649;  Panama,  &c.  R.  M. 
Co.,  In  re,  L.  R.  5  Ch.  App.  318,  322 ; 

4  Cox's  Joint  Stock  Cas.  35;    Lud- 


677 


MOETGAGE   OP   AFTER- AC  QUIRED  PROPERTY. 


[§•  497 


only  when  by  virtue  of  some  legislative  authority  the  road's  franchises 
and  property  may  be  treated  as  an  indivisible  entity.182  Unques- 
tionably a  railroad  company  having  power  to  borrow  money  and  se- 
cure it  by  mortgage  on  its  property  may  by  express  terms  mortgage 
property  to  be  acquired  subsequently.183  In  a  recent  case,184  this 
doctrine  was  applied  to  a  de  facto  corporation,  and  it  was  held  that, 
as  a  corporation  created  under  the  general  railroad  law  of  the  state 
might  mortgage  after-acquired  property,  a  mortgage  or  trust  deed  of 
such  property  by  the  de  facto  corporation,  which  was  created  by  an 
unconstitutional  special  act  but  might  have  been  organized  under  the 
general  law,  was  valid  not  only  as  against  the  corporation  but  also  as 
against  creditors.185 


low  v.  Kurd,  1  Dis.  (Ohio)  552,  560; 
Parker  v.  New  Orleans,  &c.  R.  Co. 
33  Fed.  693;  Shaw  v.  Bill,  95  U.  S. 
10;  Phillips  v.  Winslow,  57  Ky.  431, 
68  Am.  St.  729;  Farmers',  &c.  Co.  v. 
Commercial  Bank,  11  Wis.  207,  212, 
689 ;  Calhoun  v.  Memphis,  &c.  R.  Co. 
2  Flip.  (U.  S.)  442;  Pierce  v.  Emery, 
32  N.  H.  484,  Boston,  &c.  R.  v.  Gil- 
more,  37  N.  H.  410,  72  Am.  Dec.  336. 
See,  also,  Galveston,  &c.  R.  Co.  v. 
Cowdrey,  11  Wall.  (U.  S.)  459;  United 
States  v.  New  Orleans  R.  12  Wall. 
(U.  S.)  362;  Scott  v.  Clinton,  &c.  R. 
Co.  6  Biss.  (U.  S.)  529;  Barnard  v. 
Norwich,  &c.  R.  K.  Co.  4  Cliff.  (U. 
S.)  351;  Dillon  v.  Barnard,  1  Holmes 
386.  Of  course,  the  rule  applies 
with  particular  force  to  property  ac- 
quired for  a  changed  location  of  the 
road,  the  lien  being  discharged  as 
to  the  abandoned  route.  Elwell  v. 
Grand  St.  &c.  R.  Co.  67  Barb.  (N. 
Y.)  83;  Meyer  v.  Johnston,  53  Ala. 
237.  It  is  not  applicable  where 
mortgages  are  placed  on  separate  di- 
visions. Farmers',  &c.  Co.  v.  Com- 
mercial Bank,  11  Wis.  207.  See, 
also,  Louisville  Trust  Co.  v.  Cincin- 
nati, &c.  R.  Co.  91  Fed.  699,  and  note 
in  99  Am.  St.  253,  citing  text. 

182  Pierce  v.  Emery,  32  N.  H.  484; 
Phillips  v.  Winslow,  57  Ky.  431,  68 


Am.  Dec.  729;  Willink  v.  Morris 
Canal  &  Banking  Co.  3  Green  (N. 
J.)  Ch.  377,  657. 

^Dunham  v.  Cincinnati,  &c.  R. 
Co.  1  Wall.  (U.  S.)  254;  Baker  v. 
Guarantee,  &c.  Co.  (N.  J.)  31  Atl. 
174;  Coopers  v.  Wolf,  15  Ohio  St. 
523;  Ludlow  v.  Kurd,  1  Dis.  (Ohio) 
552;  Covey  v.  Pittsburg,  &c.  R.  Co. 
3  Phila.  (Pa.)  173;  Bell  v.  Chicago, 
&c.  R.  Co.  34  La.  Ann.  785;  Omaha, 
&c.  R.  Co.  v.  Wabash,  &c.  R.  Co.  108 
Mo.  298,  18  S.  W.  1101;  Central 
Trust  Co.  v.  Chattanooga,  &c.  R.  Co. 
94  Fed.  275;  General  South  Amer- 
ican Co.,  In  re,  L.  R.  2  Ch.  Div. 
337;  Panama,  &c.  Mail  Co.,  In  re,  L. 
R.  5  Ch.  318;  Kelly  v.  Ala.  &  Cin. 
R.  Co.  58  Ala.  489;  Hamlin  v.  Euro- 
pean, &c.  R.  Co.  72  Me.  83;  Buck  v. 
Seymour,  46  Conn.  156;  Parker  v. 
New  Orleans,  &c.  R.  Co.  33  Fed.  693 ; 
Philadelphia,  &c.  R.  Co.  v.  Woelp- 
per,  64  Pa.  St.  366,  3  Am.  R.  596; 
Campbell  v.  Texas,  &c.  R.  Co.  2 
Woods  (U.  S.)  271;  McGourkey  v. 
Toledo,  &c.  R.  Co.  146  U.  S.  536,  13 
Sup.  Ct.  170. 

184  McTighe  v.  Macon  Const.  Co.  94 
Ga.  306,  21  S.  E.  701,  47  Am.  St.  153. 

185  The  text  is  cited  in  Detroit,  &c. 
R.  Co.  v.  Campbell,  140  Mich.  384, 
103   N.   W.   856,   860,   although  the 


497a] 


RAILROAD   SECURITIES. 


678 


§497a.  After-acquired  property — When  lien  attaches — What  it 
includes.186 — The  lien  attaches  to  the  property  as  soon  as  it  is  ac- 
quired;187 and  is  superior  to  that  of  a  subsequent  mortgage  or  of  a 
judgment.188  A  mortgage  of  "after-acquired"  property  has  been  held 
to  include  a  lease  of  another  road;189  net  earnings;190  another  com- 
pany's capital  stock  purchased  to  effect  a  consolidation;191  a  hotel 
open  to  the  general  public  as  well  as  to  passengers  and  employes;192 


point  there  decided  is  that  a  de 
facto  corporation  may  condemn 
lands  and  only  the  state  can  ques- 
tion the  incorporation. 

188  A  large  part  of  this  section  was 
part  of  §  497  in  the  first  edition. 

187  Parker  v.  New  Orleans,  &c.  R. 
Co.   33  Fed.   693;    Seymour  v.   Can- 
andaigua,  &c.  R.  Co.   25  Barb.    (N. 
Y.)  284;  Frost  v.  Galesburg,  167  111. 
161,  47  N.  E.  357;    Brady  v.  John- 
son, 75  Md.  445,  26  Atl.  49,  20  L.  R. 
A.  737;   Bear  Lake,  &c.  Co.  v.  Gar- 
land, 164  U.  S.  1,  15,  17  Sup.  Ct.  7; 
McGourkey  v.  Toledo,  &c.  R.  Co.  146 
U.  S.  536,  13  Sup.  Ct.  170.    But  see 
New  Orleans,  &c.  R.  Co.  v.  Parker. 
143  U.  S.  42,  12  Sup.  Ct.  364,  revers- 
ing the  former  case  on  the  ground 
that  the   property    (a   land   grant) 
was   not   appurtenant,   and   that   it 
was  not  contemplated  by  the  parties 
or  definitely  located. 

188  Dunham  v.  Cincinnati  &  P.  R. 
Co.  1  Wall.   (U.  S.)   254,  266;   Scott 
v.   Clinton,  &c.   R.   6   Biss.    (U.   S.) 
529,   535;    Michigan  Central  R.   Co. 
v.  Chicago,  &c.  R.  Co.  1  Brad.  (111.) 
399;  Nichols  v.  Mase,  94  N.  Y.  160; 
Coe  v.  Pennock,  6  Am.  Law  Reg.  27, 
2  Redf.  Am.  R.  Gas.  667;   Pennock 
v.   Coe,   23  How.    (U.   S.)    117,  127; 
Stevens  v.  Watson,  4  Abb.  App.  Dec. 
(N.   Y.)    302.     But  it  generally  at- 
taches to  the  property  in  the  condi- 
tion in  which  it  comes  to  the  mort- 
gagor and  does  not  displace  existing 
liens.     Williamson   v.   New   Jersey, 
&c.  R.  Co.  28  N.  J.  Eq.  277,  29  N.  J. 


Eq.  311,  317;  Bear  Lake,  &c.  Co.  v. 
Garland,  164  U.  S.  1,  16,  17  Sup.  Ct. 
7.  Compare  Porter  v.  Pittsburg,  &c. 
Co.  122  U.  S.  267,  283,  7  Sup.  Ct 
1206. 

188  Buck  v.  Seymour,  46  Conn.  156; 
Barnard  v.  Norwich,  &c.  R.  Co.  4 
Cliff.  (U.  S.)  351,  14  N.  Bank  R. 
469,  3  Cent.  L.  J.  608;  Hamlin  v. 
European,  &c.  R.  Co.  72  Me.  83;  Co- 
lumbia Finance,  &c.  Co.  v.  Kentucky, 
&c.  R.  Co.  60  Fed.  794.  But  not  a 
lease  of  the  mortgaged  road  exe- 
cuted by  the  mortgagor  to  another 
company. 

190Addison  v.  Lewis,  75  Va.  701; 
Tompkins  v.  Little  Rock,  &c.  R.  Co. 
15  Fed.  6.  Contra,  Emerson  v.  Eu- 
ropean, &c.  R.  Co.  67  Me.  387,  24 
Am.  R.  39;  DeGraff  v.  Thompson, 
24  Minn.  452;  Pullan  v.  Cincinnati, 
&c.  R.  Co.  5  Biss.  (U.  S.)  237. 

191  Williamson  v.  N.  J.  Southern  R. 
Co.  26  N.  J.  Eq.  398.     But  not  un- 
paid subscriptions  to  the  company's 
capital    stock.      Dean    v.    Biggs,    25 
Hun    (N.  Y.)    122.     It  was  held  in. 
Williamson  v.  New  Jersey  Southern 
R.  Co.  26  N.  J.  Eq.  398,  that  it  was 
unnecessary  to  record  the  mortgage 
in  accordance  with  the  chattel  mort- 
gage act. 

192  United  States  Trust  Co.  v.  Wa- 
bash,  &c.  R.  Co.  32  Fed.  480;  Omaha, 
&c.  R.  Co.  v.  Wabash,  &c.  R.  Co.  108 
Mo.  298,  18  S.  W.  1101.    But  not  as 
an  appurtenance  unless  it  is  used  in 
connection  with  the   road.     Missis- 
sippi Valley  Co.  v.  Chicago,  &c.  R. 


679        AFTER-ACQUIRED  PROPERTY — WHEN   LIEN"  ATTACHES.      [§   497a 


land  acquired  for  the  location  of  car-houses  which  were  never  built  ;193 
a  completed  road  afterwards  purchased  which  might  have  been  con- 
structed if  it  had  not  been  purchased.194  It  does  not  extend  to  prop- 
erty acquired  by  fraud,  so  that  the  title  thereto  does  not  vest  in  the 
mortgagor;195  nor  does  a  mortgage  of  a  road  and  its  appurtenances 
existing  or  to  be  afterwards  acquired  extend  to  woodland  seven 
miles  from  the  road;196  or  to  land  acquired  for  a  canal  basin;197  or 
to  other  property  not  properly  appurtenant  to  the  road.198  Thus,  it 
has  been  held  not  to  extend  to  property  adjacent  to  a  depot  which  the 
company  leases  for  a  store  and  other  purposes  foreign  to  the  operation 
of  the  road.199  But  a  mortgage  of  an  entire  road,  "as  said  railroad 
now  is  or  may  be  hereafter  constructed,  maintained,  operated  or  ac- 
quired, together  with  all  the  privileges,  rights,  franchises,  real  estate, 
right  of  way,  depots,  depot  grounds,  side  tracks,  water  tanks,  engines, 
cars,  and  other  appurtenances  thereto  belonging/'  has  been  held  to 
include  real  estate  separated  from  the  right  of  way  by  a  street,  but 


Co.  58  Miss.  896,  38  Am.  R.  348.  A 
grain  elevator  has  been  held  not  to 
be  included  as  an  appurtenance. 
Humphreys  v.  McKissock,  140  U.  S. 
304,  11  Sup.  Ct.  779. 

193Hamlin  v.  European,  &c.  R.  Co. 
72  Me.  83,  4  Am.  &  Eng.  R.  Gas.  503. 
See,  also,  Hawkins  v.  Mercantile 
Trust  Co.  96  Ga.  580,  23  S.  E.  498. 

194  Branch  v.  Jesup,  106  U.  S.  468, 
1   Sup.  Ct.  495.     See,  also,  Central 
Trust  Co.  v.  Washington,  &c.  R.  Co. 
124   Fed.   813;    Hinchman   v.   Point 
Defiance   R.   Co.    14   Wash.    349,   44 
Pac.  867.     But  compare  Murray  v. 
Farmville,  &c.  R.  Co.  101  Va.  262,  43 
S.   E.    553;    New  York   Sec.   Co.   v. 
Louisville,  &c.  R.  Co.  102  Fed.  382. 

195  Williamson      v.      New      Jersey 
Southern  R.  Co.  28  N.  J.  Eq.  277,  29 
N.  J.  Eq.  311,  321;  Field  v.  Post,  38 
N.  J.  L.  346;    Frazier  v.  Frederick, 
24  N.  J.  L.  162. 

198  Dinsmore  v.  Racine,  &c.  R.  Co. 
12  Wis.  649.  See,  also,  Aldridge  v. 
Pardee,  24  Tex.  Civ.  App.  254,  60  S. 
W.  789;  Pardee  v.  Aldridge,  189  U. 
S.  429,  23  Sup.  Ct.  514;  Shirley  v. 
Waco  Tap.  R.  Co.  78  Tex.  131,  10  S. 


W.  543;  Boston,  &c.  R.  Co.  v.  Coffin, 
50  Conn.  150. 

M7Shamokin  Valley  R.  Co.  v.  Liv- 
ermore,  47  Pa.  St.  465,  86  Am.  Dec. 
552. 

W8Calhoun  v.  Memphis,  &c.  R.  Co. 
2  Flip.  (U.  S.)  442;  Seymour  v. 
Canandaigua,  &c.  R.  Co.  25  Barb. 
(N.  Y.)  284;  Mississippi  Valley  Co. 
v.  Chicago,  &c.  R.  Co.  58  Miss.  896, 
38  Am.  R.  348;  Morgan  v.  Donovan, 
58  Ala.  241;  Shamokin  Valley  R. 
Co.  v.  Livermore,  47  Pa.  St.  465,  86 
Am.  Dec.  552;  Millard  v.  Burley,  13 
Neb.  259,  13  N.  W.  278;  Calhoun  v. 
Paducah,  &c.  R.  Co.  9  Cent.  L.  J.  66; 
Walsh  v.  Barton,  24  Ohio  St.  28; 
Farmers'  Loan,  &c.  Co.  v.  Commer- 
cial Bank,  11  Wis.  207.  Affirmed  in 
Dinsmore  v.  Racine,  &c.  R.  Co.  12 
Wis.  649;  Farmers',  &c.  Co.  v.  Cary, 
13  Wis.  110;  Farmers',  &c.  Co.  v. 
Commercial  Bank.  15  Wis.  424,  82 
Am.  Dec.  689;  Brainerd  v.  Peck,  34 
Vt.  496. 

199  Chicago,  &c.  R.  Co.  v.  McGuire, 
31  Ind.  App.  110,  65  N.  E.  932,  99 
Am.  St.  249,  and  note. 


497a] 


RAILROAD  SECURITIES. 


680 


of  easy  access  to  the  station  and  side  tracks,  which  real  estate  had 
been  subsequently  purchased  by  the  company  and  upon  which  it  had 
built  a  restaurant  for  the  accommodation  of  its  employes  and  passen- 
gers.200 A  lease  by  a  mortgagor  of  the  mortgaged  road  to  another 
company  has  been  held  not  to  be  included  in  the  after-acquired  prop- 
erty.201 But,  on  the  other  hand,  it  has  been  held  that  a  railroad 
mortgage  of  "all  property,  both  real  and  personal,  of  every  kind  and 
description,  which  shall  hereafter  be  acquired  for  use  on  said  railroad, 
and  all  the  corporate  rights,  privileges,  franchises  and  immunities, 
and  all  things  in  action,  contracts,  claims,  and  demands,  whether  now 
owned  or  hereafter  acquired  in  connection  or  relating  to  the  said  rail- 
road/' includes  an  after-acquired  lease  of  terminal  facilities  to  the 
mortgagor.202  A  branch  road  is  held  to  be  included  if  the  authority 
to  construct  it  antedates  the  mortgage;203  otherwise,  not.204  Iron 
rails,  though  still  at  a  distant  port,  have  been  held  subject  to  the  lien 
of  a  mortgage  of  "all  materials  whatsoever/'205  The  specification  of 
certain  after-acquired  articles  which  shall  be  subject  to  the  lien  ex- 
cludes all  others.206  A  mortgage  of  after-acquired  property  only  at- 
taches to  such  interest  as  the  mortgagor  acquires,  and  so  does  not 
displace  a  lien  existing  when  the  property  was  acquired  by  the  mort- 
gagor.207 This  rule,  applicable  to  all  property  capable  of  separate 


200  Omaha,  &c.  R.  Co.  y.  Wabash, 
&c.  R.  Co.  108  Mo.  298,  18  S.  W. 
1101.  See,  also,  Central  Trust  Co. 
v.  Kneeland,  138  U.  S.  414,  11  Sup. 
Ct.  357.  And  land  for  right  of  way 
and  stockyards.  St.  Joseph,  &c.  R. 
Co.  v.  Smith,  170  Mo.  327,  70  S.  W. 
700. 

201Moran  v.  Pittsburgh,  &c.  R.  Co. 
32  Fed.  878;  St.  Paul,  &c.  R.  Co.  v. 
United  States,  112  U.  S.  733,  5  Sup. 
Ct.  366. 

202  Columbia   Finance,   &c.    Co.   v. 
Kentucky,  &c.  R.  Co.  60  Fed.  794,  61 
Am.  &  Eng.  R.  Gas.  690,  citing  Cen- 
tral Trust  Co.  v.  Kneeland,  138  U. 
S.  414,  11  Sup.  Ct.  357;  Toledo,  &c. 
R.  Co.  v.  Hamilton,  134  U.  S.  296,  10 
Sup.  Ct.  546;   Branch  v.  Jesup,  106 
U.  S.  468. 

203  Seymour  v.  Canandaigua,  &c.  R. 
Co.  25  Barb.  (N.  Y.)  284;  Texas,  &c. 
R.  Co.  v.  Gentry,  69  Tex.  625,  8  S. 


W.  98;  Parker  v.  New  Orleans,  &c. 
R.  Co.  33  Fed.  693;  Coe  v.  Delaware, 
&c.  R.  Co.  34  N.  J.  Eq.  266,  4  Am.  & 
Eng.  R.  Gas.  513. 

m  Meyer  v.  Johnston,  53  Ala.  237, 
331,  64  Ala,  603. 

^Weetjen  v.  St.  Paul,  &c.  R.  Co. 
4  Hun  (N.  Y.)  529.  See  Haven  v. 
Emery,  33  N.  H.  66.  Compare  Brain- 
erd  v.  Peck,  34  Vt.  496;  Phillips  v. 
Winslow,  57  Ky.  431,  68  Am.  Dec. 
729;  Pierce  v.  Emery,  32  N.  H.  484; 
Bath  v.  Miller,  53  Me.  308. 

206  Hare  v.  Horton,  5  Barn.  &  Ad. 
715;    Raymond   v.   Clark,   46   Conn. 
129;    Buck    v.    Seymour,    46    Conn. 
156;    Brainerd  v.  Peck,  34  Vt.  496; 
Smith  v.  McCullough,  104  U.  S.  25. 

207  Haven  v.  Emery,  33  N.  H.  66; 
Williamson  v.  New  Jersey  Southern 
R.  Co.  28  N.  J.  Eq.  277,  29  N.  J.  Eq. 
311;  Branch  v.  Atlantic,  &c.  R.  Co. 
3  Woods  (U.  S.)  481;  Lake  Erie,  &c. 


681 


FIXTURES — ROLLING  STOCK. 


[§   498 


ownership,  including  real  estate  not  used  for  railroad  purposes,  does 
not,  however,  apply  to  fixtures  used  in  the  operation  of  the  road,208 
unless  an  agreement  has  been  made  as  to  their  legal  character.209 

§498.  Fixtures — Rolling  stock. — Fixtures,  whether  acquired  be- 
fore or  after  the  execution  of  such  mortgage,  are  subject  to  its  lien.210 
On  the  principle  that  fixtures,  though  subsequently  severed,  are  sub- 
ject to  the  lien  of  a  mortgage  of  the  freehold,  worn-out  rails  replaced 
by  new  ones  have  been  held  to  be  included  in  a  railroad  mortgage; 
and  so  of  new  rails  not  yet  laid.211  A  track  laid  merely  for  a  tem- 
porary use  has  been  held  not  to  come  under  the  lien  as  part  of  the 
realty;212  so  have  repair  tools,213  fuel214  and  furniture.215  A  mort- 


R.  Co.  v.  Priest,  131  Ind.  413,  31  N. 
E.  77;  Dunham  v.  Cincinnati,  &c.  R. 
Co.  1  Wall.  (U.  S.)  254;  Galveston 
R.  v.  Cowdrey,  11  Wall.  (U.  S.) 
459;  United  States  v.  N.  O.  R.  12 
Wall.  (U.  S.)  362;  Willink  v.  Mor- 
ris Canal  &  Banking  Co.  3  Green 
(N.  J.)  Ch.  377;  Boston  Safe  De- 
posit, &c.  Co.  v.  Bankers',  &c.  Co.  36 
Fed.  288;  Western  Union  Tel.  Co.  v. 
Burlington,  &c.  R.  Co.  3  McCrary 
(U.  S.)  130;  Fosdick  v.  Schall,  99 
U.  S.  235;  Myer  v.  Car  Co.  102  U. 
S.  1;  Branch  v.  Jesup,  106  U.  S.  468, 
1  Sup.  Ct.  495.  It  is  subject  to  a 
vendor's  lien  for  unpaid  purchase 
money  on  realty,  the  mortgagee  not 
being  considered  a  purchaser  for 
value.  Loomis  v.  Davenport,  &c.  R. 
Co.  17  Fed.  301.  See  Pierce  v.  Mil- 
waukee, &c.  R.  Co.  24  Wis.  551,  1 
Am.  R.  203. 

208  Porter  v.  Pittsburg,  &c.  Co.  122 
U.  S.  267,  7  Sup.  Ct.  1206,  30  Am.  & 
Eng.  R.  Cas.  495;  Wood  v.  Whelen, 
93   111.  153;   United  States  v.  N.  0. 
R.  Co.  12  Wall.  (U.  S.)  362. 

209  Boston  Safe  Deposit,  &c.  Co.  v. 
Bankers',  &c.  Co.  36  Fed.  288;  West- 
ern Union  Tel.  Co.  v.  Burlington,  &c. 
R.  Co.   3  McCrary    (U.   S.)    130,   11 
Fed.  1. 

210  Porter  v.  Pittsburg,  &c.  R.  Co. 


122  U.  S.  267,  283,  7  Sup.  Ct.  1206; 
Wood  v.  Whelen,  93  111.  153. 

211  First  Nat.  Bank  v.  Anderson,  75 
Va.  250.    So  held,  if  proper  manage- 
ment requires  that  they  be  recast. 
Lehigh,  &c.  Co.  v.  Central  R.  Co.  35 
N.  J.  Eq.  379;  Weetjen  v.  St.  Paul, 
&c.    R.    Co.    4    Hun    (N.    Y.)     529; 
Palmer  v.  Forbes,  23  111.  301.     See 
Farmers'  Loan,  &c.  Co.  v.  Commer- 
cial Bank,  11  Wis.  207,  15  Wis.  424; 
Farmers'  Loan,  &c.  Co.  v.  Gary,  13 
Wis.  110;    Dinsmore  v.  Racine,  &c. 
R.  Co.  12  Wis.  649;  Brainerd  v.  Peck, 
34  Vt.  496. 

212  Van  Keuren  v.  Central  R.  Co.  38 
N.  J.  L.  165. 

213  Lehigh,   &c.    Co.   v.    Central   R. 
Co.  35  N.  J.  Eq.  379;  Williamson  v. 
New  Jersey,  &c.  R.  Co.  29  N.  J.  Eq. 
311,  28  N.  J.  Eq.  277;   Brainerd  v. 
Peck,  34  Vt.  496.    But  see  Delaware, 
&c.  R.  Co.  v.  Oxford  Iron  Co.  36  N. 
J.  Eq.  452. 

214  Hunt    v.    Bullock,    23    111.    320. 
But  see  Coe  v.  McBrown,   22   Ind. 
252;  Phillips  v.  Winslow,  18  B.  Mon. 
(Ky.)  431,  448,  68  Am.  Dec.  729. 

215  Lehigh,,   &c.   Co.   v.   Central   R. 
Co.  35  N.  J.  Eq.  379;   Hunt  v.  Bul- 
lock, 23  111,  320;  Raymond  v.  Clark, 
46   Conn.   129;    Ludlow  v.   Hurd,   1 
Disn.    (Ohio)   552;   Titus  v.  Mabee, 


499] 


RAILROAD   SECURITIES. 


682 


gage  of  a  railroad,  if  its  terms  cover  such  future  acquisitions,  will, 
however,  be  held  in  equity  to  apply  to  after-acquired  rolling  stock218 
even  if  not  specially  mentioned ;  although  it  has  been  held  that  loose 
rolling  stock,  such  as  engines  and  cars,  is,  in  such  a  case,  subject  to 
the  liens  on  it217  when  it  comes  into  the  mortgagor's  hands.218 

§499.  Reserved  power  to  create  prior  lien  or  to  dispose  of  tin- 
necessary  property. — A  provision  in  a  railroad  mortgage  permitting 
the  company  to  sell,  .pledge,  or  otherwise  dispose  of  any  property 
not  essential  to  the  operation  of  the  road,  applying  the  proceeds  in 
any  manner  not  prejudicial  to  the  interests  of  the  mortgagee  is  not 
fraudulent  or  invalid.219  Such  provision  does  not,  however,  nullify 
the  mortgage  and  withdraw  the  lien  as  unnecessary  articles  like 
broken  rails,  ties  and  wheels  are  cast  aside.220 

§500.  Priority  of  mortgages. — We  shall  discuss  the  subject  of 
preferred  claims  for  operating  expenses  and  the  like  in  a  subsequent 
chapter,221  but  it  may  be  well  at  this  place  to  consider  briefly  the 


25  111.  257;  Southbridge  Savings 
Bank  v.  Mason,  147  Mass.  500,  18 
N.  E.  406,  1  L.  R.  A.  350.  But  see 
Wood  v.  Whelen,  93  111.  153. 

216  Jones    Corp.    Bonds   and    Mort- 
gages 120;  Pennock  v.  Coe,  23  How. 
(U.  S.)  117;  Coe  v.  Pennock,  6  Am. 
Law  Reg.  27,  2  Redf.  Am.  R.  Gas. 
667;    Galveston   R.   v.   Cowdrey,   11 
Wall.   (U.  S.)   459,  481;   Dunham  v. 
Cincinnati,  &c.  R.   Co.  1  Wall.    (U. 
S.)  254,  266;  Meyer  v.  Johnston,  53 
Ala.  237,  64  Ala.  603;  Scott  v.  Clin- 
ton, &c.  R.  Co.  6  Biss.    (U.  S.)   529, 
535;  Michigan  Central  R.  Co.  v.  Chi- 
cago, &c.  R.  Co.  1  Brad.   (111.)  399; 
Nichols  v.  Mase,  94  N.  Y.  160;  Mor- 
rill  v.  Noyes,  56  Me.  458,  471,  96  Am. 
Dec.   486;    Phillips   v.   Winslow,   57 
Ky.  431,  448,  68  Am.  Dec.  729;  Ham- 
lin  v.  Jerrard,  72  Me.  62. 

217  Meyer  v.  Johnston,  53  Ala.  237, 
332,  64  Ala.  603;  Maryland  v.  North- 
ern Central  R.  Co.  18  Md.  193;  Pul- 
lan  v.  Cincinnati,  &c.  R.  Co.  4  Biss. 
(U.   S.)    35,  43.     But  see  Miller  v. 
Rutland,  &c.  R.  Co.  36  Vt.  452. 


218  United  States  v.  New  Orleans  R. 
12  Wall.    (U.  S.)   362;   Boston  Safe 
Deposit,  &c.  Co.  v.  Bankers',  &c.  Co. 
36  Fed.  288;  Contracting,  &c.  Co.  v. 
Continental   Trust  Co.   108   Fed.   1. 
See,  also,  Bear  Lake,  &c.  Co.  v.  Gar- 
land, 164  U.  S.  1,  16,  17  Sup.  Ct.  7; 
Myer  v.  Car  Co.  102  U.  S.  1    (sub- 
ject to  rights  of  vendor  under  con- 
ditional sale) ;  Frank  v.  Denver,  &c. 
R.  Co.  23  Fed.  123. 

219  Butler   v.    Rahm,    46    Md.    541. 
See,  also,  Nickerson  v.  Atchison,  &c. 
R.  Co.  3   McCrary    (U.   S.)    455,  17 
Fed.    408.      As    to    reservation    of 
power   to  create  a  prior  lien,   see 
Campbell    v.    Texas,    &c.    R.    Co.    2 
Woods  (U.  S.)  263. 

220  Coopers  v.   Wolf,    15   Ohio   St. 
523.      See,    also,    Salem    First   Nat. 
Bank  v.   Anderson,   75  Va.   250,   68 
Am.  Dec.  729. 

221  See,    however,   on    the    general 
subject,  the  recent  cases  of  Virginia, 
&c.  Coal  Co.  v.  Central  R.  Co.   170 
U.  S.  355,  18  Sup.  Ct.  657;  Southern 
R.  Co.  v.  Carnegie  Steel  Co.  176  U. 


683  PRIORITY   OF   MORTGAGES.  [§    500 

subject  of  the  priority  of  one  mortgage  over  another  and  over  other 
claims  and  equities.  As  we  have  already  shown,  one  of  a  series  of 
bonds  has  no  priority  over  others  of  the  same  series  merely  because  it 
bears  a  smaller  number.222  It  seems,  however,  that  first  mortgage 
bonds,  although  issued  after  a  second  mortgage  is  executed,  have 
priority  over  the  second  mortgage  bonds,  unless  the  second  mortgage 
in  terms  limits  the  lien  of  the  prior  mortgage  to  bonds  actually  out, 
and  provides  against  reissues.223  One  who  purchases  from  a  railroad 
company  part  of  a  series  of  bonds  secured  by  mortgage  on  the  road, 
under  an  agreement  that  no  more  bonds  shall  be  issued,  is  entitled 
to  be  preferred  over  purchasers  of  the  other  bonds  with  notice  of  the 
agreement,  but  not  over  bona  fide  purchasers  who  have  no  notice  of 
the  agreement,  either  actual  or  constructive.224  The  general  rule,  of 
course,  is  that  mortgages  have  priority  in  the  order  of  their  execu- 
tion,225 but  bona  fide  second  mortgage  bondholders  may  obtain  prior- 
ity over  prior  mortgagees  if  the  prior  mortgage  is  unrecorded  and 
there  is  nothing  charging  them  with  notice  of  the  prior  mortgage. 
Where,  however,  a  subsequent  mortgage  is  expressly  made  subject  to 
a  former  mortgage  such  former  mortgage  has  priority,  although  not 
legally  recorded.226  So,  a  subsequent  mortgage  may  be  given  priority 
over  a  former  mortgage  by  agreement  between  the  old  bondholders  and 
the  mortgagor  company.227  This  is  sometimes  done  in  order  to  enable 
the  company  to  complete  its  road  or  to  reorganize.  A  mortgage  trus- 
tee, however,  has  no  power  to  agree  that  an  unsecured  debt  or  a  subse- 
quent mortgage  debt  shall  be  paid  in  preference  to  the  first  mortgage 
bonds.228  As  a  general  rule,  a  fixed  legal  right  under  a  mortgage 
cannot  be  impaired  by  any  equities  subsequently  arising,229  although, 

S.  257,  20  Sup.  Ct.  347;   Messick  v.  bus,  &c.  R.   Co.'s  Appeal,   109   Fed. 

Hartford,  &c.  R.  Co.  76  Conn.  11,  55  177,  48  C.  C.  A.  275. 

Atl.  664,  100  Am.  St.  977,  and  note  ^Coe  v.  Columbus,  &c.  R.  Co.  10 

in  54  Am.  St.  400-433.  Ohio  St.  372,  75  Am.  Dec.  518. 

222  Stanton   v.   Ala.   &c.   R.   Co.    2  m  Poland  v.  Lamoille  Valley  R.  Co. 
Woods  (U.  S.)  523;  Commonwealth  52  Vt.  144. 

v.  Susquehanna,  &c.  R.  Co.  122  Pa.  ^  Duncan  v.  Mobile,  &c.  R.  Co.  2 

St.  306,  321.     See,  also,  Pittsburgh,  Woods    (U.    S.)    542;    Hollister    v. 

&c.  R.  Co.  v.  Lynde,  55  Ohio  St.  23.  Stewart,  111  N.  Y.  644,  19  N.  E.  782. 

223  Claflin  v.  South  Carolina  R.  Co.  2a>  Jones   Corp.   Bonds   and   Mort. 
4  Hughes  (U.  S.)  12,  8  Fed.  118.  §  579.    But  see  ante,  §§  496,  497.    As 

^McMurray  v.  Moran,  134  U.  S.  to  mechanics'  liens,  see  Brooks  v. 

150,  10  Sup.  Ct  427.  Burlington,  &c.  R.  Co.  101  U.  S.  443; 

225  Wade  v.  Chicago,  &c.  R.  Co.  149  Meyer  v.  Hornby,  101  U.  S.  728, 

U.  S.  327,  13  Sup.  Ct.  892;  Colum-  with  which  compare  Bear  v.  Bur- 


§  500] 


RAILROAD  SECURITIES. 


684 


as  we  shall  hereafter  see,  there  is  an  apparent  exception  to  this  rule 
in  the  case  of  operating  expenses,  and,  by  statute,  employes  are  fre- 
quently given  preferred  claims.  Thus,  the  priority  of  a  first  mortgage 
is  not  affected  by  the  fact  that  the  road  was  completed  or  part  of  it 
wholly  built  by  money  obtained  by  means  of  a  junior  mortgage,230 
nor  are  unsecured  claims  of  contractors  or  material  men  who  have 
furnished  money  or  material  for  building  or  repairing  it  entitled  to 
priority  over  a  prior  mortgage.231  It  has  also  been  held  that  a  claim 
for  money  borrowed  to  pay  the  interest  on  the  bonds  is  not  entitled 
to  priority  over  the  principal.232  Taxes  may,  of  course,  constitute  a 
lien  superior  to  a  prior  mortgage,233  and  it  has  also  been  held  that  a 
landholder's  claim  for  damages  for  land  condemned  for  the  road  is 
superior  to  a  mortgage  given  before  the  damages  have  been  assessed.23* 
We  have  elsewhere  considered  the  subject  of  the  priority  of  liens  in 
cases  of  consolidation,235  but  the  question  of  priority  sometimes 
arises  in  cases  of  mere  succession  or  where  separate  mortgages  are 
made  on  different  divisions  of  a  road.  A  mortgage  on  all  property, 
materials,  rights  and  privileges  of  a  railroad  company  then  or  there- 
after appertaining  to  the  road,  to  secure  bonds  for  money  with  which 


lington,  £c.  R.  Co.  48  Iowa  619; 
Tommey  v.  Spartanburg,  &c.  Co.  1 
Am.  &  Eng.  R,  Cas.  632,  note. 

23S-Galveston,  &c.  R.  Co.  v.  Cow- 
drey,  11  Wall.  (U.  S.)  459;  Dunham 
v.  Cincinnati,  &c.  R.  Co.  1  Wall.  (U. 
S.)  254;  Thompson  v.  White  Water 
Valley  R.  Co.  132  U.  S.  68,  10  Sup. 
Ct.  29.  See,  also,  McGourkey  v.  To- 
ledo, &c.  R.  Co.  146  U.  S.  536,  13 
Sup.  Ct.  170  (mortgage  has  priority 
over  car  trust  certificates) ;  Man- 
hattan Trust  Co.  v.  Sioux  City,  &c. 
R.  Co.  68  Fed.  72. 

231  Dunham   v.    Cincinnati,   &c.   R. 
Co.  1  Wall.   (U.  S.)  "254,  and  cases 
cited  in  note  230,  supra.     See,  also, 
New  Jersey  Midland  R.  Co.  v.  Wor- 
tendyke,  27  N.  J.  Eq.  658;  Denniston 
v.  Chicago,  &c.  R.  Co.  4  Biss.  (U.  S.) 
414;    Peninsular  Iron   Co.  v.   Eells, 
68  Fed.  24. 

232  Contracting,    &c.    Co.   v.    Conti- 
nental Trust  Co.  108  Fed.  1. 

233  Farmers',  &c.  Co.  v.  Vicksburg, 


&c.  R.  Co.  33  Fed.  778;  Farmers' 
Loan  &  T.  Co.  v.  Stuttgart  R.  Co.  92 
Fed.  246;  Georgia  v.  Atlantic,  &c. 
R.  Co.  3  Wood  (U.  S.)  434;  Stevens 
v.  New  York,  &c.  R.  Co.  13  Blatch. 
(IT.  S.)  104;  Central  Trust  Co.  v. 
New  York,  &c.  R.  Co.  110  N.  Y.  250, 
18  N.  E.  92,  1  L.  R.  A.  260.  But 
see  Binkert  v.  Wabash,  &c.  R.  Co.  98 
111.  205,  5  Am.  &  Eng.  R.  Cas.  113. 

234  Western  Penna.  R.  Co.  v.  John- 
ston, 59  Pa.  St.  290.    See,  also,  Mer- 
cantile Trust  Co.  v.  Pittsburg,  &c. 
R.  Co.  29  Fed.  732;  Buffalo,  &c.  R. 
Co.  v.  Harvey,  107  Pa,  St.  319;  Cen- 
tral Trust  Co.  v.  Louisville,  &c.  R. 
Co.  81  Fed.  772;   Central  Trust  Co. 
v.  Hennen,  90  Fed.  593;    Crosby  v. 
Morristown,  &c.  R.  Co.   (Tenn.),  42 
S.  W.  507;  Penn.  Mut.  L.  Ins.  Co.  v. 
Heiss,  141  111.  35,  33  Am.  St.  273. 

235  Ante,   §   336.     See,  also,  Knee- 
land  v.  Lawrence,  140  U.  S.  209,  11 
Sup.  Ct.  786;  Wabash,  &c.  R.  Co.  v. 
Ham,  114  U.  S.  587,  5  Sup.  Ct.  1081. 


TRUST  DEEDS. 


[§   501 


to  construct  it,  has  priority  over  a  subsequent  mortgage  of  the  earn- 
ings of  a  particular  division  or  section  of  the  road,  executed  to  secure 
money  used  in  constructing  such  section  by  a  lessee  who  had  agreed 
to  construct  it  as  part  of  the  consideration  for  the  lease,  even  though 
the  lessor  company  which  executed  the  first  mortgage  may  have 
agreed  to  recognize  the  subsequent  mortgage  as  having  priority.236 
And  a  mortgage  on  the  property  of  a  railroad  company  given  by  its 
successor  has  priority  over  claims  for  services  and  advances  to  the  old 
company,  by  a  creditor  who  did  not  obtain  a  judgment  until  after 
the  execution  of  such  mortgage,  and  whose  services  and  advances 
were  not  such  as  to  entitle  him  to  a  statutory  lien.237 

§  501.  Trust  deeds. — A  railroad  mortgage  is  now  generally  made 
to  trustees  who  take  the  mortgage  title  for  the  bondholders,  thus 
securing  to  them  all  the  benefits  they  would  have  had  if  named  in  the 
instrument.238  The  trustee  may  be  an  individual  or  a  trust  com- 
pany.239 It  has  also  been  held  that  a  director  or  an  officer  of  the 
mortgagor  company  may  be  a  trustee,240  and  so  may  a  non-resident.241 
Upon  the  death  of  one  of  two  or  more  trustees,  his  interest  vests 
according  to  the  right  of  survivorship,  notwithstanding  a  statute 
abolishing  joint  tenancies  without  expressly  embracing  trust  estates.242 
Equity  will  not  permit  a  trust  to  fail  for  want  of  a  trustee.243  A  trust 


238  Thompson  v.  White  Water,  &c. 
R.  Co.  132  U.  S.  68,  10  Sup.  Ct.  29. 
The  court  held  that  this  agreement 
as  to  priority  could  not  affect  the 
first  mortgage  bondholders.  See, 
also,  Wade  v.  Chicago,  &c.  R.  Co. 
149  U.  S.  327,  13  Sup.  Ct.  892;  Farm- 
ers' Loan,  &c.  Co.  v.  Newman,  127 
U.  S.  649,  8  Sup.  Ct.  1364;  Farmers' 
Loan,  &c.  Co.  v.  Canada,  &c.  R.  Co. 
127  Ind.  250,  26  N.  E.  784. 

237  Fogg  v.  Blair,  133  U.  S.  534,  10 
Sup.  Ct.  338. 

^Butler  v.  Rahm,  46  Md.  541; 
McLane  v.  Placerville,  &c.  R.  Co.  66 
Cal.  606,  6  Pac.  748;  Chamberlain 
v.  Conn.  Cent.  R.  Co.  54  Conn.  472; 
Jones  Corporate  Bonds  and  Mort. 
§  28.  See  "Trust  Deeds,"  26  Am.  & 
Eng.  Ency.  of  Law  860;  28  Ency.  of 
L.  (2d  ed.)  743. 


239  Hervey  v.  Illinois,  &c.  R.  Co.  28 
Fed.  169;  Farmers'  Loan,  &c.  Co.  v. 
Chicago,  &c.  R.  Co.  27  Fed.  146. 

240  Bassett  v.  Monte,  &c.  Co.  15  Nev. 
293;  Ellis  v.  Boston,  &c.  R.  Co.  107 
Mass.  1. 

241 A  statute  prohibiting  citizens  of 
other  states  from  acting  as  trustees 
is  unconstitutional.  Roby  v.  Smith, 
131  Ind.  342,  30  N.  E.  1093,  15  L.  R. 
A.  792,  31  Am.  St.  439;  Farmers' 
Loan,  &c.  Co.  v.  Chicago,  &c.  R.  Co. 
27  Fed.  146;  Shirk  v.  La  Fayette,  52 
Fed.  857. 

( 242  McAllister    v.    Plant,    54    Miss. 
106. 

243  See  27  Am.  &  Eng.  Ency.  of  Law 
16,  90,  91,  and  authorities  there 
cited. 


502] 


RAILROAD   SECURITIES. 


686 


deed  is  regarded  as  in  effect  a  mortgage,244  and  the  right  of  posses- 
sion remains  in  the  grantor.245  Authority  to  mortgage  is  authority 
to  execute  a  deed  of  trust,246  and  statutes  regulating  the  recording 
of  mortgages  embrace  deeds  of  trust.247  The  power  to  sell  without 
legal  proceedings  should  be  unequivocally  and  definitely  expressed  in 
the  deed.248  Foreclosure  in  an  equity  court  is  the  more  usual  and  the 
safer  method.  It  is  frequently  provided,  however,  that  upon  default 
of  payment  the  trustee  may  take  possession  without  suit  and  hold 
the  property  until  the  debt  be  satisfied,  and  this  is  sometimes  done.249 

§  502.  Equitable  and  defective  mortgages. — An  instrument  which 
was  intended  to  be  the  mortgage  deed  of  a  corporation,  but  which, 
not  being  properly  executed  by  the  corporation,  or  in  its  name,  can- 
not take  effect  as  its  deed,  may  nevertheless  be  regarded  as  an  equita- 
ble mortgage  and  entitle  the  holders  of  it  in  equity  to  the  full  benefit 
of  the  security  intended  to  be  given.250  An  agreement,  even  by  word 
of  mouth  as  to  personalty,  to  give  a  mortgage  for  certain  sums,  may 
be  enforceable  in  equity  as  a  mortgage,251  and  so  are  bonds  which  re- 


244  Wisconsin  Cent.  R.  Co.  v.  Wis- 
consin Riv.  L.  Co.  71  Wis.  94,  36  N. 
W.  837;  White  Water,  &c.  Canal  Co. 
v.  Vallette,   21   How.    (U.   S.)    414; 
McLane  v.  Placerville,  &c.  R.  Co.  66 
Cal.  606,  6  Pac.  748;  Coe  v.  Johnson, 
18   Ind.   218;    Coe  v.   McBrown,   22 
Ind.  252. 

245  Southern     Pacific     R.     Co.     v. 
Doyle,  8  Sawyer  60,  11  Fed.  253. 

248  Wright  v.  Bundy,  11  Ind.  398; 
Bennett  v.  Union  Bank,  5  Humph. 
(Tenn.)  612;  Turner  v.  Watkins,  31 
Ark.  429. 

247  Woodruff  v.  Robb,  19  Ohio  212; 
Schultze  v.  Houfes,  96  111.  335;  Ma- 
gee  v.  Carpenter,  4  Ala.  469;  Shef- 
fey  v.  Lewisburg  Bank,  33  Fed.  315. 

243  Mason  v.  York,  &c.  R.  Co.  52 
Me.  82. 

249  See  Dow  v.  Memphis,  &c.  R.  Co. 
124  U.  S.  652,  8  Sup.  Ct.  673;   Fee 
v.    Swingly,    6   Mont.    596,    13    Pac. 
375.    But  a  bill  in  equity  is  usually 
resorted  to  even  in  such  cases.     See 
Shepley  v.  Atlantic,  &c.  R.   Co.   55 
Me.  395;  McLane  v.  Placerville,  &c. 


R.  Co.  66  Cal.  606,  615,  6  Pac.  748; 
Shaw  v.  Norfolk,  &c.  R.  Co.  5  Gray 
(Mass.)  162.  As  to  responsibilities 
of  trustees  generally,  see  Sturges  v. 
Knapp,  31  Vt.  1;  Sprague  v.  Smith, 
29  Vt.  421,  70  Am.  Dec.  424.  As  to 
liability  of  company  where  trustees 
do  not  take  actual  or  exclusive  pos- 
session, see  Pennsylvania  R.  Co.  v. 
Jones,  155  U.  S.  333,  353,  15  Sup.  Ct. 
136. 

250  Jones    Corp.    Bonds    and    Mort- 
gages, 32;  Miller  v.  Rutland,  &c.  R. 
Co.   36   Vt.   452;    Randolph  v.   New 
Jersey,  &c.  R.  28  N.  J.  Eq.  49.    See. 
also,  Pullis  v.  Pullis  Bros.  157  Mo. 
565,  57  S.  W.  1095;  Brown  v.  Farm- 
ers', &c.  Co.  23   Oreg.   541,  32   Pac. 
548.    A  mortgage  expressly  recogniz- 
ing another   is   subsequent  thereto, 
notwithstanding  the  prior  mortgage 
is  not  legally  executed  and  recorded. 
Coe  v.  Columbus,  &c.  R.  Co.  10  Ohio 
St.  372,  75  Am.  Dec.  518. 

251  Waco  Tap  R.  Co.  v.  Shirley,  45 
Tex.    355,    13   Am.    Railw.    R.    233; 
Texas,  &c.  R.  Co.  v.  Gentry,  69  Tex. 


687 


STATUTORY  MORTGAGES. 


[§    503 


cite  that  they  are  a  lien,252  and  so  is  an  agreement  to  place  in  a  third 
person's  hands  certain  earnings  or  property  to  meet  specified  obliga- 
tions ;253  and  so  is  a  contract  for  the  purchase  of  rolling  stock  by  the 
payment  of  an  annual  rental  with  provision  for  forfeiture  upon  non- 
payment.254 The  holder  of  an  old  bond,  to  whom  a  new  bond  cannot 
be  issued  because  the  refunding  scheme  provides  none  so  small,  has 
also  been  held  entitled  to  a  lien  for  the  amount  of  the  indebtedness 
to  him  equal  to  the  other  mortgage  creditors'  lien.255  Where  no 
words  of  inheritance  appear  in  the  mortgage,  but  it  is  the  evident 
intention  that  the  trustees  should  take  the  fee,  the  instrument  will 
be  reformed  by  a  court  of  equity.256 

§  503.  Statutory  mortgages. — A  statute  expressing  its  purpose  in 
certain237  terms  may  constitute  a  mortgage  without  the  execution  of 
any  instrument  of  conveyance.258  A  statutory  mortgage  to  the  state 


625,  8  S.  W.  98;  Ashton  v.  Corrigan, 
L.  R.  13  Eq.  76;  Peto  v.  Brighton, 
&c.  R.  Co.  1  H.  &  Miller  468. 

252  Poland  v.  Lamoille  Val.  R.  Co. 
52  Vt.  144,  171;  White  Water  Val- 
ley Canal  Co.  v.  Vallette,  21  How. 
(U.  S.)  414;  Dundas  v.  Desjardins 
Canal  Co.  17  Grant's  Ch.  (Upper 
Can.)  27. 

^Ketchum  v.  Pacific  R.  4  Dill. 
(U.  S.)  78,  86;  Ketchum  v.  St. 
Louis,  101  U.  S.  306,  317;  Watson 
v.  Wellington,  1  Rus.  &  Myl.  602; 
Yeates  v.  Groves,  1  Ves.  Jr.  280; 
Lett  v.  Morris,  4  Sim.  607;  Alder- 
son,  Ex  parte,  1  Madd.  39;  Legard 
v.  Hodges,  1  Ves.  Jr.  477;  Pinch  v. 
Anthony,  8  Allen  (Mass.)  536;  Dil- 
lon v.  Barnard,  1  Holmes  (U.  S.) 
386. 

^Hervey  v.  Rhode  Island,  &c. 
Works,  93  U.  S.  664;  Heryford  v. 
Davis,  102  U.  S.  235;  Frank  v.  Den- 
ver, &c.  R.  Co.  23  Fed.  123;  Fosdick 
v.  Schall,  99  U.  S.  235.  But  it  is 
held  that  there  is  no  mortgage 
where  a  railway  company  sells  roll- 
ing stock,  contemporaneously  hiring 
the  same  stock  at  an  annual  rental 
Of  one-fifth  of  the  selling  price,  with 


provision  for  repurchase  at  the  end 
of  five  years  for  a  nominal  price. 
Yorkshire  R.  Wagon  Co.  v.  Maclure, 
21  Ch.  Div.  309;  North  Central 
Wagon  Co.  v.  Manchester,  &c.  R. 
Co.  35  Ch.  Div.  191. 

253  Blair  v.  St.  Louis,  &c.  R.  Co.  23 
Fed.  524. 

256  Coe  v.  New  Jersey,  &c.  R.  Co.  31 
N.   J.   Eq.   105;    Randolph  v.   New 
Jersey,  &c.  R.  Co.  28  N.  J.  Eq.  49. 

257  Cincinnati    City   v.    Morgan,    3 
Wall.    (U.  S.)   275;   Brunswick  and 
Albany  R.   Co.  v.   Hughes,   52   Ga. 
557;    Collins    v.    Central    Bank    of 
Georgia,  1  Kelly  (Ga.)  435;  White- 
head  v.  Vineyard,  50  Mo.  30;  Colt  v. 
Barnes,  64  Ala.  108. 

258  Cunningham  v.   Macon,  &c.   R. 
156  U.  S.  400,  15  Sup.  Ct.  361;  United 
States  v.  Union   Pacific  R.   Co.   91 
U.  S.  72;  Wilson  v.  Boyce,  92  U.  S. 
320,  2  Dill.  (U.  S.)  539;  Murdock  v. 
/Woodson,  2  Dill.  (U.  S.)  188;  Wood- 
son  v.   Murdock,  22  Wall.    (U.   S.) 
351;  State  v.  Florida,  &c.  R.  Co.  15 
Fla.  690;  Tompkins  v.  Little  Rock, 
&c.  R.  Co.  15  Fed.  6.    An  example 
is  Act  of  July  1,  1862,  12  Stat.  at 
Large,  489,  mortgaging  the  Union 


§'   504]  RAILROAD  SECURITIES.  688 

may  provide  that  it  shall  receive  the  income  by  way  of  interest,  with- 
out foreclosure,259  and  may  make  such  provision  as  will  constitute 
an  equitable  assignment  thereof  to  which  subsequent  mortgages  will 
be  subject.260  State  aid  bonds  giving  a  lien  in  favor  of  the  state 
do  not  entitle  the  purchasers  to  enforce  the  lien  where  it  is  waived 
or  released  by  the  state.261  The  bondholders  cannot  enforce  the  lien 
either  upon  the  principle  of  subrogation  or  under  the  claim  that  they 
have  a  specific  lien  as  direct  mortgage  creditors.262 

§  504.  Debentures. — Debentures,  which  are  the  commonest  form 
of  security  issued  by  English  corporations,  are  defined  to  be  instru- 
ments under  seal,  creating  a  charge,  according  to  their  wording,  upon 
the  property  of  the  corporation,  and  to  that  extent  conferring  a  prior- 
ity over  subsequent  creditors  and  over  existing  creditors  not  pos- 
sessed of  such  a  charge.263  They  are,  in  fact,  equitable  mortgages, 
being  enforceable  only  in  equity.264  Their  holder  has  no  lien  upon  the 
corporation's  traffic  receipts  and  no  right  to  a  receiver  of  them.265 
The  debenture  is  generally  not  accompanied  by  any  separate  instru- 
ment. Instead  of  securing  the  payment  in  one  instrument  of  a  debt 
which  there  is  a  promise  to  pay  in  another  or  others,  each  mortgage 
debenture  ordinarily  includes  both  the  provisions  in  regard  to  the 
security  and  a  covenant  for  the  payment  of  the  debt.266  In  England 

Pacific  Railroad.     Such  a  mortgage  259  Macalester  v.  Maryland,  114  U. 

may  include  after-acquired  property.  S.  598,  5  Sup.  Ct.  1065. 

Whitehead  v.  Vineyard,  50  Mo.  30;  260Ketchum  v.  St.  Louis,  101  U.  S. 

Colt  v.   Barnes,   64   Ala.   108.     The  306. 

lien  may  be  released  by  the  legisla-  261  Tennessee  Bond  Cases,  114  U. 

ture.    Woodson  v.  Murdock,  22  Wall.  S.  663,  5  Sup.  Ct.  974,  1098. 

(U.    S.)    351;    Darby   v.   Wright,    3  282  Cunningham   v.   Macon,   &c.   R. 

Blatchf.     (U.    S.)     170;     Gibbes    v.  Co.  156  U.  S.  400,  15  Sup.  Ct.  361. 

Greenville,  &c.  R.  Co.  13  S.  Car.  228.  But  see  Railroad  Co.  v.  Schutte,  103 

By  agreement  a  new  lienholder  may  U.  S.  118. 

be    substituted.      Ketchum    v.    St.  283Brice  on  Ultra  Vires   (2d  ed.) 

Louis,  101  U.  S.  306.     It  is  not  nee-  279. 

essary  that  the  bonds  which  are  se-  264  Holroyd  v.  Marshall,  10  H.  L. 

cured  shall  mention  the  lien  of  the  C.  191;  General  South  American  Co., 

mortgaging    act.      Dundas    v.    Des-  In  re,  L.  R.  2  Ch.  D.  337. 

jardins,  &c.   Co.   17  Grant.    (U.   S.)  265  Imperial     Mercantile    Credit 

27.    The  holder  of  bonds  secured  by  Assn.  v.  Newry,  &c.  R.  Co.  2  Ir.  Rep. 

statutory  mortgage  can  avail  him-  Eq.  524;  Preston  v.  Great  Yarmouth, 

self  of  the  security  only  by  means  L.  R.  7  Ch.  655.    See,  as  bearing  on 

of  foreclosure  instituted  by  the  trus-  rights  of  debenture  holders  prior  to 

tees  in  conformity  with  the  statute,  the  Railway  Companies  Act  of  1867, 

Florida  v.  Anderson,  91  U.  S.  667.  Bowen  v.  Brecon  R.  Co.  L.  R.  3  Eq. 


689  DEBENTURES.  '[§   504 

debentures  are  not  required  to  be  recorded,  but  in  most  of  our  states 
they  would  be  very  dangerous  investments  on  this  account,  and  the 
fact  that  an  attachment  of  property  in  this  country  may  take  pre- 
cedence over  an  unrecorded  debenture,  was  admitted  in  a  recent 
English  case.267  A  so-called  debenture  is,  however,  said  to  be  coming 
into  use  in  the  United  States,  which  is  in  effect  a  bond  or  note 
secured  by  pledge  of  collaterals  deposited  with  a  trustee.268  In  a  case 
in  Indiana,  a  so-called  debenture  is  set  out  in  the  opinion  of  the  court. 
The  instrument  provided  for  its  receipt  in  payment  of  freight 
charges  and  tickets  for  a  certain  period,  and  the  court  held  that  upon 
repudiation  by  the  company  of  the  whole  arrangement  the  company 
was  liable  for  the  face  value  of  the  debentures  in  money.269 

541;  Russell  v.  East  Anglian  R.  Co.  ^  Empire,  &c.  Co.,  In  re,  62  L.  T. 

3  Mac.  &  G.  104,  151.  R.  493. 

266  Hart  v.  Eastern  Union  R.  Co.  6  26S  2  Cook  Stock  and  Stockholders, 

Eng.   R.  &   Can.  Cas.   818,  7  Exch.  §  777. 

246,  265 ;  2  Cook  on  Stock  and  Stock-  289  Evansville,  &c.  R.  Co.  v.  Frank, 

holders,  §  776.  3  Ind.  App.  96,  29  N.  E.  419. 

ELL.  RAILROADS — 44  -  i 


CHAPTEK  XX. 


FORECLOSURE. 


Sec.  Sec. 

505.  Foreclosure — Default.  512. 

506.  Option  to  declare  whole  debt 

due — Election.  513. 

507.  Foreclosure  for  default  in  pay-    514. 

ment  of  interest. 

508.  Parties   to   foreclosure    suk — 

Plaintiffs.  515. 

509.  Bondholders  as  plaintiffs.  516. 

510.  Pledgees,  assignees  and  others    517. 

as  plaintiffs.  518. 

511.  Defendants  in  foreclosure  suits 

— Generally. 


When  other  lienholders  should 

be  made  defendants. 
Defenses  to  foreclosure  suit. 
Effect    of    provisions    giving 

trustees   the   right  to   take 

possession  and  sell. 
The  decree. 
Consent  decree.  4 

Deficiency  decree. 
Final  and  appealable  decrees. 


§  505.  Foreclosure — Default. — In  order  to  maintain  a  suit  for  the 
foreclosure  of  a  mortgage,  the  plaintiff  must  be  able  to  show  a  de- 
fault within  its  terms.  An  allegation  that  interest  coupons  are  unpaid 
has  been  held  insufficient,  where  it  does  not  appear  that  any  demand 
for  payment  has  been  made  or  that  the  company  neglected  or  refused 
to  pay  at  the  place  or  in  the  manner  provided.1  But  a  demand  is 


1Davies  v.  New  York,  &c.  Co.  41 
Hun  (N.  Y.)  492;  Jones  Corp. 
Bonds  and  Mort.  §  381.  See,  also, 
Doyle  v.  Phoenix  Ins.  Co.  44  Cal. 
264;  United  States,  &c.  Stock  Co.  v. 
Atlantic,  &c.  Co.  34  Ohio  St.  450, 
467,  32  Am.  R.  380.  But  see  Mayes 
v.  Goldsmith,  58  Ind.  94;.Douthit  v. 
Mohr,  116  Ind.  482,  18  N.  E.  449,  and 
compare  Carey  v.  Houston,  45  Fed. 
438.  See,  generally,  as  to  foreclo- 
sure for  non-payment  of  interest, 
Chicago,  &c.  R.  Co.  v.  Fosdick,  106 
U.  S.  47,  1  Sup.  Ct.  IjO;  Ohio  Cent. 
R.  Co.  v.  Central  Trust  Co.  133  U. 
S.  83,  10  Sup.  Ct.  235;  Louisville, 


&c.  R.  Co.  v.  Schmidt  (Ky.),  52  S. 
W.  835;  McFadden  v.  Mays  Land- 
ing, &c.  R.  Co.  49  N.  J.  Eq.  176,  22 
Atl.  932.  In  a  recent  case  a  rail- 
road company  alleged  its  insolvency, 
and  prayed  for  a  sale  of  its  property 
and  distribution  of  the  proceeds 
among  its  creditors.  A  receiver  was 
appointed.  A  mortgagee  filed  a 
cross-bill  to  foreclose  two  mort- 
gages, on  both  of  which  default  in 
the  interest  had  been  made,  but  the 
debt  secured  by  the  second  only 
was  due.  The  court  held  that  both 
mortgages  might  be  foreclosed,  al- 
though by  its  terms  the  first  was 


690 


691 


FORECLOSURE — DEFAULT. 


[§  505 


usually  unnecessary  before  instituting  a  suit  to  foreclose  a  mort- 
gage,2 at  least  where  the  company  is  insolvent  and  has  no  funds  with 
which  to  pay,  and  the  right  to  foreclose  arises  as  soon  as  the  condi- 
tion of  the  defeasance  is  broken.3  Kailroad  mortgages  and  trust  deeds, 
however,  generally  provide  that  no  suit  to  foreclose  shall  be  insti- 
tuted for  failure  to  pay  interest  until  after  the  default  shall  have 
continued  for  a  specified  period.  A  default  may  be  waived,4  but  the 


not  subject  to  foreclosure  until  de- 
fault in  payment  of  the  principal  at 
maturity.  Mcllhenny  v.  Binz,  80 
Tex.  1,  13  S.  W.  655,  26  Am.  St.  705. 
Where  the  mortgage  bonds  have  be- 
come the  property  of  the  railroad 
company's  lessee,  such  lessee  will 
be  held  to  a  strict  accounting  before 
it  will  be  permitted  to  foreclose  for 
an  alleged  default  in  the  payment 
of  interest,  since  there  could  be  no 
default  so  long  as  the  rent  that  was 
unaccounted  for  equaled  the  unpaid 
interest.  Chamberlain  v.  Connecti- 
cut, &c.  R.  Co.  54  Conn.  472,  9  Atl. 
244. 

2  Elliott's  Gen.  Pr.  §  313;   Union, 
&c.  Co.  v.  Curtis,  35  Ohio  St.  357; 
Gillett  v.  Balcom,  6  Barb.   (N.  Y.) 
370;   Clemens  v.  Luce,  101  Cal.  432, 
35    Pac.     1032;     Wiltsie    Mortgage 
Foreclosures,  §  35.     But  the  instru- 
ment may,  of  course,  be  so  drawn 
as  to  require  a  demand.     Potomac, 
&c.  Co.  v.  Evans,  84  Va.  717,  6  S.  E. 
2;    Bolman  v.  Lohman,  79  Ala.  63. 
Thus,  there  may  be  no  default  un- 
der the  provisions  of  the  particular 
instrument   until    demand   and    re- 
fusal or  failure  to  comply  with  it. 
So  a  provision  in  bonds  requiring 
a  demand  has  been  held  to  control 
the  mortgage  securing  them.    Rail- 
way Co.  v.  Sprague,  103  U.  S.  756. 

3  Richards  v.  Holmes,  18  How.  (U. 
S.)    143;    Pomeroy  v.   Winship,   12 
Mass.  513,  7  Am.  Dec.  91;   Central 
Trust  Co.  v.  New  York,  &c.  R.  Co. 
33  Hun   (N.  Y.)    513;   Chicago,  &c. 


R.  Co.  v.  Fosdick,  106  U.  S.  47,  1 
Sup.  Ct.  10. 

*Dow  v.  Memphis,  &c.  R.  Co.  20 
Fed.  260;  Nebraska  City  Bank  v. 
Nebraska  Gas,  &c.  Co.  14  Fed.  763; 
Randolph  v.  Middleton,  26  N.  J.  Eq. 
543.  Where  a  railroad  trust  deed 
provided  that  if  the  default  occurred 
in  payment  of  interest  or  principal 
of  the  bonds,  the  trustees  were  to 
act  on  the  requisition  of  the  holders 
of  25  per  cent  of  the  bonds,  and  if 
"the  default  be  in  the  omission  of 
any  act  or  thing  required  by  article 
12  of  these  presents  for  the  further 
assurance  of  the  title  of  the  trustees 
to  any  property  or  franchise  now 
possessed  or  hereafter,  acquired,  or 
in  any  provisions  herein  contained 
to  be  performed  by  said  company, 
then  and  in  either  of  such  cases  the 
requisition  shall  be  as  aforesaid; 
but  it  shall  be  within  the  discretion 
of  the  trustees  to  enforce  or  waive 
the  rights  of  the  bondholders  by 
reason  of  such  default,  subject  to 
the  power  hereby  declared  of  a  ma- 
jority in  interest  of  such  bondhold- 
ers to  instruct  the  said  trustees  to 
waive  such  default,"  it  was  held 
that  the  right  of  a  majority  to 
waive  default  extended  only  to  fail- 
ure to  make  further  assurance,  and 
not  to  failure  to  pay  interest  or 
principal  of  the  bonds.  Hollister  v. 
Stewart,  111  N.  Y.  644,  19  N.  E.  782. 
Delay  for  three  months  in  bringing 
suit  after  failure  to  pay  instalment 
of  interest  is  not  a  waiver  of  a  stip- 


506] 


FORECLOSURE. 


692 


waiver,  if  by  parol  and  without  consideration,  may  be  revoked, 
and  then,  after  a  demand  of  payment,  the  payment  waived  will  be- 
come due.5  So,  it  has  been  held  that  an  agreement  not  to  exercise 
the  option  given  in  a  trust  deed  to  declare  the  entire  debt  due  for  de- 
fault in  payment  of  interest,  when  limited  to  a  specified  instalment, 
although  made  in  consideration  of  the  assignment  of  rents  accruing 
from  the  mortgaged  premises,  does  not  prevent  the  mortgagee  from 
declaring  the  entire  debt  due  upon  default  in  the  payment  of  a  sub- 
sequent instalment.6  Failure  to  pay  taxes  or  to  perform  other  condi- 
tions may  also  be  made  a  cause  for  declaring  the  entire  debt 'due 
and  justify  a  foreclosure  for  the  whole  amount,7  but  where  there  is 
no  agreement  by  the  mortgagor  to  pay  taxes,8  or  where  they  are  paid 
by  him  before  the  option  is  exercised  by  foreclosure  or  otherwise,  the 
mortgagee  cannot  foreclose  merely  because  of  such  failure.9 

§  506.  Option  to  declare  whole  debt  due — Election. — Where  an 
option  is  given  to  the  mortgagee  to  declare  the  whole  debt  due,  that 
is,  the  principal  as  well  as  the  interest,  upon  the  failure  to  pay  the 
interest  or  any  instalment  when  due,  he  must,  of  course,  in  some 
way,  indicate  his  election.  There  is  some  conflict  among  the  authori- 
ties as  to  whether  merely  instituting  suit  to  foreclose  for  the  entire 
debt  without  giving  any  previous  notice  or  otherwise  showing  an  elec- 


ulation  making  the  whole  debt  due 
at  once  upon  such  default.  Atkin- 
son v.  Walton,  162  Pa.  St.  219,  29 
Atl.  898.  See,  also,  Fletcher  v.  Den- 
nison,  101  Cal.  292,  35  Pac.  868; 
Brown  v.  McKay,  151  111.  315,  37  N. 
E.  1037.  But  compare  French  v. 
Row,  77  Hun  (N.Y.)  380,28  N.  Y.  S. 
849,  where  long  delay,  coupled  with 
other  circumstances,  was  held  to  be 
a  waiver.  Acceptance  of  the  de- 
faulted interest  before  instituting 
suit  to  foreclose  is  a  waiver  of  the 
right  of  forfeiture  on  account  of 
such  default.  Smalley  v.  Renken, 
85  Iowa  612,  52  N.  W.  507.  But  see 
Moore  v.  Sargent,  112  Ind.  484,  14 
N.  E.  466. 

"Albert  v.  Grosvenor  Investment 
Co.  L.  R.  3  Q.  B.  123;  Union  Trust 
Co.  v.  St.  Louis,  &c.  Co.  5  Dill.  (U. 
S.)  1;  Jones  Corp.  Bonds  and  Mort. 


§  383.    See,  also,  Sharpe  v.  Arnott, 

51  Cal.  188;  Gardner  v.  Watson,  13 
111.  347;   Massaker  v.  Mackerley,  9 
N.  J.  Eq.  440. 

8  Martin  v.  Land,  &c.  Bank,  5  Tex. 
Civ.  App.  167,  23  S.  W.  1032.  See, 
also,  Malcolm  v.  Allen,  49  N.  Y.  448. 

7  Martin  v.  Clover,  63  Hun  (N.  Y.) 
628,  17  N.  Y.   S.   638;    Williams  v. 
Townsend,  31  N.  Y.  411;  Brickell  v. 
Batchelder,  62  Cal.  623;  Pope  v.  Du- 
rant,  26  Iowa  233;  Wiltsie  Mortgage 
Foreclosures,  §  45. 

8  Noble  v.  Greer,  48  Kans.  41,  28 
Pac.    1004.     A   provision    requiring 
the  mortgagor  company  to  pay  taxes 
and  assessments  does  not  require  it 
to  pay  an  income  tax  upon  the  in- 
terest on  the  bonds.    Haight  v.  Rail- 
road Co.  6  Wall.  (U.  S.)  15. 

8  Smalley  v.  Renken,  85  Iowa  612, 

52  N.  W.  507. 


693  OPTION  TO  DECLARE  WHOLE  DEBT  DUE — ELECTION.       [§   506 

tion  to  exercise  the  option,  is  sufficient.  Much  depends  upon  the  pro- 
visions of  the  particular  mortgage  or  trust  deed  in  question.  It  may 
doubtless  provide  that  notice  shall  be  given  or  a  declaration  made  of 
the  mortgagee's  intention  to  take  advantage  of  the  option  before  the 
institution  of  proceedings  to  foreclose.  But,  in  the  absence  of  any 
such  provision,  that  is,  where  the  mortgage  merely  provides  that, 
upon  failure  to  pay  interest,  or  any  instalment,  when  due,  the  entire 
debt  shall  become  due,  or  that  the  mortgagee  shall  have  the  option 
of  declaring  it  due,  the  commencement  of  a  suit  to  foreclose  for  the 
entire  debt  is,  according  to  the  better  rule  and  the  weight  of  author- 
ity, a  sufficient  election  without  a  previous  declaration  thereof.10 
A  written  notice  given  by  the  holders  of  the  notes  or  bonds  secured 
by  the  trust  deed  to  the  trustee,  requesting  him  to  foreclose  for  the 
entire  debt,  has  been  held  to  be  a  sufficient  declaration  of  an  intention 
to  exercise  the  option.11  So,  where  a  mortgage  provided  that  until  de- 
fault in  the  payment  of  interest  for  six  months  after  written  demand 
by  the  trustee  the  mortgagor  should  remain  in  possession,  but  that 
after  such  default  the  trustee  might  take  possession,  it  was  held  that 
this  was  a  limitation  merely  upon  the  right  of  the  trustee  to  take 
possession,  and  that  he  might  institute  proceedings  to  foreclose 
without  giving  notice  and  without  waiting  six  months.12  Decisions 
may  be  found  which  seem  to  go  still  further  in  this  direction.13  The 
fact  that  the  mortgaged  property  is  in  the  possession  of  a  receiver 
appointed  at  the  suit  of  a  third  person  will  not  prevent  the  mort- 
gagee from  exercising  his  option  to  declare  the  entire  debt  due,  upon 
default  in  the  payment  of  one  instalment,  by  instituting  a  suit  to 

10  Brown  v.  McKay,  151  111.  315,  37  u  Heffron  v.  Gage,  149  111.  182,  36 

N.  E.  1037;  New  York  Security,  &c.  N.  E.  569.    See,  also,  Mallory  v.  West 

Co.  v.  Saratoga,  &c.  Co.  88  Hun  (N.  Shore,  &c.  R.  Co.  3  J.  &  S.   (N.  Y. 

Y.)   569,  34  N.  Y.  S.  890;  Taylor  v.  Super.  Ct.)  174;  Fellows  v.  Gilman, 

Alliance  Trust  Co.  71  Miss.  694,  15  4    Wend.    (N.    Y.)    414;    American 

So.  121 ;  Morling  v.  Bronson,  37  Neb.  Tube,  &c.  Co.  v.  Kentucky,  &c.  Co. 

608,  56  N.  W.  205;  Sichler  v.  Look,  51  Fed.  826. 

93  Cal.  600,  29  Pac.  220,  223;   Bu-  ^  Farmers'  Loan,  &c.   Co.  v.  Wi- 

chanan  v.  Berkshire,  &c.  Co.  96  Ind.  nona,  &c.  R.  Co.  59  Fed.  957.    To  the 

510;   Young  v.  McLean,  63  N.  Car.  ^same  effect  is  Alabama,  &c.  Co.  v. 

576.     Contra,  Basse  v.  Gallegger,  7  Robinson,  56  Fed.  690,  affirming  Rob- 

Wis.  442,  76  Am.  Dec.  225;  Macloon  inson  v.  Alabama,  &c.  Co.  48  Fed.  12. 

v.  Smith,  49  Wis.  200,  5  N.  W.  336 ;  13  See,     for    instance,     Mercantile 

Dean  v.  Applegarth,  65  Cal.  391,  4  Trust  Co.  v.  Chicago,  &c.  R.  Co.  61 

Pac.  375  (distinguished  in  Hewitt  v.  Fed.  372.    But  see  post,  §  507. 
Dean,  91  Cal.  5,  27  Pac.  423). 


507] 


FORECLOSURE. 


694 


foreclose.14  We  doubt,  however,  if  the  mortgagee  could  sell  the  prop- 
erty, under  a  decree  of  foreclosure,  while  it  is  in  the  hands  of  the 
receiver. 

§  507.  Foreclosure  for  default  in  payment  of  interest. — A  fore- 
closure may  be  had  for  unpaid  interest,  although  the  principal  debt  is 
not  due.15  A  railroad  mortgage,  providing  that  the  bonds  shall  be- 
come due  on  default  in  the  payment  of  interest,  may  be  foreclosed 
on  default,  unless  the  statute  authorizing  the  bonds  states  a  minimum 
period,  not  yet  elapsed,  during  which  they  must  run,  in  which  case 
the  mortgage  may  be  foreclosed  for  the  default  in  the  payment  of 
interest,  the  decree  directing  a  sale  if  payment  is  not  made  within  a 
period  appointed  by  the  court,  and  the  remainder  of  the  proceeds, 
after  the  satisfaction  of  the  defaulted  interest  and  expenses,  being 
held  by  the  court  subject  to  the  mortgagee's  lien  for  the  payment  of 
the  subsequently  maturing  interest  coupons  and  the  principal.16  But 
it  seems  that  such  a  suit  may  generally  be  arrested  by  payment  of  the 
accrued  interest  and  costs.17  It  is  frequently  provided  in  the  mort- 


"Mulcahey  v.  Strauss,  151  111.  70, 
37  N.  E.  702.  It  was  also  held  in 
this  case  that  the  failure  to  obtain 
leave  to  sue  the  receiver  did  not  de- 
prive the  court  of  jurisdiction  and 
that  the  objection  was  waived. 
Where  the  receiver  is  a  party,  how- 
ever, leave  should  be  obtained,  for 
even  if  it  is  not  jurisdictional,  the 
failure1  to  obtain  it  may  be  fatal 
where  the  question  is  properly 
raised. 

15  Union  Trust  Co.  v.  St.  Louis,  &c. 
R.  Co.  5  Dill.  (U.  S.)  1;  Howell  v. 
Western,  &c.  R.  Co.  94  U.  S.  463; 
Chicago,  &c.  R.  Co.  v.  Fosdick,  106 
U.  S.  47,  68,  1  Sup.  Ct.  10;  Central 
T.  Co.  v.  New  York,  &c.  R.  Co.  33 
Hun  (N.  Y.)  513.  Where  a  railroad 
mortgage  contains  no  provision 
making  the  principal  due  on  default 
in  the  payment  of  interest,  powers 
given  to  the  trustee,  after  default 
in  the  payment  of  interest,  to  take 
possession  of  the  mortgaged  prop- 
erty and  sell  the  same  and  apply  the 


proceeds  to  the  payment  of  interest 
and  principal,  do  not  accelerate  the 
maturity  of  the  principal  so  as  to 
authorize  foreclosure  for  the  entire 
debt  on  such  default.  McFadden  v. 
Mays  Landing,  &c.  R.  Co.  49  N.  J. 
176,  22  Atl.  932. 

18  Howell  v.  Western  R.  Co.  94  U. 
S.  463 ;  Wilmer  v.  Atlanta,  &c.  R.  Co. 
2  Woods  (U.  S.)  409,  447;  Macon  & 
Augusta  R.  Co.  v.  Georgia  R.  Co.  63 
Ga.  103;  Central  Trust  Co.  v.  New 
York,  &c.  R.  Co.  33  Hun  (N.  Y.)  513; 
Wood  v.  Consolidated,  &c.  Co.  36 
Fed.  538. 

"See  Tillinghast  v.  Troy,  &c.  R. 
Co.  48  Hun  (N.  Y.)  420,  1  N.  Y.  S. 
243;  Philips  v.  Bailey,  82  Mo.  639. 
In  Grape  Creek  Coal  Co.  v.  Farmers', 
&c.  Co.  63  Fed.  891,  895,  it  is  said 
that  such  right  doubtless  exists 
"down  to  the  entry  of  the  decree," 
but  it  cannot  be  exercised  after  a 
decree  is  entered  declaring  the 
whole  debt  due. 


695  FOEECLOSUEE  FOR  DEFAULT  IN  PAYMENT  OF  INTEREST.  [§  507 


gage  or  trust  deed  that  upon  default  in  the  payment  of  interest  the 
mortgage  may  be  foreclosed  for  the  entire  debt.  Such  a  provision  is 
valid,18  but  it  does  not,  at  least  unless  it  clearly  makes  the  entire  debt 
due  for  all  purposes,  authorize  a  personal  judgment  for  any  de- 
ficiency in  the  amount  of  the  mortgaged  property  to  pay  the  principal 
not  yet  due.  Its  effect  is  rather  to  make  the  principal  due  merely  for 
the  purposes  of  the  foreclosure  or  entry  and  sale  by  the  trustee  under 
the  provisions  of  the  mortgage.19  But,  where  the  mortgaged  property 
cannot  be  sold  in  parcels,  as  is  usually  the  case  with  railroads,  the 
entire  road  may  be  sold  even  upon  foreclosure  for  default  in  the  in- 
terest alone,  and  the  proceeds  applied  to  the  principal  as  well  as 
the  interest.20  Practically,  therefore,  to  this  extent  a  default  in  pay- 
ment of  interest  may  cause  the  entire  debt 'to  become  due  whether 
there  is  a  provision  in  the  mortgage  to  that  effect  or  not.  It  is  not 
to  be  inferred  from  this,  however,  that  such  a  provision  is  unimpor- 
tant. While  it  is  proper,  even  in  its  absence,  to  direct  the  payment 
of  the  whole  debt  out  of  the  proceeds  of  the  sale  of  the  property  as 


"McLean  v.  Presley,  56  Ala.  211; 
Pope  v.  Durant,  26  Iowa  233;  Hood- 
less  v.  Reid,  112  111.  105;  Richards 
v.  Holmes,  18  How.  (U.  S.)  143; 
Indiana,  &c.  R.  Co.  v.  Sprague,  103 
U.  S.  756;  Marye  v.  Hart,  76  Cal. 
291,  18  Pac.  325,  23  Am.  &  Eng.  Corp. 
Cas.  506,  and  note;  Wiltsie  Mort. 
Foreclosure,  §  37.  In  some  juris- 
dictions this  is  the  rule  even  in  the 
absence  of  any  express  provision 
upon  the  subject.  Farmers'  Loan, 
&c.  Co.  v.  Nova  Scotia,  &c.  R.  Co.  24 
N.  S.  542.  Where  the  provision  is 
that  the  entire  debt  may  be  declared 
due  and  collected  by  the  trustee, 
after  default  in  payment  of  interest, 
at  the  request  of  a  certain  number 
of  bondholders,  or  the  like,  the  con- 
dition must  be  performed  before  ad- 
vantage can  be  taken  of  the  provi- 
sion. Chicago,  &c.  R.  Co.  v.  Fosdick, 
106  U.  S.  47,  1  Sup.  Ct.  10;  Batchel- 
der  v.  Council,  &c.  Co.  131  N.  Y.  42, 
29  N.  E.  801;  Farmers'  Loan,  &c. 
Co.  v.  Bankers',  &c.  Co.  44  Hun  (N. 
Y.)  400. 


"Morgan  v.  Martien,  32  Mo.  438; 
White  v.  Miller,  52  Minn.  367,  54  N. 
W.  736;  McClelland  v.  Bishop,  42 
Ohio  St.  113;  Railway  Co.  v. 
Sprague,  103  U.  S.  756;  Ohio  Cent. 
R.  Co.  v.  Central  T.  Co.  133  U.  S.  83, 
10  Sup.  Ct.  235;  Mallory  v.  West 
Shore,  &c.  R.  Co.  35  N.  Y.  Super.  Ct. 
174;  Grape  Creek  Coal  Co.  v.  Farm- 
ers' Loan,  &c.  Co.  63  Fed.  891.  (Pro- 
vision held  insufficient  to  authorize 
a  decree  declaring  principal  due  and 
compelling  its  payment  in  order  to 
redeem.)  But  see  Wheeler,  &c.  Co. 
v.  Howard,  28  Fed.  741;  Noell  v. 
Gaines,  68  Mo.  649. 

2001cott  v.  Bynum,  17  Wall.  (U. 
S.)  44;  Chicago,  &c.  R.  Co.  v.  Fos- 
dick, 106  U.  S.  47,  68,  1  Sup.  Ct.  10; 
Farmers'  Loan,  &c.  Co.  v.  Oregon, 
&q.  R.  Co.  24  Fed.  407;  Pennsylvania 
R.  Co.  v.  Allegheny,  &c.  R.  Co.  48 
Fed.  139;  McLean  v.  Presley,  56  Ala. 
211;  Bridges  v.  Ballard,  62  Miss. 
237;  McTighe  v.  Macon,  &c.  Co.  94 
Ga.  306,  21  S.  E.  701,  706,  707,  32  L. 
R.  A.  208,  47  Am.  St.  153. 


§  508] 


FORECLOSURE. 


696 


an  entirety,  yet,  in  such  a  case,  the  amount  of  overdue  interest  should 
be  stated  in  the  decree  and  provision  made  for  the  mortgagor  to  re- 
deem before  the  sale  upon  the  payment  of  such  interest  and  costs, 
whereas  the  presence  of  a  provision  expressly  making  the  entire  debt 
due  upon  default  in  payment  of  interest  will  authorize  a  decree  de- 
claring it  all  due  and  ordering  a  sale,  unless  the  whole  amount  is 
paid  within  a  reasonable  time  therein  specified.21 

§  508.  Parties  to  foreclosure  suit — Plaintiffs. — Where  the  mort- 
gage is  made  to  trustees  they  may  sue  to  foreclose  it  without  joining 
the  bondholders.22  Where  a  bill  in  equity  is  filed  by  the  trustees  for 
the  foreclosure  of  a  mortgage,  the  individual  bondholders  are  not 
necessary  nor,  as  a  rule,  even  proper  parties  to  the  suit.23  They  may 


21  Grape  Creek  Coal  Co.  v.  Farm- 
ers' Loan,  &c.  Co.  63  Fed.  891;  Chi- 
cago, &c.  R.  Co.  v.  Fosdick,  106  U.  S. 
47,  75,  1  Sup.  Ct.  10;  Ohio  Cent  R. 
Co.  v.  Central  Trust  Co.  133  U.  S. 
83,  10  Sup.  Ct.  235. 

22  Chicago,  &c.  Land  Co.  v.  Peck, 
112  111.  408;  Richter  v.  Jerome,  123 
U.  S.  233,  8  Sup.  Ct.  106;    Hale  v. 
Nashua,  &c.  R.   Co.   60  N.   H.   333; 
Boston,  &c.  R.  Co.  v.  Coffin,  50  Conn. 
150;  Coe  v.  Columbus,  &c.  R.  Co.  10 
Ohio  St.  372,  75  Am.  Dec.  518;   Sa- 
vannah, &c.  R.  Co.  v.  Lancaster,  62 
Ala.    555.     See,  also,   Grand   Trunk 
R.  Co.  v.  Central  Vermont  R.  Co.  88 
Fed.  622.     A  trustee  under  succes- 
sive  mortgages  to   secure  different 
issues  of  bonds  may,  as  trustee  of 
the   first   mortgage,   in    good    faith 
foreclose    it    and    bind    the    second 
mortgage  bondholders  by  the  decree 
so  far  as  represented  by  him.    Rob- 
inson v.  Iron  R.  Co.  135  U.  S.  522, 
531,  10  Sup.  Ct.  907.    But  it  is  said 
that  he  should  make  both  himself 
as  trustee  under  the   second  mort- 
gage and  some  of  the  second  mort- 
gage   bondholders    parties     defend- 
ant.    See,   generally,   as   to  parties 
plaintiff  in  such  suits,  leading  arti- 
cle in  54  Cent.  Law  Jour.  364. 

23  Shaw  v.   Norfolk,  &c.  R.  Co.  5 


Gray  (Mass.)  162;  Wetmore  v.  St. 
Paul,  &c.  R.  Co.  1  McCrary  (U.  S.) 
466;  Railroad  Co.  v.  Howard,  7 
Wall.  (U.  S.)  392;  Shaw  v.  Little 
Rock,  &c.  R.  Co.  100  U.  S.  605.  But 
see  Wiltsie  Mortgage  Foreclosures, 
§  110.  In  a  railroad  foreclosure  suit 
the  mortgage  trustee  represents  the 
bondholders,  and,  if  he  acts  in  good 
faith,  whatever  binds  him  binds 
them,  so  that  they  have  no  right  to 
be  made  parties,  except  when  the 
trustee  is  not  acting  in  good  faith. 
Farmers'  Loan,  &c.  Co.  v.  Kansas 
City,  &c.  R.  Co.  53  Fed.  182;  Seals  v. 
Illinois,  &c.  R.  Co.  133  U.  S.  290,  10 
Sup.  Ct.  314;  Elwell  v.  Fosdick,  134 
U.  S.  500,  10  Sup.  Ct.  598;  McElrath 
v.  Pittsburg,  &c.  R.  Co.  68  Pa.  St.  37. 
See,  also,  Central  Trust  Co.  v.  Peoria, 
&c.  R.  Co.  104  Fed.  420.  This  rule 
has  been  applied  where  the  trustee 
was  made  defendant  to  a  suit  to  can- 
cel and  satisfy  the  mortgage  under 
a  reorganization  agreement.  Pol- 
litz  v.  Farmers',  &c.  Co.  53  Fed.  210. 
But  it  is  said  that  the  trustee  repre- 
sents the  bondholders  only  for  thfi 
protection  of  their  lien  under  the 
trust  deed  and  not  after  he  has  de- 
nied their  right.  Moran  v.  Hager- 
man,  64  Fed.  499. 


697 


BONDHOLDERS  AS  PLAINTIFFS. 


[§'  509 


be  admitted  as  parties,  however,  where  the  trustee  is  guilty  of  miscon- 
duct or  shows  himself  incompetent  to  properly  execute  the  trust,24 
or  where  he  is  shown  to  have  interests  adverse  to  those  of  the  bond- 
holders.25 If  a  part  of  the  trustees  refuse  to  act,  the  suit  may  be 
prosecuted  by  the  remaining  trustee  or  trustees,  and  those  refusing 
to  act  may  be  made  defendants.26  So,  where  one  of  several  trustees 
dies  the  surviving  trustee  or  trustees  may  maintain  the  suit.27 

§  509.  Bondholders  as  plaintiffs. — In  case  the  trustees  neglect  or 
refuse  to  bring  a  foreclosure  suit,  or  the  trustee's  office  becomes  va- 
cant, and  there  is  no  provision  in  the  mortgage  forbidding  such  a 
course,  one  of  the  bondholders  may  bring  a  suit  on  behalf  of  himself 
and  all  others  who  choose  to  join  him,  to  foreclose  the  mortgage  for 
a  default  in  the  payment  of  the  principal  or  interest  of  his  bonds.28 


14  Skiddy  v.  Atlantic,  &c.  R.  Co.  3 
Hughes  (U.  S.)  320.  The  simple 
fact  that  a  single  trust  company  is 
trustee  under  twelve  mortgages 
given  by  different  corporations 
which  have  united  to  form  a  single 
system,  is  not  sufficient  reason  for 
admitting  a  committee  of  the  bond- 
holders of  the  principal  corporation 
by  which  the  other  roads  in  the  sys- 
tem are  owned  or  controlled  to  be- 
come party  plaintiffs  in  a  suit  to 
foreclose.  Clyde  v.  Richmond,  &c. 
R.  Co.  55  Fed.  445. 

^DeBetz's  Petition,  9  Abb.  N.  C. 
(N.  Y.)  246;  Webb  v.  Vermont,  &c. 
R.  Co.  9  Fed.  793;  American  Tube, 
&c.  Co.  v.  Kentucky,  &c.  Co.  51  Fed. 
826.  See,  also,  Farmers'  Loan,  &c. 
Co.  v.  Cape  Fear,  &c.  R.  Co.  71  Fed. 
38;  Farmers'  Loan,  &c.  Co.  v.  North- 
ern Pac.  R.  Co.  66  Fed.  169. 

26  Tillinghast  v.  Troy,  &c.  R.  Co. 
48  Hun  (N.  Y.)  420,  1  N.  Y.  S.  243; 
Robinson  v.  Alabama,  &c.  Co.  48  Fed. 
12. 

"Alabama,  &c.  Co.  v.  Robinson,  56 
Fed.  690,  affirming  Robinson  v.  Ala- 
bama, &c.  Co.  48  Fed.  12;  Gibbes  v. 
Greenville,  &c.  R.  Co.  13  S.  Car.  228. 
Or  if  no  trustee  is  .left  it  is  held 


that  one  or  more  bondholders  may 
foreclose  for  all.  Wheelwright  v.  St. 
Louis,  &c.  Co.  56  Fed.  164;  Galves- 
ton,  &c.  R.  Co.  v.  Cowdrey,  11  Wall. 
(U.  S.)  459. 

28  Van  Benthuysen  v.  Central  N. 
E.  &c.  R.  Co.  63  Hun  (N.  Y.)  627, 
17  N.  Y.  S.  709;  Mason  v.  York,  &c. 
R.  Co.  52  Me.  82 ;  Hotel  Co.  v.  Wade, 
97  U.  S.  13;  Chickering,  In  re,  56 
Vt.  82;  March  v.  Eastern  R.  Co.  40 
N.  H.  548,  566,  77  Am.  Dec.  732; 
Seibert  v.  Minneapolis,  &c.  R.  Co.  52 
Minn.  148,  53  N.  W.  1134,  20  L.  R. 
A.  535  and  note,  38  Am.  St.  530,  57 
Am.  &  Eng.  R.  Gas.  208;  Common- 
wealth v.  Susquehanna,  &c.  R.  Co. 
122  Pa.  St.  306,  15  Atl.  448,  1  L.  R. 
A.  225;  Wheelwright  v.  St.  Louis,  &c. 
Co.  56  Fed.  164;  Chicago,  &c.  R.  Co. 
v.  Fosdick,  106  U.  S.  47;  1  Sup.  Ct. 
10;  Brooks  v.  Vermont  Cent.  R.  Co. 
14  Blatchf.  (U.  S.)  463.  In  Alex- 
ander v.  Central  R.  Co.  3  Dill.  (U. 
S.)  487,  the  mortgage  gave  the  trus- 
tee a  power  of  sale  to  be  exercised 
at  the  request  of  a  majority  of  the 
stockholders,  upon  default  in  the 
payment  of  interest.  It  was  held 
that  this  remedy  was  merely  cumu- 
lative to  the  ordinary  legal  reme- 


509] 


FORECLOSURE. 


698 


Such  neglect,  refusal,  or  vacancy  must  be  alleged  and  proved  or  the 
court  will  refuse  to  grant  relief.29  Bondholders  have  also  been  permit- 


dies,  and  that  upon  refusal  of  the 
trustee  to  bring  a  suit  to  foreclose 
the  mortgage  for  a  default  in  the 
payment  of  interest,  any  one  of  the 
bondholders  could  maintain  a  suit 
in  equity  for  that  purpose  on  be- 
half of  himself  and  others,  making 
the  trustee  a  party  defendant.  Such 
a  suit  should  usually  be  brought  by 
the  bondholder  in  behalf  of  himself 
and  all  other  bondholders,  but  an 
averment  to  this  effect  is  unneces- 
sary when  default  has  been  made 
only  on  the  bonds  held  by  the  com- 
plainant. McFadden  v.  Mays  Land- 
ing, &c.  R.  Co.  49  N.  J.  Eq.  176,  22 
Atl.  932.  See,  also,  Tyler  v.  Yreka, 
&c.  Co.  14  Cal.  212.  In  a  recent 
case  the  Supreme  Court  of  the 
United  States  held  that  a  foreclo- 
sure was  not  invalid  because  one  of 
the  trustees  was  a  director  and  the 
others  stockholders  in  the  company 
that  procured  the  foreclosure;  be- 
cause one  person  was  president  of 
both  companies;  because  a  majority 
of  the  directors  of  one  company 
were  directors  of  the  other;  because 
the  president  of  one  company  owned 
most  of  the  other  company's  stock; 
or  because  the  attorneys  who  insti- 
tuted the  foreclosure  suit  in  the 
name  of  the  trustees  were  in  other 
matters  attorneys  for  or  directors 
of  the  company  that  procured  it. 
Leavenworth  County  v.  Chicago,  &c. 
R.  Co.  134  U.  S.  688,  10  Sup.  Ct.  708. 
The  fact  that  the  bondholder  pur- 
chased his  bonds  at  the  request  of 
the  lessee  of  the  mortgaged  rail- 
road, and  that  the  suit  was  insti- 
tuted as  a  means  of  relieving  it 
from  the  inconvenience  and  loss  at- 
tending the  operation  of  the  road 
does  not  deprive  the  bondholder  of 


his  remedy  of  foreclosure  on  default 
in  the  payment  of  the  bonds.  Mc- 
Fadden v.  Mays  Landing,  &c.  R.  Co. 
49  N.  J.  Eq.  176,  22  Atl.  932. 

29  Clyde  v.  Richmond,  &c.  R.  Co. 
55  Fed.  445;  Morgan  v.  Kansas  Pac. 
R.  Co.  15  Fed.  55;  Hotel  Co.  v.  Wade, 
97  U.  S.  13.  In  Chicago,  &c.  R.  Co. 
v.  Fosdick,  106  U.  S.  47,  1  Sup.  Ct. 
10,  where  the  terms  of  the  mortgage 
gave  the  trustees  the  right,  upon  a 
default  for  six  months  in  the  pay- 
ment of  interest,  and  at  the  request 
of  a  majority  of  the  bondholders, 
to  take  possession  of  the  railroad 
property  and  sell  the  same,  the 
court,  by  Mr.  Justice  Matthews,  said : 
"But  inasmuch  as  by  the  terms  of 
the  first  article  the  conveyance  is 
declared  to  be  for  the  purpose  of 
securing  the  payment  of  the  interest 
as  well  as  the  principal  of  the  bonds, 
and  by  the  fourth  article  the  mort- 
gagor's right  of  possession  termi- 
nates upon  a  default  in  the  payment 
of  interest  as  well  as  principal  on 
the  bonds,  we  are  of  opinion,  inde- 
pendent of  the  provisions  of  the 
other  articles,  that  the  trustees,  or, 
on  their  failure  to  do  so,  any  bond- 
holder, on  non-payment  of  any  in- 
stalment of  interest  on  any  bond, 
might  file  a  bill  for  the  enforcement 
of  the  security  by  a  foreclosure  of 
the  mortgage  and  sale  of  the  mort- 
gaged property.  This  right  belongs 
to  each  bondholder  separately,  and 
its  exercise  is  "not  dependent  upon 
the  co-operation  or  consent  of  any 
others,  or  of  the  trustees.  It  is 
properly  and  strictly  enforceable  by 
and  in  the  name  of  the  latter,  but 
if  necessary  may  be  prosecuted  with- 
out and  even  against  them." 


699  BONDHOLDERS  AS  PLAINTIFFS.  [§   509 

ted  to  maintain  the  suit  where  the  only  trustee  has  gone  beyond  the 
jurisdiction  of  the  court  and  it  is  shown  that  an  emergency  exists 
for  immediate  action  and  that  great  loss  will  result  to  the  complain- 
ants before  he  can  be  reached.30  Where  a  foreclosure  suit  has  been 
commenced  by  bondholders  on  behalf  of  themselves  and  all  others 
who  desire  to  join  them,  the  other  bondholders  may,  upon  petition, 
be  permitted  to  become  complainants.31  But  it  is  not  necessary  that 
they  should  do  so,  as  the  interests  of  all  the  bondholders  are  repre- 
sented by  the  actual  complainants,  and  by  the  trustees,  who  must, 
in  such  a  suit,  be  made  parties  defendant.32  The  bondholder  who 
brings  the  suit  cannot,  by  so  doing,  obtain  an  undue  advantage  over 
the  other  bondholders  whose  rights  in  the  security  are  the  same 
as  his  own ;  he  is  bound,  in  such  a  case,  to  act  for  all  and  not  merely 
for  himself.33  In  an  action  by  a  holder  of  bonds,  suing  on  behalf  of 
himself  and  others,  to  foreclose  a  mortgage  securing  the  bonds,  for  a 
default  in  payment  of  interest  thereon,  a  tender,  unless  of  interest 
due  on  all  the  bonds,  has  been  held  insufficient  to  arrest  the  action.34 
Where  a  minority  of  the  bondholders  bring  a  foreclosure  suit  against 
the  wishes  of  the  majority,  the  court  may  grant  a  stay  of  proceedings 
upon  application  on  condition  that  the  bonds  sued  on  shall  be  paid 
together  with  accrued  costs.35  It  is  competent  for  the  bondholders  to 
agree  among  themselves  upon  what  conditions  the  right  to  sue  may 
be  exercised  by  an  individual  bondholder;  and  a  provision  in  the 

^Ettlinger  v.  Persian,  &c.  Co.  142  bondholder  could  not  maintain  the 
N.  Y.  189,  36  N.  E.  1055,  40  Am.  St.  suit  without  notice  to  others  who 
587.  But  mere  non-residence  of  the  were  named  in  the  mortgage.  As 
trustee  has  been  held  insufficient,  he  acts  for  all,  he  should  be  reim- 
Morgan  v.  Kansas  Pac.  R.  Co.  15  bursed  out  of  the  trust  fund  for  ex- 
Fed.  55.  penses  so  incurred  to  the  same  ex- 

31  Chickering,  In  re,  56  Vt.  82.  tent  as  the  trustee  would  have  been 

12  First  Nat.  Ins.  Co.  v.  Salisbury,  entitled  to  be  reimbursed.     Seibert 

130  Mass.   303;    Hackensack  Water  v.  Minneapolis,  &c.  R.  Co.  52  Minn. 

Co.    v.    DeKay,    36    N.   J.   Eq.   548;  246,  53  N.  W.  1151.     See  Hobbs  v. 

Jones  Mortgages,  §  1385.  McLean,  117  U.  S.  567,  6  Sup.  Ct. 

83  Jackson   v.   Ludeling,   21  Wall.  870. 

(U.  S.)   616;   New  Orleans  Pac.  R.  "Van  Benthuysen  v.  Central,  &c. 

v.  Parker,  143  U.  S.  42,  58,  12  Sup.  R.,Co.  63  Hun  (N.  Y.)  627,  17  N.  Y. 

Ct.   364;    6   Lewis'  Am.  R.  &  Corp.  S.  709. 

43;  Commonwealth  v.  Susquehanna,  "Tillinghast  v.  Troy,  &c.  R.  Co. 

&c.  R.  Co.  122  Pa.  St.  306,  15  Atl.  48  Hun  (N.  Y.)  420,  1  N.  Y.  S.  243, 

448,  1  L.  R.  A.  225.    See,  also  Rail-  affirmed  in  121  N.  Y.  649,  24  N.  E. 

road  Co.  v.  Orr,  18  Wall.    (U.  S.)  1091. 
471,  where  it  was  held  that  a  single 


509] 


FORECLOSURE, 


700 


mortgage  that  no  proceedings  in  law  or  equity  shall  be  taken  by  any 
bondholder  secured  thereby,  to  foreclose  the  equity  of  redemption  in- 
dependently of  the  trustee,  until  after  the  refusal  of  the  trustee  to 
comply  with  a  requisition  first  made  upon  him  by  the  holders  of  a 
certain  percentage  of  the  bonds  secured  by  such  mortgage,  is  reason- 
able and  valid.  Such  provisions  are  to  be  deemed  stricti  juris,  but 
are,  nevertheless,  to  be  reasonably  construed  in  view  of  the  nature 
of  the  security,  and  the  interest  of  the  bondholders  as  a  class.  It  is 
not  the  purpose  or  effect  of  such  a  stipulation  to  divest  the  bond- 
holders of  their  rights  to  judicial  remedies,  or  to  oust  the  courts  of 
their  jurisdiction,  but  it  is  merely  the  imposition  of  certain  condi- 
tions upon  themselves  in  respect  to  the  exercise  of  that  right.80  After 


38Seibert  v.  Minneapolis,  &c.  R. 
Co.  52  Minn.  148,  53  N.  W.  1134,  20 
L.  R.  A.  335,  38  Am.  St.  530.  In 
this  case  the  court  said:  "We  are 
unable  to  see  why  the  bondholders, 
subject  to  reasonable  limitations, 
may  not  be  bound  by  stipulations 
in  the  mortgage  of  this  character, 
waiving  a  default,  and  providing, 
subject  to  the  conditions  named,  for 
the  foreclosure  by  the  trustee  ex- 
clusively. The  interests  of  the 
bondholders  as  a  class  and  the  na- 
ture of  the  security  are  to  be  con- 
sidered. They  are  agreements  which 
the  bondholders  are  at  liberty  to 
make,  and  there  is  nothing  illegal 
or  contrary  to  public  policy  in  them. 
Chicago,  &c.  R.  Co.  v.  Fosdick,  106 
U.  S.  47,  1  Sup.  Ct.  10,  7  Am.  &  Eng. 
R.  Cas.  427,  450.  Each  bondholder 
enters  into  contract  relations  with 
each  and  all  of  his  co-bondholders. 
His  right  to  appropriate  the  security 
in  satisfaction  of  his  bond  in  such 
lawful  manner  as  he  may  choose  is 
modified  not  only  by  the  express 
provisions  of  the  mortgage,  but  by 
the  peculiar  nature  of  the  security. 
Gates  v.  Boston,  &c.  R.  Co.  53  Conn. 
333;  Shaw  v.  Railroad  Co.  100  U.  S. 
605;  Canada,  &c.  R.  Co.  v.  Gebhard, 
109  U.  S.  527,  537,  3  Sup.  Ct.  363; 


Guilford  v.  Minneapolis,  &c.  Rail- 
road Co.  48  Minn.  560,  51  N.  W.  658, 
31  Am.  St.  694.  The  legislature 
would  have  had  an  undoubted  right 
to  have  incorporated  in  the  enabling 
statute  authorizing  the  execution  of 
the  mortgage  and  the  issuance  of 
the  bonds  secured  thereby,  a  pro- 
vision requiring  the  mortgage  to 
contain  similar  stipulations.  Howell 
v.  Western  Railroad  Co.  94  U.  S. 
463.  It  is  clear,  then,  that  it  would 
be  competent  for  the  bondholders 
themselves  to  agree  to  them.  They 
are  to  be  treated  as  stricti  juris,  but 
nevertheless  are  to  be  reasonably 
construed  in  view  of  the  nature  of 
the  mortgage,  which  is  the  common 
security  for  all  the  bondholders,  and 
the  purposes  to  be  subserved  in 
making  them.  *  *  *  The  trustee, 
as  mortgagee,  representing  the  in- 
terests of  all  the  bondholders  as 
beneficiaries,  is  the  proper  party  to 
institute  foreclosure  proceedings, 
but  if  he  unreasonably  neglects  or 
refuses  to  discharge  his  duty  in  the 
premises,  doubtless  any  bondholder 
may  bring  an  action  to  enforce  the 
security  for  the  common  benefit. 
Chicago,  &c.  R.  Co.  v.  Fosdick,  106 
U.  S.  47,  1  Sup.  Ct.  10.  The  court 
said:  "Why  may  not  the  mortgage 


701 


BONDHOLDERS   AS   PLAINTIFFS. 


[§    509 


suit  is  brought  by  individual  bondholders  to  foreclose  a  mortgage, 
the  trustees  may  ask  leave  to  become  complainants  instead  of  de- 
fendants; and,  unless  they  have  been  negligent  and  unfaithful,  or 
have  interests  adverse  to  those  of  the  bondholders,  they  will  generally 
be  allowed  to  do  so.  It  has  also  been  held  that  as  soon  as  they  are  ad- 
mitted as  complainants,  they  have  control  of  the  suit,  and  may, 
upon  leave  of  court,  dismiss  it,  and  pursue  some  -other  remedy.37 
A  bondholder  may  bring  an  action  at  law  for  unpaid  bonds  or  in- 
terest, but  any  judgment  recovered  in  such  an  action  will  be  subject 
to  the  prior  lien  of  the  mortgage.38  Property  of  the  company  not 
covered  by  the  mortgage  may,  however,  be  sold  on  execution  for  such 
a  claim.39  When  a  railroad  company  mortgages  its  property  to  the 
bondholders  by  name,  all  must  join  in  or  be  made  parties  to  a  suit  to 
foreclose  the  mortgage,  and  no  one  can  bring  a  suit  on  behalf  of  him- 
self and  all  others  who  will  come  in  and  share  the  expenses  of  the 
suit.40  In  such  a  case,  all  parties  should  be  before  the  court,  because, 
if  the  mortgage  should  not  prove  an  adequate  security,  it  is  the  in- 


in  the  common  interest  stipulate  the 
conditions  under  which  this  right 
may  be  exercised  by  the  bondhold- 
ers, and  in  order  to  avoid  the  risk 
of  rash  or  arbitrary  proceedings 
which  might  result  in  great  injury 
to  the  security,  provide  that  no 
such  proceedings  should  be  insti- 
tuted by  an  individual  bondholder 
except  upon  the  refusal  of  the  trus- 
tee to  obey  the  requisition  of  a  rea- 
sonable number  of  the  bondholders. 
It  is  not  the  intention  or  effect  of 
such  conditions  or  stipulations  to 
divest  the  bondholders  of  their  right 
to  judicial  remedies,  or  to  oust  the 
courts  of  their  jurisdiction;  it  is 
merely  the  imposition  of  certain 
conditions  upon  themselves  in  re- 
spect to  the  exercise  of  that  right. 
And  this  distinction  is  well  recog- 
nized by  the  courts.  Gasser  v.  Sun 
Fire  Office,  42  Minn.  315,  44  N.  W. 
252,  and  cases;  Guilford  v.  Minne- 
apolis, &c.  R.  Co.  48  Minn.  560,  51 
N.  W.  658,  31  Am.  St.  694.  The  pro- 
visions of  this  mortgage  are  not, 


we  think,  unreasonable  or  invalid." 
But  see  Guaranty  Trust,  &c.  Co.  v. 
Green  Cove,  &c.  R.  Co.  139  U.  S.  137, 
11  Sup.  Ct.  512,  for  a  provision  held 
invalid  as  attempting  to  oust  the 
jurisdiction  of  the  court. 

"Richards  v.  Chesapeake,  &c.  R. 
Co.  1  Hughes  (U.  S.)  28. 

38  Commonwealth  v.  Susquehanna, 
&c.  R.  Co.  122  Pa.  St.  306,  15  Atl. 
448,  1  L.  R.  A.  225;  Philadelphia, 
&c.  R.  Co.  v.  Woelpper,  64  Pa.  St. 
366,  3  Am.  R.  596.  Waiver  of  the 
right  to  foreclose  a  mortgage,  on  de- 
fault in  the  payment  of  interest 
coupons  on  the  bonds  secured  by  it, 
does  not  affect  the  right  to  an  action 
at  law  to  recover  on  the  coupons. 
Lyon  v.  New  York,  &c.  R.  Co.  14 
Daly  (N.  Y.)  489. 

f  Carr  v.  LeFevre,  27  Pa.  St.  413 ; 
Philadelphia,  &c.  R.  Co.  v.  Johnson, 
54  Pa.  St.  127.  See,  also,  Scott  v. 
Farmers',  &c.  Co.  69  Fed.  17. 

40  Railroad  Co.  v.  Orr,  18  Wall.  (U. 
S.)  471. 


§  510] 


FORECLOSURE. 


702 


terest  of  each  mortgagee  to  diminish  the  claim  of  every  other  mort- 
gagee, and  thereby  add  to  his  own  security.41 

§510.    Pledgees,   assignees   and   others  as  plaintiffs. — One  who 

holds  bonds  as  collateral  may  sue  for  a  foreclosure  by  making  his  as- 
signor a  party.42  Where  the  assignment  is  in  writing  it  is  unneces- 
sary, in  some  jurisdictions,  to  make  the  assignor  a  party,  but  in 
others  it  is  held  that  the  assignment  of  the  bonds  or  debt  passes  merely 
the  equitable  and  not  the  legal  title  to  the  security,  and  if  there  is 
any  question  as  to  the  assignor  having  any  interest  it  is  advisable  to 
make  him  a  party.43  But,  in  case  the  bonds  have  been  pledged  to 
secure  a  debt  of  the  corporation,  it  has  been  held  that  the  holder  will 
be  entitled  to  a  decree  for  only  the  amount  of  the  debt.44  The  bonds 


41  In  Railroad  Co.  v.  Orr,  18  Wall. 
(U.  S.)  471,  the  court  says:  "In  so 
far  as  he  succeeds  in  doing  that 
[diminishing  the  claims  of  his  fel- 
lows], he  adds  to  his  own  security. 
Each  holder,  therefore,  should  be 
present,  both  that  he  may  defend  his 
own  claims  and  that  he  may  attack 
the  other  claims  should  there  be 
occasion  for  it.  If,  upon  a  fair  ad- 
justment of  the  amount  of  the  debts, 
there  should  be  a  deficiency  in  the 
security,  real  or  apprehended,  every 
one  interested  should  have  notice 
in  advance  of  the  time,  place,  and 
mode  of  sale,  that  he  may  make 
timely  arrangements  to  secure  a  sale 
of  the  property  at  its  full  value." 

12  Ackerson  v.  Lodi  Branch  R.  Co. 
28  N.  J.  Eq.  542;  Morton  v.  New  Or- 
leans, &c.  R.  Co.  79  Ala.  590;  Wilt- 
sie  Mortgage  Foreclosures,  §  89. 
Where  bonds  were  transferred  as 
collateral  to  secure  a  loan  with  the 
condition  that  the  pledgee,  upon  de- 
fault in  payment  of  the  principal  or 
interest  of  the  note  thus  secured  by 
the  bonds,  might  sell  the  bonds  with- 
out notice,  and  might  become  the 
purchaser  thereof  at  any  sale  thus 
made,  it  was  held  that  the  pledgee, 
after  having  purchased  the  bonds  at 


a  sale  held  in  accordance  with  the 
terms  of  the  pledge,  was  entitled  to 
a  decree  for  the  full  amount  of  the 
face  value  of  the  bonds,  with  in- 
terest, and  not  merely  the  price 
paid  therefor.  Wade  v.  Chicago,  &c. 
R.  Co.  149  U.  S.  327,  13  Sup.  Ct. 
892. 

"See  Wiltsie  Mortgage  Foreclo- 
sures, §  98.  In  Markel  v.  Evans,  47 
Ind.  326,  it  is  held  that  the  assignor 
of  a  note  secured  by  mortgage  is 
neither  a  necessary  nor  a  proper 
party  to  a  suit  to  foreclose  the  mort- 
gage. But  see  Nichol  v.  Henry,  89 
Ind.  54. 

44  Jesup  v.  City  Bank,  14  Wis.  331; 
Carpenter  v.  O'Dougherty,  67  Barb. 
(N.  Y.)  397;  Wiltsie  Mortgage  Fore- 
closures, §  89.  Where  bonds  are 
pledged  by  the  corporation  to  se- 
cure its  own  debt  under  an  agree- 
ment that  the  pledgee  may  purchase 
them  at  his  own  sale  made  upon  de- 
fault in  payment  of  the  notes  se- 
cured, a  purchase  by  the  pledgee  in 
accordance  with  the  terms  of  the 
pledge  is  valid  as  against  ever,y- 
body,  unless  fraud  or  breach  of  trust 
is  established.  Third  parties  and 
strangers  have  no  right  to  question" 
the  purchaser's  title,  but  he  may 


703  DEFENDANTS  IN  FOEECLOSUKE   SUIT — GENERALLY.         [§    511 

are  the  principal  and  the  mortgage  the  incident.  It  follows,  therefore, 
that  the  assignee  of  the  bonds  or  debt  may  foreclose  even  though  he 
may  have  obtained  no  assignment  of  the  mortgage,45  while  the  mere 
assignment  of  a  mortgage,  which  contains  no  promise  to  pay,  without 
the  debt,  or  bonds  evidencing  it,  will  not  entitle  the  assignee  to  main- 
tain a  suit  to  foreclose.46  It  may  be  difficult,  however,  to  apply  these 
rules  to  trust  deeds  or  railroad  mortgages  made  to  a  trustee.  "We 
suppose  that  in  such  cases  the  assignee  stands  substantially  in  the  po- 
sition of  his  assignor  and  is  represented  in  the  same  manner,  and  to 
the  same  extent,  by  the  trustee.  At  all  events  the  holder  of  bonds 
payable  to  bearer  is  to  all  intents  and  purposes  an  original  payee,  to 
whom  the  promise  runs  directly.47  It  has  been  held  that  a  mortgagee 
who  has  guaranteed  payment  of  bonds  and  has  taken  up  some  of  the 
overdue  coupons  attached  thereto,  may  foreclose  his  mortgage  subject 
to  the  rights  of  the  holder  of  the  bonds  guaranteed,48  and  that  an 
assignee  in  bankruptcy49  or  a  receiver50  of  a  corporation  may  maintain 
a  suit  to  foreclose  in  a  proper  case. 

§  511.  Defendants  in  foreclosure  suit — Generally. — The  indorsers 
of  railroad  bonds  secured  by  mortgage  are  not  necessary  parties  to  a 
suit  to  foreclose  the  mortgage.  Their  interest  in  the  proper  applica- 
tion of  the  property  to  the  extinguishment  of  the  debt,  however,  it  is 

foreclose  for  the  full  amount  of  the  A.   800   n;    Jackson   v.   Blodgett,   5 

bonds.     Farmers',  &c.  Co.  v.  Toledo,  Cow.  (N.  Y.)  202. 

&c.  R.  Co.  54  Fed.  759.     As  a  rail-  "Merritt  v.  Bartholick,  36  N.  Y. 

road  is  generally  regarded  as  a  unit  44;    Hubbard  v.   Harrison,   38    Ind. 

and  cannot  be  sold  in  parcels  so  as  323;    Lunt    v.    Lunt,    71    Me.    377; 

to  destroy  its  value  and  usefulness  Nagle  v.  Macy,  9  Gal.  426 ;  Hamilton 

to  the  public,  it  may  be  that  the  v.  Lubukee,  51  111.  415,  99  Am.  Dec. 

decisions  holding  that  the  pledgee  562. 

is  entitled  to  a  decree  merely  for  *TRutten  v.  Union  Pac.  R.  Co.  17 

the  amount  of  his  debt  would  not  Fed.  480;  White  v.  Vermont,  &c.  R. 

apply.     The  entire  road  may  have  Co.  21  How.  (U.  S.)  575.    The  first 

to  be  sold  and  such  a  decree  ren-  case  just  cited  distinguishes   Hay- 

dered  as  will  fix  the  rights  of  all  ward  v.  Andrews,  106  U.  S.  672,  1 

parties  or  hold  the  proceeds  for  fu-  Sup.  Ct.  544,  and  New  York  Guar- 

ture  adjustment.  anty,  &c.  Co.  v.   Memphis,  &c.  Co. 

45  Carpenter   v.   Longan,   16   Wall.  107  U.  S.  205,  2  Sup.  Ct.  279. 

(U.  S.)  271;  Converse  v.  Michigan,  *8  Burnett  v.  Hoffman,  40  Neb.  569, 

&c.    Co.   45   Fed.   18;    Ober  v.   Gal-  58  N.  W.  1134. 

legher,  93  U.  S.  199,  206;  Parkhurst  49  Upton    v.    National    Bank,    120 

v.  Watertown,  &c.  Co.  107  Ind.  594,  Mass.  153. 

8  N.  E.  635;   Horn  v.  Bennett,  135  M  Robinson  v.  Williams,  22  N.  Y. 

Ind.  158,  34  N.  E.  321,  956,  24  L.  R.  380;  Iglehart  v.  Bierce,  36  111.  133. 


§    511]  FORECLOSURE.  704 

said,  gives  them  such  an  interest  in  the  suit  as  makes  them  proper 
parties,  and  they  should,  if  possible,  be  admitted  as  such.  But  where 
the  indorser  is  a  state  which  has  made  no  provision  for  the  institution 
of  a  suit  against  itself,  it  will  not  be  permitted  to  intervene  in  the 
suit,  and  thereby  oust  the  jurisdiction  of  the  court.51  It  has  also 
been  held  that  a  guarantor  of  the  mortgage  bonds  of  a  railroad  com- 
pany, who  afterwards  joins  the  company  in  borrowing  money  with 
which  to  pay  the  interest  coupons,  is  not  thereby  subrogated  to  the 
rights  of  the  mortgagee  so  as  to  be  a  necessary  or  even  a  proper  party 
to  a  subsequent  suit  to  foreclose  the  mortgage,  for  there  is  no  sub- 
rogation until  the  entire  debt  is  paid.52  It  is  doubtful  whether  the 
United  States  can  be  brought  in  as  a  party  to  a  bill  to  foreclose 
against  a  railroad  in  which  it  is  interested,53  but  it  has  been  held  that 
it  may  be  bound  by  notice  so  that  an  effectual  decree  may  be  rendered 
foreclosing  its  interests  in  property  not  held  for  government  pur- 
poses.54 If  the  mortgagor  has  conveyed  the  property  his  grantee 
should  be  made  a  party,55  and  it  may  be  said,  in  general,  that  no 
owner  of  an  equity  of  redemption  can  be  deprived  of  his  right  to  re- 
deem unless  he  is  made  a  party  to  the  foreclosure  suit.58  It  is  a 
general  rule,  subject,  however,  to  exception,  that  strangers  to  the 
cause  cannot  be  heard  in  it  either  by  motion  or  petition.  Thus  un- 
secured general  creditors57  and  individual  stockholders58  are  not  gen- 

81  Young   v.    Montgomery,   &c.   R.  Am.  St.  185,  and  numerous  authori- 

Co.  2  Woods  (U.  S.)   606;   Davis  v.  ties  cited  in  note;  Wiltsie  Mortgage 

Gray,   16   Wall.    (U.   S.)    203.     See,  Foreclosures,  §  126;  Terrell  v.  Alli- 

also,  State  v.  Farmers'  Loan,  &c.  Co.  son,   21    Wall.    (U.    S.)    289.      See, 

81  Tex.  530,  17  S.  W.  60.    In  decid-  also,    Little     Rock    Trust    Co.     v. 

ing  the  first  case  Judge  Woods  said:  Southern  R.  Co.  195  Mo.  669,  93  S. 

"If  the  state  has  paid  any  interest  W.  944. 

on  these  bonds,  and  is  thereby  en-  "  Wiltsie   Mortgage   Foreclosures, 

titled  to  any  part  of  the  proceeds  §§  117,  126,  127;   Gaskell  v.  Viques- 

from  the   mortgaged   property,   she  ney,  122  Ind.  244,  23  N.  E.  791,  17 

can  propound  her  claim  before  the  Am.  St.  364,  and  note;   Beekman  v. 

master,  and  it  will  be  allowed."  Hudson,  &c.  R.  Co.  35  Fed.  3. 

52  Columbia,   &c.   Co.   v.   Kentucky  BT  Bronson  v.  Railroad  Co.  2  Black 

Un.   R.   Co.   60   Fed.   794.     But  see  (U.  S.)  524;  Stout  v.  Lye,  103  U.  S. 

cases  cited  in  note  51,  supra,  and  66;  Thompson  v.  Huron  Lumber  Co. 

Searles  v.  Jacksonville,  &c.  R.  Co.  2  4  Wash.  600,  30  Pac.  741;  Farmers', 

Woods  (U.  S.)  621.  &c.  Co.  v.  Chicago,  &c.  R.  Co.  68  Fed. 

MSee  Meier  v.  Kansas  Pac.  R.  Co.  412;   Herring  v.  New  York,  &c.  R. 

4  Dill.  (U.  S.)  378.  Co.  105  N.  Y.  340,  12  N.  E.  763.    But 

51  Elliot  v.  Van  Voorst,  3  Wall.,  Jr.  see  Hoffe  v.  Hoffe,  104  Cal.  94,  36 

(U.S.)  299;  Jones  Corp.  Bonds  and  Pac.    389,    37   Pac.    894;    Hollins   v. 

Mort.  §  400.  Brierfield,  &c.  Co.  150  U.  S.  371,  14 

MBerlack  v.  Halle,  22  Fla.  236,  1  Sup.  Ct.  127.    The  general  creditors 


ros 


DEFENDANTS  IN  FORECLOSURE   SUIT — GENERALLY.         [§    511 


erally  allowed  to  become  parties  to  a  foreclosure  suit  against  the  cor- 
poration. So,  it  has  been  held  that  the  state  has  no  right  to  inter- 
vene in  a  suit  to  foreclose  a  mortgage  for  the  benefit  of  innocent 
bondholders  for  the  purpose  of  having  the  mortgage  declared  invalid 
as  in  violation  of  the  state  law.59  And  prior  mortgagees  are  not  neces- 
sary parties  unless  the  bill  seeks  the  appointment  of  a  receiver,  or 
a  sale  of  the  entire  property  free  from  all  liens  or  some  other  relief 
by  which  their  interests  will  be  affected.60  Stockholders,  however, 
may  be  admitted  as  parties,  where  the  directors  refuse61  to  defend 


of  a  railroad  company  cannot  com- 
plain that  a  trustee  in  a  mortgage 
executed  to  secure  its  bonds  im- 
properly released  errors  in  a  decree 
adjudicating  that  the  rights  of  such 
company  had  passed  to  another  cor- 
poration, under  foreclosure  proceed- 
ings, as  the  trustee  represented  the 
mortgage  bondholders,  and  violated 
no  duty  to  the  company  by  giving 
the  release.  Loeb  v.  Chur,  53  Hun 
(N.  Y.)  637,  6  N.  Y.  S.  296. 

58  Alexander  v.  Searcy,  81  Ga.  536, 
8  S.  E.  630,  12  Am.  St.  337,  36  Am. 
&  Eng.  R.  Gas.  239 ;  Foster  v.  Mans- 
field, &c.  R.  Co.  36  Fed.  627;  Chi- 
cago, &c.  R.  Co.  v.  Howard,  7  Wall. 
(U.  S.)  392;  Central  Trust  Co.  v. 
Peoria,  &c.  R.  Co.  104  Fed.  418,  43 
C.  C.  A.  613. 

58  Farmers',  &c.  Co.  v.  Chicago,  &c. 
R.  Co.  68  Fed.  412.  See,  also,  State 
v.  Farmers'  Loan,  &c.  Co.  81  Tex. 
530,  17  S.  W.  60. 

^Woodworth  v.  Blair,  112  U.  S. 
8,  5  Sup.  Ct.  6;  Wabash,  &c.  R.  Co. 
v.  Central  Trust  Co.  22  Fed.  138; 
Hagan  v.  Walker,  14  How.  (U.  S.) 
29,  37;  McHenry,  Ex  parte,  9  Abb. 
(N.  Y.)  N.  C.  256;  Miltenberger  v. 
Logansport  R.  Co.  106  U.  S.  286,  1 
Sup.  Ct.  140.  In  the  first  case  above 
cited  the  prior  lienholder  was  de- 
nied the  right  to  intervene,  and  in 
the  second,  prior  mortgagees  who 
had  been  made  parties  were  allowed 
ELL.  RAILROADS — 45 


their  costs  and  the  bill  dismissed, 
as  against  them,  upon  the  ground 
that  they  should  not  be  put  to  the 
expense  of  litigation.  There  is 
sharp  conflict  among  the  authorities 
as  to  whether  the  prior  incum- 
brancers  are  even  proper  parties  so 
as  to  be  bound  by  the  decree.  It 
seems  desirable  that  all  interests 
should  be  determined  and  adjusted 
in  one  suit,  if  possible,  but  the 
weight  of  authority  is  probably  to 
the  effect  that  in  ordinary  cases 
they  are  not  proper  parties.  The 
conflicting  decisions  are  collected  in 
notes  to  Woods  v.  Pittsburgh,  &c.  R. 
Co.  3  Am.  &  Eng.  R.  Gas.  525,  531, 
and  Strobe  v.  Downer  (13  Wis.  10), 
80  Am.  Dec.  709,  714.  See,  also, 
post,  §  512.  The  mortgagor  cannot 
complain,  however,  when  the  court 
adjudges  that  the  junior  mortgage 
is  prior  as  to  part  of  the  property 
and  the  prior  mortgagees,  who  were 
made  parties,  do  not  appeal.  Sei- 
bert  v.  Minneapolis,  &c.  R.  Co.  58 
Minn.  39,  59  N.  W.  822. 

81 A  demand  upon  the  directors  to 
protect  the  interests  of  the  corpora- 
tion and  a  neglect  or  refusal  by 
them  to  do  so  must  usually  be 
shown  before  the  stockholders  will 
be  admitted  to  defend  a  foreclosure 
suit.  Dimpfell  v.  Ohio,  &c.  R.  Co. 
110  U.  S.  209,  3  Sup.  Ct.  573;  Alex- 
ander v.  Searcy,  81  Ga.  536,  8  S.  E. 
630,  12  Am.  St.  337. 


J  512] 


FORECLOSURE. 


706 


the  corporation  against  unfounded  and  illegal  claims,  upon  the  same 
principle  that  bondholders  are  permitted  to  act  when  the  trustees  fail 
to  do  so.62  And  an  assignee  in  bankruptcy63  or  a  receiver  of  the 
mortgagor  is  generally  a  necessary  party.64 

§512.    When  other  lien-holders  should  be  made  defendants. — 

Where  a  sale  of  the  road  is  sought  upon  foreclosure  of  a  junior  mort- 
gage, and  it  is  desirable  to  quiet  all  outstanding  titles,  or  to  ascer- 
tain the  validity  or  amount  of  prior  liens  about  which  there  is  sub- 
stantial doubt,  that  the  purchaser  may  know  the  value  of  the  equity 
which  he  buys,  the  prior  mortgagees  should  be  joined  as  parties.65  A 
failure  to  join  the  prior  mortgagees  as  parties  leaves  them,  generally 
speaking,  with  the  same  rights  in  the  property  that  they  had  before 
the  foreclosure.66  Where  the  extent  of  the  prior  lien-holder's  claim  is 


82  Bronson  v.  La  Crosse,  &c.  R.  Co. 
2  Wall.  (U.  S.)  524;  Forbes  v.  Mem- 
phis,  &c.  R.  Co.   2   Woods    (U.   S.) 
323 ;  Guarantee  Trust,  &c.  Co.  v.  Du- 
luth,  &c.  R.  Co.  70  Fed.  803. 

83  Lenihan   v.   Hamann,   55   N.   Y. 
652;    Bard  v.  Poole,  12   N.  Y.  495; 
Griffin  v.  Hodshire,  119  Ind.  235,  21 
N.  E.  741. 

64  Raynor  v.  Selmes,  52  N.  Y.  579. 
But  see  Herring  v.  New  York,  &c. 
R.  Co.  105  N.  Y.  340. 

85  Richards  v.  Chesapeake,  &c.  R. 
Co.  1  Hughes  (U.  S.)  28;  Jerome  v. 
McCarter,  94  U.  S.  734;  Hagan  v. 
Walker,  14  How.  (U.  S.)  29;  Daw- 
son  v.  Danbury  Bank,  15  Mich.  489. 
It  is  said,  however,  to  be  "well  set- 
tled that  in  a  foreclosure  proceeding 
the  complainant  cannot  make  a  per- 
son who  claims  adversely  to  both 
the  mortgagor  and  mortgagee  a 
party,  and  litigate  and  settle  his 
rights  in  that  case."  Dial  v.  Reyn- 
olds, 96  U.  S.  340.  See,  also,  "Trial 
of  Adverse  Title  in  Suit  to  Fore- 
close a  Mortgage,"  21  Cent.  L.  J. 
223,  and  note  to  Strobe  v.  Downer, 
80  Am.  Dec.  709,  714.  But  compare 
the  well-considered  cases  of  Hefner 
v.  Northwestern,  &c.  Co.  123  U.  S. 


747,  8  Sup.  Ct.  337;  Mendenhall  v. 
Hall,  134  U.  S.  559,  10  Sup.  Ct.  616; 
Cohen  v.  Solomon,. 66  Fed.  411;  and 
in  support  of  the  well-settled  rule 
in  Indiana  that  an  adverse  claimant 
may  be  made  a  party  and  a  conclu- 
sive adjudication  rendered  against 
him,  see  O'Brien  v.  Moffitt,  133  Ind. 
660,  33  N.  E.  616,  36  Am.  St.  566; 
Craighead  v.  Dalton,  105  Ind.  72,  4 
N.  E.  425.  See,  generally,  Wiltsie 
Mortgage  Foreclosures,  Ch.  IX; 
Farmers'  Loan,  &c.  Co.  v.  Green 
Bay,  &c.  Co.  6  Fed.  100;  Farmers' 
Loan,  &c.  Co.  v.  San  Diego,  &c.  Co. 
40  Fed.  105;  Corcoran  v.  Chesa- 
peake, &c.  Co.  94  U.  S.  741;  Con- 
verse v.  Michigan,  &c.  Co.  45  Fed. 
18. 

86  Pittsburgh,  &c.  R.  Co.  v.  Mar- 
shall, 85  Pa.  St.  187;  Wabash,  &c.  R. 
Co.  v.  Central  Trust  Co.  22  Fed.  138. 
A  junior  lienholder  cannot  compel 
the  foreclosure  of  a  mortgage  con- 
stituting a  prior  lien  upon  the  road. 
American,  &c.  Co.  v.  East,  &c.  R. 
Co.  37  Fed.  242;  Seibert  v.  Minne- 
apolis, &c.  R.  Co.  52  Minn.  246,  53 
N.  W.  1151.  Where  prior  lienhold- 
ers  have  unnecessarily  been  made 
parties,  the  court  may,  of  its  own 


707  LIEN-HOLDEKS  AS  DEFENDANTS.  [§    51.3 

definitely  ascertained,  and  a  foreclosure  is  sought  subject  to  prior 
liens,  he  is  not  a  necessary,  nor  as  a  rule,  a  proper  party  to  the  bill.67 
It  is  said  that  "the  remedy  of  a  junior  incumbrancer,  both  before  and 
after  foreclosure,  is  to  redeem  the  senior  mortgage.  Without  the  con- 
sent of  the  prior  mortgagee,  a  junior  lienor  could  not  enforce  a  sale 
of  more  than  the  mortgagor's  equity  of  redemption.  If  he  wished  a 
sale  free  from  the  prior  lien,  and  the  prior  lienor  will  not  consent, 
the  decree  should  be  that  he  redeem,  and  then  foreclose  for  the  en- 
forcement of  his  own  lien,  and  that  he  had  redeemed.68  A  judicial 
foreclosure  sale  is  not  void  because  one  interested  in  the  equity  of 
redemption,  as  a  junior  mortgagee,  was  not  a  party."69  Where  it  is 
sought  to  cut  off  the  right  of  a  subsequent  mortgagee,  judgment 
creditor,  or  other  lien-holder,  to  redeem,  he  must  be  made  a  party 
to  the  bill  to  foreclose.70  And,  in  general,  a  junior  lien-holder  is 
entitled,  on  application,  to  be  admitted  as  a  party  to  contest  the 
amount  and  validity  of  the  claims  preferred  against  the  corporation.71 
But  he  is  not  a  necessary  party  to  a  foreclosure  against  the  mort- 
gagor,72 although,  as  we  have  said,  he  may  be  a  proper  party  in  any 

motion,  dismiss  the  suit  as  to  them,  Beekman  v.  Hudson,  &c.  R.  Co.  35 
for  they  ought  not  to  be  put  to  the  Fed.  3;  Youngman  v.  Elmira,  &c. 
expense  of  making  a  defense  where  R.  Co.  65  Pa.  St.  278;  Hosford  v. 
the  amount  and  priority  of  their  Johnson,  74  Ind.  479.  But,  other- 
liens  are  undisputed.  Wabash,  &c.  wise,  he  is  not,  of  course,  a  neces- 
R.  Co.  v.  Central  Trust  Co.  22  Fed.  sary  party.  Brooks  v.  Vermont 
138.  Cent.  R.  Co.  14  Blatch.  (U.  S.)  463. 

"  Wabash,  &c.  R.   Co.  v.  Central  n  Farmers'  Loan,  &c.  Co.  v.  Texas, 

Trust  Co.  22  Fed.  138;  McMurtry  v.  &c.  R.   Co.  32   Fed.  359.     Where  a 

Montgomery,  &c.  Co.  86  Ky.  206.  railroad  extends  into  two  states,  in 

68  Jones  Mort.  §§  1394,  1396;  Wood-  each  of  which  the  company  is  a  do- 
worth  v.  Blair,  112  U.  S.  8,  5  Sup.  mestic  corporation,  and  the  trustee 
Ct.  6;  McKernan  v.  Neff,  43  Ind.  in  a  mortgage  on  the  whole  road 
503;  Spurgin  v.  Adamson,  62  Iowa  first  brings  a  suit  in  one  state  to 
661,  18  N.  W.  293.  foreclose,  and  afterwards  an  ancil- 

"Compton  v.  Jesup,  68  Fed.  263,  lary  suit  in  the  other  state  for  the 

311,  citing  Jones  Mort.  §  1395;  Mar-  same  purpose,  it  has  been  held  that 

tin  v.  Noble,  29  Ind.  216;  Frische  v.  he  can  not  prevent  a  lien  creditor 

Kramer,  16  Ohio  125;  Rose  v.  Page,  of  the  company,  who  has  not  filed 

2  Sim.  471;    Fulghum  v.  Cotton,   3  liis  claim  in  the  first  suit,  from  in- 

Tenn.  Ch.  296;  Trayser  v.  Trustees,  tervening  in  the  second  to  establish 

39  Ind.  556;  Emigrant,  &c.  Bank  v.  his   lien.     Fidelity   Ins.   &c.   Co.   v. 

Goldman,  75  N.  Y.  127.  Shenandoah  Val.  R.  Co.  32  W.  Va. 

70  Searles   v.   Jacksonville,   &c.   R.  244,  9  S.  E.  180. 

Co.  2  Woods  (U.  S.)  621;  Memphis,  72  Williams   v.   Kerr,   113   N.   Car. 

&c.  R.   Co.  v.   State,   37  Ark.   632;  306,  18  S.  E.  501;  Pattison  v.  Shaw, 


§    513]  FORECLOSURE.  708 

case  and  his  equity  of  redemption  cannot  be  cut  off  unless  he  is  made 
a  party.  The  original  complainant  in  a  foreclosure  suit  need  not  be 
made  a  party  to  an  intervening  petition,  where  it  appears  that  he 
no  longer  has  any  interest  in  the  fund  in  controversy,  and  no  relief  is 
asked  against  him.73  The  question  whether  or  not  a  lien  is  prior  to 
the  mortgage  sought  to  be  foreclosed  may  properly  be  tried  in  a  fore- 
closure suit  if  the  bill  contains  proper  averments  that  the  defendant's 
title  is  subordinate  to  the  title  of  the  mortgagee.74  A  mortgagee 
should  always  be  made  a  party  where  any  doubt  is  entertained  as.  to 
the  priority  of  his  lien;  for  a  decree  declaring  a  mortgage  to  be  a 
first  lien  upon  the  property  and  franchises  of  a  railroad  company 
gives  it  no  precedence  over  the  prior  lien  of  a  party  who  had  no 
notice  of  the  proceedings,  and  was  not  a  party  or  privy  to  the  decree.75 
The  title  usually  stands  in  the  order  in  which  conveyances  were 
made,  and  cannot  be  changed  by  any  proceedings  to  which  the  holders 
of  the  title  were  not  parties.76 

§  513.  Defenses  to  foreclosure  suit. — As  a  general  rule  no  defenses 
are  allowed  to  a  suit  to  foreclose  in  favor  of  bona  fide  purchasers  of 
railroad  mortgage  bonds  that  would  not  be  allowed  in  an  action  at  law 
upon  negotiable  promissory  notes.77  The  acts  of  the  company  subse- 
quent to  the  execution  of  the  mortgage  cannot  be  set  up  as  a  defense 

6  Ind.  377;   Stockwell  v.  State,  101  is  properly  made  a  party  to  the  bill, 

Ind.  1.  and  appears,  but  fails  to  procure  a 

73  Central  Trust  Co.  v.  Sheffield,  &c.  dismissal  as  to  himself,  he  will  be 

R.  Co.  44  Fed.  526.  bound  by  a  decree  and  sale  there- 

71  Harland  v.  Bankers',  &c.  Tel.  Co.  under,  and  can  not  afterward  assert 

33  Fed.  199;   Converse  v.  Michigan,  any  rights  not  saved  to  him  by  the 

&c.    Co.    45    Fed.    18;    Corcoran    v.  decree.    Woods  v.  Pittsburgh,  &c.  R. 

Chesapeake,  &c.   Co.  94   U.   S.   741;  Co.  99  Pa.  St.  101. 
Lewis  v.   Smith,  9   N.  Y.   502,   514,        "  Kenicott  v.  Supervisors,  16  Wall. 

515;    Jones  Corp.  Bonds  and  Mort.  (U.  S.)    452;    Carpenter  v.  Longan, 

§  407.  16  Wall.  (U.  S.)  271;  Swett  v.  Stark, 

75  Pittsburgh,   &c.   R.   Co.   v.   Mar-  31    Fed.    858.     See,   also,    Guaranty 

shall,   85   Pa.   St.   187;    Jones  Corp.  Trust  Co.  v.  Green  Cove  Springs,  &c. 

Bonds  and  Mort.   §   404.     A  decree  R.  Co.  139  U.  S.  137,  11  Sup.  Ct.  512. 

rendered   without  proper   notice   to  But  see  where   they  are  not  bona 

parties  to  be  affected  thereby  is  void,  fide  purchasers,  Chicago,  &c.  R.  Co. 

Central  Trust  Co.  v.  Florida  R.  &c.  v.  Loewenthal,  93  111.  433;  Farmers' 

Co.  43  Fed.  751.  Loan,  &c.  Co.  v.  San  Diego,  &c.  Co. 

78  Jerome    v.    McCarter,    94    U.    S.  45  Fed.  518;    Ryan  v.  Anglesea  R. 

734.    See  Howard  v.  Milwaukee,  &c.  Co.   (N.  J.)   12  Atl.  539;   Atwood  v. 

R.  Co.  7  Biss.    (U.  S.)   73.     But  if  Shenandoah,  &c.  R.  Co.  85  Va.  966 

one  claiming  to  hold  a  prior  lien  9  S.  E.  748. 


709  DEFENSES  TO  FORECLOSURE  SUIT.          [§  513 

to  a  suit  by  the  mortgagee  to  foreclose  his  lien,78  and  neither  the 
company  nor  a  purchaser  who  claims  title  by  conveyance  from  it  can 
deny  the  validity  of  its  incorporation  in  a  suit  to  foreclose  a  mortgage 
which  it  has  executed.79  The  same  principle  applies  where  the  mort- 
gage is  given  by  a  consolidated  company.80  It  is  no  defense  that  a 
construction  company  had  agreed  to  pay  the  interest  in  default,81 
nor  that  the  road  has  been  leased,82  although  it  may  be  a  good  defense 
to  show  that  the  mortgagee,  who  holds  all  the  bonds,  is  the  lessee  and 
has  been  paid  by  way  of  rental  all  the  interest  alleged  to  be  in  de- 
fault.83 It  has  also  been  held  that  neither  a  misapplication  of  its  earn- 
ings by  the  mortgagor  company  in  order  to  cause  a  default,  nor  the 
fact  that  the  largest  bondholder  was  also  a  stockholder  and  had 
bought  the  bonds,  after  default  in  payment  of  interest,  for  the  pur- 
pose of  causing  a  foreclosure  and  purchasing  at  the  sale,  constituted 
a  good  defense  either  in  favor  of  the  mortgagor  or  another  stock- 
holder.84 Where,  however,  a  railroad  company,  executing  a  mortgage 
upon  its  road  as  contemplated,  has  no  legal  title  to  the  right  of  way, 
but  merely  holds  contracts  for  a  small  portion  thereof,  to  be  conveyed 
on  conditions  which  it  never  performs  or  has  agreed  to  perform,  and 
a  new  company  is  organized,  which  builds  the  road  and  acquires  the 
legal  title  to  most  of  the  right  of  way  and  is  equitably  entitled  to 
the  remainder,  it  seems  that  no  decree  of  foreclosure  can  be  sustained 
under  the  mortgage,  as  against  the  new  company,  for  the  sale  of  its 
property.  The  mortgage  creditors  of  the  original  company  could 
have  no  rights  superior  to  the  company  itself,  and  it  had  no  such  in- 
terest or  title  in  the  road  as  can  be  subjected  to  sale  under  the  mort- 
gage.85 

78  Bronson  v.  La  Crosse,  &c.  R.  Co.  734 ;    Jones  Corp.  Bonds  and  Mort. 

2  Wall.  (U.  S.)  283;  Hale  v.  Nashua,  §  415. 

&c.  R.  Co.  60  N.  H.  333.  »  Coe  v.  New  Jersey,  &c.  R.  Co.  31 

78  Beekman  v.  Hudson  River,  &c.  N.  J.  Eq.  105. 

R.  Co.  35  Fed.  3.    See,  also,  William-  81  Foster  v.  Mansfield,  &c.  R.  Co. 

son  v.  Kokomo,  &c.   Assn.   89   Ind.  36  Fed.  627. 

389;   Farmers'  Loan,  &c.  Co.  v.  To-  MHale  v.  Nashua,  &c.  R.  Co.  60  N. 

ledo,  &c.  R.  Co.  67  Fed.  49;  Thomas  H.  333. 

v.  Citizens'  R.  Co.  104  111.  462.     A  83  Chamberlain  v.  Connecticut,  &c. 

junior  mortgagee  cannot  deny  the  R.  Co.  54  Conn.  472. 

validity    of    a    prior    mortgage    to  **  Farmers'  Loan,  &c.  Co.  v.  New 

which    his    mortgage    is    expressly  York,  &c.  R.  Co.  78  Hun  (N.  Y.)  213, 

made     subject.       Bronson     v.     La  28  N.  Y.  S.  932.     See,  also,  Coe  v. 

Crosse,  &c.  R.  Co.  2  Wall.   (U.  S.)  East,  &c.  R.  Co.  52  Fed.  531. 

283;   Jerome  v.  McCarter,  94  U.  S.  85  Chicago,  &c.  R.  Co.  v.  Loewen- 

thal,  93  111.  433. 


§    514]  FORECLOSURE.  710 

§  514.  Effect  of  provisions  giving  trustees  the  right  to  take  pos- 
session and  sell. — It  is  usual,  in  mortgages  of  railroad  property,  to 
confer  upon  the  mortgage  trustee  a  right  of  possession  and  sale  in 
case  of  a  continuing  default  in  the  payment  of  the  mortgage  debt. 
In  some  instances  this  power  can  only  be  exercised  by  the  trustees 
at  the  request  of  a  majority  of  the  bondholders,  and  it  is  generally 
provided  that  it  shall  only  be  exercised  after  the  default  in  payment 
has  continued  for  a  specified  time.  Provisions  of  this  character  in 
restraint  of  the  exercise  of  a  power  of  summary  foreclosure,  to  be 
effective,  must  be  strictly  complied  with.  Thus,  where  it  is  provided 
that  a  power  of  sale  may  be  exercised  by  the  mortgage  trustees  in  case 
of  a  continued  default  for  sixty  days  after  notice  to  the  mortgagor  of 
an  intention  to  sell,  but  not  until  the  sale  has  been  previously  ad- 
vertised for  sixty  days,  the  sale  must  be  advertised  for  sixty  days 
from  the  close  of  the  sixty  days'  notice  to  the  corporation  of  an  in- 
tention to  sell.86  It  was  also  held  in  a  recent  case  that  a  power  of 
sale  given  to  the  mortgagee  can  be  executed  only  by  him,  unless  the 
debt  has  been  assigned  so  as  to  pass  the  legal  title,  and  that  the  as- 
signee of  the  mortgage,  without  the  debt,  cannot  execute  the  power  of 
sale.87  Where  the  trustees  under  a  mortgage  stipulating  for  posses- 
sion of  the  mortgaged  property  are  denied  possession  upon  the  hap- 
pening of  a  default,  it  has  been  held  that  they  may  maintain  eject- 
ment to  recover  the  mortgaged  real  estate.88  But  since  the  corporate 
property  usually  includes  personal  property  and  choses  in  action  for 
which  ejectment  will  not  lie,  and  since  a  judgment  against  an  in- 
solvent mortgagor  for  damages  for  the  non-delivery  of  the  property 
would  be  valueless,  the  remedy  for  the  recovery  of  possession  by  an 
action  at  law  is  usually  inadequate.89  Equity  will,  in  such  a  case, 

""Macon,  &c.  R.  Co.  v.  Georgia  R.  veyance  under   a   power,   although 

Co.  63  Ga.  103;  Gibbons  v.  McDoug-  defectively  executed,  passes  the  le- 

all,  26  Grant's  Ch.  (Ont.)  214.    To  gal  title  to  the  purchaser,  subject, 

same    effect,    see    generally,    Jones  however,  to  the  right  of  redemption. 

Corp.  Bonds  and  Mort.  §  384;   Fos-  Lanier  v.  Mclntosh,  117  Mo.  508,  38 

ter  v.  Boston,  133  Mass.  143;    Shil-  Am.  St.  676.    See  notes  In  31  Am.  St. 

labar    v.    Robinson,    97    U.    S.    68;  328,  335,  and  19  Am.  St  263,  266, 

Equitable  Trust  Co.  v.  Fisher,  106  297. 

111.  189;   Schanewerk  v.  Hoberecht,  ^Rice  v.  St.  Paul,  &c.  R.  Co.  24 

117  Mo.  22,  38  Am.  St.  631.  Minn.  464;   Seibert  v.  Minneapolis, 

87  Sanford  v.  Kane,  133  111.  199,  23  &c.  R.  Co.  52  Minn.  246,  53  N.  W. 

Am.  St.  602.     See,  also,  Dameron  v.  1151. 

Eskridge,  104  N.   Car.   621.     It  has  ^  Dow  v.  Memphis,  &c.  R.  Co.  20 

also  been  held  that  a  sale  and  con-  Fed.  260;  First  Nat.  Ins.  Co.  v.  Sal- 


711 


TEUSTEES   WITH   RIGHT   TO   TAKE  AND  SELL. 


[§    514 


order  the  specific  performance  of  a  stipulation  in  a  railroad  mort- 
gage authorizing  the  trustees  to  take  possession.90  The  trustees,  it 
has  been  held,  may  enforce  their  right  to  possession  upon  default 
even  against  a  contractor  engaged  in  constructing  the  road  under 
a  contract  by  which  he  is  entitled  to  the  possession  of  the  road  until 
his  contract  is  completed.91  A  power  to  take  possession,  if  exercised 
at  all,  must  generally  be  exercised  by  the  trustees  as  to  the  entire 
property.  They  cannot  take  possession  of  a  part  of  the  property 
which  has  been  seized  on  execution  to  satisfy  the  claim  of  a  judgment 
creditor,  while  leaving  the  other  mortgaged  property  in  the  hands  of 
the  corporation.92  The  statutes  of  several  of  the  states  prescribe  the 
duties  of  mortgage  trustees  as  to  taking  possession  of  the  mortgaged 
property  of  a  railroad  upon  default  in  payment  of  its  bonds  or  cou- 
pons, and  operating  it  for  the  benefit  of  the  parties  interested. 
Where  the  statute  provides  for  the  rights  and  duties  of  trustees,  it  is 
unnecessary  to  provide  therefor  in  each  mortgage  executed  under  the 
laws  of  the  state,  since  those  laws  enter  into  and  become  a  part  of  the 
mortgage.93  But  in  the  absence  of  such  a  statute  the  trustees  have, 
in  general,  only  those  rights  and  powers  conferred  upon  them  by 
agreement  of  the  parties.94  The  remedies  by  action  at  law  to  recover 


isbury,  130  Mass.  303;  North  Caro- 
lina, &c.  R.  Co.  v.  Drew,  3  Woods 
(U.  S.)  691,  713;  Jones  Corp.  Bonds 
and  Mort.  §  343. 

90  Dow  v.  Memphis,  &c.  R.  Co.  20 
Fed.  260;  McLane  v.  Placerville,  &c. 
R.  Co.  66  Cal.  606;  Sacramento,  &c. 
R.  Co.  v.  Superior  Ct.  55  Cal.  453 
(ordered  over  the  objection  of  a 
majority  of  the  bondholders) ;  Shaw 
v.  Norfolk  County  R.  Co.  5  Gray 
(Mass.)  162;  Shepley  v.  Atlantic,  &c. 
R.  Co.  55  Me.  395.  The  jurisdiction 
of  the  court  is  based  upon  its  gen- 
eral equity  jurisdiction  to  compel 
persons  to  keep  and  perform  their 
lawful  contracts,  and  not  upon  any 
rule  of  law  authorizing  a  fore- 
closure of  mortgage  liens.  Shepley 
v.  Atlantic,  &c.  R.  Co.  55  Me.  395,  per 
Walton,  J. 

"Allan  v.  Dallas,  &c.  R.  Co.  3 
Woods  (U.  S.)  316. 

"Coe  v.  Peacock,  14  Ohio  St.  187. 


93  Mercantile  Trust  Co.  v.  Portland, 
&c.  R.  Co.  10  Fed.  604. 

94  McLane  v.  Placerville,  &c.  R.  Co. 
66   Cal.   606;    Macon,  &c.   R.   Co.  v. 
Georgia  R.  Co.  63  Ga.  103;  Shepley 
v.  Atlantic,  &c.  R.  Co.  55  Me.  395. 
But  see  as  to  their  right  to  sue  to 
protect  the  trust,  Mercantile  T.  Co. 
v.   Texas,   &c.   R.  Co.   51   Fed.   529; 
Clapp  v.  Spokane,  53  Fed.  515.     As 
to  the  duties  and  liabilities  of  trus- 
tees in  possession,  see  Jones  v.  Selig- 
man,  81  N.  Y.  190  (duty  to  fence); 
Daniels    v.    Hart,    118    Mass.    543; 
Sprague  v.  Smith,  29  Vt.  421,  70  Am. 
Dec.  424,  and  Rogers  v.  Wheeler,  43 
N.  Y.  598  (liable  in  damages  for  in- 
juries);   Barter   v.   Wheeler,   49   N. 
H-.    9,    6    Am.    R.    434     (liable    for 
loss    of    freight) ;     2     Cook    Stock 
and     Stockholders,     §  823      (liable 
for     deficiency     in     operating     the 
road).     They  are  said  to  represent 
both  the  bondholders  and  the  corpo- 


§  514] 


FORECLOSURE. 


712 


the  debt,  or  by  suit  in  equity  to  foreclose  the  mortgage  lien,  are  not 
taken  away  by  a  grant  to  the  trustees  of  a  power  of  entry  and  sale.95 
A  suit  at  law  by  bondholders  may  be  maintained  for  non-payment  of 
the  principal  or  interest  bonds  secured  by  mortgage,96  if  the  mortgage 
contains  no  agreement  on  the  part  of  the  mortgagee  not  to  sue.97  In- 
deed, it  is  held  that  a  provision  in  a  deed  of  trust  to  secure  bonds  of 
a  railroad  company,  which  prohibits  foreclosure  and  judicial  sale,  by 
providing  that  the  mode  of  sale  by  the  trustee  set  forth  in  the  deed 
shall  be  exclusive  of  all  others,  is  of  no  effect.98  Stipulations  as  to  the 
time  which  must  elapse  between  the  happening  of  a  default  and  an 
entry  or  a  sale  by  the  trustees  under  a  power  do  not  limit  the  right 
to  bring  an  action  to  foreclose  the  mortgage,  but  such  an  action  may 
be  brought  immediately  upon  default.99  So,  it  has  been  held  that 
they  may  sue  to  foreclose  the  mortgage  to  recover  interest  due  to  a 
single  bondholder,  although  the  mortgage  prohibits  them  from  taking 


ration,  Ashuelot  R.  Co.  v.  Elliott, 
57  N.  H.  397,  and  owe  an  active  duty 
to  the  former  and  to  each  and  all 
of  them  to  preserve  the  property 
and  take  care  of  their  interests. 
Commonwealth  v.  Susquehanna,  &c. 
R.  Co.  122  Pa.  St.  306,  320,  1  L.  R. 
A.  225;  Hollister  v.  Stewart,  111  N. 
Y.  644;  Merrill  v.  Farmers'  Loan, 
&c.  Co.  24  Hun  (N.  Y.)  297;  Sturges 
v.  Knapp,  31  Vt.  1;  Perry  Trusts, 
§  749. 

95  Mercantile  Trust  Co.  v.  Missouri, 
&c.  R.  Co.  36  Fed.  221;  Williamson 
v.  New  Albany,  &c.  R.  Co.  1  Biss. 
(U.  S.)  198;  Stewart  v.  Bardin,  113 
N.  Car.  277,  18  S.  E.  320;  Eaton,  &c. 
R.  Co.  v.  Hunt,  20  Ind.  457;  Credit 
Foncier,  &c.  v.  Andrew,  9  Manitoba 
65;  Utermehle  v.  McGreal,  1  App. 
Dist.  Columbia  359;  Martin  v.  Ward, 
60  Ark.  510,  30  S.  W.  1041. 

86  Philadelphia,  &c.  R.  Co.  v.  John- 
son, 54  Pa.  St.  127;  Commonwealth 
v.  Susquehanna,  &c.  R.  Co.  122  Pa. 
St.  306,  1  L.  R.  A.  225;  Welsh  v. 
First  Division  of  St.  Paul,  &c.  R.  Co. 
25  Minn.  314;  Marlor  v.  Texas,  &c. 
R.  Co.  19  Fed.  867. 

"Manning  v.  Norfolk,  &c.  R.  Co. 


29  Fed.  838.  The  provision  of  a 
mortgage  that  holders  of  bonds  se- 
cured by  it  shall  not  proceed  at  law 
or  in  equity  to  foreclose  it,  or  pro- 
cure a  sale  of  the  property  independ- 
ently of  the  trustee,  does  not  defeat 
an  action  at  law  to  recover  on  over- 
due interest  coupons,  although  the 
mortgage  provides  for  foreclosure 
on  default  in  payment  of  the  cou- 
pons. Lyon  v.  New  York,  &c.  R.  Co. 
14  Daly  (N.  Y.)  489. 

98  Guaranty,  &c.  Co.  v.  Green  Cove 
Springs,  &c.  R.  Co.  139  U.  S.  137,  11 
Sup.  Ct.  512. 

"Central  Trust  Co.  v.  New  York 
City,  &c.  R.  Co.  33  Hun  (N.  Y.)  513; 
Central  Trust  Co.  v.  Texas,  &c.  R. 
Co.  23  Fed.  846;  Mercantile  Trust 
Co.  v.  Missouri,  &c.  R.  Co.  36  Fed. 
221;  Chicago,  &c.  R.  Co.  v.  Fosdick, 
106  U.  S.  47,  1  Sup.  Ct.  10;  Farmers', 
&c.  Co.  v.  Chicago,  &c.  R.  Co.  61  Fed. 
543;  Mercantile  T.  Co.  v.  Chicago, 
&c.  R.  Co.  61  Fed.  372;  Farmers',  &c. 
Co.  v.  Winona,  &c.  R.  Co.  59  Fed. 
957;  Farmers',  &c.  Co.  v.  Nova  Sco- 
tia, &c.  R.  Co.  24  N.  S.  542;  Mercan- 
tile T.  Co.  v.  Missouri,  &c.  R.  Co.  36 
Fed.  221,  1  L.  R.  A.  397. 


713  THE  DECREE.  [§    515 

any  steps  to  collect  the  principal  of  the  bonds  without  the  consent 
of  a  majority  of  the  bondholders.100  And,  although  the  trustee  is  au- 
thorized at  the  request  of  a  certain  proportion  of  the  bondholders  to 
take  possession  of  the  mortgaged  property  and  to  operate  or  sell  the 
same  after  default  in  payment  of  the  mortgage  debt,  he  may  bring 
a  suit  to  foreclose  the  mortgage  without  such  request  by  the  specified 
number  of  bondholders.101 

§  515.  The  decree. — A  course  of  procedure  prescribed  by  the 
mortgage  to  be  pursued  in  case  of  a  sale  by  the  trustee  without  fore- 
closure is  not  binding  upon  the  court  in  proceedings  to  foreclose 
such  mortgage,  but  such  a  decree  may  be  entered  as  to  the  terms  of 
payment  and  the  manner  of  sale  as  the  equities  of  the  case  demand.102 
The  decree  may  provide  that  the  sale  shall  be  made  subject  to  such 
claims  as  shall  be  finally  adjudicated,  where  the  amount  of  certain 
claims  in  dispute  can  only  be  known  after  a  long  course  of  litiga- 
tion.103 A  decree  in  an  action  by  a  railroad  bondholder  to  foreclose 
a  mortgage  securing  bonds,  which  directs  a  sale  of  the  mortgaged 
property,  free  of  all  liens  and  incumbrances,  to  satisfy  plaintiff's 
claims,  without  making  provision  for  other  bondholders,  subsequent 
mortgagees,  or  other  creditors  of  the  road,  is  fatally  defective.104  As 

100  Farmers'  &c.  Co.  v.  Chicago,  &c.  Sage  v.  Central  R.  Co.  99  U.  S.  334. 
R.  Co.  27  Fed.  146.  See,  also,  as  to  providing  for  sale 

101  Guaranty     Trust,     &c.     Co.     v.  subject  to   prior   liens,   Compton  v. 
Green  Cove,  &c.  R.  Co.  139  U.  S.  137,  Jesup,  167  U.  S.  1,  17  Sup.  Ct.  795 ; 
11  Sup.  Ct.  512;  Morgan's  Louisiana,  Randolph  v.  Middleton,  26  N.  J.  Eq. 
&c.  R.  Co.  v.  Texas  Central  R.  Co.  543.    But  see  where  liens  are  subse- 
137  U.  S.  171,  11  Sup.  Ct.  61,  distin-  quent  as  to  provision  for  sale  free 
guishing  Chicago,  &c.  R.  Co.  v.  Fos-  from  them,  St.  Louis,  &c.  R.  Co.  v. 
dick,   106  U.   S.   47,   1   Sup.   Ct.   10.  Jackson,    95    Fed.    560;    Hardin    v. 
Such  a  limitation  is  to  be  strictly  Iowa  R.  Co.  78  Iowa  726,  43  N.  W. 
construed  and  applies  to  proceedings  543.     A  consent  decree  in  railroad 
by  the  trustee  ex  mero  motu  with-  foreclosure     proceedings,     provided 
out  the   intervention   of  the  court,  that  defendant,  as  purchaser,  should 
Authorities  first  above  cited ;   also,  "pay,  satisfy,  and  fully  discharge  all 
Alexander  v.  Central  R.  Co.  3  Dill,  debts  and  liabilities  of  such  receiver- 
(U.  S.)  487;  Credit  Co.  v.  Arkansas  ship  of  every  kind  now  remaining 
Cent.  R.  Co.  15  Fed.  46.  unpaid."     The  defendant  was  held 

102  Farmers'  Loan,  &c.  Co.  v.  Green  -liable  for  an  injury  caused  by  the 
Bay,  &c.  R.  Co.  6  Fed.  100,  10  Biss.  negligence  of  the  receiver.    Wabash 
(U.  S.)   203,  1  Am.  &  Eng.  R.  Cas.  R.  Co.  v.  Stewart,  41  111.  App.  640. 
622.  1M  New  Orleans  Pac.  R.  Co.  v.  Par- 

103  Turner  v.   Indianapolis,  &c.  R.  ker,  143  U.  S.  42,  12  Sup.  Ct.  364,  6 
Co.  8  Biss.    (U.   S.)    380;   Bound  v.  Lewis' Am.  R.  &  Corp.  43. 

South  Carolina  R.  Co.  58  Fed.  473; 


r  515] 


FORECLOSURE. 


714 


a  general  rule  the  decree  should  declare  the  extent  of  the  default, 
find  the  amount  due  and  order  the  mortgaged  property  sold  if  pay- 
ment is  not  made  within  a  reasonable  time,  which  should  be  specified 
therein.105  It  is  customary,  also,  or  at  least  within  the  power  of  the 
court,  to  fix  an  "upset"  price106  and  direct  that  the  fund  be  brought 
into  court  for  distribution.107  It  may  likewise  provide  that  bonds 
may  be  received  from  the  purchasers  in  payment  of  their  bid.108  The 
sale  of  a  railroad  extending  into  two  states  which  have  united  in 
chartering  the  corporation  by  which  it  is  owned,  may,  it  has  been 
held,  be  decreed  by  a  court  sitting  in  one  of  such  states.109  So,  of 
course,  if  this  be  true,  such  a  decree  may  be  rendered  by  a  Federal 
court  sitting  in  one  of  the  states.110  Although  the  court  cannot  send 
its  process  into  another  state  nor  deliver  possession  of  property  in 
another  jurisdiction,  it  can  command  and  enforce  a  transfer  of  the 
title  to  the  purchaser.111  A  decree  determining  the  rights  of  the 


105  Blossom   v.   Milwaukee,  &c.  R. 
Co.   1  Wall.    (U.   S.)    655;    Chicago, 
&c.  R.  Co.  v.  Fosdick,  106  U.  S.  47,  1 
Sup.  Ct.  10.    But  it  is  often  imprac- 
ticable to  determine  and  insert  the 
exact  amount  of  costs  at  the  time 
the  decree  is  drawn  and  the  omis- 
sion to  do  so  is  not  fatal.     Grape 
Creek  Coal  Co.  v.  Farmers',  &c.  Co. 
63  Fed.  891.     In  Knevals  v.  Florida 
Central,  &c.  R.  Co.  66  Fed.  224,  it 
was  held  that  a  decree  ordering  the 
sale  of  a  railroad,  without  describ- 
ing the  property,   included  all  the 
property  of  the  company  covered  by 
the    mortgage    and    connected    with 
the  use  and  purpose  of  the  road. 

106  Blair  v.  St.  Louis,  &c.  R.  Co.  25 
Fed.  232.    A  form  of  decree  is  given 
in  full  in  this  case.    See,  also,  Mcll- 
henny  v.  Binz,  80  Tex.  1,  13  S.  W. 
655,  26  Am.  St.  776.     A  deposit  by 
bidders  may  also  be  required.   Turn- 
er v.  Indianapolis,  &c.  R.  Co.  8  Biss. 
(U.  S.)  380;  Eastern  v.  Houston,  &c. 
R.  Co.  44  Fed.  718. 

1OT  Chicago,  &c.  Land  Co.  v.  Peck, 
112  111.  408. 

108Ketchum  v.  Duncan,  96  U.  S. 
659;  Kropholler  v.  St.  Paul,  &c.  R. 


Co.  2  Fed.  302;  Duncan  v.  Mobile, 
&c.  R.  Co.  3  Woods  (U.  S.)  597. 

109McTighe  v.  Macon,  &c.  Co.  94 
Ga.  306,  21  S.  B.  701,  32  L.  R.  A.  208, 
47  Am.  St.  153;  McElrath  v.  Pitts- 
burg,  &c.  R.  Co.  55  Pa.  St.  189.  See, 
also,  Union  Trust  Co.  v.  Olmsted, 
102  N.  Y.  729,  7  N.  E.  822;  Craft  v. 
Indiana,  &c.  R.  Co.  166  111.  580,  46 
N.  E.  1132.  Subject,  however,  to  ex- 
isting liens  in  the  other  state.  Hand 
v.  Savannah,  &c.  R.  Co.  12  S.  Car. 
314.  Some  of  the  courts  refuse  to 
recognize  such  a  decree  so  far  as  it 
affects  the  road  in  their  state  which 
is  subject  to  an  underlying  mort- 
gage. See  Eaton,  &c.  R.  Co.  v.  Hunt, 
20  Ind.  457;  Pittsburg,  &c.  R.  Co.'s 
Appeal  (Pa.),  4  Atl.  385;  Farmers' 
Loan,  &c.  Co.  v.  Bankers',  &c.  Co.  44 
Hun  (N.  Y.)  400. 

110Wilmer  v.  Atlanta,  &c.  Co.  2 
Woods  (U.  S.)  409,  447,  454;  Black- 
burn v.  Selma,  &c.  R.  Co.  2  Flip. 
525;  Muller  v.  Dows,  94  U.  S.  444; 
Randolph  v.  Wilmington,  &c.  R.  Co. 
11  Phila.  502. 

111  Muller  v.  Dows,  94  U.  S.  444; 
Jones  Corp.  Bonds  and  Mort.  §  417. 
See,  also,  as  to  the  decree  operating 


715  CONSENT  DECREE.  [§  516 

parties  to  the  suit  is  final  and  conclusive  between  them  as  to  all 
matters  which  were  or  might  have  been  litigated  therein  under  the 
issues,  and  can  only  be  questioned  by  appeal  or  in  a  direct  proceeding 
for  that  purpose.112  But  it  does  not  affect  the  rights  and  priorities  of 
persons  who  had  no  notice  of  the  proceedings  and  were  neither  par- 
ties nor  privies  thereto.113 

§  516.  Consent  decree. — A  decree  entered  by  consent  of  the  par- 
ties has  legal  effect  so  long  as  it  remains  unreversed,  and,  after  it 
has  been  executed,  is  binding,  at  least  so  far  as  it  is  embraced  by 
the  issues.114  But  it  has  been  held  that  so  long  as  they  remain  un- 
executed, decrees  entered  by  consent,  like  ex  parte  decrees,  are  sub- 
ject to  the  control  of  the  court.115  A  consent  decree  as  to  matters 
beyond  the  scope  of  the  bill  will  bind  the  court  in  its  future  actions 
only  so  far  as  it  is  embraced  by  the  bill.  But  it  will,  after  it  is  exe- 
cuted by  one  of  the  parties,  constitute  a  binding  agreement  upon  the 
part  of  the  other.116 

§  517.  Deficiency  decree. — It  was  formerly  held  by  the  Federal 
courts  that,  after  a  decree  of  foreclosure  and  sale,  duly  confirmed, 
it  was  erroneous  to  direct  an  execution  for  any  deficiency,  that  is, 
for  the  balance  of  the  debt  in  case  the  property  did  not  sell  for 

in  personam,  Craft  v.  Indiana,  &c.  upon  the  agreement  and  not  upon 

R.  Co.  166  111.  580,  46  N.  E.  1132;  the  pleadings  and  may,  therefore,  be 

Lynde  v.   Columbus,  &c.  R.  Co.  57  binding  upon  the  parties  although 

Fed.  993.  not   within   the   issues.     See,   also, 

ua  Woods  v.  Pittsburgh,  &c.  R.  Co.  Nashville,    &c.    R.    Co.    v.    United 

99  Pa.  St  101;  Brooks  v.  O'Hara,  2  States,  113  U.  S.  261,  5  Sup.  Ct.  460; 

McCrary   (U.  S.)    644;   Indiana,  &c.  Knobloch  v.  Mueller,  123  111.  554,  17 

R.  Co.  v.  Bird,  116  Ind.  217,  9  Am.  N.  E.  696;   Indianapolis,  &c.  R.  Co. 

St.    842;    Woolery   v.   Grayson,   110  v.  Sands,  133  Ind.  433,  32  N.  E.  722; 

Ind.  149;  Herring  v.  New  York,  &c.  Schmidt  v.  Oregon,  &c.  Co.  28  Oreg. 

R.  Co.  105  U.  S.  341.  9,  40  Pac.  406,  1014,  52  Am.  St.  759. 

113  Pittsburgh,  &c.  R.  Co.  v.  Mar-        *"  Vermont,  &c.  R.  Co.  v.  Vermont 

shall,  85  Pa.  St.  187.  Central  R.  Co.  50  Vt.  500.   "Consent 

u<  Indiana,  &c.  R.  Co.  v.  Bird,  116  decrees  decide  nothing.    They  mere- 

Ind.  217,  9  Am.  St.  842;  Wadhams  v.  ly  authenticate  private  agreements, 

Gay,  73  111.  415;  Farmers'  Loan,  &c.  and  render  them  executory  between 

Co.  v.  Central  R.  4  Dill.  (U.  S.)  533;  the  parties."   Union  Bank  v.  Marin, 

Pacific  R.  Co.  v.  Ketchum,  101  U.  S.  3  La.  Ann.  34,  35,  per  Rost,  J. 
289;  2  Beach  Eq.  Pr.  §§792,  795.   In        U8  Vermont,  &c.  R.  Co.  v.  Vermont 

Hutts  v.  Martin,  134  Ind.  587,  593,  Central  R.  Co.  50  Vt.  500. 
it  is  said  that  the  decree  is  based 


518] 


FORECLOSURE. 


716 


enough  to  pay  it  in  full.117  But,  under  the  present  equity  rule,118  "a 
decree  may  be  rendered  for  any  balance  that  may  be  found  due  to  the 
complainant  over  and  above  the  proceeds  of  the  sale  or  sales,  and 
execution  may  issue  for  the  collection  of  the  same."  This  rule,  how- 
ever, does  not  authorize  such  a  decree  unless  the  bill  shows  that  the 
amount  is  actually  due.119  Thus,  it  is  held  in  the  case  just  cited  that 
where  there  is  no  provision  in  the  bonds  or  mortgage  that  the  bonds 
shall  become  due,  or  may  be  declared  due,  upon  any  contingency  be- 
fore their  maturity,  it  is  error  to  find  the  unpaid  balance  due  when  it 
in  fact  has  not  matured  and  to  enter  a  deficiency  decree  ordering  ex- 
ecution therefor.  So,  in  another  recent  case,  it  was  held  that  on  fore- 
closure of  a  mortgage  for  non-payment  of  interest,  if  the  principal 
is  not  due  and  there  is  no  provision  in  the  bonds  or  mortgage  that  the 
principal  shall  become  due  on  default  in  the  payment  of  interest,  no 
judgment  can  be  rendered  for  any  deficiency  in  the  proceeds  of  the 
sale  to  pay  the  principal.120  We  suppose,  also,  that  no  deficiency  de- 
cree, amounting  to  a  personal  judgment,  can  be  rendered  in  any 
case  against  a  party  unless  the  court  has  jurisdiction  of  the  person.121 

§518.  Final  and  appealable  decrees. — A  decree  may  be  final 
although  the  case  be  referred  to  a  master  to  execute  the  decree  by  a 
sale  of  the  mortgaged  property.122  If,  however,  it  leaves  the  amount 


11TNoonan  v.  Lee,  2  Black  (U.  S.) 
499;  Orchard  v.  Hughes,  1  Wall.  (U. 
S.)  73.  See,  also,  Libby  v.  Rennie, 
31  N.  J.  Eq.  42.  It  is  also  held  in 
some  jurisdictions  that  there  is  no 
lien  for  the  deficiency  until  after  a 
sale  has  been  made,  the  deficiency 
ascertained  and  a  judgment  entered 
therefor.  Hibberd  v.  Smith,  50  Cal. 
511;  Linn  v.  Patton,  10  W.  Va.  187. 
See,  also,  Myers  v.  Hewitt,  16  Ohio 
449,  454.  Contra,  Fletcher  v. 
Holmes,  25  Ind.  458. 

118  United   States  Equity  Rule  92. 
See,  also,   Shepherd  v.  Pepper,  133 
U.  S.  626,  10  Sup.  Ct.  438;  Dodge  v. 
Freedman's,  &c.  Trust  Co.  106  U.  S. 
445,  1  Sup.  Ct.  335. 

119  Ohio   Cent.    R.    Co.   v.    Central 
Trust  Co.  133  U.  S.  83,  10  Sup.  Ct. 
235.  Where  proper  facts  are  alleged, 


however,  a  personal  decree  for  defi- 
ciency may  be  awarded  under  the 
prayer  for  general  relief.  Shepherd 
v.  Pepper,  133  U.  S.  626,  10  Sup.  Ct. 
438. 

""Farmers',  &c.  Co.  v.  Grape 
Creek,  &c.  Co.  65  Fed.  717.  See,  also, 
Danforth  v.  Coleman,  23  Wis.  528. 

121  See  1  Elliott's  Gen.  Pr.  §§  243, 
244,  362.    See,  also,  the  extreme  case 
of  Bardwell  v.  Collins,  44  Minn.  97, 
46  N.  W.  315,  9  L.  R.  A.  152,  20  Am. 
St.  547. 

122  Bronson  v.  Railroad  Co.  2  Black 
(U.  S.)  524;  Ray  v.  Law,  1  Cranch 
(U.    S.)     349;    Whiting    v.    United 
States  Bank,  13  Peters  (U.  S.)   6; 
Elliott's  App.  Proc.  §  92;  1  Freeman 
Judgments,  §§  22,  24;  1  Black  Judg- 
ments, §  48. 


717  FINAL   AND  APPEALABLE   DECEEES.  [§    518 

due  upon  the  debt  to  be  determined,  and  the  property  to  be  sold  is  not 
ascertained  and  defined  it  is  not  final.123  If  it  determines  the  whole 
controversy  between  the  parties,  leaving  nothing  to  be  done  except  to 
carry  it  into  execution,  it  is  appealable  as  a  final  decree  notwith- 
standing the  fact  that  the  court  retains  the  fund  in  controversy  for 
the  purpose  of  distributing  it  as  decreed.124  So,  a  decree  of  fore- 
closure, ascertaining  the  amount  due,  directing  payment  within  a 
specified  time  and  providing  for  an  order  of  sale  in  case  of  default 
in  such  payment,  is  a  final  decree  from  which  an  appeal  may  be 
taken.125  It  is  also  "manifest  that  a  substantial  error,  to  the  preju- 
dice of  one  of  the  parties,  may  originate  in  a  decree  distributing  the 
proceeds  of  a  sale  under  a  decree  of  foreclosure,  and  no  question 
can  be  successfully  raised  against  the  right  to  appeal  from  such  a 
decree."126  There  are  also  cases  in  which  there  are  independent  is- 
sues not  affecting  all  parties,  and  in  such  cases  an  appeal  may  lie 
as  to  those  whose  interests  are  finally  determined  although  the  decree 
is  not  final  as  to  all  the  issues  between  the  other  parties.127  Thus, 
it  has  been  held  that  a  decree  in  a  foreclosure  suit  awarding  priority 
to  a  creditor  who  claims  an  interest  in  locomotives  in  the  possession 
of  the  receiver  and  in  use  on  the  road  is  a  final  decree  upon  a  distinct 
and  independent  issue.128  And  it  may,  perhaps,  be  stated  as  a  general 

123  McGourkey  v.  Toledo,  &c.  R.  Co.  10   Sup.   Ct.    950.     But   compare    1 

146  U.  S.  536,  13  Sup.  Ct.  170,  172;  Freeman  Judgments,  §  22. 

Railroad  Co.  v.  Swasey,  23  Wall.  (U.  ^Trustees  v.  Greenough,  105  U.  S. 

S.)    405;    Grant  v.  Phoenix,  &c.  Co.  527;  Hinckley  v.  Gilman,  &c.  R.  Co. 

106  U.  S.  429,  1  Sup.  Ct.  414;  Bur-  94  U.  S.  467;   Fosdick  v.  Schall,  99 

lington,  &c.  R.  Co.  v.  Simmons,  123  U.  S.  235;  Williams  v.  Morgan,  111 

U.  S.  52,  8  Sup.  Ct.  58;   Parsons  v.  U.  S.  684,  4  Sup.  Ct.  638;  Brush,  &c. 

Robinson,  122  U.  S.  112,  7  Sup.  Ct.  Co.  v.  Electric  Imp.  Co.  51  Fed.  557. 

1153 ;  1  Black  Judgments,  §  48.  w  Central  Trust  Co.  v.  Grant,  &c. 

mBank  of  Lewisburg  v.  Sheffey,  Works,  135  U.   S.   207,  10   Sup.  Ct. 

140  U.  S.  445,  11  Sup.  Ct.  755;  Hoff-  736.     See,  also,  Farmers'  Loan,  &c. 

man  v.  Knox,  50  Fed.  484.    See,  also,  Co.,  Ex  parte,  129  U.  S.  206,  9  Sup. 

Stovall  v.  Banks,  10  Wall.    (U.  S.)  Ct.  265;  Jordan,  Ex  parte,  94  U.  S. 

583.  248;   Central  Trust  Co.  v.  Marietta, 

125 Milwaukee,  &c.  R.  Co.  v.  Sout-  &c.  R.  Co.  48  Fed.  850  (holding  deci- 

ter,  2  Wall.  (U.  S.)  440.  sion  in  favor  of  an  intervener  a  final 

""Chicago,  &c.  R.  Co.  v.  Fosdick,  decision  under  the  Circuit  Court  of 

106  U.  S.  47,  82,  1  Sup.  Ct.  10,  12.  Appeals  Act).    That  the  term  "final 

See,  also,  Blossom  v.  Milwaukee,  &c.  decision"   in  such  act  means  final 

R.  Co.  1  Wall.    (U.  S.)   657;   Louis-  judgment  or  decree,  see  Duff  v.  Car- 

ville,  &c.  R.  Co.  v.  Wilson,  138  U.  S.  rier,  55  Fed.  433;  2  Beach  Mod.  Eq. 

501,   11   Sup.   Ct.   405;    Kneeland  v.  Pr.  §§  913,  941. 
American  Loan,  &c.  Co.  136  U.  S.  89, 


§'   518]  FORECLOSURE.  718 

rule  that  where  the  parties  are  entirely  dismissed  from  a  case  by  the 
decree,  it  is  so  far  final  as  to  them  that  an  immediate  appeal  may 
be  taken,  although  other  matters  are  retained  in  which  they  have  no 
interest.129  But  where  an  intervener  in  a  foreclosure  suit  claimed 
certain  rolling  stock  in  the  possession  of  the  receiver,  as  having  been 
leased  to  the  mortgagor,  and,  after  sale  of  the  property  on  fore- 
closure, a  decree  was  made  directing  the  delivery  of  such  property 
to  the  intervener,  but  referring  the  matter  to  a  master  to  determine 
its  rental  value  while  used  by  the  receiver,  together  with  all  questions 
between  the  receiver  and  the  intervener  growing  out  of  its  use  and 
restoration,  it  was  held  that  the  decree  directing  the  delivery  of  the 
property  to  the  intervener  was  not  such  a  final  decree  as  to  prevent  the 
court  from  determining  at  a  subsequent  term  that  the  title  to  such 
property  had  passed  to  the  purchaser  at  the  foreclosure  sale.130 

129  Grant  v.   East,   &c.   R.    Co.   50    see  Keystone,  &c.  Iron  Co.  v.  Martin, 
Fed.  795;  Hill  v.  Chicago,  &c.  R.  Co.     132  U.  S.  91,  10  Sup.  Ct.  32. 
140  U.  S.  52,  11  Sup.  Ct  690.     But        ^  McGourkey    v.    Toledo,    &c.    R. 

Co.  146  U.  S.  536,  13  Sup.  Ct.  170. 


CHAPTEE  XXL 


SALE   AND   REORGANIZATION. 


Sec.  Sec. 

519.  Railroad  company  cannot  sell     527. 

franchise  and  necessary    527a. 
property    without   statutory 
authority. 

520.  Execution  sales.  528. 

521.  Foreclosure   sales  —  Authority 

— Purchasers.  529. 

522.  Sale  on  default  in  payment  of    530. 

interest — Sale  of  road  as  an    531. 
entirety. 

523.  Sale    of    consolidated    road — 

Sale    by    receiver    pending    531a. 
foreclosure. 

524.  Discretion  of  trustees  and  of-     532. 

fleers  as  to  time  and  manner 

of  sale.  533. 

525.  Effect    of    sale  —  Purchaser's 

title.  534. 

525a.  What  passes  to  purchaser  at 
foreclosure  sale. 

526.  When    purchaser    takes    title    535. 

free     from     liabilities     and 
liens.  536. 


Disposition  of  proceeds  of  sale. 

Disposition  of  proceeds — Pur- 
chaser not  bound  to  see  that 
they  are  properly  applied. 

Preferred  claims — Six  months' 
rule. 

Setting  sale  aside. 

Redemption. 

Reorganization  by  purchasers 
at  sale — Power  of  legislature 
to  provide  for. 

Reorganization  through  pur- 
chasing committee. 

Statutory  reorganization — Lia- 
bility of  new  corporation. 

Reorganization  by  agreement 
— Rights  of  minority. 

Rights  and  obligations  of  the 
parties — Laches  and  estop- 
pel. 

Fraud  in  the  sale  or  reorgan- 
ization. 

Reorganization  by  the  courts. 


§  519.  Railroad  company  cannot  sell  franchise  and  necessary 
property  without  statutory  authority. — In  the  absence  of  legislative 
authority,  a  railroad  company  cannot  sell  its  road  and  franchises  to 
another  corporation,  so  as  to  prevent  it  from  performing  its  duties 
to  the  public,1  even  though  the  latter  corporation  should  undertake  to 

1  East  Line,  &c.  R.  Co.  v.  State,  75  R.  Co.  v.  St.  Louis,  &c.  R.  Co.  118 
Tex.  434,  12  S.  W.  690;  Gulf,  &c.  R.'  U.  S.  290,  6  Sup.  Ct.  1094;  Cumber- 
Co,  v.  Morris,  67  Tex.  692,  4  S.  W.  land  Tel.  &c.  Co.  v.  Evansville,  127 
156;  Snell  v.  Chicago,  152  U.  S.  191,  Fed.  187;  Fisher  v.  West  Virginia, 
14  Sup.  Ct.  489,  492;  Oregon,  &c.  &c.  R.  Co.  39  W.  Va.  366,  19  S.  E. 
Nav.  Co.  v.  Oregonian  R.  Co.  130  U.  578,  23  L.  R.  A.  758;  Pierce  Rail- 
S.  1,  9  Sup.  Ct.  409;  Pennsylvania  roads,  10;  Taylor  Corp.  §§  305,  131, 

719 


§  519] 


SALE  AND  REORGANIZATION. 


720 


keep  the  road  open  at  all  times  for  the  use  of  the  public ;  for  a  cor- 
poration has  no  implied  authority  to  delegate  the  performance  of  its 
public  duties  to  another  company.2  An  unauthorized  attempt  on  the 


132;  Morawetz  Corp.  485,  490.  See, 
also,  elaborate  note  to  Brunswick, 
&c.  Co.  v.  United  States  Gas  Co.  35 
Am.  St.  385,  390,  and  note  in  103 
Am.  St.  555.  In  Central  Transp.  Co. 
v.  Pullman,  &c.  Co.  139  U.  S.  24,  11 
Sup.  Ct.  478,  484,  Gray,  J.,  states 
the  reason  for  the  rule  as  follows: 
"The  charter  of  a  corporation,  read 
in  the  light  of  any  general  laws 
which  are  applicable,  is  the  measure 
of  its  powers,  and  the  enumeration 
of  those  powers  implies  the  exclu- 
sion of  all  others  not  fairly  inci- 
dental. All  contracts  made  by  a 
corporation  beyond  the  scope  of 
those  powers  are  unlawful  and  void, 
and  no  action  can  be  maintained 
upon  them  in  the  courts,  and  this 
upon  three  distinct  grounds:  The 
obligation  of  every  one  contracting 
with  a  corporation  to  take  notice  of 
the  legal  limits  of  its  powers;  the 
interest  of  the  stockholders,  not  to 
be  subjected  to  risks  which  they 
have  never  undertaken;  and,  above 
all,  the  interest  of  the  public  that 
the  corporation  shall  not  transcend 
the  powers  conferred  upon  it  by 
law.  A  corporation  cannot,  without 
the  assent  of  the  legislature,  trans- 
fer its  franchise  to  another  corpora- 
tion, and  abnegate  the  performance 
of  the  duties  to  the  public,  imposed 
upon  it  by  its  charter  as  the  consid- 
eration for  the  grant  of  its  fran- 
chise. Neither  the  grant  of  a  fran- 
chise to  transport  passengers,  nor  a 
general  authority  to  sell  and  dis- 
pose of  property,  empowers  the 
grantee,  while  it  continues  to  exist 
as  a  corporation,  to  sell  or  to  lease 
its  entire  property  and  franchise  to 
another  corporation.  These  princi- 


ples apply  equally  to  companies  in- 
corporated by  special  charter  from 
the  legislature,  and  to  those  formed 
by  articles  of  association  under  gen- 
eral laws." 

2  Morawetz  Priv.  Corp.  (2d  ed.) 
§  1120,  citing  Beman  v.  Rufford,  1 
Sim.  N.  S.  550;  York,  &c.  R.  Co.  v. 
Winans,  17  How.  (U.  S.)  30,  39; 
Thomas  v.  West  Jersey  R.  Co.  101 
U.  S.  71,  83;  Great  Northern  R.  Co. 
v.  Eastern  Counties  R.  Co.  21  L.  J. 
Ch.  837;  cf.  Rogers  Locomotive,  &c. 
Works  v.  Erie  R.  Co.  20  N.  J.  Eq. 
379 ;  Clark  v.  Washington,  12  Wheat. 
(U.  S.)  40,  54;  Roper  v.  McWhorter, 
77  Va.  214.  It  has  been  held  that 
by  conveying  its  road  and  fran- 
chises, to  trustees  selected  by  itself, 
a  railroad  company  can  not  evade 
its  legal  liability  for  injuries  after- 
wards done  to  persons  and  property 
by  the  negligent  operation  of  its 
road.  Acker  v.  Alexandria,  &c.  R. 
Co.  84  Va.  648,  5  S.  E.  688;  Naglee 
v.  Alexandria,  &c.  R.  Co.  83  Va.  707, 
3  S.  E.  369,  5  Am.  St  308.  So,  it 
has  been  held  that  a  railroad  com- 
pany cannot,  without  statutory  au- 
thority, transfer  the  right  to  operate 
its  road  so  as  to  absolve  itself  from 
its  duties  to  the  public,  or  its  lia- 
bility for  the  torts  of  the  company 
which  operates  the  road.  East  Line, 
&c.  R.  Co.  v.  Rushing,  69  Tex.  306,  6 
S.  W.  834;  International,  &c.  R.  Co. 
v.  Eckford,  71  Tex.  274,  8  S.  W.  679; 
International,  &c.  Co.  v.  Kuehn,  70 
Tex.  582,  8  S.  W.  484;  Chollette  v. 
Omaha,  &c.  R.  Co.  26  Neb.  159,  41  N. 
W.  1106,  4  L.  R.  A.  135;  Anderson 
v.  Cincinnati  S.  R.  Co.  86  Ky.  44, 
5  S.  W.  49,  9  Am.  St.  263.  In  one  of 
these  cases  it  is  said  that  legislative 


721 


STATUTORY   AUTHORITY   ESSENTIAL  TO  SALE. 


[§    519 


part  of  a  railroad  company  to  dispose  of  its  franchise  may  be  ground 
for  the  forfeiture  of  its  charter.3  Nor  can  one  railroad  corporation 
purchase  the  property  and  franchises  of  another  without  such  au- 
thority.4 A  grant  to  a  railroad  corporation  of  power  to  sell  its  line 
will  not  be  implied  unless  necessary  to  give  effect  to  the  language  of 
the  statute.5  A  provision  in  the  charter  of  a  railroad  corporation  pro- 
hibiting it  from  purchasing,  selling,  leasing,  or  consolidating  with 
any  other  corporation  owning  a  parallel  or  competing  line  does  not 
carry  implied  power  to  sell  to  a  company  which  does  not  own  such  a 
line.  And  it  has  been  held  that  such  a  sale  cannot  be  legally  made, 
although  the  two  roads  are  expressly  empowered  by  law  to  consoli- 
date.6 Neither,  it  has  been  held,  does  the  grant  of  power  to  purchase 
other  roads  imply  authority  on  the  part  of  a  corporation  to  sell  its 
own.7  A  general  power  to  sell,  except  upon  foreclosure,  is  not 
included  in  a  power  granted  to  a  railroad  company  to  mortgage,8 


consent  to  the  transfer  is  not  suffi- 
cient of  itself  to  relieve  the  com- 
pany from  such  liabilities;  there 
must  be  an  exemption  granted  or  a 
release  from  the  obligations  of  the 
company  to  the  public.  Chollette  v. 
Omaha,  &c.  R.  Co.  26  Neb.  159,  41  N. 
W.  1106,  4  L.  R.  A.  135. 

3  Where  a  railroad  company,  hav- 
ing a  land  grant  from  the  state,  dis- 
posed of  the  entire  interest  in  and 
control  of  the  road  to  another  com- 
pany, reserving  the  granted  land 
and  certain  corporate  rights,  but 
ceasing  to  do  a  railroad  business, 
it  was  held  that,  as  such  sepa- 
ration of  the  franchises  was  not 
authorized  by  the  legislative  acts 
incorporating  the  companies,  judg- 
ment of  forfeiture  and  dissolution 
of  both  was  authorized  in  quo  war- 
ranto  proceedings  by  the  state. 
State  v.  Minnesota  Cent.  R.  Co.  36 
Minn.  246,  29  Am.  &  Eng.  R.  Cas. 
440,  30  N.  W.  816. 

*  Gulf,  &c.  R.  Co.  v.  Morris,  67  Tex. 
692,  4  S.  W.  156.  But  it  would  seem 
that  authority  given  to  one  corpora- 
tion to  purchase  the  franchise  of 
another  specified  corporation  gives 
ELL.  RAILBOADS — 46 


the  latter  authority  to  sell.  New 
York,  &c.  R.  Co.  v.  New  York,  &c.  R. 
Co.  52  Conn.  274. 

6  See  Southern  Pac.  R.  Co.  v.  Es- 
quibel,  4  N.  M.  337,  20  Pac.  109,  36 
Am.  &  Eng.  R.  Cas.  410;  East  Line, 
&c.  R.  Co.  v.  State,  75  Tex.  434,  12 
S.  W.  690;  Clarke  v.  Omaha,  &c.  R. 
Co.  4  Neb.  458;  State  v.  Consolida- 
tion Coal  Co.  46  Md.  1. 

6  East  Line,  &c.  R.  Co.  v.  State,  75 
Tex.  434,  12  S.  W.  690. 

7  Southern  Pac.  R.  Co.  v.  Esquibel, 
4  N.  M.  337,  20  Pac.  109,  36  Am.  & 
Eng.  R.  Cas.  410. 

8  Southern  Pac.  R.  Co.  v.  Esquibel, 
4  N.  M.  337,  20  Pac.  109.  In  announc- 
ing the  opinion  of  the  court  in  this 
case,  Reeves,  J.,  said:    "It  was  ar- 
gued for  the  appellant  that,  if  the 
land    could   be    mortgaged    for    the 
means  to  construct,  equip,  and  op- 
erate the  road,  it  could  be  assigned, 
in  the  first  place,  for  the  same  ob- 
ject.    The  doctrine  that  a  power  to 
mortgage  includes  a  power  to  sell  is 
not  supported  by  authority  of  law. 
A  corporation  must  exercise  its  pow- 
ers in  the  mode  prescribed   in  its 
charter.      The    power    to    procure 


§  520] 


SALE  AND  REORGANIZATION. 


722 


or  lease.9  But  railroads  are  empowered  by  general  statute  in  many 
of  the  states  to  purchase  the  roads  of  connecting  lines.10  And  this 
power  is  frequently  granted  by  special  charter.  When  the  charter  of 
one  company  authorizes  it  to  purchase  the  property  and  franchise  of 
another,  this  must  be  construed  to  be  an  implied  authority  to  that 
other  company  to  sell,11  and  where  "any  railroad  company"  is  author- 
ized to  purchase  the  property  and  franchises  of  a  certain  corporation 
they  may,  it  seems,  be  lawfully  purchased  by  a  railroad  corporation  of 
another  state.12 

§  520.  Execution  sales. — The  franchise  of  a  railroad  company,  and 
corporate  property  essential  to  the  enjoyment  of  the  franchise,  are 
not  subject  to  sale  on  execution,  unless  the  legislature  authorizes  or 
assents  to  the  transfer.13  But  locomotives,  cars  and  other  personal 


means  to  construct  the  road  in 
question  was  not  a  general  power,  it 
was  a  particular  power  to  be  exer- 
cised for  a  specific  object.  The 
Texas  &  Pacific  R.  Co.  was  author- 
ized to  issue  construction  and  land 
bonds,  and  to  execute  mortgages  to 
secure  the  bonds  on  its  land  grant 
and  other  lands  the  company  might 
acquire;  the  proceeds  of  the  sale  of 
the  bonds  to  be  applied  to  the  con- 
struction, operation,  and  equipment 
of  the  road,  and  for  the  purchase, 
construction,  completion,  equipment, 
and  operating  of  the  other  roads 
[which  it  was  authorized  to  acquire] 
as  contemplated  and  specified  in  the 
acts  of  congress.  The  acts  require 
that  the  bonds  and  mortgages 
should  contain  an  extract  from  the 
law  authorizing  them  to  be  issued, 
and  that  the  mortgages  should  be 
filed  and  recorded  in  the  department 
of  the  interior.  The  appellant  was 
not  a  mortgagee,  nor  a  purchaser 
under  a  mortgage.  No  mortgage 
bond  was  given  in  aid  of  the  con- 
struction of  the  road." 

9  Pittsburgh,  &c.  R.  Co.  v.  Bed- 
ford, &c.  R.  Co.  8iy2  Pa.  St.  104. 

10Stimson  Am.  Stat.  (1892)  §  8721. 
In  Michigan  the  sale  of  an  uncom- 


pleted road,  begun  in  good  faith,  but 
which  the  company  undertaking  it 
has  become  unable  to  finish,  is  alone 
authorized.  Young  v.  Toledo,  &c.  R, 
Co.  76  Mich.  485,  43  N.  W.  632. 

11  New  York,  &c.  R.  Co.  v.  New 
York,  &c.  R.  Co.  52  Conn.  274. 

12  Boston,  &c.  R.  Co.  v.  Boston,  &c. 
R.  Co.  65  N.  H.  393,  23  Atl.  529.   But 
see  Merz  Capsule  Co.  v.  United  Cap- 
sule Co.   67   Fed.  414;    McCutcheon 
v.  Merz  Capsule  Co.  71  Fed.  787,  31 
L.  R.  A.  415;  People  v.  Ballard,  134 
N.  Y.  269,  32  N.  E.  54,  17  L.  R.  A. 
737. 

13  Louisville,  &c.  R.  Co.  v.  Boney, 
117  Ind.  501,  20  N.  E.  432,  3  L.  R.  A. 
435;    Indianapolis,  &c.  G.  R.  Co.  v. 
State,  105  Ind.  37,  4  N.  E.  316;  Bax- 
ter v.   Nashville,  &c.   Turnpike  Co. 
10   Lea    (Tenn.)    488;    Gue  v.   Tide 
Water  Canal  Co.   24  How.    (U.  S.) 
257;    East  Alabama  R.  Co.  v.  Doe, 
114  U.  S.  340,  5  Sup.  Ct.  869;  Connor 
v.  Tennessee  Cent.  R.  Co.  109  Fed. 
931,  939,  940   (citing  text);   Tippets 
v.  Walker,  4  Mass.  595,  597,  per  Par- 
sons, C.  J.;  Ludlow  v.  Kurd,  1  Dis- 
ney  (Ohio)  552;   Oakland  R.  Co.  v. 
Keenan,  56  Pa.  St.  198;  Ammant  v. 
New   Alexandria    Turnpike    Co.    13 
Serg.  &  R.  (Pa.)   210,  15  Am.  Dec. 


723 


EXECUTION   SALES. 


[§'  520 


property  held  by  the  corporation,  if  not  in  actual  use  in  the  operation 
of  the  road,  are  held  by  some  authorities  to  be  subject  to  sale  on  exe- 
cution,1* and  there  seems  to  be  no  reason  why  property  of  a  railroad 
corporation  not  essential  to  the  enjoyment  of  its  franchise  should  not 
be  subjected  to  the  payment  of  its  debts.15  The  general  statutes  of 
many  of  the  states  authorize  a  sale  of  the  property  and  franchises  of 
a  railway  corporation  upon  execution,16  and  it  is  said,  perhaps  too 
broadly,  that  "a  general  power  to  alienate  franchises  necessarily  im- 
plies a  liability  to  have  them  levied  upon."17  The  statutory  method 
of  sale  must  be  strictly  pursued,18  and,  unless  otherwise  provided,  a 


593,  and  note;  Leedom  v.  Plymouth 
R.  Co.  5  W.  &  S.  (Pa.)  265;  Stewart 
v.  Jones,  40  Mo.  140;  Brady  v.  John- 
son, 75  Md.  445,  26  Atl.  49,  20  L.  R. 
A.  737,  and  note;  Wood  v.  Truckee 
Turnpike  Co.  24  Cal.  474;  Hatcher 
v.  Toledo,  &c.  R.  Co.  62  111.  477; 
Overton  Bridge  Co.  v.  Means,  33 
Neb.  857,  51  N.  W.  240,  29  Am.  St. 
514;  Herman  Executions,  §  361; 
Freeman  Executions,  §  179. 

14  Louisville,  &c.  R.  Co.  v.  Boney, 
117  Ind.  501,  20  N.  E.  432;  Boston, 
&c.  R.  Co.  v.  Gilmore,  37  N.  H.  410, 
72  Am.  Dec.  336;  Pierce  v.  Emery, 
32  N.  H.  484;  Lathrop  v.  Middleton, 
23  Cal.  257,  83  Am.  Dec.  112.  See, 
also,  Williamson  v.  New  Jersey,  &c. 
R.  Co.  29  N.  J.  Eq.  311;  Stevens  v. 
Buffalo,  &c.  R.  Co.  31  Barb.  (N.  Y.) 
590.  In  Wall  v.  Norfolk,  &c.  R.  Co. 
52  W.  Va.  485,  44  S.  E.  294,  64  L.  R. 
A.  501,  94  Am.  St.  948,  951  (citing 
text),  it  is  said  that  the  better  view 
seems  to  be  that  rolling  stock  which 
may  be  useful  in  the  operation  of 
the  road  is  not  subject  at  common 
law  to  execution  or  attachment,  but 
that  under  the  provision  of  the  West 
Virginia  constitution,  making  roll- 
ing stock  subject  to  execution  and 
sale,  it  is  also  subject  to  attachment. 
So,  a  portion  of  a  railroad  which 
the  company  has  abandoned  the 
use  of  and  is  proceeding  to  take  up 
is  subject  to  levy  under  execution. 


Benedict  v.  Heineberg,  43  Vt.  231; 
Gardner  v.  Mobile,  &c.  R.  Co.  102 
Ala.  635,  15  So.  271,  48  Am.  St.  84. 

15Coe  v.  Columbus,  &c.  R.  Co.  10 
Ohio  St.  372,  75  Am.  Dec.  518;  Louis- 
ville, &c.  R.  Co.  v.  Boney,  117  Ind. 
501,  20  N.  E.  432,  3  L.  R.  A.  435. 

16 Stimson  Am.  Stat.  (1892), §  8311; 
Commonwealth  v.  Susquehanna,  &c. 
R.  Co.  122  Pa.  St.  306,  15  Atl. 
448.  1  L.  R.  A.  225;  Winchester,  &c. 
R.  Co.  v.  Colfelt,  27  Gratt  (Va.) 
777;  Atlanta  v.  Grant,  &c.  Co.  57  Ga. 
340;  State  v.  Rives,  5  Ired.  Law  (N. 
C.)  297. 

"Note  to  Brunswick,  &c.  Co.  v. 
United  Gas,  &c.  Co.  35  Am.  St.  385, 
401,  citing  National  Foundry  Works 
v.  Oconto,  &c.  Co.  52  Fed.  43,  which, 
however,  only  inferentially  sustains 
the  proposition.  So,  in  State  v. 
Hare,  121  Ind.  308,  310,  23  N.  E.  145, 
it  is  said  that  "the  rule  is  that  what- 
ever the  corporation  might  volun- 
tarily alienate,  its  creditors  may 
subject  to  sale  by  adverse  process," 
citing  Louisville,  &c.  R.  Co.  v.  Bo- 
ney, 117  Ind.  501,  20  N.  E.  432,  3  L. 
R.  A.  435;  Coe  v.  Columbus,  &c.  R. 
XJo.  10  Ohio  St.  372,  75  Am.  Dec.  518. 

18  James  v.  Pontiac,  &c.  Co.  8  Mich. 
91;  Taylor  v.  Jenkins,  6  Jones  L. 
(N.  C.)  316;  Seymour  v.  Milford, 
&c.  Co.  10  Ohio  476.  See,  also,  Greg- 
ory v.  Blanchard,  98  Cal.  311,  33 
Pac.  199. 


521] 


SALE  AND   REORGANIZATION". 


724 


railroad  cannot  be  levied  upon  and  sold  in  fragmentary  parts  al- 
though it  may  run  into  different  counties.19  So,  it  is  held  in  a  recent 
case  that  the  property  of  a  railroad  company,  cannot  be  sold  under 
process  separately  and  apart  from  its  franchise,  where  such  property 
is  so  indissolubly  linked  to  the  franchise  and  to  the  public  functions 
of  the  corporation  that  without  it  the  franchise  will  be  rendered  in- 
operative, and,  that  a  decree  directing  the  sale  of  a  portion  of  the 
right  of  way  and  roadbed  to  satisfy  a  debt,  is  inoperative,  where  the 
road  has  not  been  abandoned,  nor  the  franchise  under  which  it  was 
built  surrendered;  and  the  court  may  properly  refuse  to  award  proc- 
ess for  the  enforcement  of  such  decree,  as  the  effect  of  a  sale  would 
be  merely  to  cloud  the  title  of  the  owner  of  the  road  and  its  franchise.20 

§  521.  Foreclosure  sales — Authority — Purchasers. — Authority  to 
mortgage,  of  course,  includes  the  power  to  enforce  a  sale  of  the  mort- 
gaged property  upon  foreclosure  for  default  in  payment  of  the  mort- 
gage debt.21  And  in  many  cases  the  charter  authorizes  the  execution 
of  a  mortgage  containing  a  power  of  sale.22  A  corporation  may  become 
the  purchaser  at  a  foreclosure  sale,  or  obtain  the  property  from  the 
purchaser,  if  authorized  by  its  charter  to  purchase  and  operate  other 
lines  of  road.23  So,  mortgage  bondholders  and  other  creditors  may 


"Midland  R.  Co.  v.  Wilcox,  122 
Ind.  84,  23  N.  E.  506;  Macon  &  West- 
ern R.  Co.  v.  Parker,  9  Ga.  377;  No- 
ble v.  State,  43  Ga.  466;  Dayton, 
Xenia,  &c.  R.  Co.  v.  Lewton,  20  Ohio 
St.  401.  See,  also,  National,  &c. 
Works  v.  Oconto  Water  Co.  52  Fed. 
43,  45;  Brooks  v.  Railway  Co.  101  U. 
S.  443,  451;  Wheeling  Bridge,  &c. 
R.  Co.  v.  Reymann,  &c.  Co.  90  Fed. 
189;  Yellow  River  Improvement  Co. 
v.  Wood  County,  81  Wis.  554,  51  N. 
W.  1004,  17  L.  R.  A.  92;  Bound  v. 
South  Carolina  R.  Co.  46  Fed.  315, 
316.  So,  where  it  is  all  mortgaged, 
it  should  be  sold  as  an  entirety  al- 
though it  runs  into  different  states. 
Muller  v.  Dows,  94  U.  S.  444. 

20  Connor   v.    Tennessee   Cent.    R. 
Co.  109  Fed.  931. 

21  New  Orleans,  &c.  R.  Co.  v.  Dela- 
more,  114  U.  S.  501,  5  Sup.  Ct.  1009; 
Detroit  v.  Mutual  Gas  Light  Co.  43 


Mich.  594,  5  N.  W.  1039.  Compare 
Savannah,  &c.  R.  Co.  v.  Lancaster, 
62  Ala.  555. 

22  McLane  v.  Placerville,  &c.  R.  Co. 
66  Cal.  606,  6  Pac.  748.     An  order 
that  a  railroad  be  sold  as  an  entire- 
ty, together  with  all  its  franchises, 
on  the  foreclosure  of  a  lien  given 
by  statute,  which  makes  no  express 
provision  as  to  the  mode  of  its  en- 
forcement, is  in  excess  of*  the  power 
of  the  court.     In  such  a  case  pay- 
ment must  be  enforced  out  of  other 
property  or  funds,  and  the  lien  af- 
fords the  basis  for  the  exercise,  by 
the  court  of  chancery,  of  its  flexible 
jurisdiction  to  coerce  payment.  Lou- 
isville, &c.  R.  Co.  v.  Boney,  117  Ind. 
501,  20  N.  E.  432,  3  L.  R.  A.  435. 

23  People  v.  Brooklyn,  &c.  R.  Co.  89 
N.  Y.  75.     It  has  been  held  in  New 
Hampshire  that  a  foreign  corpora- 
tion could  lawfully  become  the  pur- 


725 


FORECLOSURE  SALES — AUTHORITY — PURCHASERS. 


[ 


lawfully  combine  to  purchase  a  railroad  at  a  foreclosure  sale,  if  there 
is  no  intention  of  defrauding  any  party  in  interest  by  the  use  of  an 
unfair  advantage,  or  by  preventing  competition  at  the  sale.24  The 
bondholders  for  whom  the  road  is  purchased  may  also  be  permitted 
to  apply  their  bonds  in  payment  of  the  purchase-money,  after  satisfy- 
ing the  costs  and  charges  of  the  litigation  and  trust25  if  there  are  no 
prior  lienholders  whose  claims-  are  unsatisfied.26 


chaser  of  a  railroad  at  foreclosure 
sale.  Boston,  &c.  R.  Co.  v.  Boston, 
&c.  R.  Co.  65  N.  H.  393,  23  Atl.  529. 
See,  also,  Rogers  v.  Nashville,  &c. 
R.  Co.  91  Fed.  299;  Central  Trust 
Co.  v.  Western  N.  Car.  R.  Co.  89  Fed. 
24.  There  is  nothing  in  the  Michi- 
gan general  railroad  law  of  1873  au- 
thorizing one  railroad  company  to 
acquire  the  stock  and  franchises  of 
another  competing  company,  for  the 
purpose  of  itself  exercising  such 
franchises,  and  such  an  acquisition 
is  unlawful.  Mackintosh  v.  Flint, 
&c.  R.  Co.  34  Fed.  582. 

24  Robinson  v.  Philadelphia,  &c.  R. 
Co.  28  Fed.  340;  Kitchen  v.  St. 
Louis,  &c.  R.  Co.  69  Mo.  224;  Thorn- 
ton v.  Wabash  R.  Co.  81  N.  Y.  462; 
Marie  v.  Garrison,  83  N.  Y.  14,  13 
Abb.  N.  C.  210;  Pennsylvania 
Transp.  Co.'s  Appeal,  101  Pa.  St. 
576;  Jones  Corp.  Bonds  and  Mort. 
§  687.  A  decree  of  foreclosure  and 
sale  of  a  railroad,  entered  by  con- 
sent of  creditors  and  the  company, 
without  fraud,  and  in  pursuance  of 
a  plan  of  reorganization,  will  not  be 
set  aside  at  the  suit  of  some  of  the 
stockholders  merely  because  the 
principal  of  one  mortgage  was  not 
yet  due,  when  the  sums  due  for  in- 
terest thereon,  for  floating  indebted- 
ness, and  on  other  mortgages  then 
due,  were  so  great  as  to  render  fore- 
closure inevitable,  and  when  com- 
plainants do  not  offer  to  do  equity 
by  paying  the  floating  debt,  and 
have  not  been  diligent  in  opposing 


the  plan  of  reorganization,  or  in  at- 
tacking the  decree  complained  of. 
Carey  v.  Houston,  &c.  R.  Co.  52  Fed. 
671. 

25  Duncan  v.  Mobile,  &c.  R.  Co.  3 
Woods  (U.  S.)  567;  Farmers'  Loan, 
&c.    Co.    v.    Green,    &c.    R.    6    Fed. 
100;    American   Water,   &c.    Co.    v. 
Farmers'  Loan,  &c.  Co.  73  Fed.  956; 
Rumsey  v.  People's,  &c.  R.  154  Mo. 
215,  55   S.  W.  615.     And  the  mort- 
gage may  so  provide.    Child  v.  New 
York,   &c.   R.   129   Mass.   170.     See, 
also,    Easton    v.    German-American 
Bank,  127  U.  S.  532,  8  Sup.  Ct.  1297. 

26  Sanxey  v.  Iowa  City  Glass  Co.  68 
Iowa  542,  27  N.  W.  747.    Debts  con- 
tracted in  conserving  the  property 
and  maintaining  its  value  as  a  go- 
ing concern  are  usually  considered 
preferred    claims    and    paid    before 
the     mortgage     debt     is     satisfied. 
Farmers',   &c.   Co.  v.  Kansas   City, 
&c.  R.  Co.   53  Fed.  182;    Seibert  v. 
Minneapolis,  &c.  R.  Co.  58  Minn.  53, 
59  N.  W.  879.     See   Finance  Com- 
pany v.   Charleston,  &c.  R.  Co.   61 
Fed.  369;   Bound  v.  South  Carolina 
R.  Co.  58  Fed.  473.    Post,  §  528.     It 
has,  however,  been  held  erroneous 
to  direct  payment  of  claims  for  sup- 
plies furnished  prior  to  the  receiver- 

t  ship  first  out  of  the  proceeds  of  the 
sale,  where  no  provision  was  made 
for  such  payment  when  the  receiver 
was  appointed,  and  it  does  not  ap- 
pear that  current  earnings,  before 
or  after  his  appointment,  were  di- 
verted to  paying  interest  on  the 


522] 


SALE  AND  REORGANIZATION. 


726 


§  522.  Sale  on  default  in  payment  of  interest — Sale  of  road  as  an 
entirety. — Where  a  trust  deed  provides  that  the  road  and  property 
shall  be  sold  upon  a  default  in  the  payment  of  principal  or  interest, 
but  one  sale  is  contemplated,  and  sufficient  property  should  be  sold 
to  realize  the  debt,  although  default  has  been  made  in  the  payment  of 
interest  only.  And  if  the  property  cannot  be  sold  in  parts  without 
injury  to  the  whole,  it  may  be  sold  as  an  entirety.27  And  even  though 
the  mortgage  contains  no  provision  making  the  whole  debt  due  upon 
a  default  in  the  payment  of  interest,  a  sale  of  the  whole  property  may 
be  decreed  by  a  court  of  equity,  if  it  cannot  be  divided  'without  in- 
jury.28 Or,  it  seems  that  the  court  may,  in  a  proper  case,  direct  that 
the  property  be  leased  for  such  a  period  as  will  secure  the  payment  of 
the  sum  due  and  the  interest  accruing.29  Where  suit  is  brought  to 
foreclose  a  railroad  mortgage  for  default  in  payment  of  interest,  the 


bonded  debt.  Cutting  v.  Tavares, 
&c.  R.  Co.  61  Fed.  150.  A  claim  for 
cutting  and  clearing  away  timber 
from  the  road  for  its  original  con- 
struction has  also  been  refused  pref- 
erence on  foreclosure  of  a  prior 
mortgage  on  the  road.  Barstow  v. 
Pine  Bluff,  &c.  R.  Co.  57  Ark.  334,  21 
S.  W.  652;  Farmers',  &c.  Co.  v.  Cand- 
ler,  81  Ga.  691,  18  S.  E.  540. 

"Wilmer  v.  Atlanta,  &c.  R.  Co.  2 
Woods  (U.  S.)  447;  Chicago,  &c.  R. 
Co.  v.  Fosdick,  106  U.  S.  47,  1  Sup. 
Ct.  10;  Peoria,  &c.  R.  Co.  v.  Thomp- 
son, 103  111.  187.  This  is  the  general 
rule  as  to  the  sale  of  mortgaged 
property,  which  cannot  readily  be 
divided.  Bound  v.  South  Carolina 
R.  Co.  50  Fed.  853;  Farmers'  Loan, 
&c.  Co.  v.  Oregon,  &c.  R.  Co.  24  Fed. 
407;  Kneeland  v.  American  Loan, 
&c.  Co.  136  U.  S.  89,  10  Sup.  Ct.  950; 
2  Jones  Mort.  §§  1181,  1459,  1478, 
1616,  1619. 

28  See  McLane  v.  Placerville,  &c.  R. 
Co.  66  Cal.  606,  6  Pac.  748.  In 
Peoria,  &c.  R.  Co.  v.  Thompson,  103 
111.  187,  Mr.  Justice  Mulkey,  in  de- 
livering the  opinion  of  the  court, 
said:  "When  a  railway,  its  appur- 
tenances, privileges  and  franchises 


are  mortgaged  as  a  whole,  there  is, 
in  our  opinion,  no  power  or  author- 
ity to  sell  them  separately.  From 
the  very  nature  of  the  property,  one 
would  be  useless  without  the  other. 
The  franchise  could  not  be  used  at 
all  without  the  road,  and  the  road 
could  not  lawfully  be  used,  as 
against  the  state,  without  the  fran- 
chise. Under  such  circumstances, 
to  avoid  the  possibility  of  conflict- 
ing ownerships,  the  law  has  wisely 
determined  that  both  must  be  sold 
as  an  entirety.  Chicago,  Danville 
and  Vincennes  R.  Co.  v.  Loewenthal, 
93  111.  433."  As  supporting  the  text, 
see  Jones  on  Corporate  Bonds  and 
Mort.  §  634.  Some  of  the  states 
have  statutes  providing  for  the  sale 
of  a  mortgaged  railroad  upon  fore- 
closure as  an  entirety.  See  Jones 
on  Corp.  Bonds  and  Mort.  §  634,  and 
note,  citing  laws  of  Indiana,  New 
Jersey,  Kansas,  Kentucky  and  New 
York. 

29  Woods  Railroads  (Minor's  ed.), 
2003,  citing  Bardstown,  &c.  R.  Co.  v. 
Metcalfe,  4  Met.  (Ky.)  199.  But 
compare  Duncan  v.  Atlantic,  &c.  R. 
Co.  4  Hughes  (U.  S.)  125. 


727  BY  RECEIVER  PENDING   FORECLOSURE.  [§    523 

court  may  properly  enter  a  decree  nisi,  ascertaining  the  amount  of 
interest  due,  and  giving  the  debtor  a  reasonable  time  to  pay  it;  and 
directing  that  in  case  of  non-payment,  the  property  be  sold,  and  the 
proceeds  applied  to  the  payment  of  both  interest  and  principal.  But 
under  such  a  decree  the  debtor  may  redeem  at  any  time  before  the 
sale  is  confirmed  by  payment  of  the  unpaid  interest  and  costs.30  The 
rule  stated  at  the  beginning  of  this  section  requiring  or  permitting 
the  sale  of  the  road  as  an  entirety  for  default  in  payment  of  interest 
does  not  apply  in  all  cases.  If  the  property  is  divisible,  and  interest 
only  is  due,  there  being  no  provision  making  the  whole  debt  due,  it 
has  been  held  that  no  more  should  be  sold  than  will  pay  the  accrued 
interest,  and  then,  upon  a  second  default,  a  further  order  of  sale 
may  be  made.31  So,  in  case  of  divisional  mortgages,  the  courts  have 
refused,  in  several  instances,  to  order  the  entire  system  sold.32 

§523.  Sale  of  consolidated  road — Sale  by  receiver  pending  fore- 
closure.— A  road  formed  by  the  consolidation  of  several  roads,  each 
of  which  was  subject  to  a  mortgage  before  consolidation,  may  properly 
be  sold  as  an  entirety  upon  foreclosure,  where  it  will  sell  to  better 
advantage  as  a  whole  than  if  sold  in  divisions,  and  the  interest  of  the 
several  mortgagees  in  the  fund  arising  from  the  sale  may  be  settled 
by  a  decree  of  the  court.33  But  where  the  holders  of  a  general  mort- 
gage elect  to  have  the  road  sold  in  this  manner,  the  holder  of  a  prior 
lien  upon  one  division  of  the  road,  is  entitled  to  have  his  claim  paid 

80  Chicago,  &c.  R.  Co.  v.  Fosdick,  U.  S.  434,  6  Sup.  Ct  809;  Campbell 

106  U.   S.  47,   1   Sup.   Ct.   10.     See,  v.  Texas,  &c.  R.  Co.  2  Woods  (U.  S.) 

also,  Howell  v.  Western  R.  Co.  94  263,  4  Fed.  Cas.  No.  2369.    But  such 

U.  S.  463.  a  sale  may  be  ordered  where  it  is 

31  Jones     Corporate     Bonds     and  for  the  advantage  of  the  divisional 

Mort.  §  634,  citing  Fleming  v.  Sout-  bondholders    as    well    as    all    inter- 

ter,  6  Wall.  (U.  S.)  747;  Tillinghast  ested.     Farmers'   Loan,   &c.    Co.   v. 

v.  Troy,  &c.  R.  Co.  48  Hun  (N.  Y.)  Cape  Fear,  &c.  R.  Co.  82  Fed.  344; 

420,  425,  1  N.  Y.  S.  243,  per  Learned,  Cleveland  First  Nat.  Bank  v.  Shedd, 

P.  J.     See,  also,  Farmers'  Loan,  &c.  121  U.  S.  74,  7  Sup.  Ct.  807;  Gibert 

Co.  v.  Chicago,  &c.  R.  Co.  27  Fed.  v.  Washington  City,  &c.   R.  Co.   33 

146;   Union  Trust  Co.  v.  St.  Louis,  Gratt.    (Va.)   586.     See  next  follow- 

&c.  R.  Co.  5  Dill.  (U.  S.)  1,  24  Fed.  ing  section. 

Cas.  No.  14,  403 ;  McFadden  v.  Mays        w  Gibert  v.  Washington,  &c.  R.  Co. 

Landing,  &c.  Co.  49  N.  J.  Eq.  176,  22  33   Gratt.    (Va.)    586;    Campbell   v. 

Atl.  932.  Texas,  &c.  R.  Co.  2  Woods   (U.  S.) 

32Wabash,  &c.  R.  Co.  v.   Central  263.    See,  also,  last  note  to  last  pre- 

Trust  Co.  22  Fed.  138;  Union  Trust  ceding  section. 
Co.  v.  Illinois  Midland  R.  Co.   117 


SALE  AND  REORGANIZATION". 


728 


out  of  the  aggregate  proceeds  of  the  sale  of  the  entire  property  before 
any  payment  is  made  to  the  holders  of  the  general  mortgage.34  In  a 
proper  case,  where  the  property  is  of  such  a  nature  as  to  deteriorate 
rapidly  in  value,  when  not  in  use,  and  is  plainly  insufficient  in  value 
to  meet  the  company's  indebtedness,  and  where  the  income  from  the 
property  will  not  meet  the  expense  of  necessary  repairs,  it  has  been 
held  that  the  court  may  order  the  road  and  its  franchise  sold  by  the 
receiver  pending  a  foreclosure  suit.35 

§  524.  Discretion  of  trustees  and  officers  as  to  time  and  manner  of 
sale. — After  a  decree  of  foreclosure  has  been  obtained,  the  mortgage 
trustees  are  generally  invested  with  discretion  as  to  when  they  will 
sell  the  property  under  the  decree,  or  whether  they  will  sell  it  at  all 
pending  an  appeal,  subject,  however,  to  the  control  which  the  court 
has  over  the  execution  of  its  own  decrees,  and  when  the  trustees  think 
it  best  for  all  the  bondholders  that  the  decree  should  not  be  executed 
pending  the  appeal  the  court  will  not  order  them  to  have  it  executed 
on  the  application  of  a  portion  of  the  bondholders.36  When  a  sale  is 
ordered  made  by  the  proper  officer  of  the  court  it  has  been  held  that  he 
must  exercise  a  sound  legal  discretion  as  to  the  manner  of  conduct- 
ing the  sale,  and  as  to  whether  he  will  strike  off  the  property  for  such 
bids  as  are  received,  or  will  adjourn  the  sale  until  the  attendance  of 
bidders  who  will  pay  a  reasonable  value  for  it  can  be  obtained.87  And 


"Farmers'  Loan,  &c.  Co.  v.  New- 
man, 127  U.  S.  649,  8  Sup.  Ct.  1364. 

33  Middleton  v.  New  Jersey,  &c.  R. 
Co.  26  N.  J.  Eq.  269. 

38  Farmers'  Loan,  &c.  Co.  v.  Cen- 
tral R.  Co.  4  Dill.  (U.  S.)  533.  The 
supreme  court  will  not  interfere  by 
mandamus  to  compel  the  execution 
of  the  decree  of  the  lower  court 
by  a  sale  of  the  road.  Jones  on 
Corp.  Bonds  and  Mort.  §  640.  But 
the  court  may,  of  course,  fix  the 
time  and  usually  does  fix  the  limit 
of  time  within  which  it  is  to  be 
made.  See  Columbia  Finance,  &c. 
Co.  v.  Kentucky  Union  R.  Co.  60 
Fed.  794;  Chicago,  &c.  R.  Co.  v.  Fos- 
dick,  106  U.  S.  47,  1  Sup  Ct.  10. 

"Blossom  v.  Railroad  Co.  3  Wall. 
(U.  S.)  196.  In  this  case  four  sepa- 
rate adjournments  were  had  extend- 


ing over  a  period  of  seven  months, 
although  bids  had  been  received  in 
the  meantime,  and  it  was  held  that 
such  adjournments  were  within  the 
discretion  of  the  officer.  It  was  also 
held  that,  while  it  was  customary 
for  the  officer  to  act  under  the  ad- 
vice of  the  complainant's  solicitor, 
unreasonable  directions  of  the  so- 
licitor were  not  obligatory  and 
should  not  be  followed.  So,  it  has 
been  held  that  the  court  may  con- 
firm a  sale  made  on  a  day  different 
from  that  fixed  by  the  court.  Farm- 
ers' Loan,  &c.  Co.  v.  Oregon  Pac.  R. 
Co.  28  Oreg.  44,  40  Pac.  1089.  It  is 
not  meant,  of  course,  in  stating  that 
the  officer  has  certain  discretion 
that  his  action  is  final  or  not  sub- 
ject to  review. 


729 


EFFECT   OF   SALE — PURCHASER'S   TITLE. 


[§    525 


the  court  will  decline  to  interfere  with  this  discretion  and  order  an 
immediate  sale  at  the  request  of  a  part  of  the  bondholders,  where  it 
does  not  clearly  appear  that  their  rights  are  prejudiced  by  the  de- 
lay.38 The  rules  above  stated,  of  course,  fully  apply  only  in  the  absence 
of  a  governing  statute,  expressly,  or  impliedly,  depriving  the  trustee 
or  officer  of  any  discretion  as  to  the  time  and  manner  of  the  sale. 

§  525.  Effect  of  sale — Purchaser's  title. — The  franchise  of  being  a 
corporation,  not  being  a  part  of  the  mortgaged  security,  does  not  pass 
upon  a  foreclosure  sale.39  The  corporate  existence  of  a  company  is  not 
destroyed  by  the  transfer  of  all  its  property  to  another  corporation,40 
unless  the  statute  so  provides.41  It  continues  in  existence,  until  for- 
mally dissolved,  for  the  purpose  of  collecting  and  paying  debts,  and 
performing  such  functions  as  it  may  without  the  ownership  of  its 
property.42  In  the  absence  of  any  statute  or  agreement  to  the  con- 
trary, the  foreclosure  and  sale,  duly  confirmed,  cuts  off  all  the  interest 
of  the  corporation  and  stockholders  or  general  creditors  claiming  un- 


88  Farmers'  Loan,  &c.  Co.  v.  Cen- 
tral R.  Co.  4  Dill.  (U.  S.)  533. 

39  Bank  of  Middlebury  v.  Edgerton, 
30  Vt.  182,  190;  Miller  v.  Rutland, 
&c.  R.  Co.  36  Vt.  452,  498;  Atkinson 
v.  Marietta,  &c.  R.  Co.  15  Ohio  St. 
21;  Western  Penn.  R.  Co.  v.  John- 
ston, 59  Pa.  St.  290;  People  v.  Cook, 
110  N.  Y.  443,  448,  18  N.  E.  113,  36 
Am.  &  Eng.  R.  Cas.  256,  258;  Com- 
monwealth v.  Smith,  10  Allen 
(Mass.)  448,  87  Am.  Dec.  672;  Mem- 
phis, &c.  R.  Co.  v.  Railroad  Com'rs, 
112  U.  S.  609,  5  Sup.  Ct.  299;  Nor- 
folk, &c.  R.  Co.  v.  Pendleton,  156  U. 
S.  667,  15  Sup.  Ct.  413.  In  Meyer 
v.  Johnston,  53  Ala.  237,  325.  Mr. 
Justice  Manning,  speaking  for  the 
court,  said:  "Strictly,  'the  franchise 
to  exist  as  a  corporation'  is  not  a 
corporate  franchise,  or  'franchise  of 
the  corporation'  at  all.  It  is  a  fran- 
chise of  the  individual  corporators, 
of  the  natural  persons  who  are 
shareholders  of  the  capital  stock, 
and  pertains  to  them  as  such  cor- 
porators, Whereby  they  are  endowed 


with  the  privilege  and  capacity  of 
being  constituted  into  and  co-oper- 
ating together,  as  a  body  politic, 
with  power  of  succession,  and  with- 
out individual  liability.  And  the 
corporation  as  such,  in  its  collective 
capacity  or  by  its  board  of  directors, 
has  no  more  power  to  sell  this  fran- 
chise thus  pertaining  to  the  corpo- 
rators individually  than  it  has  to 
sell  their  paid-up  shares  of  the  capi- 
tal stock." 

40  Wright  v.  Milwaukee,  &c.  R.  Co. 
25  Wis.  46;   Arthur  v.  Commercial 
&  R.  Bank,  9  S.  &  M.   (Miss.)   394; 
Bruffett  v.  Great  Western  R.  Co.  25 
111.  353.    See,  also,  State  v.  Superior 
Court,  31  Wash.  445,  72  Pac.  89,  66 
L.  R.  A.  897. 

41  Even  where  the  statute  so  pro- 
vides, an  illegal  and  fraudulent  sale 
does  not  work  a  dissolution.    White 
Mountains   R.   Co.   v.   White  Moun- 
tains R.  Co.  50  N.  H.  50. 

"Smith  v.  Gower,  3  Met.  (Ky.) 
171,  2  Duv.  (Ky.)  17;  Wright  v. 
Milwaukee,  &c.  R.  Co.  25  Wis.  46. 


525] 


SALE  AND   REORGANIZATION. 


730 


der  it  in  the  mortgaged  property.48  The  purchaser  at  a  foreclosure 
sale  takes  only  the  property  which  the  decree  ordered  to  be  sold,44 
together  with  the  accompanying  rights  and  franchises  necessary  to  its 
profitable  use  and  lawfully  included  in  the  mortgage  and  sale.45  In 


43  Vatable  v.  New  York,  &c.  R.  Co. 
96  N.  Y.  49;  Thornton  v.  Wabash 
R.  Co.  81  N.  Y.  462;  Carpenter  v. 
Catlin,  44  Barb.  (N.  Y.)  75.  See, 
also,  Canada  Southern  R.  Co.  v.  Geb- 
hard,  109  U.  S.  527,  3  Sup.  Ct.  363. 

"Jones  Corp.  Bonds  and  Mort. 
§  694;  Osterberg  v.  Union  Trust  Co. 
93  U.  S.  424;  Frank  v.  New  York, 
&c.  R.  Co.  122  N.  Y.  197,  25  N.  B. 
332.  Only  property  covered  by  the 
mortgage.  Wilmington,  &c.  R.  Co. 
v.  Downard  (Del.),  14  Atl.  720;  St. 
Louis  Bridge  Co.  v.  Curtis,  103  111. 
410;  Aldridge  v.  Pardee,  24  Tex. 
Civ.  App.  254,  60  S.  W.  789;  Mil- 
waukee, &c.  R.  Co.  v.  Milwaukee,  &c. 
R.  Co.  20  Wis.  174,  88  Am.  Dec.  740. 
As  to  what  passes  under  sale  of 
"railroad,"  see  Knevals  v.  Florida 
Cent.  R.  Co.  66  Fed.  224. 

45  Wright  v.  Milwaukee,  &c.  R.  Co. 
25  Wis.  46;  New  Orleans,  &c.  Co.  v. 
Delamore,  114  U.  S.  501,  5  Sup. 
Ct.  1009;  North  Carolina,  &c.  R.  Co. 
v.  Carolina,  &c.  R.  Co.  83  N.  Car.  489. 
In  a  proper  case  the  franchise  to  op- 
erate the  road  may  pass.  Memphis, 
&c.  R.  Co.  v.  Railroad  Com'rs,  112  U, 
S.  609,  5  Sup.  Ct.  299;  Gunnison  v. 
Chicago,  &c.  R.  Co.  117  Fed.  629; 
State  v.  Central  Iowa  R.  Co.  71  Iowa 
410,  32  N.  W.  409,  60  Am.  R.  806; 
Parker  v.  Elmira,  &c.  R.  Co.  165  N. 
Y.  274,  59  N.  E.  81.  As  to  right  of 
eminent  domain,  see  Lawrence  v. 
Morgan's,  &c.  R.  Co.  39  La.  Ann. 
427,  2  So.  69,  4  Am.  St.  265  (holding 
that  it  passed  to  the  purchaser)  ; 
North  Carolina,  &c.  R.  Co.  v.  Caro- 
lina Cent.  R.  Co.  83  N.  Car.  489. 
The  question  whether  a  right  of  ex- 
emption from  taxation  enjoyed  by 


the  old  corporation  passed  to  the 
purchaser  or  not  has  been  much 
litigated.  The  answer  to  this  ques- 
tion must  depend  upon  the  intent 
of  the  charter  or  statute  by  which 
such  right  was  conferred.  The  Su- 
preme Court  of  the  United  States 
has  held  in  a  number  of  cases  that 
an  exemption  from  taxation  is  not 
a  franchise  which  will  pass  by  a 
conveyance  of  the  property  and 
franchises.  And  that  a  statute  au- 
thorizing the  mortgage  of  the  prop- 
erty and  franchise  of  a  corporation 
does  not  include  the  mere  personal 
privilege  like  exemption  from  taxa- 
tion. Trask  v.  Maguire,  18  Wall. 
(U.  S.)  391;  Morgan  v.  Louisiana, 
93  U.  S.  217;  Wilson  v.  Gaines,  103 
U.  S.  417;  Louisville,  &c.  R.  Co.  v. 
Palmes,  109  U.  S.  244,  3  Sup.  Ct. 
193;  Memphis,  &c.  R.  Co.  v.  Rail- 
road Commissioners,  112  U.  S.  609, 
5  Sup.  Ct.  299;  Chesapeake,  &c.  R. 
Co.  v.  Miller,  114  U.  S.  176,  5  Sup. 
Ct.  813.  But  where  a  sale  is  made 
by  authority  of  the  state,  of  all 
rights,  privileges  and  immunities  of 
the  company,  as  well  as  its  property 
and  franchise,  the  state  cannot  as- 
sert any  rights  against  the  pur- 
chaser which  it  did  not  have  as 
against  the  old  corporation.  Knox- 
ville,  &c.  R.  Co.  v.  Hicks,  9  Baxt. 
(Tenn.)  442,  commented  on  in  Wil- 
son v.  Gaines,  103  U.  S.  417;  Wil- 
mington, &c.  R.  Co.  v.  Alsbrook,  146 
U.  S.  279,  297,  13  Sup.  Ct.  72;  First 
Division  of  St.  Paul,  &c.  R.  Co.  v. 
Parcher,  14  Minn.  297;  Chicago,  &c. 
R.  Co.  v.  Pfaender,  23  Minn.  217; 
Hand  v.  Savannah,  &c.  R.  Co.  17  S. 
Car.  219;  Nichols  v.  New  Haven,  &c. 


731      [WHAT  PASSES  TO  PURCHASER  AT  FORECLOSURE  SALE.      [§   525a 

a  very  recent  case  it  was  held  by  the  supreme  court  of  the  United 
States  that  an  exemption  from  taxation,  which  was  enjoyed  by  one  of 
several  companies  afterwards  consolidated,  did  not  pass  to  the  con- 
solidated company  because  of  the  adoption  of  a  new  constitution,  in 
the  meantime,  prohibiting  such  exemption,  and  that  the  purchaser  at 
foreclosure  sale  obtains  no  exemption  from  taxation  and  could  not 
successfully  set  up  as  a  defense  to  an  action  for  taxes  a  judgment 
rendered  in  favor  of  the  company  in  a  prior  action  by  the  county 
against  it  for  taxes,  nor  a  decree  against  the  county  in  favor  of  cer- 
tain stockholders  enjoining  the  collection  of  taxes  for  other  years. 
Neither  the  mortgage  trustee  nor  the  bondholders  were  parties  to 
these  proceedings,  and  the  court  held  that  the  purchaser  could  not 
avail  himself  of  the  judgment  or  decree  because  of  the  lack  of  privity 
between  the  parties.46 

§  525a.  What  passes  to  purchaser  at  foreclosure  sale. — As  stated 
in  the  last  preceding  section,  the  franchise  to  be  a  corporation  does 
not  pass  at  foreclosure  sale.  So,  it  has  been  held  that  charter  grants, 
such  as  the  franchise  to  charge  certain  rates,  do  not  constitute  a  con- 
tract protected  by  the  federal  constitution,  but  are  matters  of  law  and 
subject  to  the  law  in  force  at  the  time  of  the  purchase,  reorganization 
and  grant  of  the  right  to  become  a  new  corporation.463  And,  in  a 
recent  case,  it  was  held  that  the  successor  of  the  Union  Pacific  Kail- 
road  Company  by  purchase  under  a  first  mortgage  foreclosure  sale 
did  not  take  the  property  free  from  the  obligation  under  an  act, 
passed  after  the  execution  of  the  mortgage  in  the  exercise  by  con- 

R.  Co.  42  Conn.  103;  Atlantic,  &c.  "Keokuk,  &c.  R.  Co.  v.  Missouri, 
R.  Co.  v.  Allen,  15  Fla.  637;  Gon-  152  U.  S.  301,  14  Sup.  Ct.  592,  affirm- 
zales  v.  Sullivan,  16  Fla.  791;  Jones  ing  99  Mo.  30,  6  L.  R.  A.  222.  See, 
Corp.  Bonds  and  Mort.  §  693.  The  also,  Covington,  &c.  Co.  v.  Sandford, 
privilege  of  regulating  its  charges  164  U.  S.  578,  17  Sup.  Ct.  198;  Ken- 
conferred  upon  a  railroad  company  tucky  Cent.  R.  Co.  v.  Common- 
does  not  pass  to  the  purchasers  un-  wealth,  87  Ky.  661,  10  S.  W.  269; 
der  a  mortgage  foreclosure  sale,  and  and  see  ante,  §§  330,  331. 
the  reorganization  by  such  purchas-  40a  Grand  Rapids,  &c.  R.  Co.  v.  Os- 
ers  is  the  formation  of  a  new  cor-  born,  193  U.  S.  17,  24  Sup.  Ct.  310; 
poration,  subject  to  the  laws  in  Honker  v.  Burr,  194  U.  S.  415,  24 
force  at  the  time  of  the  reorganiza-  Sup.  Ct.  706 ;  People's  Gas  Light,  &c. 
tion.  Dow  v.  Beidelman,  49  Ark.  Co.  v.  Chicago,  194  U.  S.  1,  24  Sup. 
325,  455,  5  S.  W.  297,  125  U.  S.  680,  Ct.  520;  Union  Pac.  R.  Co.  v.  Mason 
8  Sup.  Ct.  1028.  But  see  Parker  v.  City,  &c.  R.  Co.  199  U.  S.  160,  170, 
Elmira,  &c.  R.  Co.  165  N.  Y.  274,  59  26  Sup.  Ct.  19. 
N.  E.  81. 


§  526] 


SALE  AND   REOEGANIZATION. 


732 


gress  of  its  reserved  right  to  alter,  amend  or  repeal,  to  permit  the 
joint  use,  by  the  trains  of  all  roads  terminating  at  Omaha,  of  the 
bridge  authorized  by  the  statute  to  be  constructed  at  that  point  by 
the  Union  Pacific  Eailroad  Company.46b  But,  while  the  right  of  a- 
corporation  to  exist  may  not  be  mortgaged  or  sold,  all  its  contract 
rights,  as  a  general  rule,  with  other  corporations  or  individuals  may 
be,  including  a  contract  with  a  city  as  to  rates,  and,  upon  foreclosure 
of  a  mortgage  covering  them,  they  usually  -pass  to  the  purchaser  at 
the  foreclosure  sale.460 

§  526.    When  purchaser  takes  title  free  from  liabilities  and  liens. 

— The  purchaser  generally  takes  the  property  freed  from  the  debts47 
and  contracts  of  the  vendor,48  except  so  far  as  his  title  is  made  subject 


4eb  Union  Pac.  R.  Co.  v.  Mason 
City,  &c.  R.  Co.  199  U.  S.  160,  26 
Sup.  Ct.  19. 

46c  Vicksburg  v.  Vicksburg  Water- 
works Co.  202  U.  S.  453,  26  Sup,  Ct. 
660;  Omaha  Water  Co.  v.  Omaha, 
147  Fed.  1;  Julian  v.  Central  Trust 
Co.  193  U.  S.  93,  106,  24  Sup.  Ct. 
399.  As  to  the  difference  between 
charter  rights  and  contract  rights, 
see,  also,  Detroit  v.  Detroit  Citizens' 
St.  R.  Co.  184  U.  S.  387-389,  22  Sup. 
Ct.  410,  417-419. 

47  Hopkins  v.  St.  Paul,  &c.  R.  Co.  2 
Dill.  (U.  S.)  396;  Cook  v.  Detroit, 
&c.  R.  Co.  43  Mich.  349,  5  N.  W.  390, 
9  Am.  &  Eng.  R.  Cas.  443;  Cooper 
v.  Corbin,  105  111.  224;  Lake  Erie, 
&c.  R.  Co.  v.  Griffin,  92  Ind.  487; 
Moyer  v.  Ft.  Wayne,  &c.  R.  Co.  132 
Ind.  88,  31  N.  E.  567;  North  Hud- 
son County  R.  Co.  v.  Booraem,  28 
N.  J.  Eq.  450;  Vilas  T.  Page,  106  N. 
Y.  439,  13  N.  E.  743;  Ryan  v.  Hays, 
62  Tex.  42;  Oilman  v.  Sheboygan, 
&c.  R.  Co.  37  Wis.  317;  Wellsbor- 
ough,  &c.  Co.  v.  Griffin,  57  Pa.  St. 
417;  Pennsylvania  Transp.  Co.'s  Ap- 
peal, 101  Pa.  St.  576  (not  liable  on 
judgment  against  old  company) ; 
Sullivan  v.  Portland,  &c.  R.  Co.  94 
U.  S.  806;  Vatable  v.  New  York,  &c. 
R.  Co.  96  N.  Y.  49;  Lincoln  Twp.  v. 


Kansas  City,  &c.  R.  Co.  (Neb.)  108 
N.  W.  140.  The  purchaser  of  a 
railroad  at  foreclosure  sale  is  not 
liable  for  damages  occasioned  by 
the  acts  of  the  old  company,  which 
had  already  accrued  at  the  time 
of  the  purchase.  Hammond  v. 
Port  Royal,  &c.  R.  Co.  15  S.  C.  10. 
(Injuries  done  to  adjoining  land.) 
Where  one  railroad  company  is  sold 
to  another,  a  person  having  a  claim 
against  the  former  for  damages  on 
account  of  personal  injuries,  can- 
not maintain  an  action  against  the 
latter;  and  the  old  company  having 
been  dissolved  by  the  sale,  his  only 
right  of  action  remaining  is  against 
the  stockholders  of  the  old  company, 
who  received  the  purchase  money. 
Chesapeake,  &c.  Co.  v.  Griest,  85  Ky. 
619,  30  Am.  &  Eng.  R.  Cas.  149; 
Powell  v.  North  Missouri  R.  Co.  42 
Mo.  63 ;  Louisville,  &c.  R.  Co.  v.  Orr, 
91  Ky.  109,  15  S.  W.  8. 

48  Menasha  v.  Milwaukee,  &c.  R. 
Co.  52  Wis.  414,  9  N.  W.  396;  Hoard 
v.  Chesapeake,  &c.  R.  Co.  123  U.  S. 
222,  8  Sup.  Ct.  74;  People  v.  Louis- 
ville, &c.  R.  Co.  120  111.  48,  10  N.  E. 
657,  and  see  original  opinion  in 
same  case  in  5  N.  E.  379,  and 
25  Am.  &  Eng.  R.  Cas.  235.  See 
Houston,  &c.  R.  Co.  v.  Shirley, 


733 


PURCHASER'S  TITLE. 


[§  526 


thereto  by  statute49  or  by  the  terms  of  the  order  of  sale.49a  The  act 
providing  for  the  reorganization  of  the  purchasers  into  a  new  cor- 


64  Tex.  125;  Branson  v.  Oregonian 
R.  Co.  11  Oreg.  161,  2  Pac.  86; 
Lake  Erie,  &c.  R.  Co.  v.  Griffin, 
92  Ind.  487;  Keeler  v.  Atchison,  &c. 
R.  Co.  92  Fed.  545.  The  purchaser 
at  the  foreclosure  sale  is  not  bound 
by  a  parol  agreement  made  by  the 
president  of  the  railroad  company 
to  make  a  farm  crossing  and  to 
maintain  a  fence  of  a  certain  de- 
scription. Hunter  v.  Burlington,  &c. 
R.  Co.  76  Iowa  490,  41  N.  W.  305. 
Nor  is  he  bound  by  a  contract  of 
the  corporation  to  maintain  a  depot 
at  a  certain  place.  Gulf,  &c.  R.  Co. 
v.  Newell,  73  Tex.  334,  11  S.  W.  342, 
15  Am.  St.  788;  People  v.  Rome,  &c. 
R.  Co.  103  N.  Y.  95,  8  N.  E.  369. 
Even  though  the  consideration  of 
the  contract  was  a  large  sum  of 
money  voted  by  the  people  of  the 
county  upon  condition  that  the 
depot  should  be  forever  maintained, 
and  the  railroad  was  empowered  by 
its  charter  to  receive  the  aid  and 
to  make  the  contract.  People  v. 
Louisville,  &c.  R.  Co.  120  111.  48,  10 
N.  E.  657.  But  it  was  held  by  the 
supreme  court  of  Iowa  that  a  rail- 
road company  that  has  purchased  a 
line  of  road  at  a  foreclosure  sale  of 
an  insolvent  company,  part  of  which 
line  was  constructed  and  equipped 
with  money  raised  by  taxes  voted 
to  it  by  a  town,  assumes  the  obliga- 
tions of  the  company  whose  line  it 
purchased,  and  cannot  lease  such 
line  to  another  company,  so  as  to 
surrender  the  exclusive  use  thereof, 
and,  by  ceasing  to  operate  it,  deprive 
the  town  of  the  benefits  intended  to 
be  derived  therefrom.  State  v. 
Central  Iowa  R.  Co.  71  Iowa  410,  32 
N.  W.  409,  60  Am.  R.  806.  But  com- 
pare Sherwood  v.  Atlantic,  &c.  R. 
Co.  94  Va.  291,  26  S.  E.  943.  A  con- 


tract between  two  railroad  com- 
panies in  relation  to  the  carriage 
of  freights  and  division  of  earnings, 
providing  that  this  "contract,  and 
any  damages  for  the  breach  of  the 
same,  shall  be  a  continuing  lien 
upon  the  roads  of  the  two  contract- 
ing companies,  their  equipment  and 
income,  in  whosesoever  hands  they 
may  come,"  does  not  constitute  a 
lien  or  obligation  running  with  the 
land,  so  as  to  make  it  liable  in  the 
hands  of  a  purchaser  of  one  of  them 
for  earnings  that  would  have  ac- 
crued during  the  term  of  the  con- 
tract. Des  Moines,  &c.  R.  Co.  v.  Wa- 
bash,  &c.  R.  Co.  135  U.  S.  576,  10 
Sup.  Ct  753. 

49  Statutory  liens  upon  the  prop- 
erty existing  at  the  time  of  the  sale 
continue  to  operate  as  liens  upon  it 
after  the  transfer.  Hervey  v.  Illi- 
nois Midland  R.  Co.  28  Fed.  169. 
Where  the  statute  declares  judg- 
ments for  personal  injuries  to  be  a 
prior  lien  upon  the  property  of  rail- 
road companies,  the  purchasers  of 
the  property  of  such  a  company 
upon  foreclosure  of  mortgage  takes 
it  subject  to  all  unpaid  judgments 
of  this  class.  And  it  has  been  held 
that  the  purchasers  were  bound  to 
perform  a  contract  entered  into  by 
the  old  company  for  the  payment  of 
money  in  liquidation  of  a  claim  for 
personal  injuries.  Frazier  v.  East 
Tennessee,  &c.  R.  Co.  88  Tenn.  138, 
12  S.  W.  537. 

"aHukle  v.  Atchison,  &c.  R.  Co. 
71'  Kans.  251,  80  Pac.  603  (quoting 
text).  See  Central  Ind.  Ry.  Co.  v. 
Grantham,  143  Fed.  43,  52.  If  the 
sale  is  authorized  by  law,  the  pur- 
chaser ordinarily  takes  the  prop- 
erty free  from  any  liability  for 
existing  debts  not  secured  by  prior 


§'  526] 


SALE  AND  REORGANIZATION. 


.7341 


poration  may,  however,  require  that  it  shall  assume  certain  debts  and 
liabilities  of  its  predecessor,  in  which  the  acceptance  of  the  act 
amounts  to  an  assumption  of  the  payment  of  all  claims.50  Or  the  de- 
cree of  the  court  may  order  the  sale  to  be  made  subject  to  certain 
liabilities,  in  which  case  the  purchaser's  title  is  based  upon  the  de- 
cree, and  he  cannot  question  its  validity,  nor  dispute  the  liability 
which  it  imposes  upon  him.61  The  purchaser  also  takes  his  title  sub- 
ject, of  course,  to  all  prior  valid  liens,  of  which  he  had  or  ought  to 
have  had  notice,  not  cut  off  by  the  foreclosure  proceedings.82  But  he 
may  dispute  the  validity  of  any  such  liens  except  those  which  are  ad- 
judged in  the  order  of  sale  to  be  superior  to  the  title  which  Tie  pur- 
chased.53 And  in  a  recent  case  it  is  held  that  the  purchaser  succeeds 
to  all  the  rights  of  the  former  owner,  and  of  the  holders  of  liens  and 
claims  foreclosed,  as  against  an  unforeclosed  lien,  and  may  intervene 
in  a  suit  to  enforce  such  lien  and  assert  the  equities  and  rights  to 
which  it  has  succeeded.54  The  new  company  is  also  liable  in  equity 
upon  the  contracts  of  its  predecessor  in  so  far  as  it  adopts  them,  and 


liens  and  from  all  obligations  of 
the  mortgagor  of  a  strictly  per- 
sonal character.  See,  also,  Texas 
Cent.  R.  Co.  v.  Lyons  (Tex.  Civ. 
App.),  34  S.  W.  362;  Dallas  Consol. 
Trac.  Co.  v.  Maddox  (Tex.  Civ. 
App.),  31  S.  W.  702. 

50  St.  Louis,  &c.  R.  Co.  v.  Miller, 
43  111.  199.    See,  also,  Welsh  v.  First 
Div.  St.  Paul,  &c.  R.  Co.  25  Minn. 
314;    New   Bedford    R.    Co.    v.    Old 
Colony  R.  Co.  120  Mass.  397. 

51  Wabash  R.  Co.  v.  Stewart,  41  111. 
App.  640;   Brown  v.  Wabash  R.  Co. 
96  111.  297;   Farmers'  Loan,  &c.  Co. 
v.    Central    R.    Co.    17    Fed.    758; 
Swann  v.  Wright,  110  U.  S.  590,  4 
Sup.    Ct.    235.      See,    also,   Vilas   v. 
Page,  106  N.  Y.  439,  13  N.  E.  743; 
Williams  v.  Morgan,  111  U.  S.  684, 
4  Sup.  Ct.  638;  Olcott  v.  Headrick, 
141  U.  S.  543,  12  Sup.  Ct.  81. 

52  Western  Union  Tel.  Co.  v.  Bur- 
lington,   &c.    R.     Co.     11    Fed.     1; 
Ketchum  v.  St.  Louis,  101  U.  S.  306; 
Brooks   v.    Railway   Co.    101    U.    S. 
443;   Morgan  Co.  v.  Thomas,  76  111. 
120.     A  vendor's  lien  for  purchase- 
money  may  be  enforced  against  the 


property  in  the  hands  of  a  corpora- 
tion composed  of  the  bondholders, 
by  whom  it  was  purchased.  West- 
ern Division  of  Western  North  Caro- 
lina R.  Co.  v.  Drew,  3  Woods  (U. 
S.)  691.  But  see  Columbus,  &c.  R. 
Co.'s  Appeal,  109  Fed.  177.  An 
equitable  lien  for  damages  connect- 
ed with  the  operation  of  the  road 
by  trustees  can  be  enforced  against 
the  property  in  the  hands  of  the 
new  corporation  when  it  is  shown 
that  funds  from  which  the  claim 
for  damages  should  have  been  paid 
passed  into  the  hands  of  the  new 
corporation  upon  reorganization. 
Stratton  v.  European,  &c.  R.  Co.  76 
Me.  269.  See  Houston,  &c.  R.  Co. 
v.  Keller  (Tex.),  28  S.  W.  724. 

63  Jones  Corp.  Bonds  and  Mort. 
§§  688,  685,  citing  Hackensack 
Water  Co.  v.  DeKay,  36  N.  J.  Eq. 
548,  555;  Central  National  Bank  v. 
Hazard,  30  Fed.  484;  Swann  v. 
Wright,  110  U.  S.  590,  4  Sup.  Ct. 
235. 

"Connor  v.  Tennessee  Cent.  R. 
Co.  109  Fed.  931. 


735 


DISPOSITION   OF  PROCEEDS   OP  SALE. 


[§   527 


claims  the  benefit  for  itself.55  Thus  the  purchasers  at  a  foreclosure 
sale  of  the  property  of  a  railroad  company  are  liable  for  unpaid  dam- 
ages for  lands  appropriated  as  the  right  of  way  by  the  railroad  com- 
pany and  occupied  and  used  as  such  by  the  purchasers.58  The  pur- 
chasers may  also,  in  a  case  where  it  is  deemed  advisable,  assume  the 
payment  of  the  debts  of  the  old  corporation,  and  such  an  assumption 
will  bind  not  only  them  but  also  their  assignees  with  notice.57 

§  527.  Disposition  of  proceeds  of  sale. — The  proceeds  of  the  sale, 
after  the  payment  of  costs  and  any  other  claims  properly  given  prefer- 
ence, are  applied  first  in  satisfaction  of  bonds  secured  by  the  mort- 
gage foreclosed,  giving  to  each  bond  its  pro  rata  share  in  case  the 
proceeds  are  insufficient  to  satisfy  the  whole  debt.58  But  overdue 
coupons  may  be  given  a  preference  over  bonds  which  Have  not  yet 
matured,  especially  when  a  part  of  the  series  to  which  they  belong 
had  been  redeemed  before  the  default  occurred.59  Where  a  bondholder 


85  Lake  Erie,  &c.  R.  Co.  v.  Griffin, 
92  Ind.  487;  Jacksonville,  &c.  R.  Co. 
v.  Louisville,  &c.  R.  Co.  150  111.  480, 
37   N.   E.   924.      See,   also,   Wiggins 
Ferry   Co.  v.  Ohio,   &c.  R.   Co.   142 
U.  S.  396,  12  Sup.  Ct.  188;  Walker 
v.  Wilmington,  &c.  R.  Co.  26  S.  Car. 
80,  1  S.  E.  366;  Kansas  City,  &c.  R. 
Co.  v.  Frohwerk,  68  Kans.   292,  74 
Pac.  1124.    But  compare  Sloss  Iron, 
&c.  Co.  v.  South  Carolina  R.  Co.  85 
Fed.  133. 

86  Western  Pennsylvania  R.  Co.  v. 
Johnston,  59  Pa.  St.  290;   White  v. 
Nashville,     &c.     R.     Co.     7     Heisk. 
(Tenn.)   518;  Oilman  v.  Sheboygan, 
&c.  R.  Co.  37  Wis.  317,  40  Wis.  653; 
Gillison  v.  Savannah,  &c.  R.  Co.  7 
S.  Car.  173;  Lake  Erie,  &c.  R.  Co.  v. 
Griffin,  92  Ind.  487;  Rio  Grande,  &c. 
R.   Co.  v.  Ortiz,  75  Tex.   602,  12  S. 
W.    1129.      Compare    Moyer   v.    Ft. 
Wayne,  &c.  R.  Co.  132  Ind.  88. 

"Blair  v.  St.  Louis,  &c.  R.  Co.  24 
Fed.  148,  25  Fed.  684.  See,  also, 
Island  City  Bank  v.  Sachtleben,  67 
Tex.  420.  But  see  Hervey  v.  Illinois 
Midland  R.  Co.  28  Fed.  169,  holding 
that  the  assumption  by  the  pur- 


chaser of  debts  of  the  old  corpora- 
tion creates  a  personal  obligation 
only  and  not  a  lien  upon  the  prop- 
erty. And  the  same  effect  as  the 
last  holding  is  also  Columbus,  &c. 
R.  Co.'s  Appeal,  109  Fed.  177. 

68  Hodge's  Appeal,  84  Pa.  St.  359; 
Barry  v.  Missouri,  &c.  R.  Co.  34  Fed. 
829;  Pinkard  v.  Allen,  75  Ala.  73. 
See,  also,  Watkins  v.  Hill,  8  Pick. 
(Mass.)  522;  Claflin  v.  South  Caro- 
lina R.  Co.  8  Fed.  118.  All  the 
bonds  secured  by  the  same  mort- 
gage are  deemed  to  have  been  is- 
sued at  the  same  time,  and  there  is 
no  priority  in  favor  of  any  of  them 
because  they  bear  lower  numbers 
than  others.  Stanton  v.  Alabama, 
&c.  R.  Co.  2  Woods  (U.  S.)  523. 
See,  also,  Mason  v.  York,  &c.  R.  Co. 
52  Me.  82;  Commonwealth  v.  Sus- 
quehanna,  &c.  R.  Co.  122  Pa.  St.  306, 
1£  Atl.  448;  Appeal  of  Reed,  122  Pa. 
St.  565,  16  Atl.  100.  Nor  does  it  or- 
dinarily make  any  difference  what 
the  purchaser  paid  for  the  bonds. 
Buncombe  v.  New  York,  &c.  R.  Co. 
84  N.  Y.  190. 

59  Stevens  v.  New  York,  &c.  R.  Co. 


SALE  AND  REORGANIZATION. 


736 


received  the  bonds  in  pledge  as  collateral  security  for  a  loan,  he  is 
entitled  to  be  repaid  only  the  amount  of  his  loan  with  interest.60  Any 
surplus  remaining  after  paying  the  expenses  and  satisfying  the  mort- 
gage indebtedness  goes  to  the  corporation  as  a  trust  fund  for  the 
payment  of  other  liens  or  creditors,  and  not  first  to  the  stockholders. 
And  an  agreement  between  the  bondholders  and  the  stockholders  by 
which,  in  consideration  of  withdrawing  opposition  to  the  foreclosure 
suit,  the  stockholders  are  to  be  paid  a  portion  of  the  purchase  money, 
is  fraudulent  as  against  the  general  creditors.61  On  a  sale  for  default 
in  interest,  the  proceeds  will  usually  be  applied,  "first,  to  the  arrears 
of  interest,  then  to  the  mortgage  debt,  then  to  the  junior  incumbrances, 
according  to  their  respective  priority  of  lien,  and  the  surplus  to  the 
mortgagor/'62 

§  527a.  Disposition  of  proceeds — Purchaser  not  bound  to  see  that 
they  are  properly  applied. — It  is  frequently  provided  in  the  mortgage 
or  trust  deed  that  the  purchaser  shall  not  be  bound  to  see  that  the 
proceeds  of  a  proper  sale  thereunder  are  properly  applied,63  but,  as  a 
general  rule  at  least,  no  such  provision  is  necessary.  The  purchaser 
who  is  not  a  party  thereto  is  not  responsible  for  the  misapplication  or 


13  Blatchf.  (U.  S.)  412;  Common- 
wealth of  Virginia  v.  Chesapeake, 
&c.  Canal  Co.  32  Md.  501;  Cutting 
v.  Tavares,  &c.  R.  Co.  61  Fed.  150. 
But  see  Ketchum  v.  Duncan,  96  U. 
S.  659. 

60  Rice's  Appeal,  79  Pa.  St  168; 
Morton  v.  New  Orleans,  &c.  R.  Co. 
79  Ala.  590;  Peck  v.  New  York,  &c. 
R.  Co.  59  How.  (N.  Y.)  Pr.  419; 
Jesup  v.  City  Bank,  14  Wis.  331. 
See,  also,  Buncombe  v.  New  York, 
&c.  R.  Co.  84  N.  Y.  190. 

01  Railroad  Co.  v.  Howard,  7  Wall. 
(U.  S.)  392. 

82  2  Beach  Priv.  Corp.  §  777,  citing 
Chicago,  &c.  R.  Co.  v.  Fosdick,  106 
U.  S.  47.  See  Chicago,  &c.  R.  Co.  v. 
Peck,  112  111.  408;  Gair  v.  Tuttle,  49 
Fed.  198;  Citizens'  Bank  v.  Whinery, 
110  Iowa  390,  81  N.  W.  694;  Perkins 
v.  Stewart,  75  Minn.  21,  77  N.  W. 


434.  As  to  reimbursement  for  pay- 
ment of  prior  liens  and  the  like, 
see  Nickerson  v.  Atchison,  &c.  R. 
Co.  17  Fed.  408,  Skilton  v.  Roberts, 
129  Mass.  306. 

83  See  Coler  v.  Earth,  24  Colo.  31, 
48  Pac.  656;  Mosca  Milling  Co.  v. 
Murto,  18  Colo.  App.  437,  72  Pac. 
287. 

"Damon  v.  Reeves,  62  Mich.  465, 
29  N.  W.  42;  Sinclair  v.  Learned,  51 
Mich.  335,  16  N.  W.  672;  Wood  v. 
Augustine,  61  Mo.  46;  Woodwine  v. 
Woodrum,  19  W.  Va.  67.  The  first 
two  cases  hold  that  this  rule  applies 
even  where  the  mortgagee  is  the 
purchaser,  but  Hunter  v.  Wooldert, 
55  Tex.  433,  seems  to  hold  the  con- 
trary. 

65  Day  v.  NeW  Lots,  107  N.  Y.  148, 
13  N.  E.  915. 


737 


PEEFEEEED   CLAIMS — SIX  MONTHS'   EULE. 


[§   528 


misappropriation  of  the  proceeds.64  So,  as  lie  is  not  responsible  and 
has  no  interest  in  the  fund  after  it  is  properly  paid  in,  it  has  heen 
held  that  he  cannot  maintain  an  action  to  recover  it  where  it  has  been 
misapplied.65 

§  528.  Preferred  claims — Six  months'  rale. — When  a  court  of 
chancery  is  requested  by  the  mortgagees  to  appoint  a  receiver  of  the 
railroad,  pending  proceedings  for  foreclosure,  it  may,  and  usually  will, 
in  the  exercise  of  a  sound  discretion,  impose  such  terms  in  reference 
to  the  payment  from  the  income  during  the  receivership  of  outstand- 
ing debts  for  labor,  supplies,  equipment,  or  permanent  improvement 
of  the  mortgaged  property  as  may,  under  the  circumstances  of  the  par- 
ticular case,  appear  to  be  reasonable.66  It  is  within  the  power  of  the 
court  to  use  the  income  of  the  receivership  to  discharge  such  obliga- 
tions, even  where  no  such  order  is  made  at  the  time  the  receiver  is 
appointed.67  "He  who  seeks  equity  must  do  equity."  Such  claims  are 
usually  paid  out  of  the  earnings  of  the  road  in  the  hands  of  the 
receiver,  but  where  equity  requires  it,  they  may  be  paid  out  of  the 
proceeds  of  the  sale,  or  corpus  of  the  property.68  Ordinarily,  however, 


88  Fosdick  v.  Schall,  99  U.  S.  235; 
Huidekoper  v.  Locomotive  Works, 
99  U.  S.  258;  Miltenberger  v.  Logans- 
port  R.  Co.  106  U.  S.  286,  1  Sup. 
Ct.  140;  Union  Trust  Co.  v.  Souther, 
107  U.  S.  591,  2  Sup.  Ct.  295;  Burn- 
ham  v.  Bowen,  111  U.  S.  776,  4  Sup. 
Ct.  675;  United  States  Trust  Co.  v. 
Wabash,  &c.  R.  Co.  150  U.  S.  287,  14 
Sup.  Ct.  86;  Williamson  v.  Wash- 
ington, &c.  R.  Co.  33  Gratt.  (Va.) 
624;  Fidelity,  &c.  Co.  v.  Shenandoah 
Valley  R.  Co.  86  Va.  1,  9  S.  E.  759, 
19  Am.  St.  858;  Douglass  v.  Cline, 
12  Bush  (Ky.)  608;  Mcllhenny,  &c. 
Co.  v.  Binz,  80  Tex.  1,  13  S.  W.  655, 
26  Am.  St.  705;  Litzenberger  v.  Jar- 
vis,  &c.  Trust  Co.  8  Utah  15,  28  Pac. 
871,  and  authorities  cited  in  follow- 
ing notes,  infra.  Contra,  Coe  v.  New 
Jersey,  &c.  R.  Co.  27  N.  J.  Eq.  37; 
Metropolitan  Trust  Co.  v.  Tona- 
wanda,  &c.  R.  Co.  103  N.  Y.  245.  As 
to  apportionment  among  the  several 
ELL.  RAILROADS — 47 


lines  of  one  system,  see  Central 
Trust  Co.  v.  Wabash,  &c.  R.  Co.  30 
Fed.  332. 

67  Farmers'  Loan,  &c.  Co.  v.  Kan- 
sas  City,  &c.   R.   Co.   53   Fed.   182; 
Fosdick  v.  Schall,  99  U.  S.  235;  Cen- 
tral Trust  Co.  v.  St.  Louis,  &c.  R. 
Co.  41  Fed.  551.     The  mortgagor  is 
not   accountable   to   the   mortgagee 
for  earnings,  while  the  property  re- 
mains in  his  possession,  until  a  de- 
mand   is    made,    even    though    the 
mortgage   covers   income.     Dow  v. 
Memphis,  &c.  R.  Co.  124  U.  S.  652, 
8  Sup.  Ct.  673;  Galveston  R.  Co.  v. 
Cowdrey,  11  Wall.  (U.  S.)  459. 

68  Finance  Co.  v.  Charleston,  &c.  R. 
Co.  48  Fed.  188;   Blair  v.  St.  Louis, 
&c. 'R.  Co.  22  Fed.  471;   Thomas  v. 
Peoria  R.  Co.  36  Fed.  808;  Fosdick 
v.   Schall,  99  U.   S.  235;    Farmers', 
&c.  Co.  v.  Kansas  City,  &c.  R.  Co. 
53    Fed.    182.     But   not   ordinarily, 
where  the  suit  is  by  stockholders 


§'  528] 


SALE  AND  REORGANIZATION. 


738 


they  can  only  be  paid  out  of  the  earnings,  and  it  is  said  in  a  recent 
case  that  such  preferences  are  allowed  because  of  an  implied  agree- 
ment on  the  part  of  the  mortgagees  that  current  debts  contracted  in 
the  ordinary  course  of  the  business  shall  be  paid  from  current  earn- 
ings before  such  mortgagees  shall  have  a  claim  to  the  income  and  that 
there  is  no  such  implied  agreement  as  to  payment  out  of  the  corpus 
or  body  of  the  mortgaged  property.69  They  may  be  preferred,  not  only 
where  they  have  arisen  during  the  receivership,  but  also  where  they 
arose  a  limited  time  before  the  appointment  of  the  receiver,  and  it  is 
the  practice  of  the  federal  courts  in  most  jurisdictions,  upon  the  ap- 
pointment of  a  receiver,  to  impose  the  condition  that  debts  for  ma- 
terials, supplies,  and  labor  furnished  to  the  mortgagor  within  six 
months  previous  to  the  appointment  shall  be  paid  out  of  the  net  in- 
come or  proceeds  of  the  sale  before  the  debt  secured  by  the  mortgage 
is  paid.70  This  limitation  is  arbitrary,  however,  and  in  some  cases  it 
has  been  fixed  at  three  months,71  while  in  others  such  claims  have 
been  given  a  preference,  although  they  arose  more  than  six  months 
prior  to  the  appointment  of  the  receiver.72  Much  depends  upon  the 
circumstances  and  equities  of  the  particular  case.  But  it  is  the  ex- 
ception and  not  the  rule  that  priority  of  liens  can  be  displaced  in 


or  there  is  no  diversion  of  income. 
St.  Louis,  &c.  R.  Co.  v.  Cleveland, 
&c.  R.  Co.  125  U.  S.  658,  8  Sup.  Ct. 
1011;  Denniston  v.  Chicago,  &c.  R. 
Co.  4  Biss.  (U.  S.)  414;  Cutting  v. 
Tavares,  &c.  R.  Co.  61  Fed.  150; 
Street  v.  Maryland  Cent  R.  Co.  59 
Fed.  25;  Farmers',  &c.  Co.  v.  North- 
ern Pac.  R.  Co.  68  Fed.  36. 

^Mersick  v.  Hartford,  &c.  R.  Co. 
76  Conn.  11,  55  Atl.  664,  100  Am.  St. 
977.  See,  also,  Fordyce  v.  Kansas 
City,  &c.  R.  Co.  145  Fed.  566. 

70  Clark  v.  Central  R.  &c.  Co.  66 
Fed.  803;  Kelly,  In  re,  v.  Receiver 
of  Green  Bay,  &c.  R.  Co.  5  Fed.  846; 
Thomas  v.  Peoria,  &c.  R.  Co.  36  Fed. 
808;  Putnam  v.  Jacksonville,  &c.  R. 
Co.  61  Fed.  440;  Turner  v.  Indian- 
apolis, &c.  R.  Co.  8  Biss.  (U.  S.) 
315;  Dow  v.  Memphis,  &c.  R.  Co.  20 
Fed.  260.  The  general  rule  is  that 


such  preferential  claims  must  have 
accrued  within  six  months  preced- 
ing the  impounding  of  the  income 
and  the  seizure  of  the  property  by 
the  mortgage  bondholders.  Westing- 
house,  &c.  Co.  v.  Kansas  City,  &c.  R. 
Co.  137  Fed.  26. 

71  Miltenberger  v.  Logansport,  &c. 
R.  Co.  106  U.  S.  286,  1  Sup.  Ct.  140; 
Finance  Co.  v.  Charleston,  &c.  R. 
Co.  62  Fed.  205. 

"Burnham  v.  Bowen,  111  U.  S. 
776,  4  Sup.  Ct.  675;  Farmers',  &c. 
Co.  v.  Kansas  City,  &c.  R.  Co.  53 
Fed.  182;  Hale  v.  Frost,  99  U.  S. 
389;  Mcllhenny,  &c.  Co.  v.  Binz,  80 
Tex.  1,  13  S.  W.  655,  26  Am.  St.  705; 
Atkins  v.  Petersburg  R.  Co.  3 
Hughes  (U.  S.)  307;  note  to  Blair 
v.  R.  Co.  22  Fed.  471;  Central  Trust 
Co.  v.  Wabash,  &c.  R.  Co.  30  Fed. 
332. 


739 


PREFERRED    CLAIMS — SIX    MONTHS'    RULE. 


[§    528 


this  way,73  and  such  preference  is  usually  confined  to  claims  for  cur- 
rent or  operating  expenses  incurred  in  keeping  up  the  railroad  as  a 
"going  concern."  Claims  for  work  done  in  the  original  construction 
of  the  road  are  not  included  and  are  not  entitled  to  a  preference.74 
And  it  was  held  in  a  comparatively  recent  case,  where  a  railroad  went 
into  the  hands  of  a  receiver  without  any  funds,  and  the  earnings  un- 
der the  receivership  were  barely  sufficient  to  pay  current  operating 
expenses,  that  arrears  of  salary  due  the  president  should  not  be  paid 
out  of  the  proceeds  of  the  sale  in  preference  to  the  mortgage  debt.75 
In  a  still  later  case  it  is  held  that  sureties  on  an  appeal  bond  executed 
solely  for  the  accommodation  of  the  company,  and  without  pecuniary 
advantage  to  themselves,  are  not  entitled  to  a  preference  over  the 
mortgagors,  although  the  judgment  appealed  from  was  obtained  prior 
to  the  foreclosure  and  appointment  of  the  receiver,  and  notwithstand- 
ing the  fact  that  the  assets  of  the  company  in  the  hands  of  the  re- 
ceiver had  been  preserved  and  increased,  by  virtue  of  such  bond,  to 
the  extent  of  the  judgment.76  "It  must/'  however,  says  Chief  Justice 


73Kneeland  v.  American  Loan  Co. 
136  U.  S.  89,  97,  10  Sup.  Ct.  950; 
Thomas  v.  Western  Car  Co.  149  U. 
S.  95,  13  Sup.  Ct.  824,  60  Am.  &  Eng. 
R.  Cas.  443;  Bound  v.  South  Car.  R. 
Co.  58  Fed.  473.  As  to  what  are  not 
"operating  expenses,"  see  Central 
Trust  Co.  v.  Charlotte,  &c.  R.  Co.  65 
Fed.  264;  Reyburn  v.  Consumers', 
&c.  Co.  29  Fed.  561;  Manchester  Lo- 
comotive Works  v.  Truesdale,  44 
Minn.  115,  46  N.  W.  301,  9  L.  R.  A. 
140.  Claims  for  damages  to  persons 
or  property  arising  from  the  opera- 
tion of  the  road  are  classed  as  op- 
erating expenses.  Brown,  Ex  parte, 
15  S.  Car.  518;  Klein  v.  Jewett,  26 
N.  J.  Eq.  474;  Mobile,  &c.  R.  Co.  v. 
Davis,  62  Miss.  271;  Union  Trust 
Co.  v.  Illinois,  &c.  R.  Co.  117  U.  S. 
434,  6  Sup.  Ct.  809. 

"Toledo,  &c.  R.  Co.  v.  Hamilton, 
134  U.  S.  296,  10  Sup.  Ct.  546;  Wood 
v.  Guarantee,  &c.  Deposit  Co.  128  U. 
S.  416,  9  Sup.  Ct.  131;  Lackawanna, 
&c.  Co.  v.  Farmers',  &c.  Co.  176  U. 
S.  298,  20  Sup.  Ct.  363;  Addison  v. 


Lewis,  75  Va.  701;  Farmers'  Loan, 
&c.  Co.  v.  Pine  Bluff,  &c.  R.  Co.  57 
Ark.  334,  21  S.  W.  652;  Farmers' 
Loan,  &c.  Co.  v.  Candler,  92  Ga.  249, 
18  S.  E.  540.  But  compare  Mcll- 
henny,  &c.  Co.  v.  Binz,  80  Tex.  1, 
13  S.  W.  665,  26  Am.  St.  705;  ante, 
§  500. 

75  National  Bank  v.  Carolina,  &c. 
R.  Co.  63  Fed.  25.  See,  also,  Addi- 
son v.  Lewis,  75  Va.  701;  Wells  v. 
Southern,  &c.  R.  Co.  1  Fed.  270; 
and  compare  Blair  v.  St.  Louis,  &c. 
R.  Co.  23  Fed.  521;  Olyphant  v.  St. 
Louis,  &c.  Co.  22  Fed.  179  (salary 
of  secretary  preferred).  For  other 
claims  held  not  entitled  to  prefer- 
ence, see  Fordyce  v.  Omaha,  &c.  R. 
145  Fed.  544;  Gregg  v.  Metropolitan 
Trust  Co.  197  U.  S.  183,  25  Sup.  Ct. 
415. 

79  Farmers'  Loan,  &c.  Co.  v.  North- 
ern Pac.  R.  Co.  68  Fed.  36.  The 
court,  in  this  case,  insists  that  there 
must  be  a  diversion  of  funds  to  the 
benefit  of  the  bondholders  and  to 
the  injury  of  the  party  seeking  the 


528] 


SALE  AND  REORGANIZATION. 


740 


Fuller,  "be  regarded  as  settled  that  a  court  of  equity  may  make  it  a 
condition  of  the  issue  of  an  order  for  the  appointment  of  a  receiver 
of  a  railroad  company  that  certain  outstanding  debts  of  the  company 
shall  be  paid  from  the  income  that  may  be  collected  by  the  receiver, 
or  from  the  proceeds  of  sale;  that  preferential  payments  may  be  di- 
rected of  unpaid  debts  for  operating  expenses,  accrued  within  ninety 
days,  and  of  limited  amounts  due  to  other  and  connecting  lines  of 
road  for  materials  and  repairs  and  for  unpaid  ticket  and  freight  bal- 
ances, in  view  of  the  interests  both  of  the  property  and  the  public, 
that  the  property  may  be  preserved  and  disposed  of  as  a  going  con- 
cern, and  the  company's  public  duty  discharged;  and  that  such  in- 
debtedness may  be  given  priority,  notwithstanding  there  may  have 
been  no  diversion  of  income,  or  that  the  order  for  payment  was  not 
made  at  the  time,  and  as  a  condition,  of  the  receiver's  appointment, 
the  necessity  and  propriety  of  making  it  depending  upon  the  facts 
and  circumstances  of  the  particular  case,  and  the  character  of  the 
claims."77 


preference  before  the  priority  of  the 
mortgage  lien  will  be  displaced,  and 
disapproves  Farmers'  Loan  &c.  Co. 
v.  Kansas  City,  &c.  R.  Co.  53  Fed. 
182.  These  two  cases  seem  to  mark, 
in  the  dicta  at  least,  the  opposite 
extremes  to  which  the  federal  courts 
have  gone.  Sureties  have  been  re- 
imbursed in  other  cases.  Union  T. 
Co.  v.  Morrison,  125  U.  S.  591,  8 
Sup.  Ct.  1004;  Rome,  &c.  R.  Co.  v. 
Sibert,  97  Ala.  393,  12  So.  69;  Dow 
v.  Memphis,  &c.  Co.  124  U.  S.  652, 
8  Sup.  Ct.  673.  But  compare  Penn- 
sylvania v.  Calhoun,  121  U.  S.  251,  7 
Sup.  Ct.  906. 

77  Finance  Co.  v.  Charleston,  &c.  R. 
Co.  62  Fed.  205,  citing  Miltenberger 
v.  Logansport  R.  Co.  106  U.  S.  286, 
311,  1  Sup.  Ct.  140;  Union  Trust 
•  Co.  v.  Souther,  107  U.  S.  591,  594,  2 
Sup.  Ct.  295;  Union  Trust  Co.  v. 
Illinois  M.  R.  Co.  117  U.  S.  434,  6 
Sup.  Ct.  809;  Morgan's,  &c.  Co.  v. 
Texas  Cent.  R.  Co.  137  U.  S.  171,  11 
Sup.  Ct.  61;  Kneeland  v.  Bass  Foun- 
dry, &c.  Works,  140  U.  S.  592,  11 


Sup.  Ct.  857.  See,  also,  Seibert  v. 
Minn.  &c.  Co.  58  Minn.  69,  59  N. 
W.  829;  Rome,  &c.  R.  Co.  v.  Sibert, 
97  Ala.  393,  12  So.  69.  See,  also, 
Virginia,  &c.  Co.  v.  Central,  &c.  Co. 
170  U.  S.  355,  365,  368,  18  Sup.  Ct. 
657;  Southern  R.  Co.  v.  Carnegie 
Steel  Co.  176  U.  S.  257,  20  Sup.  Ct. 
347.  This  case  last  cited  holds  a 
debt  for  rails,  bought  shortly  before 
the  appointment  of  a  receiver  and 
needed  to  properly  operate  the  road, 
as  much  a  current  debt  in  the  ordi- 
nary course  of  business  as  if  it  were 
incurred  by  a  receiver  under  order 
of  court.  So,  in  Fordyce  v.  Kansas 
City,  &c.  R.  Co.  145  Fed.  566,  it  is 
held  that  a  diversion  of  the  income 
for  the  benefit  of  the  bondholders 
must  usually  be  shown,  but  that 
claims  for  damages  in  constructing 
the  road  are  entitled  to  preference 
over  the  mortgage.  As  to  taxes 
and  street  assessments,  see  Clyde  v. 
Richmond,  &c.  R.  Co.  63  Fed.  21; 
Union  L.  &  T.  Co.  v.  Southern,  &c. 
R.  Co.  49  Fed.  267;  Cutting  v. 


741 


SETTING   SALE  ASIDE. 


[§  529 


§  529.  Setting  sale  aside. — Mortgagors  may  obtain  relief  from  a 
fraudulent  sale  upon  foreclosure  if  they  apply  for  it  within  a  reason- 
able time  after  discovering  the  fraud.78  And  it  has  been  held  that  a 
bill  for  this  purpose  may  be  maintained  on  behalf  of  the  corporation 
by  a  single  stockholder  upon  refusal  of  the  corporation  to  ask  that 
the  sale  be  set  aside.79  But  where  dissenting  stockholders  and  bond- 
holders institute  a  suit  to  set  aside  a  foreclosure  sale  on  the  ground 
of  fraud  and  collusion  upon  the  part  of  the  majority,  it  is  not  suffi- 
cient to  make  the  purchasing  and  selling  companies  parties  defend- 


Tavares,  &c.  R.  Co.  61  Fed.  150; 
Ellis  v.  Boston,  &c.  R.  Co.  107  Mass. 
1;  Central  Trust  Co.  v.  New  York, 
&c.  R.  Co.  110  N.  Y.  250,  18  N.  E. 
92,  1  L.  R.  A.  260.  As  to  judgments, 
see  Clyde  v.  Richmond,  &c.  R.  Co. 
56  Fed.  539;  Chicago,  &c.  R.  Co.  v. 
McCammon,  61  Fed.  772;  Phinizy 
v.  Augusta,  &c.  R.  Co.  63  Fed.  922; 
Penn  Mutual  Insurance  Co.  v.  Heiss, 
141  111.  35,  31  N.  E.  138,  3  Am.  St. 
273;  Finance  Co.  v.  Charleston,  &c. 
R.  Co.  61  Fed.  369;  Texas,  &c.  R. 
Co.  v.  Bloom,  60  Fed.  979;  Texas, 
&c.  R.  Co.  v.  Johnson,  76  Tex.  421,  13 
S.  W.  463,  18  Am.  St.  60,  and  151  U. 
S.  81,  14  Sup.  Ct.  250;  Central  Trust 
Co.  v.  Charlotte,  &c.  R.  Co.  65  Fed. 
257. 

78  Harwood  v.  Railroad  Co.  17 
Wall.  (U.  S.)  78;  Jones  Corp.  Bonds 
and  Mort.  §  651.  Suit  on  behalf  of 
bondholders  to  set  aside  a  foreclo- 
sure sale  should  usually  be  brought 
by  their  mortgage  trustees.  Meyer  v. 
Utah,  &c.  R.  Co.  3  Utah  280,  3  Pac. 
393.  See,  also,  Shaw  v.  Railroad  Co. 
100  U.  S.  605;  New  Orleans,  &c.  R.  Co. 
v.  Parker,  143  U.  S.  42,  12  Sup.  Ct. 
364.  In  Kent  v.  Lake  Superior,  &c. 
Co.  144  U.  S.  75,  12  Sup.  Ct.  650,  it 
is  held  that  bondholders  must  seek 
their  remedy  in  the  court  which 
rendered  the  decree  and  confirmed 
the  sale.  See,  generally,  Wetmore 
v.  St.  Paul,  &c.  R.  Co.  3  Fed.  177; 


Massachusetts,  &c.  Co.  v.  Chicago, 
&c.  R.  Co.  13  Fed.  857;  Campbell  v. 
Railroad  Co.  1  Woods  (U.  S.)  368. 

79  Foster  v.  Mansfield,  &c.  R.  Co.  36 
Fed.  627.  But  where  an  insolvent 
railroad  company  had  issued  differ- 
ent series  of  mortgage  bonds,  some 
of  the  mortgages  covering  all  of  its 
property,  and  others  only  part,  the 
principal  of  some  of  the  mortgages 
being  due,  and  the  company  having 
defaulted  on  the  interest  on  all  of 
them,  and,  in  addition,  it  had  a 
large  floating  debt,  running  into  mil- 
lions, with  no  fair  prospect  of  its 
being  able  to  pay  the  accrued  in- 
terest on  the  bonds  and  the  floating 
debt  without  a  sale  of  all  its  prop- 
erty, it  was  held  that  a  decree  fore- 
closing all  the  mortgages,  entered 
by  consent  of  the  creditors,  should 
not  be  set  aside  at  the  suit  of  some 
of  the  stockholders  on  the  ground 
that  the  principal  of  some  of  the 
mortgages  was  not  yet  due,  "as  it 
was  to  the  interest  of  the  railroad 
company  that  the  rights  of  all  the 
mortgage  bondholders  should  be  cut 
off  to  enable  the  company  to  effect 
a  reorganization  which  would  se- 
cure and  extend  its  bonded  debt, 
and  reduce  the  rate,  of  interest 
thereon,  and  provide  the  necessary 
means  to  satisfy  the  floating  debt." 
Carey  v.  Houston,  &c.  R.  Co.  45  Fed. 
438. 


&  529] 


SALE  AND  REORGANIZATION. 


742 


ant.80  This  right  may  be  barred  by  laches,81  and  any  considerable 
delay  in  bringing  a  bill  for  this  purpose  must  be  satisfactorily  ex- 
plained or  a  court  of  equity  will  deny  relief.82  The  stockholders  or 
other  parties  in  interest  cannot  wait  until  new  equities  arise  or  until 
they  see  that  the  purchasers,  by  improving  the  property,  are  likely  to 
make  it  valuable,  and  then  procure  a  return  of  the  property  with  its 
added  value,  and  discharged  from  the  equities  which  have  attached.83 
If  the  fraud  is  concealed  from  the  mortgagor  and  its  stockholders  for 
a  time,  suit  may  be  brought  within  a  reasonable  time  after  it  is  dis- 
covered.84 A  sale  of  the  property  to  pay  the  arrears  due  a  single  bond- 
holder, at  a  grossly  inadequate  price  and  without  notice  to  the  other 
bondholders  whose  interests  are  affected,  will  be  set  aside  at  the  suit 
of  such  bondholders,  especially  where  it  is  shown  that  the  bondholder 
who  instituted  the  proceedings  and  the  persons  who  became  purchasers 
at  the  sale,  several  of  whom  were  directors  and  officers  of  the  road, 
had  entered  into  a  conspiracy  to  obtain  the  property  at  a  sacrifice,  and 
had  prevented  a  reasonable  competition  at  the  sale.85  Where  a  sale 


80  Ribon  v.  Railroad  Companies,  16 
Wall.  (U.  S.)  446.  Trustees  through 
whom  the  scheme  was  consummated 
should  have  been  made  parties,  and 
so  should  the  majority  stockholders 
and    bondholders,    or    a    sufficient 
number  of  them,  at  least,  if  they 
had  participated  in  the  distribution 
of  the  proceeds  and  were  required 
to  refund. 

81  Foster  v.  Mansfield,  &c.  R.  Co. 
36   Fed.  627;    Sullivan  v.  Portland, 
&c.  R.   Co.  4  Cliff.    (U.   S.)    212,  94 
U.   S.   806;    Coddington  v.  Railroad 
Co.  103  U.  S.  409 ;  Graham  v.  Boston, 
&c.  R.  Co.  118  U.  S.  161,  6  Sup.  Ct. 
1009.    See,  also,  Rabe  v.  Dunlap,  51 
N.  J.  Eq.  40,  25  Atl.  959;   Farmers' 
Loan,  &c.  Co.  v.  Rockaway,  &c.  R. 
Co.  69  Fed.  9;  McHenry  v.  Schenk, 
88  111.  357;   Brunson  v.  Morgan,  84 
Ala.  598,  4  So.  589. 

82  Credit  Co.  v.  Arkansas  Cent.  R. 
Co.    15    Fed.    46,    5    McCrary    23; 
Farmers'    Loan,    &c.    Co.    v.    Green 
Bay,   &c.   R.   Co.   6   Fed.   100;    Har- 
wood  v.  Railroad  Co.  17  Wall.    (U. 
S.)    78.     The   following   periods   of 


unexplained  delay  have  been  held 
fatal:  Seven  years,  Sullivan  v. 
Portland,  &c.  R.  Co.  94  U.  S.  806,  4 
Cliff.  (U.  S.)  212;  ten  years,  Foster 
v.  Mansfield,  &c.  R.  Co.  36  Fed.  627; 
eight  years,  Coddington  v.  Pensa- 
cola,  &c.  R.  Co.  103  U.  S.  409;  five 
years,  Harwood  v.  Railroad  Co.  17 
Wall.  (U.  S.)  78;  eighteen  months, 
Graham  v.  Birkenhead,  &c.  R.  Co.  2 
Mac.  &  G.  (Eng.  Ch.)  146;  and  even 
less  than  a  year,  Northwestern 
Mortg.  Co.  v.  Bradley,  9  S.  Dak.  495, 
70  N.  W.  648;  Wilson  v.  Wall,  99  Va. 
353,  38  S.  E.  181. 

83  Twin  Lick  Oil  Co.  v.  Marbury,  91 
U.  S.  587;  Kitchen  v.  St.  Louis,  &c. 
R.  Co.  69  Mo.  224. 

84  Where  the  mortgagors  remained 
ignorant    for    eight    years    of    the 
fraud    which    had    been    practiced, 
they  were  permitted  to  bring  suit 
to  set  aside  the  sale  two  years  after 
the    fraud   was   discovered.     White 
Mountains  R.   Co.  v.   White  Moun- 
tains R.  Co.  50  N.  H.  50. 

85  Jackson    v.    Ludeling,    21    Wall. 
(U.  S.)  616.    A  decree  by  which  no 


743  SETTIXG  SALE  ASIDE.  [§  529 

is  made  under  a  notice  setting  forth  that  the  amount  of  bonds  secured 
by  the  mortgage  foreclosed  is  ten  times  as  great  as  it  really  is,  and 
all  competition  in  bidding  is  thereby  destroyed  and  the  property  is 
purchased  by  the  bondholders,  such  sale  will  be  set  aside  at  the  suit 
of  judgment  creditors  whose  liens  are  thereby  defeated.86  But  the 
creditors  who  were  defrauded  by  the  sale  can  alone  claim  the  benefit 
of  a  decree  setting  aside  the  sale,  and  neither  the  mortgage  trustee  by 
whom  the  property  was  sold  on  foreclosure,  nor  the  bondholders  at 
whose  request  the  foreclosure  and  sale  were  had,  can  assert  any  rights 
under  the  mortgage;  but  they  hold  title  to  the  property  under  the 
sale,  subject  to  the  equities  of  such  creditors.87  The  parties  in  interest 
cannot  question  the  validity  of  a  foreclosure  sale,  to  which  they  have 
assented,  on  the  ground  that  it  was  a  fraud  upon  the  rights  of 
others.88  And  creditors  cannot  ordinarily  impeach  a  completed  sale 
where  the  trustee  representing  them  has  acted  in  good  faith.89  A 
mortgage  trustee  in  possession  cannot  without  express  authority  be- 
come a  purchaser  at  his  own  sale.90  And  a  director,  or  other  person 
occupying  a  fiduciary  relation  toward  the  company,  must  act  with 
perfect  fairness,  in  purchasing  its  property  at  a  sale  under  a  trust 
deed  to  secure  debts  due  to  himself,  or  the  sale  will  be  set  aside ;  but 
the  stockholders  must  act  promptly  in  disaffirming  a  sale  because  of 
the  fiduciary  relations  of  the  purchaser.91  Where  it  is  shown  that  the 

provision  is  made  for  the  interests  "  Racine,  &c.  R.  Co.  y.  Farmers' 

of  other  bondholders  beside  the  com-  Loan,  &c.  R.  Co.  49  111.  331,  95  Am. 

plainant,  will  be  set  aside  on  appeal.  Dec.  595 ;  Ashhurst's  Appeal,  60  Pa. 

New  Orleans,  &c.  R.  Co.  v.  Parker,  St.  290;   Kitchen  v.  St.  Louis,  &c. 

143  U.  S.  42,  12  Sup.  Ct.  364.  Co.  69  Mo.  224. 

88  James  v.  Railroad  Co.   6  Wall.  91Twin  Lick  Oil  Co.  v.  Marbury, 

(U.  S.)   752.  91  U.  S.  587.     A  director  of  a  rail- 

87  Railroad  Co.  v.  Soutter,  13  Wall,  road  corporation  may  honestly  own 
(U.  S.)   517;  Barnes  v.  Chicago,  &c.  its  bonds  secured  by  mortgage.  Dun- 
R.  Co.  122  U.  S.  1,  7  Sup.  Ct.  1043.  comb  v.  New  York,  &c.  R.  Co.  84  N. 

88  Barnes   v.    Chicago,   &c.    R.    Co.  Y.  190,  88  N.  Y.  1.    And  he  can  en- 
122  U.  S.  1,  7  Sup.  Ct.  1043,  affirm-  force  them  in  the  usual  and  ordi- 
ing  8  Biss.  (U.  S.)  514;  Symmes  v.  nary   way,   and   may   purchase   the 
Union  Trust  Co.  60  Fed.  830.     See,  mortgaged  property  at  a  sale  which 
also,  United  States  v.  Union  Pac.  R.  is   fairly  made   in  an  effort  to  en- 
Co.  98  U.  S.  569 ;  Berry  v.  Broach,  65  .force  the  payment  of  his  debt.   Har- 
Miss.   450,  4   So.   117;    Matthews  v.  pending  v.   Munson,   91   N.  Y.    650. 
Murchison,  15  Fed.  691.  As  to  when   director  can  not  pur- 

89  Fletcher  v.   Ann  Arbor  R.   Co.  chase,  see  post,  §  535. 
116  Fed.  479;  Richter  v.  Jerome,  123 

U.  S.  233,  8  Sup.  Ct.  106. 


529] 


SALE  AND  REORGANIZATION. 


744 


purchasers  at  a  foreclosure  sale  have  conspired  with  the  directors  of 
the  corporation  in  effecting  a  fraudulent  sale,  they  will  be  held 
as  trustees  for  the  benefit  of  the  parties  in  interest  to  the  full  value 
of  the  property  purchased.92  It  has  been  held  that  a  fraudulent 
sale  cannot  be  validated  by  an  act  of  the  legislature,  since  the  legisla- 
ture has  no  power  to  transfer  the  property  of  one  corporation  to  an- 
other without  due  process  of  law.93  A  decree  can  only  be  avoided 
upon  proceedings  for  that  purpose,  brought  by  a  party  in  interest9* 
and  upon  sufficient  cause  shown.  Inadequacy  of  price  alone  is  not 
sufficient  ground  for  setting  aside  a  sale,  where  the  sale  was  honestly 
and  fairly  made;95  nor  is  mere  increase  in  the  value  of  the  property 
sufficient  cause  for  vacating  the  decree.96  A  purchase  of  the  mort- 
gaged property  by  a  combination  of  the  bondholders  and  other  cred- 
itors is  valid  unless  some  unfair  advantage  is  used  to  prevent  compe- 
tition and  keep  down  the  price,  and  such  creditors  have  in  general  all 
the  rights  of  bona  fide  purchasers.97  The  fact  that  the  railroad  com- 


*2Drury  v.  Cross,  7  Wall.  (U.  S.) 
299;  Merrill  v.  Farmers'  Loan,  &c. 
Co.  24  Hun  (N.  Y.)  297;  Jones  Corp. 
Bonds  and  Mort.  §  633;  post,  §  535. 

93  White  Mountains  R.  Co.  v.  White 
Mountains  R.  Co.  50  N.  H.  50.     See, 
also,  Roche  v.  Waters,  72  Md.  264, 
19  Atl.  535,  7  L.  R.  A.  533.     This, 
we    think,    would    undoubtedly    be 
true  if  the  sale  were  absolutely  void 
for  want  of  jurisdiction,  but  a  mere- 
ly fraudulent  sale  would  seem  to  be 
voidable   only,   and   not  necessarily 
void   or  beyond   the  power   of  the 
legislature  to  cure. 

94  One  whose  interest  in  the  prop- 
erty expired  before  the  final  decree 
was  entered  cannot  maintain  a  suit 
to  have  the  decree  reopened.    Ward 
v.    Montclair   R.    Co.   26   N.    J.   Eq. 
260;   Graham  v.  Boston,  &c.  R.  Co. 
118  U.  S.  161,  6  Sup.  Ct.  1009.    See, 
also,  Fleming,  Ex  parte,  2  Wall.  (U. 
S.)   759;   Day  v.  Lyon,  11  N.  J.  Eq. 
331;  Symmes  v.  Union  Trust  Co.  60 
Fed.   830;    Rollins   v.   St.   Paul,   &c. 
R.  Co.  29  N.  Y.  St.  208,  9  N.  Y.  S. 
909;    Wade  v.   Thompson,   52   Miss. 
367. 


95  Turner  v.   Indianapolis,   &c.   R. 
Co.   8   Biss.    (U.   S.)    380;    Fidelity, 
&c.  Co.  v.  Mobile,  &c.  R.  Co.  54  Fed. 
26;    Jones   Corp.    Bonds   and    Mort. 
§    662.     See,   also,   Bethlehem    Iron 
Co.   v.   Philadelphia,  &c.  R.   Co.   49 
N.  J.  Eq.  356,  23  Atl.  1077;    Cross 
v.  Allen,  141  U.  S.  528,  12  Sup.  Ct. 
67;  Lathrop  v.  Tracy,  24  Colo.  382, 
51  Pac.  486,  65  Am.  St.  229.    Unless, 
perhaps,  it  is  so  great  as  to  shock 
the  conscience.    Graffam  v.  Burgess, 
117    U.    S.    180,    6    Sup.    Ct.    686; 
Fletcher  v.  McGill,  110  Ind.  395. 

96  County  of  Leavenworth  v.  Chi- 
cago, &c.  R.  Co.  25  Fed.  219. 

97  Thornton  v.  Wabash  R.   Co.  81 
N.  Y.  462;   Vose  v.  Cowdrey,  49  N. 
Y.   336;    Pennsylvania   Trans.    Co.'s 
Appeal,   101  Pa.   St.   576;    Wetmore 
v.  St.  Paul,  &c.  R.  Co.   1  McCrary 
(U.   S.)   466;   ante,   §  521.     Holders 
of    junior   mortgage    bonds    cannot 
have  a  sale  to  the  first  mortgage 
bondholders    set    aside    where    no 
fraud  is   shown.     Their  remedy   is 
to  redeem.    Robinson  v.  Iron  R.  Co. 
135  U.  S.  522,  10  Sup.  Ct.  907. 


745 


EEDEMPTION. 


I§    53° 


pany's  solicitor  acts  for  the  creditors  in  making  tHe  purchase  and 
that  the  title  is  taken  in  his  name,  does  not  invalidate  the  sale,  if  it 
was  honestly  conducted  and  no  unfair  advantage  was  taken.98  The 
validity  of  the  sale,  it  has  been  held,  cannot  be  attacked  on  the  ground 
that  the  directors  of  the  corporation  were  actuated  by  corrupt  motives 
in  suffering  a  default,  and  that  this  was  known  to  the  trustee,  when 
there  is  no  claim  against  him  of  collusion  or  fraud,  and  it  appears 
that  the  default  justifying  foreclosure  actually  occurred,  and  the 
property  was  sold  for  an  adequate  price."  In  a  suit  to  set  aside  a 
sale  on  foreclosure  the  validity  and  sufficiency  of  the  proceedings 
in  the  foreclosure  suit  prior  to  the  sale  cannot  be  questioned,  since 
they  were  matters  proper  for  adjudication  in  the  foreclosure  suit.100 

§  530.  Redemption. — A  valid  foreclosure  and  sale,  duly  confirmed, 
cuts  off  the  equity  of  redemption,101  and  the  only  remedy,  if  any,  in 
such  a  case,  is  by  a  suit  to  vacate  the  decree,102  unless  a  statutory 
right  to  redeem  is  given.103  Where,  however,  the  mortgage,  trustee 
enters  into  possession,  upon  default,  and  manages  the  property  for 


98  Pacific  R.  Co.  v.  Ketchum,  101 
U.  S.  289.     But  compare  as  to  pur- 
chase by  the   mortgagee  or  his  so- 
licitor, Bennett,   Ex  parte,   10   Ves. 
Jr.  381;   Gibson  v.  Barbour,  100  N. 
Car.    192,    6    S.    E.    766;    Adams   v. 
Sayre,  76  Ala.  509;  Lockett  v.  Hill, 
1  Woods  (U.  S.)  552;  Callan  v.  Wil- 
son, 127  U.  S.  540,  8  Sup.  Ct.  1301; 
Houston  v.  National,  &c.  Ass'n,  80 
Miss.  31,  31  So.  540,  92  Am.  St.  565, 
and  note.     These  cases  relate,  how- 
ever, to  sales  under  powers  rather 
than  foreclosure  sales. 

99  Harpending:  v.  Munson,  91  N.  Y. 
650.      Compare    Symmes    v.    Union 
Trust  Co.  60  Fed.  830. 

100  Robinson  v.  Iron  R.  Co.  135  U. 
S.  522,  10  Sup.  Ct.  907. 

101  Parker  v.  Dacres,  130  U.  S.  43, 

9  Sup.  Ct.  433;    Turner  v.  Indian- 
apolis,  &c.  R.   Co.   8  Biss.    (U.   S.) 
380;    Woodruff   v.    Adair,    131    Ala. 
530,  32  So.-  515;  Grandin  v.  Emmons, 

10  N.  Dak.  223,  86  N.  W.  723,  54  L. 
R.  A.  610,  88  Am.  St.  684;  Eiceman 


v.  Finch,  79  Ind.  511.  As  to  who 
may  redeem,  see  note  to  Horn  .  v. 
Indianapolis,  &c.  Bank,  21  Am.  St. 
231,  245  et  seq. 

102  Delaware,  &c.  R.  Co.  v.  Scran- 
ton,  34  N.  J.  Eq.  429. 

103  See    Stimson    Am.    Stat.    Law, 
§§  1491,  1492;   Brine  v.  Ins.  Co.  96 
U.  S.  627;  Parker  v.  Dacres,  130  U. 
S.  43,  9  Sup.  Ct.  433;   Jackson,  &c. 
Co.    v.    Burlington,    &c.    R.    Co.    29 
Fed.   474;    Singer  Mfg.   Co.   v.   Mc- 
Collock,  24  Fed.  667.    In  these  cases 
the  state  statute  was   followed  by 
the  federal  courts.     See,  also,  Bene- 
dict v.  St.  Joseph,  &c.  R.  Co.  19  Fed. 
173.     But  a  general  statute  apply- 
ing in  ordinary  cases  may  not  au- 
thorize or  apply  to  a  redemption  in 
the  case  of  a  railroad.     Peoria,  &c. 
'R.   Co.  v.  Thompson,  103   111.  187; 

Hammock  v.  Farmers'  Loan,  &c.  Co. 
105  U.  S.  77;  Columbia  Finance,  &c. 
Co.  v.  Kentucky  Union  R.  Co.  6& 
Fed.  794. 


§  530]  SALE  AND  REOBGANIZATION".  746 

the  bondholders,  the  corporation  or  stockholders  may  institute  a 
suit  to  redeem  and  hold  him  to  an  accounting  as  trustee  for  the 
corporation  as  well  as  for  the  bondholders.104  So,  as  we  shall  hereafter 
see,105  where  the  transaction  is  voidable  because  a  director  or  trustee 
has  improperly  purchased  at  the  sale,  the  courts  will  usually  allow  a 
redemption.  The  right  to  redeem  is  a  favorite  equity  and  an  oppor- 
tunity to  exercise  it  should  be  given  before  the  sale  is  confirmed,  that 
is,  at  least  where  the  foreclosure  is  for  failure  to  pay  interest,  a  decree 
nisi  should  be  entered  declaring  "the  fact,  nature  and  extent  of  the 
default  *  *  *  and  the  amount  due  on  account  thereof,  which, 
with  any  further  sums  subsequently  accruing,  and  having  become  due, 
according  to  the  terms  of  the  security,  the  mortgagor  is  required  to 
pay  within  a  reasonable  time,  to  be  fixed  by  the  court,  and  which, 
if  not  paid,  a  sale  of  the  mortgaged  premises  is  directed."108  Thus, 
in  a  recent  foreclosure  proceeding  for  default  in  payment  of  inter- 
est, it  was  held  that,  although  the  mortgage,  as  construed  by  the  court, 
did  not  authorize  a  decree  that  the  whole  debt  was  due,  it  was  proper 
to  direct  payment  of  the  whole  debt  from  the  proceeds  of  the  sale 
of  the  property  as  an  entirety,  but  that  the  decree  should  also  provide 
that  the  mortgagor  might  redeem  before  sale  upon  payment  of  the 
overdue  interest  and  costs.107  In  another  recent  case108  involving  the 
right  to  redeem  separate  divisional  mortgages  on  railroads  afterwards 
consolidated  the  judges  of  the  circuit  court  of  appeals  for  the  sixth 
circuit  differed  in  opinion  and  each  supported  the  position  which  he 
had  taken  by  a  very  able  argument.  The  mortgages  on  the  separate 

104  Ashuelot  R.  Co.  v.  Elliott,  57  N.  with  the  mortgage  contract  other 
H.  397.  See,  also,  Clark  v.  Rey-  than  that  arising  from  his  purchase 
burn,  8  Wall.  (U.  S.)  318.  for  a  sum  sufficient  to  pay  the  mort- 
106  Post,  §  535.  gage  debt,  is  impaired  by  a  change 
108  Chicago,  &c.  R.  Co.  v.  Fosdick,  in  the  law,  subsequent  to  the  execu- 
106  U.  S.  47,  1  Sup.  Ct  10.  See,  tion  of  the  mortgage  but  prior  to 
also,  to  same  effect,  Clark  v.  Rey-  the  sale,  regarding  the  time  of  re- 
burn,  8  Wall.  (U.  S.)  318;  Howell  demption  and  rate  of  interest  pay- 
v.  Western  R.  Co.  94  U.  S.  463;  Fos-  able  in  order  to  redeem.  Hooker 
ter  Fed.  Prac.  §  322.  For  form  of  v.  Burr,  194  U.  S.  415,  24  Sup.  Ct. 
decree,  see  Blair  v.  St  Louis,  &c.  706. 

R.  Co.  25  Fed.  132,  237.  Four  107  Grape  Creek,  &c.  Co.  v.  Farm- 
months  has  been  held  to  be  a  rea-  ers',  &c.  Co.  63  Fed.  891.  See,  also, 
sonable  time.  Columbia  Finance,  Holden  v.  Gilbert,  7  Paige  (N.  Y.) 
&c.  Co.  v.  Kentucky  Union  R.  Co.  60  208;  Olcott  v.  Bynum,  17  Wall.  (U. 
Fed.  794.  No  contract  right  of  an  S.)  44. 

independent  purchaser  at  a  foreclo-  108Compton  v.  Jesup,  68  Fed.  263. 
sure  sale,  who  has  no  connection 


747  REORGANIZATION  BY   PURCHASER.  [§531 

divisions  were  made  to  the  same  trustee,  and  Judge.  Lurton  held  that 
the  mortgagees  were,  therefore,  to  be  regarded  as  the  same,  and  that 
for  this  reason,  as  well  as  for  the  further  reason  that  it  is  the  settled 
policy  of  the  courts  to  treat  a  railroad  as  an  entirety  and  prevent  its 
severance,  if  possible,  there  could  be  no  separate  redemption  of  the 
division  covered  by  one  of  them,  while  Judge  Taft  held  that  they  were 
separate  mortgages  and  that,  under  the  circumstances  of  the  case, 
there  could  be  a  separate  redemption.  The  case  was  complicated  by  a 
question  of  suretyship  and  a  question  as  to  the  effect  of  prior  decrees 
in  the  different  states,  in  regard  to  both  of  which  the  judges  disa- 
greed. They  also  disagreed  as  to  whether,  in  fixing  the  amount  to  be 
paid  by  the  redemptioner  he  was  entitled  to  have  the  principal  and 
interest  of  the  mortgages  to  be  redeemed  reduced  by  the  net  earnings 
received  by  the  purchaser.  The  case  is  one  of  great  importance  and 
merits  careful  study.109  It  was  afterwards  taken  to  the  Supreme  Court 
of  the  United  States  on  certificate,  but  that  court  decided  it  on  such 
grounds  that  it  was  found  unnecessary  to  consider  the  difficult  points 
relating  to  the  question  of  redemption.110 

§  531.  Reorganization  by  purchasers  at  sale— Power  of  legisla- 
ture to  provide  for. — The  purchaser  of  a  railroad  under  a  sale  upon 
foreclosure,  or  otherwise,  by  legislative  authority,  does  not,  by  reason 
of  his  purchase,  take  the  place  of  the  old  corporation  and  become 
clothed  with  corporate  powers,111  unless  the  statute  expressly  so  pro- 
vides.112 But  the  purchaser  at  a  foreclosure  sale  takes  with  the  prop- 
erty all  franchises  which  are  included  and  authorized  to  be  included 
in  the  mortgage,  and  are  necessary  to  the  successful  operation  of  the 

108  It  is  impossible  to  give  an  in-  110Compton  v.  Jesup,  167  U.  S.  1, 

telligent  statement  of  all  the  facts  17  Sup.  Ct:  795,  807,  808. 

of  the  case,  with  the  reasoning  and  m  Dow  v.  Beidelman,  49  Ark.  325, 

numerous  authorities  cited,  without  455,  5  S.  W.  297,  718,  125  U.  S.  680, 

taking  more  space  than  we  feel  jus-  8  Sup.  Ct.  1028;   Julian  v.  Central 

tified  in  giving  to  a  review  of  any  Trust  Co.  193  U.  S.  93,  24  Sup.  Ct. 

one  case.     The  principal  questions  399;  Norfolk,  &c.  R.  Co.  v.  Pendle- 

involved   were  certified   to   the   su-  ton,  156  U.  S.  667,  15  Sup.  Ct  413; 

preme   court,   but   it   did   not  fully  Watson   v.   Albany,   &c.  R.   Co.  Ill 

settle  the  law  upon  the  subject.    In(  Ga.   10,   36   S.  E.   324;    Atkinson  v. 

addition  to  the  authorities  cited  in  Marietta,  &c.  R.  Co.  15  Ohio  St.  21; 

the   case   referred  to,  see   Horn  v.  Memphis,    &c.    R.    Co.    v.    Railroad 

Indianapolis    Nat.    Bank,    125    Ind.  Commissioners,  112  U.  S.  609,  5  Sup. 

381,  25  N.  E.  558,  9  L.  R.  A.  676,  21  Ct.    299;    Wellsborough,   &c.   Co.    v. 

Am.  St.  231,  and  note.  Griffin,  57  Pa.  St.  417;  ante,  §  519. 

118  See  Rev.  Stat.  Tex.  §  4260. 


§  531] 


SALE  AND  KEOEGANIZATION. 


748 


road,  including,  it  seems,  the  franchise  of  eminent  domain.113  The 
same  reasons  which  cause  nearly  all  railroads  to  be  built  by  corpora- 
tions apply  with  equal  force  to  urge  the  incorporation  of  the  pur- 
chasers of  a  railroad  at  foreclosure  sale.114  The  legislature  has  power 
to  provide  for  the  reorganization  of  the  bondholders  into  a  new  cor- 
poration with  the  rights  and  duties  of  the  old  corporation,  upon  strict 
foreclosure  of  a  railroad  mortgage;  and  it  has  been  held  that  when 
the  majority  effect  an  organization  under  legislative  authority,  a  dis- 
senting minority  have  no  private  rights  that  can  be  successfully  as- 
serted against  such  action.115  It  has  also  been  held  that  the  bond- 
holders, under  a  trust  deed  of  railroad  property,  acquire  their  rights 
subject  ',o  an  obligation  to  execute  the  public  trust  cast  upon  the 
mortgaged  property  by  devoting  it  to  the  public  use  for  which  it  was 
created,  and  that  no  rights  of  any  bondholder  are  violated  by  the 
action  of  the  state  in  creating  a  new  instrumentality  to  carry  into 
effect  the  original  design  and  to  devote  the  property  to  the  only  use 
which  the  law  of  its  creation  permits,  so  long  as  he  retains  his  orig- 


113  Lawrence  v.  Morgan  La.  R.  &c. 
Co.  39  La.  Ann.  427,  2  So.  69,  4  Am. 
St.  265;  Marshall  v.  Western,  &c. 
R.  Co.  92  N.  Car.  322;  New  Orleans, 
&c.  R.  Co.  v.  Delamore,  114  U.  S. 
501,  5  Sup.  Ct.  1009.  See,  also,  North 
Carolina,  &c.  R.  Co.  v.  Carolina  Cen- 
tral R.  Co.  83  N.  Car.  489.  In  the 
case  of  Morgan  v.  Louisiana,  93  U. 
S.  217,  the  Supreme  Court  of  the 
United  States,  in  defining  what  were 
the  franchises  which  the  purchaser 
of  a  railroad  had  acquired  at  mar- 
shal's sale,  said:  "The  franchises 
of  a  railroad  corporation  are 
rights  and  privileges  which  are  es- 
sential to  the  operations  of  a  corpo- 
ration, and  without  which  its  road 
and  works  would  be  of  little  value; 
such  as  the  franchise  to  run  cars, 
to  take  tolls,  to  appropriate  earth 
and  gravel  for  the  bed  of  its  road, 
or  water  for  its  engines  and  the 
like.  They  are  positive  rights  and 
privileges,  without  the  possession  of 
which  the  road  of  the  company 
could  not  be  successfully  worked. 


A  conveyance  by  a  railroad  com- 
pany of  "all  and  singular  the  char- 
tered rights,  privileges,  and  fran- 
chises of  every  kind"  belonging  to  it, 
or  which  should  thereafter  belong  to 
it,  does  not  include  land  grants 
which  are  not  directly  connected 
with  the  operation  of  the  road. 
Shirley  v.  Waco  Tap.  R.  Co.  78  Tex. 
131,  10  S.  W.  543.  See,  also,  Little 
Rock,  &c.  R.  Co.  v.  McGehee,  41  Ark. 
202. 

114  See    Jones    Corp.    Bonds    and 
Mort.  §  695. 

115  Gates  v.  Boston,  &c.  R.  Co.  53 
Conn.  333,  5  Atl.  695,  24  Am.  &  Eng. 
R.    Gas.    143;    Canada   Southern   R. 
Co.  v.  Gebhard,  109  U.  S.  527,  534,  3 
Sup.  Ct.  363.    So  it  has  been  held 
that  such  a  statute  may  be  amended 
so  as  to  be  made  conditional,  as  au- 
thority to  incorporate  is  a  privilege 
and  not  a  property  right.    Railroad 
Com'rs  v.  Grand  Rapids,  &c.  R.  Co. 
130  Mich.  248,  89  N.  W.  967,  affirmed 
in  193  U.  S.  17,  24  Sup.  Ct.  310. 


749 


REORGANIZATION  BY   PURCHASER. 


[§    531 


inal  pro  rata  share  of  the  trust  property.116  So,  it  is  held  that  the 
legislature  may  constitute  the  purchasers  at  foreclosure  sale  a  cor- 
poration under  the  charter  of  the  old  corporation.117  Persons  acquir- 
ing rights  under  a  mortgage  upon  the  property  of  a  railroad  corpora- 
tion must  be  held  to  have  acquired  them  subject  to  the  power  of  the 
legislature  to  provide  for  a  continuous  performance  of  all  public  du- 
ties imposed  by  law  upon  the  corporation.118  Statutes  providing  for 
ihe  reorganization  of  the  bondholders  to  form  a  new  corporation  may 
be  altered  at  the  pleasure  of  the  legislature.  A  change  in  the  law 
after  the  issue  of  the  mortgage  bonds  does  not  impair  the  obligation 


U6  Gates  v.  Boston,  &c.  R.  Co.  53 
Conn.  333.  In  this  case  Stoddard,  J., 
said:  "There  is  no  reason  why,  sub- 
ject to  legislative  and  judicial  con- 
trol and  direction,  the  majority  in 
interest  in  common  property,  of  an 
indivisible  nature,  consecrated  to 
public  use,  should  not  so  use  that 
property  as  to  advance  the  private 
interests  in  that  property  and  se- 
cure the  public  welfare."  In  a  case 
where  the  plaintiff,  owning  but  one 
per  cent  of  the  bonds,  refused  to  ac- 
cept a  reorganization  agreement, 
but  sued  to  collect  his  bonds;  and 
it  appeared  that  all  the  other  bond- 
holders had  accepted  the  plan  of  re- 
organization and  had  surrendered 
their  bonds;  that  their  interests  de- 
manded that  the  reorganization  be 
confirmed,  and  that  it  had  been  sub- 
stantially confirmed  by  a  judgment 
of  the  United  States  Circuit  Court 
in  Oregon,  the  court  held  that  plain- 
tiff's bill  must  be  dismissed  and  that 
he  must  surrender  his  old  bonds 
and  accept  new  ones,  as  provided 
in  the  agreement.  Pollitz  v.  Farm- 
ers' Loan,  &c.  Co.  53  Fed.  210.  But 
see  Huber  v.  Martin  (Wis.),  105  N. 
W.  1031. 

117  Witherspoon  v.  Texas  Pacific  R. 
Co.  48  Tex.  309;  Acres  v.  Moyne,  59 
Tex.  623;  Gulf,  &c.  R.  Co.  v.  Morris, 
€7  Tex.  692,  700,  4  S.  W.  156.  See, 
also,  State  v.  Sherman,  22  Ohio  St. 


428;  Holland  v.  Lee,  71  Md.  338,  18 
Atl.  661;  Boylan  v.  Kelly,  36  N.  J. 
Eq.  331.  In  Texas  the  statute  pro- 
vides as  follows:  "In  case  of  the 
sale  of  the  entire  roadbed,  track, 
franchise  and  chartered  right  of  a 
railroad  company,  whether  by  vir- 
tue of  an  execution,  order  of  sale, 
deed  of  trust,  or  any  other  power, 
the  purchaser  or  purchasers  at  such 
sale,  and  their  associates,  shall  be 
entitled  to  have  and  exercise  all  the 
powers,  privileges  and  franchises 
granted  to  said  company  by  its  char- 
ter or  by  virtue  of  the  general  laws; 
and  the  said  purchaser  or  pur- 
chasers and  their  associates  shall  be 
deemed  and  taken  to  be  the  true  own- 
ers of  said  charter  and  corporators 
under  the  same,  and  vested  with  all 
the  powers,  rights,  privileges  and 
benefits  thereof,  in  the  same  man- 
ner and  to  the  same  extent  as  if 
they  were  the  original  corporators 
of  said  company,  and  shall  have 
power  to  construct,  complete,  equip 
and  work  the  road  upon  the  same 
terms  and  under  the  same  condi- 
tions as  are  imposed  by  their  char- 
'ter  and  the  general  laws."  Rev. 
Stat.  Tex.  §  4260;  Pasch.  Dig.  Vol.  I, 
Art.  4912.  Somewhat  similar  are 
How.  Stat.  Mich.  (1882),  §  4885, 
and  Laws  Tenn.  1885,  Ch.  84. 

113  Gates  v.  Boston,  &c.  R.  Co.  53 
Conn.  333,  5  Atl.  695. 


531a] 


SALE  AND  REORGANIZATION. 


750 


of  a  contract,  although  the  expense  of  reorganization  is  thereby  in- 
creased.119 So,  as  the  franchise  to  he  a  corporation  is  deemed  to  be 
granted  anew,  the  company  formed  upon  reorganization  may  be  made 
amenable  to  statutory  or  constitutional  provisions  enacted  after  the 
charter  to  the  original  company  was  granted  and  before  the  reorgani- 
zation.120 

§  531a.    Reorganization    through    purchasing    committee. — The 

bondholders  or  persons  interested,  such  as  the  bondholders,  stock- 
holders and  creditors  frequently  get  together  for  the  purpose  of  pur- 
chasing and  reorganizing  and  appoint  a  purchasing  or  reorganization 
committee  for  carrying  out  their  plans,  which  usually  contemplate 
the  foreclosure  and  purchase,  or  purchase  at  the  foreclosure  sale,  by 
the  committee  and  the  transfer  of  the  property  by  the  committee  so 
purchasing  to  a  new  corporation  formed  for  the  purpose  of  taking 
such  property  and  carrying  on  the  business.  "It  rarely  happens  in 
the  United  States,"  it  is  said,  that  foreclosures  of  railway  mortgages 
are  anything  else  than  the  machinery  by  which  arrangements  between 
the  creditors  and  other  parties  in  interest  are  carried  into  effect, 
and  a  reorganization  of  the  affairs  of  the  corporation  under  a  new 
name  brought  about."121  The  whole  matter  is  usually  arranged  by 
agreement,  and  the  powers  and  duties  of  the  committee  depend  upon 
the  agreement,122  under  which  they  occupy  a  position  or  relation  of 
trust.123  As  elsewhere  shown,  the  courts  have  looked  with  favor  upon 


119  People  v.  Cook,  148  U.  S.  397,  13 
Sup.    Ct.    645,   affirming   110   N.   Y. 
443,  18  N.  E.  113;   Railroad  Com'rs 
v.    Grand    Rapids,    &c.    R.    Co.    130 
Mich.  248,  89  N.  W.  967. 

120  State  v.  Sherman,  22  Ohio  St. 
411;  Trask  v.  Maguire,  18  Wall.  (U. 
S.)  391;  Railroad  Co.  v.  Georgia,  98 
U.   S.   359;    Keokuk,   &c.   R.   Co.  v. 
Missouri,  152  U.  S.  301,  14  Sup.  Ct. 
592;  Grand  Rapids,  &c.  R.  Co.  v.  Os- 
born,  193  U.  S.  17,  26  Sup.  Ct.  310. 
But  see  First  Division  of  St.  Paul, 
&c.  R.  Co.  v.  Parcher,  14  Minn.  297. 

121  Canada  So.  R.  Co.  v.  Gebhard, 
109  U.  S.  527,  3  Sup.  Ct.  363. 

122  Cox  v.  Stokes,  156  N.  Y.  491,  51 
N.  E.    320;    Indiana,  &c.   R.   Co.   v. 
Swannell,  157  111.  616,  41  N.  E.  989, 
30  L.  R.  A.  290. 


^United  Water  Works  Co.  v. 
Omaha  Water  Co.  164  N.  Y.  41,  58 
N.  E.  58;  Cox  v.  Stokes,  156  N.  Y. 
491,  51  N.  E.  320;  Thayer  v.  Wathen, 
17  Tex.  Civ.  App.  382,  44  S.  W.  906; 
Fuller  v.  Venable,  118  Fed.  543.  But 
considerable  discretion  is  usually 
invested  in  the  committee.  Central 
Trust  Co.  v.  Carter,  78  Fed.  225; 
McHenry  v.  New  York,  &c.  R.  Co. 
25  Fed.  65 ;  Mercantile  Trust,  &c.  Co. 
v.  Low,  87  Fed.  241.  And  the  courts 
are  inclined  to  construe  the  agree- 
ment with  some  liberality  to  pro- 
tect the  committee  except  where 
there  is  malfeasance  or  misfeasance 
or  gross  negligence.  Venner  v. 
Fitzgerald,  91  Fed.  335;  Van  Siclen 
v.  Bartol,  95  Fed.  793.  See,  gener- 
ally, as  to  their  duties  and  liabtti- 


751  LIABILITY   OF  NEW  CORPOEATION.  [§    532 

such  combinations  and  arrangements  when  properly  planned  and 
carried  out,  but  they  must  not  be  unfair  and  fraudulent,  and  the 
trustee  or  committee  must  not  unduly  favor  some  of  the  bondholders 
at  the  expense  of  the  others  who  are  parties  to  the  agreement. 

§  532.  Statutory  reorganization — Liability  of  new  corporation. — 
Most  of  the  states  provide  by  general  statutes  for  the  incorporation  of 
the  purchasers  of  railroad  property  at  foreclosure  sale.124  When  they 
have  complied  with  the  statute  they  become  a  new  and  entirely  dif- 
ferent corporation  from  that  whose  property  and  franchises  they  ob- 
tained by  purchase  at  the  foreclosure  sale,  even  though  the  statute  ex- 
pressly invests  them  with  all  the  rights,  franchises,  powers  and  privi- 
leges possessed  by  the  old  corporation.125  Under  these  and  similar 
special  acts  it  is  customary  to  reorganize  the  persons  having  an  in- 
terest in  the  road  to  form  a  new  corporation  for  whom  the  property 
is  purchased  by  a  trustee  chosen  for  that  purpose.  An  agreement  of 
this  kind  is  legal  and  binding,  and  the  trustee  will  be  compelled  to 
transfer  the  property  to  the  corporation  when  organized.126  But  none 
of  the  creditors  can  claim  an  interest  in  a  reorganized  corporation 
without  sharing  in  the  expense  of  the  sale  and  reorganization.127 

ties,  Lehigh  Coal  Co.  v.  Central  R.  ration  if  they  otherwise  have  that 

Co.  34  N.  J.  Eq.  88;  United  Water  right.    Julian  v.  Central  Trust  Co. 

Works  Co.  v.  Stone,  127  Fed.  587;  193  U.  S.  93,  24  Sup.  Ct.  399. 

Grace  v.  Noel  Mill  Co.  (Tenn.  Ch.)  ^  People  v.  Cook,  110  N.  Y.  443, 

63  S.  W.  246;  Cushman  v.  Bonfield,  449,  18  N.  E.  113,  36  Am.  &  Eng.  R. 

139  111.  219,  28  N.  E.  937;  Industrial,  Cas.  256,  258;  State  v.  Sherman,  22 

&c.  Trust  v.  Tod,  93  App.  Div.   (N.  Ohio  St.  411;  Smith  v.  Chicago,  &c. 

Y.)   263,  87  N.  Y.  S.  687,  170  N.  Y.  R.  Co.  18  Wis.  17. 

233,  63  N.  E.  285;  Reed  v.  Schmidt,  ^  Marie  v.  Garrison,  83  N.  Y.  14; 

115  Ky.  67,  72  S.  W.  367,  61  L.  R.  A.  Munson  v.  Syracuse,  &c.  R.  Co.  103 

270.     See,  also,  note  in  40  L.  R.  A.  N.   Y.   58,   8   N.   E.    355.    See,   also, 

216,  on  the  relations  and  rights  of  Wenger  v.  Chicago,  &c.  R.  Co.  114 

members  of  a  syndicate.  Fed.  34;   Kurtz  v.  Philadelphia,  &c. 

m!9   Am.   &  Eng.  Ency.  of  Law  R.  Co.  187  Pa.  St.  59,  40  Atl.  988. 

(1st  ed.)    773.    See,  also,  Vilas  v.  But    see,    where    there    is    fraud, 

Milwaukee,  &c.  R.  Co.  17  Wis.  497;  Louisville  Trust  Co.   v.   Louisville, 

Thomas  v.  Milledgeville  R.   Co.   99  &c.  R.  Co.  174  U.  S.  674,  19  Sup.  Ct. 

Ga.  714,  27  S.  E.  756;  State  v.  Hare,'  827;    Central  of  Georgia  R.   Co.  v. 

121  Ind.  308,  23  N.  E.  145;    Moore  Paul,  93  Fed.  878;   St.  Louis  Trust 

v.    State,    71    Ind.    478;    Vicksburg,  Co.  v.  Des  Moines,  &c.   R.  Co.  101 

&c.  R.  Co.  v.  Elmore,  46  La.   Ann.  Fed.  632. 

1237,  15  So.  701.    Such  a  statute,  it  127  Hancock  v.   Toledo,  &c.  R.   Co. 

is  held,  does  not  prevent  purchasers  11   Biss.    (U.   S.)    148;    Jones  Corp. 

from  selling  to  any  existing  corpo-  Bonds  and  Mort.  §   691,  citing  Fi- 


§  532] 


SALE  AND  REORGANIZATION". 


The  statute  providing  for  reorganization  sometimes  provides  that  the 
stockholders  of  the  old  corporation  may  become  members  of  the  new 
corporation  upon  certain  terms.128  And  such  provision  is  sometimes 
contained  in  the  mortgage  or  in  the  reorganization  agreement  entered 
into  by  the  purchasers.129  A  stockholder  who  would  claim  the  benefit 
of  an  agreement  or  statutory  provision  by  which  the  old  stockholders 
are  permitted  to  become  members  of  the  new  corporation  must  show  a 
strict  compliance  on  his  part  with  the  terms  of  the  agreement  or 
statute.130  The  New  York  statute  provides  that  any  old  stockholder  of 
a  company  whose  property  and  franchises  are  purchased  by  trustees 
upon  foreclosure  sale  for  the  purpose  of  reorganization  "shall  have 
the  right  to  assent  to  the  plan  of  readjustment  and  reorganization 
of  interests  pursuant  to  which  such  franchises  and  property  shall 
have  been  purchased  at  any  time  within  six  months  after  the  organi- 
zation of  said  new  company,  and  by  complying  with  the  terms  and 
conditions  of  such  plan  become  entitled  to  his  pro  rata  benefits 
therein  according  to  its  terms."131  Under  this  statute  it  is  held  that  no 
notice  at  all  to  the  stockholders  need  be  provided  for  in  a  scheme  for 
reorganization  entered  into  in  accordance  with  the  terms  of  the  stat- 
ute, since  all  stockholders  who  are  reasonably  careful  of  their  interests 
and  vigilant  in  looking  after  their  rights  may  be  presumed  to  have 


delity  Insurance,  &c.  Co.'s  Appeal, 
106  Pa.  St.  144.  See,  also,  Huston's 
Appeal,  127  Pa.  St.  620,  18  Atl.  419. 

128  See  N.  Y.  Laws  1874,  Ch.  430, 
as  amended  by  laws  1876,  Ch.  446. 

128  Unsecured  creditors  cannot 
complain  of  the  reorganization 
scheme  as  inequitable  because  the 
stockholders  of  the  old  company  are 
to  become  stockholders  of  the  new, 
while  the  unsecured  bondholders 
are  given  second  preferred  income 
bonds  at  par  in  full  for  their 
claims.  Hancock  v.  Toledo,  &c.  R. 
Co.  11  Biss.  (U.  S.)  148. 

130  The  fact  that  he  had  no  actual 
notice  of  the  right  accorded  to 
stockholders  to  take  stock  until 
after  the  time  allowed  them  for  ex- 
ercising the  privilege  had  expired 
gives  a  stockholder  no  right  to 
claim  stock  after  the  expiration  of 
that  time,  where  notice  was  given. 


by  publication  as  required  by  the 
agreement  for  reorganization. 
Thornton  v.  Wabash,  &c.  R.  Co.  81 
N.  Y.  462;  Vatable  v.  New  York,  &c. 
R.  Co.  96  N.  Y.  49.  And  where  the 
bondholders  purchased  a  railroad  at 
foreclosure  sale  and  entered  into  a 
reorganization  scheme  by  which  any 
stockholder  should  be  entitled  to 
exchange  his  stock  for  stock  of  the 
new  company  on  payment  of  fifteen 
dollars  per  share  within  a  specified 
time,  it  was  held  that  the  adminis- 
trator of  a  deceased  stockholder 
could  not  demand  new  shares  in  ex- 
change for  old  ones  belonging  to 
his  decedent  upon  tender  of  that 
sum  after  the  expiration  of  the  time 
specified.  Dow  v.  Iowa  Central  R. 
Co.  70  Hun  (N.  Y.)  186,  24  N.  Y. 
S.  292. 
131  N.  Y.  Laws  1874,  Ch.  430,  §  3. 


753   REORGANIZATION  BY  AGREEMENT — RIGHTS  OF  MINORITY.    [§   533 

notice  of  a  protracted  litigation  to  foreclose  their  interests  in  the 
corporation,  and  of  a  judicial  sale  made  in  pursuance  thereto  after 
due  notice.132  And  a  stockholder  who  fails  to  comply  with  the  terms 
of  the  plan  of  reorganization  within  the  time  prescribed  by  it,  that 
being  not  less  than  the  statutory 'period  of  six  months,  has  no  right 
to  come  in  after  the  expiration  of  such  time  and  claim  stock  upon  an 
offer  to  perform  the  conditions  prescribed  by  the  plan.  And  the  fact 
that  he  had  no  actual  notice  of  the  adoption  of  the  plan  does  not 
enlarge  his  rights.133  Statutes  providing  for  the  reorganization  of 
insolvent  corporations  do  not  ordinarily  impose  any  additional  liabil- 
ities upon  the  purchasers,  but  simply  confer  upon  them  and  such 
persons  as  they  choose  to  associate  with  them  the  power  to  exist  as  a 
corporation  and  to  own  and  manage  the  property  which  they  have 
acquired  as  a  railroad  corporation.  The  new  corporation  organized 
thereunder  does  not  become  liable  for  any  debts  or  liabilities  of  the 
old  company  for  which  the  purchasers  would  not  be  liable  by  the 
terms  of  their  purchase  if  incorporated.134  But  it  does  generally  be- 
come liable  to  perform  the  public  duties  imposed  by  law  upon  the 
old  corporation.  Thus,  the  new  company  has  been  held  liable  for  a 
failure  to  maintain  and  repair  bridges  forming  a  part  of  the  highway 
over  its  road,  where  that  duty  was  imposed  by  law  upon  its  predeces- 
sor.135 

§  533.    Reorganization  by  agreement — Rights  of  minority. — "In 

the  absence  of  statutory  authority,  or  some  provision  in  the  instrument 

132  Vatable  T.  New  York,  &c.  R.  Co.  inal  company  would  invest  it  as  a 

96  N.  Y.  49.  purchaser,  so  far  as  the  new  com- 

**  Vatable  v.  New  York,  &c.  R.  pany  wished  to  exert  those  powers 

Co.  96  N.  Y.  49.  and  privileges.  While  it  occupies 

134  Houston,  &c.  R.  Co.  v.  Shirley,  this  attitude  it  cannot  ignore  those 
54  Tex.  125;   Lake  Erie,  &c.  R.  Co.  duties    to    the    public    which    are 
v.   Griffin,   92   Ind.   487;    Vatable  v.  coupled  with  the  enjoyment  of  the 
New  York,  &c.  R.  Co.  96  N.  Y.  49;  corporate  privileges."    Montclair  v. 
Columbus,  &c.  R.  Co.'s  Appeal,  109  New  York,  &c.  R.  Co.  45  N.  J.  Eq. 
Fed.  177.    See  ante,  §  526.  See,  also,  436,  18  Atl.  242.    See,  also,  State  v. 
Brockert  v.   Iowa   Cent.   R.   Co.   93  Central   Iowa  R.   Co.   71   Iowa  410, 
Iowa  132,  61  N.  W.  405.  32  N.  W.  409,  60  Am.  R.  806;  Gates 

135  New  York,  &c.  R.  Co.  v.  State,  v.   Boston  Air  Line,  &c.  R.   Co.  53 
50  N.  J.  L.  303,  32  Am.  &  Eng.  R.  Conn.  333,  5  Atl.  695;  Gage  v.  Pon- 
Cas.  186.  In  announcing  the  opinion  tiac,   &c.  R.   Co.   105   Mich.   335,   63 
of  the  court  in  this  case,  Judge  Reed  N.  W.  318 ;   Dyer  County  v.  Chesa- 
said  of  the  defendant  company:    "It  peake,  &c.  R.  Co.  87  Tenn.  712,  11 
proceeded  to  exercise  all  the  powers  S.  W.  943 ;  Sherwood  v.  Atlantic,  &c. 
with  which  the  charter  of  the  orig-  R.  Co.  94  Va.  291,  26  S.  E.  943. 

ELL.  RAILEOADS — 48 


§•  533]  SALE  AND   REORGANIZATION.  754 

which  creates  the  trust,  nothing  can  be  done  by  a  majority,  however 
large,  which  will  bind  a  minority  without  their  consent,"138  and  a  re- 
organization cannot,  therefore,  be  effected,  without  a  foreclosure,  by 
a  majority  of  the  bondholders  in  such  a  manner  as  to  deprive  dis- 
senting bondholders  of  their  rights  under  the  mortgage.137  But  pro- 
visions may  be,  and  often  are,  inserted  in  the  mortgage  or  trust  deed 
which  enable  a  majority  of  the  bondholders  to  modify  the  mortgage 
rights  of  all138  and  sometimes  "go  far  towards  organizing  the  bond- 
holders into  a  body  corporate  to  take  the  place  and  perform  the  func- 
tions of  the  original  corporation  upon  the  insolvency  of  the  latter."13* 
And  some  of  the  courts  have  gone  very  far  in  upholding  reorganization 
schemes  adopted  by  the  majority.140  As  a  foreclosure  cuts  off  or  bars 
the  rights  of  the  stockholders  and  creditors  against  whom  the  decree 
is  rendered,  it  is  usually  the  safest  way  in  which  to  prepare  for  a  re- 
organization upon  the  insolvency  of  the  corporation.  Unsecured  cred- 
itors and  stockholders  often  have  it  in  their  power,  however,  to  so 
embarrass  and  delay  the  foreclosure  proceedings  that  it  is  found  ex- 
pedient for  the  mortgage  creditors  and  other  parties  interested  in 
the  property  to  agree  upon  some  scheme  of  reorganization  whereby, 
after  the  foreclosure  sale,  all  parties  interested  shall  be  allowed,  upon 
equitable  terms,  to  come  into  a  new  company  which  shall  own  the 
property  and  carry  on  the  business.  This  may  be  necessary  in  order 

138  Canada  Southern  R.  Co.  v.  Geb-  sent  of  a  bondholder  to  a  reorgani- 

hard,  109  U.  S.  527,  534,  3  Sup.  Ct  zation  scheme  is  not  implied  from 

363;    Gilfillan   v.   Union    Canal   Co.  his  silence.   Philadelphia,  &c.  R.  Co. 

109  U.   S.  401,  403,  3  Sup.  Ct.  304.  v.  Love,  125  Pa.  St.  488,  17  Atl.  455. 

Minority  stockholders  have  a  right  138Follit     v.     Eddystone     Granite 

to    complain    where    the    majority  Quarries,   L.    R.    (1892)    3   Ch.   75; 

stockholders   attempt  to  reorganize  Sneath  v.  Valley  Gold,  L.  R.  (1893) 

and  sell  to  a  new  corporation  with-  1  Ch.  477. 

out  their  consent.   See  Price  v.  Hoi-  138  Taylor  Priv.  Corp.  §  816;  Sage 

comb,    89    la.    123,    56   N.   W.    407;  v.    Central    R.    Co.    99    U.    S.    334; 

Smith  v.  Smith,  125  Mich.   234,  84  Shaw  v.  Railroad  Co.  100  U.  S.  605. 

N.  W.  144.  "°See    Pollitz    v.    Farmers'    Loan 

13THollister  v.  Stewart,  111  N.  Y.  &c.    Co.    53    Fed.    210;    Symmes   v. 

644,  19  N.  B.  782;  Taylor  v.  Atlantic,  Union  Trust  Co.  60  Fed.  830;  Shaw 

&c.   R.   55   How.   Pr.    (N.   Y.)    275;  v.  Railroad  Co.  100  U.  S.  605;  Gates 

Poland  v.  Lamoille  Valley  R.  Co.  52  v.  Boston,  &c.  R.  Co.  53  Conn.  333, 

Vt.    144;    Bill   v.   New   Albany,   &c.  5  Atl.  695;  Canada  Southern  R.  Co. 

R.   2  Biss.    (U.   S.)    390.    See,  also,  v.   Gebhard,   109  U.   S.   527,   3   Sup. 

Mason  v.  Pewabic  Min.  Co.  25  Fed.  Ct.    363;    Cowell    v.    City,    &c.    Co. 

882,  133  U.  S.  50,  10  Sup.  Ct.  224.  (Iowa)  105  N.  W.  1016;  Mills  v.  Pot- 

And  it  has  been  held  that  the  con-  ter,  189  Mass.  238,  75  N.  E.  627. 


755  LACHES  AND  ESTOPPEL.  [§   534 

to  preserve  intact  a  system  of  railways,  to  obtain  funds  required  in 
the  reorganization,  or  to  prevent  the  appointment  of  a  receiver  and 
the  issuance  of  receiver's  certificates,  or  the  allowance  of  other  pre- 
ferred claims  growing  out  of  the  operation  of  the  road,  which  would 
lessen  the  value  of  the  property  or  imperil  the  security  of  the  bond- 
holders, and  it  is,  therefore,  better  for  them  to  "give  up  something 
of  their  own  security"  in  order  to  avoid,  the  delay  and  danger  of  loss. 
Under  such  schemes  of  reorganization  the  old  stockholders  are  usually 
allowed  to  become  shareholders  in  the  new  corporation  upon  the 
payment  of  a  certain  sum  for  each  share  of  stock  held  by  them,  or 
upon  some  other  equitable  basis,  and  the  bondholders  are  generally 
permitted  to  exchange  the  old  bonds  for  new  ones  issued  by  the  new 
company.  Of  course,  in  the  absence  of  any  statutory  provision  upon 
the  subject,  no  one  who  has  not  signed  the  agreement  can  be  com- 
pelled to  come  into  the  new  company,  and  where  all  the  interested 
parties  have  agreed  to  the  plan  of  reorganization  their  rights  are 
measured  by  the  agreement.141  Such  schemes  of  reorganization,  when 
fair  and  properly  guarded,  are  legal  and  are  encouraged  by  the  courts 
in  order  to  prevent  loss  and  insure  the  operation  of  the  road  for  the 
benefit  of  the  public.142 

§  534.    Bights  and  obligations  of  the  parties — Laches  and  estoppel. 

— In  the  absence  of  a  statute  or  provision  in  the  mortgage  giving  the 
majority  power  to  bind  the  minority,  it  has  been  held  that  bondholders 
who  refuse  to  participate  in  the  reorganization  are  not  bound  to  do 
so,  but  may  usually  insist  on  being  paid  in  cash.143  They  are  entitled 
to  their  proportion  of  the  money  realized  from  the  sale,  but  nothing 
more,  unless  they  come  in  within  the  time  limited  by  the  agreement.144 

141  See,    generally,    2    Cook    Stock  The  stockholders  may  also  combine 
and   Stockholders    (3d  ed.),   §   886;  with  them.    Pennsylvania  Transpor- 
Wait    Insolv.    Corp.    §    451;    Jones  tation  Co.'s  Appeal,  101  Pa.  St.  576. 
Railroad  Securities,  §  614.  "3  Brooks  v.   Vermont,  &c.   R.   22 

142  Robinson    v.    Philadelphia,    &c.  Fed.    211.     See,    also,    Philadelphia, 
R.  Co.  28  Fed.  340;  Riker  v.  Alsop,  &c.  R.  Co.  v.  Love,  125  Pa.  St.  488, 
27  Fed.  251;  Gates  v.  Boston,  &c.  R.  17    Atl.    455.     Compare    Pollitz    v. 
Co.  53  Conn.  333,  5  Atl.  695;  Mackin-  '  Farmers'  Loan,  &c.  Co.  53  Fed.  210, 
tosh  v.  Flint,   &c.  R.   34  Fed.   582;  213. 

Shaw  v.  Railroad  Co.  100  U.  S.  605;  "4  Zuccani  v.  Nacupai,  &c.  Co.  61 

Kropholler    v.    St.    Paul,    &c.    R.    1  L.  T.  R.  176;   Vose  v.  Cowdrey,  49 

McCrary    (U.    S.)    299.     The   bond-  N.    Y.   336;    Vatable   v.   New   York, 

holders  may  combine  to  purchase  at  &c.  R.  Co.  96  N.  Y.  49;    Landis  v. 

the  sale.   Terbell  v.  Lee,  40  Fed.  40.  Western   Pass.   R.   Co.   133   Pa.   St. 


§  534] 


SALE  AXD  REORGANIZATION. 


756 


Even  in  the  absence  of  any  specific  limitation  they  should  act  within 
a  reasonable  time  and  may,  by  their  own  laches,  lose  their  rights  to 
come  in,145  or  to  set  aside  the  sale.146  So,  of  course,  one  who  takes 
part  in  the  reorganization  may  thereby  estop  himself  from  thereafter 
repudiating  it.147  The  provisions  of  the  reorganization  agreement 
must  be  duly  complied  with148  and  a  change  in  the  plan  cannot  be 
made  by  the  reorganization  committee,  unless  the  authority  is  clearly 
given.149  But  where  the  reorganization  agreement  makes  the  reorgani- 
zation committee  the  agents  of  the  signers,  notice  to  the  committee  is 
notice  to  all  the  signers.150  One  who  has  signed  and  complied  with 
the  reorganization  agreement  and  is  wrongfully  excluded  may  recover 
damages,151  or,  in  other  cases,  equity  will  protect  him  and  may 
even  enforce  the  agreement.152 


579,  19  Atl.  556;  Appeal  of  Huston, 
127  Pa.  St.  620,  18  Atl.  419;  Bound 
v.  South  Carolina  R.  Co.  78  Fed. 
49.  But  minority  bondholders  have 
been  permitted  by  the  court  to  come 
in  and  participate  in  the  purchase 
where  they  made  their  application 
before  the  sale.  Duncan  v.  Mobile, 
&c.  R.  3  Woods  (U.  S.)  597.  See, 
also,  Walker  v.  Montclair,  &c.  R.  Co. 
30  N.  J.  Eq.  525. 

"'Zebley  v.  Farmers',  &c.  Co.  63 
Hun  (N.  Y.)  541,  18  N.  Y.  S.  526; 
Carpenter  v.  Catlin,  44  Barb.  (N. 
Y.)  75;  Dow  v.  Iowa  Central  R. 
Co.  70  Hun  (N.  Y.)  186,  24  N.  Y.  S. 
292;  Holland  v.  Cheshire  R.  151 
Mass.  231,  24  N.  E.  206;  Landis  v. 
Western  Penna.  R.  Co.  133  Pa.  St. 
579,  19  Atl.  556. 

146Wetmore  v.  St.  Paul,  &c.  R.  1 
McCrary  (U.  S.)  466;  Carey  v.  Hous- 
ton, &c.  R.  Co.  52  Fed.  671;  Farm- 
ers', &c.  Co.  v.  Bankers',  &c.  Co.  119 
N.  Y.  15,  23  N.  E.  173.  See,  also, 
Mills  v.  Potter,  189  Mass.  238,  75 
N.  E.  627;  Cole  v.  Birmingham,  &c. 
R.  Co.  (Ala.)  39  So.  403. 

147  Symmes  v.  Union  Trust  Co.  60 
Fed.  830;  Matthews  v.  Murchison,  15 
Fed.  691;  Crawshay  v.  Soutter,  6 
Wall.  (U.  S.)  739.  See,  also,  St. 


Louis,  &c.  Co.  v.  Sandoval,  &c.  Co. 
116  111.  770,  5  N.  E.  370;  United 
States  v.  Union  Pac.  R.  Co.  98  U. 
S.  569;  Hollins  v.  St.  Paul,  &c.  R. 
Co.  29  N.  Y.  St.  208,  9  N.  Y.  S.  909; 
Butterfield  v.  Cowing,  112  N.  Y.  486, 
20  N.  E.  369. 

148  In  order  to  hold  a  dissatisfied 
subscriber.    Miller  v.   Rutland,   &c. 
R.  Co.  40  Vt.  399,  94  Am.  Dec.  413; 
Martin    v.    Somerville,    &c.    Co.    27 
How.  Pr.  (N.  Y.)  161;  United  Water 
Works  Co.  v.  Omaha,  &c.  Co.  164  N. 
Y.   41,  58  N.  E.   58;    United  Water 
Works  Co.  v.   Stone,  127  Fed.  587. 
And  by  those  who  desire  to  come 
into  the  new  company,  in  order  to 
entitle  them  to  do  so.    Thornton  v. 
Wabash,  &c.  R.   Co.   81  N.   Y.   462; 
Van  Alstyne  v.  Houston,  &c.  R.  Co. 
56  Tex.  377;  Appeal  of  Fidelity,  &c. 
Co.  106  Pa.  St.  144;  Fuller  v.  Vena- 
ble,  118  Fed.  543. 

149  Dutenhofer    v.    Adirondack    R. 
Co.  14  N.  Y.  S.  558. 

150  Cox  v.  Stokes,  78  Hun  (N.  Y.) 
331,  29  N.  Y.  S.  141. 

151  Reading,  &c.  Co.  v.  Reading,  &c. 
Works,  137  Pa.  St.  282,  21  Atl.  169; 
Harris  v.  Davis,  44  Fed.  172. 

155  May     compel     an     accounting. 
Riker  v.  Alsop,  27  Fed.  251;   Gush- 


757 


FEAUD   IN    THE    SALE    OR   REORGANIZATION. 


[§    535 


§  535.  Fraud  in  the  sale  or  reorganization. — A  secret  agreement, 
whereby  one  of  the  parties  seeks  to  obtain  an  undue  advantage,  will 
not  be  tolerated  by  the  courts,153  and  a  sale  may  be  set  aside  where 
the  mortgage  trustee  enters  into  a  combination  with  part  of  the 
bondholders  to  purchase  at  the  sale  for  a  small  price  and  reorganize 
in  such  a  manner  as  to  sacrifice  the  interests  of  the  other  bond- 
holders.154 But,  as  we  have  already  seen,  any  number  of  stockholders 
or  creditors  may  purchase  for  themselves  so  long  as"  they  do  so  in 
good  faith  without  preventing  competition  or  taking  any  undue  ad- 
vantage of  the  others.155  It  has  been  held  that  a  purchase  by  a 
director,156  or  a  trustee157  at  his  own  sale  is  constructively  or  prima 
facie  fraudulent  and  voidable,  but  mortgage  trustees  are  sometimes 
authorized  by  the  courts  to  make  a  certain  bid  or  purchase  at  the  sale 
for  the  benefit  of  all  the  bondholders,158  and  in  some  cases  purchases 
by  directors  in  good  faith  have  been  upheld.159  But  the  company,  or 
mortgagor,  may  usually  avoid  the  sale  to  a  trustee  by  redeeming,160 


man  v.  Bonfield,  139  111.  219,  28  N. 
E.  937.  May  enforce  agreement  of 
purchaser  to  allow  others  to  partici- 
pate. Cornell  v.  Utica,  &c.  R.  Co. 
61  How.  Pr.  (N.  Y.)  184;  Marie  v. 
Garrison,  83  N.  Y.  14. 

153  White,  ex  parte,  2  S.  Car.  469; 
Bliss  v.  Matteson,  45  N.  Y.  22. 

154  Sahlgard    v.    Kennedy,    1    Mc- 
Crary   (U.  S.)   291.    See,  also,  Lake 
St.   El.   R.   Co.   v.   Ziegler,   99   Fed. 
114. 

155  Ante,  §  529.    See,  also,  Carter  v. 
Ford  Plate  Glass  Co.   85   Ind.  180; 
Hayden  v.  Official,  &c.  Co.  42  Fed. 
875;  Osborne  v.  Monks  (Ky.),  21  S. 
W.  101;  Ketchum  v.  Duncan,  96  U. 
S.  659;  Kitchen  v.  St.  Louis,  &c.  R. 
Co.  69  Mo.  224;  Wetmore  v.  St.  Paul 
&c.  R.  Co.  3  Fed.  177. 

156  2  Cook  Stock  and  Stockholders, 
§§  653,  886;  Cumberland,  &c.  Co.  v. 
Sherman,    30    Barb.     (N.    Y.)    553; 
Joqes  v.  Arkansas,  &c.  Co.  38  Ark. 
17;  Wilkinson  v.  Bauerle,  41  N.  J. 
Eq.   635,  7  Atl.  514;   European,  &c. 
R.   Co.   v.   Poor,   59   Me.   277;    Iron, 
&c.  Co.,  Re,  19  Ont.  R.  113,  33  Am. 


&  Eng.  Corp.  Gas.  277.  The  com- 
pany's attorney  may  purchase  for 
the  bondholders.  Pacific  R.  v. 
Ketchum,  101  U.  S.  289. 

15T  Washington,  &c.  R.  v.  Alexan- 
dria, &c.  R.  19  Gratt.  (Va.)  592,  100 
Am.  Dec.  710.  But  he  may  purchase 
at  a  sale  brought  about  by  other 
parties.  Allan  v.  Gillette,  127  U.  S. 
589,  8  Sup.  Ct.  1331. 

158  2  Cook  Stock  and  Stockholders, 
§  885;  Sage  v.  Central  R.  99  U.  S. 
334;  Rogers  v.  Wheeler,  43  N.  Y. 
598. 

159Saltmarsh  v.  Spaulding,  147 
Mass.  224,  17  N.  E.  316;  Harpending 
v.  Munson,  91  N.  Y.  650;  Twin  Lick 
Oil  Co.  v.  Marbury,  91  U.  S.  587; 
Hill  v.  Nisbet,  100  Ind.  341;  Hallam 
v.  Indianola  Hotel  Co.  56  Iowa  178, 
9  N.  W.  111.  See,  also,  for  acts  of 
officers  in  effecting  reorganization 
held  not  to  be  fraudulent.  Symmes 
v.  Union  Trust  Co.  60  Fed.  830. 

160  Kitchen  v.  St.  Louis,  &c.  R.  69 
Mo.  224;  Racine,  &c.  R.  v.  Farmers', 
&c.  Co.  49  111.  331,  95  Am.  Dec.  595; 
Wasatch,  &c.  Co.  v.  Jennings,  5 


§'  535]  SALE  AND  REORGANIZATION.  758 

and  a  director  who  fraudulently  purchases  may  be  compelled  to  trans- 
fer the  property  or  account  as  a  trustee.161  It  has  heen  held  that  prop- 
erty fraudulently  transferred  to  a  new  company  formed  by  the  mem- 
bers of  an  old  company,  with  the  intention  of  cheating,  hindering 
and  delaying  the  creditors  of  the  old  corporation,  may  be  reached  by 
them  on  execution.162  So,  where  a  company  was  apparently  properly 
incorporated  and  executed  notes  as  a  corporation,  it  was  held  that  it 
could  not  escape  liability  upon  the  notes  by  attempting  to  dissolve  on 
the  ground  that  the  incorporation  was  invalid  and  by  reorganizing 
and  reincorporating.163  As  a  general  rule,  it  may,  perhaps,  be  said 
that  any  sale  or  device  by  which  all  the  assets  of  an  insolvent  corpora- 
tion are  to  be  parceled  out  among  the  stockholders,  leaving  creditors 
unpaid,  is  a  fraud  upon  such  creditors,  and,  in  a  proper  case,  they 
may  follow  the  assets  or  the  purchase-money  in  the  hands  of  the 
stockholders.  Thus,  it  has  been  held  that  a  foreclosure  sale  made  after 
the  company  had  become  insolvent,  and  expedited  by  an  arrangement 
between  the  bondholders  and  the  stockholders  whereby  the  former 
received  part  of  their  debt  and  the  latter  the  balance  of  the  proceeds, 
is  fraudulent  as  to  the  unsecured  creditors,  who  may  be  allowed  to 
intervene  and  obtain  satisfaction  of  their  debts  out  of  the  proceeds  of 
the  sale  set  apart  for  the  stockholders.164  In  another  case165  an  in- 
solvent railroad  company  sold  all  its  property  to  another  company  for 
bonds  of  the  latter  guarantied  by  a  banking  company,  and  the  contract 
of  sale  provided  that,  in  consideration  for  the  guaranty,  the  banking 
company  should  become  the  owner  of  the  stock  and  income  bonds  of 
the  selling  company,  while  the  bonds  of  the  buying  company,  instead 

Utah    243,    15    Pac.    65;     Hoyle    v.  Am.  Dec.  372.   See,  also,  Blair  v.  St. 

Pittsburgh,    &c.    R.    Co.    54    N.    Y.  Louis,   &c.    R.    Co.    22    Fed.    36.    A 

314,    13    Am.    Dec.    595.     See,    also,  transfer   of   all   the   property  of   a 

James  v.  Cowing,  82  N.  Y.  449.  railroad  company  to  a  new  company 

161  Harts   v.    Brown,    77    111.    226;  formed  by  the  members  of  the  old 
Hope  v.  Valley  City  Salt  Co.  25  W.  with  the  same  officers  and  a  mere 
Va.  789;   Allen  v.  Jackson,  122  111.  exchange  of  stock  was  held  fraudu- 
567,  13  N.  E.  840;  Jackson  v.  Ludel-  lent    as    against    creditors    in    San 
ing,  21  Wall.   (U.  S.)    616;  .Coving-  Francisco,  &c.  R.  Co.  v.  Bee,  48  Cal. 
ton,  &c.  R.   Co.  v.   Bowler's  Ex.,   9  398. 

Bush      (Ky.)      468;      Bradbury     v.  16S  Empire  Mfg.  Co.  v.  Stuart,   46 

Barnes,  IS  Cal.  120;   Tobin,  &c.  Co.  Mich.  482,  9  N.  W.  527. 

v.  Fraser,  81  Tex.  407,  17  S.  W.  25;  1M  Railroad  Co.  v.  Howard,  7  Wall. 

Raleigh  v.  Fitzpatrick,  43  N.  J.  Eq.  (U.  S.)   392. 

501,  11  Atl.  1.  165  Chattanooga,  Rome,  &c.  R.  Co. 

162  Booth  v.  Bunce,  33  N.  Y.  139,  88  v.  Evans,  66  Fed.  809. 


759  REORGANIZATION  BY  THE  COURTS.          [§  536 

of  being  held  as  assets  by  the  officers  of  the  selling  company,  were  to 
be  distributed  among  its  shareholders  and  the  owners  of  its  income 
bonds.  The  court  held  that,  as  against  unsecured  creditors  of  the 
vendor  company,  its  income  bonds  in  the  hands  of  the  banking  com- 
pany should  be  treated  as  paid  and  canceled,  saying  that  the  device 
was  "doubly  fraudulent."  It  may  be  stated,  as  a  general  rule,  under 
these  decisions,  that  a  sale  of  all  the  property  of  an  insolvent  railroad 
company,  under  an  arrangement  whereby  the  stockholders  of  the  sell- 
ing company  or  such  stockholders  and  the  owners  of  its  income  bonds 
receive  the  entire  purchase-price  or  proceeds  of  the  sale,  is  fraudulent 
as  against  unsecured  creditors  known  to  exist  by  both  parties  at  the 
time  of  the  sale,  and  that,  even  in  the  absence  of  express  notice  of 
their  existence  upon  the  part  of  the  purchaser,  the  purchasing  com- 
pany, knowing  that  the  purchase-price  will  be  placed  beyond  their 
reach,  is  bound  to  inquire  as  to  whether  there  are  any  unsecured  cred- 
itors and  is  chargeable  with  the  knowledge  which  an  inquiry  would 
disclose.166 

§  536.  Reorganization  by  the  courts. — It  is,  perhaps,  not  strictly 
correct  to  say  that  the  courts  will  reorganize  a  corporation,  but  in 
many  cases  they  have  done  what  they  could  to  further  the  reorganiza- 
tion of  railroad  companies  in  the  interests  of  the  public  and  of  all  par- 
ties concerned.167  Thus,  in  a  recent  case,168  the  court  approved  a  mas- 
ter's report  wherein  he  laid  down  the  rule  that  "a  court  of  equity  in 
foreclosure  proceedings  upon  railroad  mortgages,  in  view  of  the  num- 
ber and  variety  of  persons  and  interests  to  be  affected,  and  their  prob- 
able sacrifice  without  combination  for  their  protection,  will  facilitate 
combinations  and  schemes  of  reorganization  to  the  end  that  a  small 

160  See,  also,  Vance  v.  McNabb,  &c.  ordinarily  formulate  reorganization 

Coke  Co.  92  Tenn.  47,  20  S.  W.  424;  plans.     Paton  v.   Northern   Pac.  R. 

Central  of  Georgia  R.  Co.  v.  Paul,  93  Co.  85  Fed.  838;  Lake  St.  El.  R.-Co. 

Fed.    878;    Louisville    Trust   Co.   v.  v.  Ziegler,  99  Fed.  114;  Wabash,  &c. 

Louisville,  &c.  R.  Co.  174  U.  S.  674,  R.  Co.  v.  Central  Trust  Co.  22  Fed. 

19   Sup.    Ct.    827;    Montgomery,   &c.  138.     But  they  often  do  what  they 

R.  Co.  v.  Branch,  59  Ala.  139;  Ber-  can  to  encourage  them.     See  Shaw 

thold   v.   Holladay,   &c.    Co.   91   Mo.  f.  Little  Rock,  &c.  R.  Co.  100  U.  S. 

App.    233;    McVicker    v.    American,  605;    Robinson  v.  Philadelphia,  &c. 

&c.  Co.  40  Fed.  861;   San  Francisco,  R.  Co.  28  Fed.  340;  Reed  v.  Schmidt, 

&c.  R.  Co.  v.  Bee,  48  Cal.  398;  Ewing  115  Ky.  67,  72  S.  W.  367,  61  L.  R.  A. 

v.  Composite,  &c.  Co.  169  Mass.  72,  270. 
47  N.  E.  241.  ies  Platt  v.  Philadelphia,  &c.  R.  Co. 

167  See  ante,  §  533.    Courts  do  not  65  Fed.  872. 


536] 


SALE  AND   REORGANIZATION. 


760 


minority  of  interests  shall  not  enforce  unreasonable  and  inequitable 
concessions  from  the  majority,  or  the  majority  crush  out  or  subject  to 
disadvantage  the  rights  of  the  minority."169  The  court  also  granted 
permission  to  the  receiver  to  pay  to  a  syndicate  which  had  proposed  to 
effect  a  reorganization  by  the  advancement  of  funds  for  the  purchase 
of  overdue  coupons,  a  commission  of  two  and  one-half  per  cent  on 
the  money  advanced  in  case  the  reorganization  was  perfected,  stating 
that  it  would  "regard  with  satisfaction  any  and  every  legitimate 
effort  to  terminate  the  receivership."  It  took  care  to  observe,  however, 
that  receivers  "should  not  enlist,  on  either  side,  in  conflicts  among 
those  interested  in  the  property,"  and  that  it  would  not  pass  upon  the 
merits  of  rival  schemes  of  reorganization  nor  coerce  the  judgment  or 
control  the  action  of  the  parties  interested.  So,  in  another  case,170 
the  court  confirmed  a  plan  of  reorganization,  over  the  objection  of  the 
minority,  who  were  compelled  to  surrender  their  old  bonds  and  ac- 
cept new  ones  upon  being  duly  secured.  And  in  many  cases  the 
courts  have  approved  a  fair  reorganization  by  the  majority  where  all 
interests  were  properly  protected.171 


189  Citing  Sage  v.  Central  R.  Co.  99 
U.  S.  334;  Carey  v.  Houston,  &c.  R. 
Co.  45  Fed.  438;  Robinson  v.  Phila- 
delphia, &c.  R.  Co.  28  Fed.  340; 
Cook  Stock  and  Stockholders  (3d 
ed.),  §  886.  See,  also,  Clark  v.  Cen- 
tral R.  &c.  Co.  66  Fed.  16.  But 
compare  Chable  v.  Nicaragua,  &c. 
Co.  59  Fed.  846. 


170Pollitz  v.  Farmers',  &c.  Co.  53 
Fed.  210. 

171  See  cases  cited  in  last  two  pre- 
ceding notes;  also  Shaw  v.  Little 
Rock,  &c.  R.  Co.  100  U.  S.  605;  Fidel- 
ity Ins.  &c.  Co.  v.  Roanoke  St.  R. 
Co.  98  Fed.  475. 


CHAPTEE  XXII. 


RECEIVERS. 


Sec.  Sec. 

637.    Receivers  generally.  555. 

538.  Jurisdiction  of  courts  of  equi- 

ty— Statutory  provisions.          556. 

539.  Jurisdiction  is  sparingly  exer- 

cised —  Purpose  of  appoint-    557. 
ment. 

540.  General  rules  as  to  when  re-    558. 

ceivers  of  railroads  will  be 
appointed. 

541.  Receivers  will  not  be  appoint-    559. 

ed    merely   because    parties 
consent.  560. 

542.  Extent   to   which   jurisdiction 

has  been  exercised.  561. 

543.  Insolvency  as  ground  for  ap- 

pointment of  receiver.  562. 

544.  When   insolvency  is  sufficient    563. 

without  default.  564. 

545.  Default  in  payment  of  indebt- 

edness   as    ground    for    ap-    565. 
pointment. 

546.  Appointment     in     foreclosure    566. 

proceedings. 

547.  Other    grounds    for    appoint- 

ment. 567. 

548.  Appointment  upon  application     568. 

of  unsecured  creditors. 

549.  Appointment  upon  application     569. 

of  secured  creditors. 

550.  Appointment  upon  application 

of  stockholders.  570. 

551.  Appointment  upon  application 

of  corporation.  '  571. 

552.  What  court  may  appoint. 

553.  Court  first  obtaining  jurisdic-    572. 

tion   retains  it — Conflict   of 
jurisdiction.  573. 

554.  Extraterritorial  "jurisdiction. 

761 


Ancillary  appointment  —  Com- 
ity. 

Procedure — Ex  parte  applica- 
tion. 

Parties  to  proceedings  for  ap- 
pointment of  receiver. 

Appointment  upon  motion  or 
petition  and  notice — Affida- 
vits. 

Who  may  appoint  —  Appoint- 
ment in  vacation. 

Suit  must  generally  be  pend- 
ing. 

Who  may  be  appointed  re- 
ceiver. 

Order  appointing  receiver. 

Effect  of  appointment. 

Collateral  attack  on  appoint- 
ment. 

Title  and  possession  of  re- 
ceiver. 

Authority,  rights  and  duties 
of  receiver  —  Control  by 
court. 

Contracts  of  receiver. 

Suits  by  receivers — Authority 
to  sue. 

When  receiver  may  maintain 
suit — Defenses  to  receiver's 
suit. 

Right  of  receiver  to  sue  in 
other  jurisdictions — Comity. 

Suits  against  receivers — Leave 
to  sue  must  be  obtained. 

Effect  of  failure  to  obtain 
leave  to  sue. 

Effect  of  recent  Act  of  Con- 
gress. 


§  537] 


EECEIVEES. 


762 


Sec.  Sec. 

574.  Rule  where  suit  has  been  com-  579. 

menced  before  appointment  580. 
of  receiver. 

575.  Protection  of  receiver  by  the  581. 

court.  582. 

576.  Liability  of  receivers — Gener-  583. 

ally.  584. 

577.  Liability  for  torts.  585. 

578.  Receiver  is  bound  to  perform  586. 

public  duties — Mandamus.  587. 


Liability  on  contracts. 
Liability    on    claims    arising 

from  operation  of  the  road. 
Liability  of  corporation. 
Receivers  of  leased  lines. 
Receiver's  accounts. 
Compensation  of  receiver. 
Attorney's  fees. 
Removal  and  discharge. 
Effect  of  removal  or  discharge. 


§  537.  Receivers  generally. — A  receiver  is  a  person1  appointed 
by  the  court  to  take  charge  of  property  pending  litigation,  or  in  pur- 
suance thereof.2  The  appointment  of  a  receiver  is  an  auxiliary  equita- 
ble remedy,  devised,  on  account  of  the  inadequacy  of  any  remedy  at 
law,  to  prevent  loss  or  injury  to  property  in  litigation  and  preserve  it, 
pendente  lite,  for  the  sake  of  all  interested,  to  be  finally  disposed  of 
as  the  court  may  decree.3  In  the  case  of  a  receiver  of  a  railroad  his 
duties  usually  involve  the  operation  of  the  road  for  a  time,  and  often 
until  the  receivership  is  terminated,  under  the  control  of  the  court.4 
A  receiver  stands  indifferent  between  the  parties,  and  occupies  a 
fiduciary  relation  to  all  the  creditors.5  He  is,  in  a  sense,  an  officer 
of  the  court,  and  the  court  will  protect  the  property  in  his  hands.6 


1  In  many  of  the  states  provision 
is  made  for  the  appointment  of  cor- 
porations   commonly    called    "trust 
companies." 

2  High  Receivers,   §  1;    Devendorf 
v.   Dickinson,  21  How.  Pr.    (N.  Y.) 
275;    Merritt  v.   Merritt,   16   Wend. 
(N.  Y.)  405;  Baker  v.  Backus,  32  111. 
79;    Farmers'  Loan,  &c.  Co.  v.  Ore- 
gon Pac.  R.  Co.  31  Oreg.  237,  48  Pac. 
706,  65  Am.   St.   822;    Foster's  Fed. 
Pr.  §  239;  3  Pom.  Eq.  Jur.  §  1330. 

8Stilwell  v.  Williams,  6  Madd.  38; 
Bank  of  Mississippi  v.  Duncan,  52 
Miss.  740;  Folsom  v.  Evans,  5  Minn. 
418;  Myers  v.  Estell,  48  Miss.  372; 
Lyman  v.  Cent.  Vermont  R.  Co.  59 
Vt.  167,  10  Atl.  346.  There  are,  how- 
ever, cases  where  a  receiver  finally 
disposes  of  property;  as,  for  in- 
stance, under  statutes  authorizing  a 


receiver  to  wind  up  the  affairs  of  a 
corporation. 

4  See  Erb  v.   Morasch,   177   U.   S. 
584,  20  Sup.  Ct.  819;   Davis  v.  Gray, 
16  Wall.  (U.  S.)  203;  Meyer  v.  John- 
ston, 53  Ala.  237;   Vermont,  &c.  R. 
Co.  v.  Vermont  Cent.  R.  Co.  46  Vt. 
792;   Dayton,  &c.  Co.  v.  Felsenthal, 
116  Fed.  961;  Continental  Trust  Co. 
v.  Toledo,  &c.  R.  Co.  59  Fed.  514; 
Vanderbilt  v.  Central  R.  Co.  43  N.  J. 
Eq.  669,  12  Atl.  188. 

5  Porter  v.  Williams,  9  N.  Y.  142, 
59  Am.  Dec.  519;  Davis  v.  Gray,  16 
Wall.  (U.  S.)  203,  217;  Vermont,  &c. 
R.  Co.  T.  Vermont  Cent.  R.  Co.  34 
Vt.  1. 

6  3  Pom.  Eq.  Jur.  §  1336;  Davis  v. 
Gray,    16   Wall.    (U.    S.)    203,   218; 
Walling  v.  Miller,  108  N.  Y.  173,  2 
Am.  St.  400. 


763 


EECEIVEES   GENERALLY. 


[§'   537 


In  the  absence  of  a  statute  authorizing  it  he  cannot  be  sued,  ordinarily 
at  least,  without  permission  of  the  court  by  whom  he  was  appointed.7 
So,  as  a  rule,  he  can  only  bring  suit  in  his  own  name  when  authorized 
by  statute  or  by  the  court.8  As  a  general  rule  he  derives  his  title 
from  the  debtor,  and  can  only  maintain  suit  where  the  debtor  could 
have  done  so.9  But  there  are  exceptions  to  this  general  rule,  for  a 
receiver  may  sometimes  bring  suits  which  the  debtor  could  not  main- 
tain. The  paramount  duty  of  a  receiver  is  to  secure  assets  for  the 
payment  of  the  debtor's  liabilities,  and  he  may  for  that  purpose 
bring  and  sustain  suits,  such  as  a  suit  to  set  aside  a  fraudulent  con- 
veyance made  by  the  debtor,  that  the  latter  could  not  successfully 
prosecute.10 


7  Barton  v.  Barbour,  104  U.  S.  126; 
Keen  v.  Breckenridge,  96  Ind.  69; 
Wayne  Pike  Co.  v.  State,  Whittaker, 
134  Ind.  672,  34  N.  E.  440;  De 
Graffenried  v.  Brunswick,  &c.  Co.  57 
Ga.  22;  Davis  v.  Ladoga  Creamery 
Co.  128  Ind.  222.  27  N.  E.  494;  Chris- 
tian Jensen  Co.,  Matter  of,  128  N. 
Y.  550,  28  N.  E.  665.  See,  how- 
ever, Foster's  Fed.  Pr.  §  251,  for 
recent  act  of  congress  authorizing 
suit  in  some  cases,  and  Kinney  v. 
Crocker,  18  Wis.  74;  Allen  v.  Cen- 
tral R.  Co.  42  Iowa  683;  Lyman  v. 
Central,  &c.  R.  Co.  59  Vt.  167;  Ma- 
lott  v.  Shimer,  153  Ind.  35,  54  N.  E. 
101,  74  Am.  St.  278;  Fullerton  v. 
Fordyce,  121  Mo.  1,  25  S.  W.  587,  45 
Am.  St.  505. 

8Garver  v.  Kent,  70  Ind.  428; 
Green  v.  Winter,  1  Johns.  Ch.  (N. 
Y.)  60;  Wilson  v.  Welch,  157  Mass. 
77,  31  N.  E.  712.  See,  also,  Pendle- 
ton  v.  Russell,  144  U.  S.  640,  12  Sup. 
Ct.  743.  As  to  when  the  rule  does 
not  apply,  see  Pouder  v.  Catterson, 
127  Ind.  434,  26  N.  E.  66. 

"Jacobson  v.  Allen,  12  Fed.  454, 
457;  LaFollett  v.  Akin,  36  Ind.  1; 
Republic,  &c.  Co.  v.  Swigert,  135 
111.  150,  25  N.  E.  680,  12  L.  R.  A. 
328;  Burch  v.  West,  33  111.  App.  359. 

10  Graham    Button    Co.    v.    Spiel- 


mann,  50  N.  J.  Eq.  120,  24  Atl.  571; 
Cole  v.  Satsop  R.  Co.  9  Wash.  487, 
37  Pac.  700,  43  Am.  St.  858,  10  Lew- 
is Am.  R.  &  Corp.  R,  604;  Voor- 
hees  v.  Indianapolis,  &c.  Co.  140 
Ind.  220,  39  N.  E.  738;  National,  &c. 
Bank  v.  Vigo  Co.  Nat'l  Bank,  141 
Ind.  352,  40  N.  E.  799;  Taylor  Priv. 
Corp.  §§  274,  814;  2  Beach  Eq.  905; 
Elliott  Gen.  Pr.  §  393.  The  receiver 
of  a  corporation  may  avoid  a  chattel 
mortgage  on  its  property  on  the 
ground  that  it  was  not  filed  accord- 
ing to  law.  Farmers'  Loan,  &c.  Co. 
v.  Minneapolis,  &c.  Works,  35  Minn. 
543,  29  N.  W.  349.  A  receiver  of  a 
corporation  may  properly  bring  an 
action  to  set  aside  and  vacate  a 
judgment  against  the  corporation 
on  the  ground  that  it  was  obtained 
in  fraud  of  creditors,  without  con- 
sideration, and  by  collusion  with  the 
officers  of  the  corporation.  Whittle- 
sey  v.  Delaney,  73  N.  Y.  571.  A  re- 
ceiver of  a  corporation  may  repudi- 
ate the  illegal  transfer  of  its  securi- 
ties by  its  officers  and  secure  them 
as  assets.  Talmage  v.  Pell,  7  N.  Y. 
328.  A  receiver  of  an  insolvent  cor- 
poration appointed  at  the  instance 
of  creditors  is  clothed  with  all  their 
rights  and  can  sue  to  recover  un- 
paid stock  subscriptions  in  cases 


538] 


RECEIVERS. 


764 


§  538.    Jurisdiction  of  courts  of  equity — Statutory  provisions. — The 

power  to  appoint  a  receiver  is,  we  think,  inherent  in  courts  of  equity, 
and  in  those  code  states  in  which  the  court  of  equity  has  lost  its  sepa- 
rate identity  the  power  has  descended  to  the  courts  having  equitable 
jurisdiction.11  It  may  be  exercised  in  aid  of  their  jurisdiction,  as  a 
general  rule,  whenever  necessary  in  order  to  accomplish  complete  jus- 
tice, but  not,  ordinarily,  where  the  law  affords  any  other  safe  or 
expedient  remedy.12  The  appointment  of  receivers  for  railroad  cor- 
poratiojis  is  regulated  largely  by  statute  in  many  of  the  states,13  and 


where  the  corporation  cannot  sue. 
Cole  v.  Satsop  R.  Co.  9  Wash.  487, 
37  Pac.  700,  43  Am.  St.  858. 

11  Bitting  v.  Ten  Eyck,  85  Ind.  357; 
McElwaine  v.  Hosey,  135  Ind.  481, 
490,  35  N.  E.  272;  Folsom  v.  Evans, 
5  Minn.  418;  Hopkins  v.  Worcester, 
&c.  Canal  Prop.  L.  R.  6  Eq.  437; 
Williamson  v.  Wilson,  1  Bland 
(Md.)  420;  U.  S.  Trust  Co.  v.  New 
York,  &c.  R.  Co.  101  N.  Y.  478,  5  N. 
E.  316;  Meyer  v.  Johnston,  53  Ala. 
237;  High  Receivers,  §  9;  Beach 
Law  of  Railways,  §  708;  note,  64 
Am.  Dec.  482.  There  is,  however, 
considerable  conflict  as  to  whether 
the  power  to  appoint  receivers  of 
railroad  companies  is  inherent  in 
courts  of  equity.  See  Gardner  v. 
London,  &c.  R.  Co.  L.  R.  2  Ch.  201; 
American,  &c.  Co.  v.  Toledo,  &c.  R. 
Co.  29  Fed.  416,  421;  Vanderbilt  v. 
Central  R.  Co.  43  N.  J.  Eq.  669,  12 
Atl.  188;  Cole  v.  Philadelphia,  &c. 
Ry.  Co.  140  Fed.  944. 

12Sollory  v.  Leaver,  L.  R.  9  Eq. 
22;  Cremen  v.  Hawkes,  2  Jones  & 
La  T.  674;  Corey  v.  Long,  43  How. 
Pr.  492;  Rice  v.  St  Paul,  &c.  R.  Co. 
24  Minn.  464;  High  Receivers,  §  10; 
Elliott  Gen.  Pr.  §  394. 

"A  receiver  may  be  appointed  at 
the  request  of  a  creditor  or  stock- 
holder, upon  the  expiration  of  the 
corporate  charter,  in  most  of  the 
states.  Stimson  Am.  Stat.  (1892), 
§§  8332,  8360.  Or  upon  voluntary 


dissolution.  Stimson  Am.  Stat. 
(1892),  citing  laws  of  Massachu- 
setts, New  Jersey,  Minnesota,  Dela- 
ware, Alabama.  Or  upon  dissolution 
by  decree  of  court  or  otherwise. 
Stimson  Am.  Stat.  (1892),  citing 
laws  of  Massachusetts,  New  York, 
Delaware,  Montana,  Ohio,  West  Vir- 
ginia, North  Carolina,  Texas,  Cali- 
fornia, Oregon,  Washington,  Idaho, 
Wyoming,  Utah;  §  8900,  citing  laWs 
of  New  Jersey.  So  when  the  corpo- 
ration is  insolvent  or  in  imminent 
danger  of  insolvency.  Stimson  Am. 
Stat.  (1892),  §§  8332,  8360,  citing 
laws  of  North  Carolina,  Texas,  Ore- 
gon, Washington,  Idaho,  Montana, 
Wyoming,  Utah;  §  8900,  citing  laws 
of  New  Jersey  and  Kentucky.  A 
receiver  may  be  appointed  upon 
non-user  or  abuser  or  its  corporate 
rights  or  the  doing  of  any  acts  for- 
feiting such  rights.  Stimson  Am. 
Stat.  (1892)  §§  8332,  8360,  citing 
laws  of  North  Carolina,  Oregon, 
Washington,  Idaho,  Montana,  Utah, 
R.  S.  Ind.  1894,  §  1236.  Neglect  for 
sixty  days  to  run  trains  regularly, 
R.  S.  1883,  Me.  Ch.  51,  §  47.  Neg- 
lect for  ten  days  to  run  daily  trains, 
N.  J.  1886,  R.  §  42.  The  Indiana 
statute  authorizes  the  appointment 
of  a  receiver  where,  in  the  discre- 
tion of  the  court  or  the  judge  there- 
of in  vacation,  it  may  be  necessary 
to  secure  ample  justice  to  the  par- 
ties. R.  S.  Ind.  1894,  §  1236.  Under 


765 


JURISDICTION"  OF   COUKTS  OF  EQUITY. 


in  England14  as  well.  And  it  has  been  held  that  specification  by  the 
legislature  of  the  cases  in  which  a  receivership  may  be  had  excludes 
every  other  case  and  prohibits  the  appointment,  except  as  author- 
ized.15 But  it  seems  to  us  that  the  better  rule  is  that  the  right  is 
inherent  in  courts  of  equity,  that  such  statutes  are  but  declaratory  of 
the  common  law  and  must  be  construed  in  the  light  of  equity  juris- 
prudence, and  that  they  do  not  abridge  the  inherent  power  of  the  court 
of  equity.16  The  inherent  authority  of  a  court  of  equity  to  take  charge 


this  statute  it  was  held  that  a  re- 
ceiver of  a  turnpike  company  would 
be  appointed  at  the  suit  of  stock- 
holders, upon  a  showing  that  the 
majority  of  the  directors  have  con- 
verted and  misappropriated  the  cor- 
porate revenues,  tolls  and  earnings 
and  suffered  the  road  to  become 
badly  out  of  repair  and  wholly  im- 
passable for  six  weeks,  although 
there  is  no  prayer  for  a  dissolution 
of  the  corporation.  "Wayne  Pike  Co. 
v.  Hammons,  129  Ind.  368,  27  N.  E. 
487. 

14  30  and  31  Viet  Ch.  127,  §  4.  Sec- 
tion 4  of  this  act,  known  as  the  Rail- 
way Companies  act  of  1867,  pro- 
vides that  no  part  of  the  rolling 
stock  or  plant  used  or  provided  by  a 
company  for  the  purposes  of  the 
traffic  on  their  railway,  or  of  their 
stations  or  workshops,  shall  be  lia- 
ble to  be  taken  on  execution  at  law 
or  in  equity  after  the  road  is  opened 
for  traffic;  but  the  person  who  has 
recovered  a  judgment  against  the 
corporation  which  remains  unpaid 
may  obtain  the  appointment  of  a 
receiver,  and,  if  necessary,  of  a  man- 
ager for  the  business  of  the  com- 
pany, on  application  to  the  court  of 
chancery  in  England  or  Ireland,  ac- 
cording to  the  situation  of  the  rail- 
way owned  by  the  company.  When- 
ever the  judgment  creditor  of  a  rail- 
way company  is  unpaid  the  appoint- 
ment of  a  receiver  or  manager  is  a 
matter  of  right.  Manchester,  &c. 


R.  Co.,  In  re,  L.  R.  14  Ch.  Div.  645. 

"Fellows  v.  Hermans,  13  Abb.  Pr. 
N.  S.  (N.  Y.)  1.  The  code  of 
Georgia  does  not  materially  alter 
the  equitable  jurisdiction  of  the 
courts  to  appoint  receivers.  Skin- 
ner v.  Maxwell,  66  N.  Car.  45.  In 
England  it  has  been  held  that  a 
court  of  chancery,  in  the  absence  of 
statute  authority,  has  no  power  to 
appoint  a  manager  for  a  railroad. 
Gardner  v.  London,  &c.  R.  Co.  L.  R. 
2  Ch.  201.  But  the  weight  of  au- 
thority in  the  United  States  is,  we 
think,  the  other  way,  although  there 
is  some  question  as  to  the  better 
rule. 

18  Beach  Rec.  §  10 ;  20  Am.  &  Eng. 
Encyc.  of  Law  333,  339;  1  Elliott's 
General  Practice,  §  394;  Bitting  v. 
Ten  Eyck,  85  Ind.  357;  note  to  64 
Am.  Dec.  482;  Bispham's  Prin.  Eq. 
(4th  ed.),  §  576;  Skinner  v.  Max- 
well, 66  N.  Car.  45;  McElwaine  v. 
Hosey,  135  Ind.  481,  490,  35  N.  E. 
272;  U.  S.  Trust  Co.  v.  New  York, 
&c.  R.  Co.  101  N.  Y.  478,  5  N.  E. 
316,  25  Am.  &  Eng.  R.  Cas.  601;  Hol- 
lenbeck  v.  Donnell,  94  N.  Y.  342. 
In  Davis  v.  Gray,  16  Wall.  (U.  S.) 
203,  220,  Swayne,  J.,  says:  "As  re- 
gards the  statutes,  we  see  no  reason 
why  a  court  of  equity,  in  the  exer- 
cise of  its  undoubted  authority,  may 
not  accomplish  all  the  best  results 
intended  to  be  secured  by  such  leg- 
islation, without  its  aid." 


§  539] 


RECEIVERS. 


766 


of  and  operate  a  railroad  and  control  the  extensive  business  interests 
therewith  connected  with  a  view  to  its  continuance,  has  been  denied 
in  some  jurisdictions  on  the  grounds  that  a  court  of  chancery  will 
not  assume  the  management  of  a  business  except  with  a  view  to  its 
winding  up  or  to  keep  it  a  going  concern  with  a  view  to  its  sale,  and 
that  the  public  functions  of  the  railroad  corporation  cannot  be  dele- 
gated or  transferred,  but  must  be  discharged  by  the  company  itself.17 
In  such  instances  the  defect  of  power  has  generally  been  supplied 
by  statute,18  and  in  some  states  the  power  of  courts  of  equity  has  thus 
been  greatly  extended  and  enlarged.  Such  statutes,  however,  are  some- 
what strictly  construed.19 

§  539.  Jurisdiction  is  sparingly  exercised — Purpose  of  appoint- 
ment.— The  appointment  of  a  receiver  is  a  power  to  be  somewhat 
sparingly  exercised,  and  in  America  it  is  exercised  reluctantly  with  re- 
gard to  railroads,  the  courts  proceeding  cautiously  with  reference  to 
the  circumstances  of  each  particular  case  and  reserving  a  broad  dis- 
cretion20 on  account  of  the  inability  of  a  court  of  equity  in  all  cases  to 


"Gardner  v.  London,  &c.  R.  Co. 
L.  R.  2  Ch.  201;  Attorney-General 
v.  Utica  Ins.  Co.  2  Johns.  Ch.  (N. 
Y.)  371;  Second  Ward  Bank  v.  Up- 
mann,  12  Wis.  499;  East  Line,  &c. 
Co.  v.  State,  75  Tex.  434,  12  S.  W. 
690.  Compare  Attorney-General  v. 
Utica  Ins.  Co.  2  Johns.  Ch.  (N.  Y.) 
371;  Attorney-General  v.  Bank  of 
Niagara,  Hopk.  Ch.  (N.  Y.)  354; 
Slee  v.  Bloom,  5  Johns.  Ch.  366, 
381;  Howe  v.  Deuel,  43  Barb.  (N. 
Y.)  504;  Belmont  v.  Erie  R.  Co.  52 
Barb.  (N.  Y.)  637;  Baker  v.  Backus, 
32  111.  79;  Neall  v.  Hill,  16  Cal.  145, 
76  Am.  Dec.  508.  In  Decker  v. 
Gardner,  124  N.  Y.  334,  26  N.  E.  814, 
the  court  says:  "The  court  of  chan- 
cery *  *  *  declined  until  the 
power  was  conferred  by  statute  to 
sequestrate  corporate  property 
through  the  medium  of  a  receiver, 
or  to  dissolve  corporate  bodies,  or 
restrain  the  usurpation  of  corporate 
powers." 

18  See  30  and  31  Viet.  Ch.  126,  §  4; 


36  and  37  Victoria,  §§  3,  27;  Acts  N. 
Y.  1825,  Ch.  325,  §  15;  Acts  Tex. 
1887,  p.  120,  §  1,  subd.  3;  Connelly 
v.  Dickson,  76  Ind.  440;  Hellebush 
v.  Blake,  119  Ind.  349,  21  N.  E.  976. 

19  Bangs  v.  Mclntosh,  23  Barb.  (N. 
Y.)  591;   High  Receivers,  §  289;   20 
Am.  &  Eng.  Encyc.  of  Law  271,  and 
note;  Chamberlain  v.  Rochester,  &c. 
Co.  7  Hun  (N.  Y.)  557. 

20  Sage  v.  Memphis,  &c.  R.  Co.  125 
U.  S.  361,  8  Sup.  Ct.  887,  and  cases 
cited;   Stevens  v.  DaVison,  18  Gratt. 
(Va.)  819,  98  Am.  Dec.  692;  Pullan 
v.  Cincinnati,  &c.  R.  Co.  4  Biss.  (U. 
S.)  35;  People  v.  Albany,  &c.  R.  Co. 
7  Abb.  Pr.  N.  S.  (N.  Y.)  265;  Smith 
v.   Port  Dover,  &c.   R.   Co.   12   Ont 
App.  288;  Simpson  v.  Ottawa,  &c.  R. 
Co.    1   Ch.   Chamb.    (Ont.)    126.    In 
Overton  v.  Memphis,  &c.  R.  Co.  10 
Fed.     866,     Judge     Caldwell     said: 
"None  of  the  prerogatives  of  a  court 
of  equity  have  been  pushed  to  such 
extreme  limits  as  this,  and  there  is 
none  so  likely  to  lead  to  abuses.    It 


767 


RULES  FOR  APPOINTMENT  OF  RECEIVERS. 


540 


properly  care  for  the  large  .business  interests  involved.21  Courts  of 
equity,  however,  will  assume  the  management  of  railroads  when  a 
proper  case  presents  itself,  with  a  view  to  the  winding  up  of  insolvent 
companies,  or  the  sale  of  their  property  for  the  benefit  of  creditors, 
and,  if  it  is  shown  to  be  necessary,  will  continue  the  operation  of  the 
roads  by  the  intervention  of  receivers  in  order  that  they  may  be  sold 
without  depreciation  of  the  property,  and  in  order  that  the  public  in- 
terests shall  not  suffer.  They  are  thus  enabled  to  protect  and  enforce 
the  rights  of  creditors  and  stockholders  and  to  insure  the  discharge  of 
the  public  function  of  the  corporation.22  Where  the  appointment 
of  receivers  to  manage  railroads  is  authorized  by  statute,  the  circum- 
stances under  which  the  appointment  may  be  made  and  the  manner 
of  their  appointment  are  often  specifically  set  forth;  but  these  stat- 
utes are  largely  declaratory  of  the  common  law  as  administered  by  the 
courts  of  other  jurisdictions,23  and,  in  the  absence  of  specific  provi- 
sions in  the  statute,  the  jurisdiction  of  a  court  of  equity  may  be  said 
in  general  to  extend  to  all  cases  where  its  interference  is  necessary  to 
protect  the  property  or  to  enforce  the  rights  of  persons  interested  in  it, 
whether  creditors  or  stockholders.24 

§  540.    General  rules  as  to  when  receivers  of  railroads  will  be  ap- 
pointed.— It  is  frequently  said  that  the  appointment  of  a  receiver  is 


is  not  the  province  of  a  court  of 
equity  to  take  possession  of  the 
property,  and  conduct  the  business 
of  corporations  or  individuals,  ex- 
cept where  the  exercise  of  such  ex- 
traordinary jurisdiction  is  indispen- 
sably necessary  to  save  or  protect 
some  clear  right,  of  a  suitor,  which 
would  otherwise  be  lost  or  greatly 
endangered,  and  which  cannot  be 
saved  or  protected  by  any  other  ac- 
tion or  mode  of  proceeding." 

21  Kelly  v.  Alabama,  &c.  R.  Co.  58 
Ala.  489.     See  Gardner  v.  London, 
&c.  R.  Co.  L.  R.  2  Ch.  201. 

22  See  post,   §  542;    Long  Branch, 
&c.  R.  Co.  In  re,  24  N.  J.  Eq.  398; 
Beach   Receivers,  329;    Cook   Stock 
and   Stockholders  and   Corporation 
Law,  §  863. 

23  It  is  held  in  North  Carolina  that 
the    code,    which    specifies    certain 
cases  in  which  a  receiver  may  be 


appointed,  "does  not  materially  al- 
ter the  equitable  jurisdiction"  of 
the  courts  of  that  state.  Skinner  v. 
Maxwell,  66  N.  C.  45.  In  New  Jer- 
sey the  statute  provides  that  a  re- 
ceiver may  be  appointed  for  any 
railroad  which  fails  for  ten  days 
to  run  daily  trains.  N.  J.  Supp.  p. 
834,  pi.  42.  Delaware  Bay,  &c.  R. 
Co.  v.  Markley,  45  N.  J.  Eq.  139,  16 
Atl.  436. 

24  Stevens  v.  Davison,  18  Gratt. 
(Va.)  819,'  98  Am.  Dec.  692;  Meyer 
v.  Johnson,  53  Ala.  237;  Skinner  v. 
Maxwell,  66  N.  Car.  45;  Sandford  v. 
Sinclair,  8  Paige  (N.  Y.)  373;  Conro 
v.  Port  Henry  Iron  Co.  12  Barb. 
(N.  Y.)  27;  Lawrence  v.  Greenwich 
Fire  Ins.  Co.  1  Paige  (N.  Y.)  587; 
Conro  v.  Gray,  4  How.  Pr.  166;  Da- 
vis v.  Gray,  16  Wall.  (U.  S.)  203, 
219. 


§  540] 


EECEIVEKS. 


768 


within  the  sound  discretion  of  the  court.25  This  does  not  mean  that 
the  court  can,  without  error,  arbitrarily  appoint  a  receiver  where  such 
appointment  is  unauthorized  and  wholly  uncalled  for,  or  refuse  the 
appointment  where  the  right  is  clear,  fixed  and  definite,  but  that  a 
sound  discretion  is  to  be  exercised  according  to  well-established  princi- 
ples of  law.26  It  is  only  in  clear  cases  that  the  power  will  be  ex- 
ercised, and  as  a  general  rule  there  must  be  a  suit  pending.27 


^Verplank  v.  Caines,  1  Johns. 
Ch.  (N.  Y.)  57;  Walker,  Ex  parte, 
25  Ala.  81;  Owen  v.  Homan,  4  H.  L. 
Gas.  997,  1032;  Oakley  v.  Paterson 
Bank,  2  N.  J.  Eq.  173;  Simmons 
Hardware  Co.  v.  Waibel,  1  So.  Dak. 
488,  47  N.  W.  814,  11  L.  R.  A. 
267,  36  Am.  St.  755;  Smith  v. 
Port  Dover,  &c.  R.  Co.  12  On- 
tario App.  R.  288,  25  Am.  &  Eng. 
R.  Gas.  639;  Farmers'  Loan,  &c.  Co. 
v.  Chicago  &  A.  R.  Co.  27  Fed.  146; 
Mays  v.  Rose,  Freem.  Ch.  (Miss.) 
703,  718.  See  Elliott's  Gen.  Pr.  394, 
and  cases  cited. 

26  Mercantile  Trust  Co.  v.  Missouri, 
&c.  R.  Co.  36  Fed.  221;  Orphan 
Asylum  v.  McCartee,  1  Hopk.  Ch. 
(N.  Y.)  423  (372);  Milwaukee  R. 
Co.  v.  Soutter,  5  Wall.  (U.  S.)  660; 
Lenox  v.  Notrebe,  Hempst.  (U.  S.) 
225;  Vose  v.  Reed,  1  Woods  (U.  S.) 
647;  Pond  v.  Framingham,  &c.  R. 
Co.  130  Mass.  194;  Daniels'  Ch.  Pr. 
(6th  ed.)  1664.  The  action  of  the 
trial  court  is  subject  to  review  on 
appeal.  Tysen  v.  Wabash  R.  Co. 
8  Biss.  (U.  S.)  247;  Winthrop  Iron 
Co.  v.  Meeker,  109  U.  S.  180,  3  Sup. 
Ct.  Ill;  La  Societe  Francaise 
d'Epargnes,  &c.  v.  District  Court, 
53  Cal.  495;  Smith  v.  Port  Dover, 
&c.  R.  Co.  12  Ont.  App.  288,  25  Am. 
&  Eng.  R.  Gas.  639;  Cook  v.  Detroit, 
&c.  R.  Co.  45  Mich.  453,  8  N.  W.  74. 
Compare  Dawson  v.  Parsons,  137 
N.  Y.  605,  33  N.  E.  482. 

^Pressley  v.  Harrison,  102  Ind. 
14,  1  N.  E.  188;  Pressley  v.  Lamb, 
105  Ind.  171,  4  N.  E.  682;  Crowder 


v.  Moone,  52  Ala.  220;  National 
Bank  v.  Kent  Circuit  Judge,  43 
Mich.  292,  5  N.  W.  627;  Jones  v. 
Bank,  10  Colo.  464,  17  Pac.  272; 
Wiltsie  Mortgage  Foreclosures, 
§  630.  Mr.  Foster,  in  his  Federal 
Practice,  says:  "Independently  of 
statutory  authority,  a  court  of 
equity  will  ordinarily  appoint  a  re- 
ceiver of  the  property  of  a  corpora- 
tion in  only  seven  cases:  Firstly, 
at  the  suit  of  mortgagees  or  other 
holders  of  liens  upon  it;  secondly, 
at  the  suit  of  judgment  creditors 
seeking  equitable  assets;  thirdly,  at 
the  suit  of  persons  interested, 
whether  as  stockholders  or  credit- 
ors, in  the  property,  where  there  is 
a  breach  of  duty  by  the  directors, 
and  an  actual  or  threatened  loss; 
fourthly,  where  a  corporation  has 
been  dissolved  and  has  no  officer 
to  attend  to  its  affairs;  fifthly, 
where  for  a  long  time  the  corpora- 
tion has  ceased  to  transact  business, 
and  its  officers  have  ceased  to  act; 
sixthly,  where  the  governing  body  is 
so  divided  and  engaged  in  such 
mutual  contention  that  its  members 
cannot  act  together;  and,  seventhly, 
in  one  case  a  receiver  was  appointed 
at  the  application  of  the  corpora- 
tion itself,  made  before  a  default  in 
the  payment  of  interest  upon  bonds 
secured  by  mortgagees,  where  it 
was  for  the  interest  of  the  public 
that  the  business  carried  on  by  the 
corporation — a  railroad  company — 
should  be  continued  without  inter- 
ruption, and  the  corporation  was 


769 


RULES    FOR   APPOINTMENT    OF   RECEIVERS. 


[§'   540 


The  English  courts  of  chancery  have  always  been  averse  to  ap- 
pointing receivers  for  railway  property  in  operation,28  and  our  courts 
have  often  expressed  reluctance  in  exercising  the  power  in  the  ab- 
sence of  statutory  authority.29  Such  reluctance  is  based  upon  the 
fact  that  the  interests  involved  are  generally  large,  the  manage- 
ment intricate,  and  that  the  corporation  is  charged  with  a  public  duty 
of  which  it  should  not  be  divested,  and  its  officers  are  charged  with 
corporate  duties  which  should  not  be  delegated.30  A  receiver  will  not 
be  appointed,  as  a  rule,  unless  it  clearly  appears  prima  facie  that  the 
plaintiff  is  entitled  to  a  final  decree.31  The  remedy  has  been  termed  an 
equitable  attachment,32  and  will  not  be  employed  to  change  the  man- 
agement of  railroad  property  simply  because  stockholders  or  creditors 
are  dissatisfied  with  the  present  existing  management.33  They  must 
show  that  they  have  an  equitable  right  and  that  it  will  be  impaired 
unless  the  property  available  for  its  satisfaction  is  protected  by  the 
appointment  of  a  receiver.34  A  court  will  not  appoint  a  receiver  upon 


hopelessly  insolvent,  and  there  was 
danger  of  an  attempt  by  creditors 
to  gain  a  preference,  by  attachment 
or  otherwise,  in  such  a  manner  as 
would  have  prevented  the  continu- 
ance of  the  corporate  business." 

23  Gardner  v.  London,  &c.  R.  Co.  L. 
R.  2  Ch.  201,  212;  Latimer  v.  Ayles- 
bury,  &c.  R.  Co.  L.  R.  9  Ch.  Div.  385. 

29  Sage  v.  Memphis,  &c.  R.  Co.  125 
U.  S.  361,  8  Sup.  Ct.  887;  Meyer  v. 
Johnston,  53  Ala.  237;  Kelly  v.  Ala- 
bama, &c.  R.  Co.  58  Ala.  489;  Amer- 
ican Loan,  &c.  Co.  v.  Toledo,  &c.  R. 
Co.  29  Fed.  416;  Overton  v.  Mem- 
phis, &c.  R.  Co.  10  Fed.  866;  Stevens 
v.  Davison,  18  Gratt.  (Va.)  819,  98 
Am.  Dec.  692. 

80  Gardner  v.  London,  &c.  R.  Co. 
L.  R.  2  Ch.  201.  See  St.  Louis,  &c. 
R.  Co.  v.  Dewees,  23  Fed.  519. 
Brewer  and  Treat,  JJ. 

31  Mays  v.  Rose,  Freem.  Ch. 
(Miss.)  703,  718;  Beecher  v.  Bin- 
inger,  7  Blatchf.  (U.  S.)  170;  Wil- 
kinson v.  Bobbie,  12  Blatchf.  (U. 
S.)  298;  Cofer  v.  Echerson,  6  Iowa 
ELL.  RAILROADS — 49 


502;  Gregory  v.  Gregory,  33  N.  Y. 
Super.  Ct.  1,  39;  Owen  v.  Homan,  3 
Macn.  &  G.  378,  aff'd  4  H.  L.  Cas. 
997;  Lloyd  v.  Passingham,  16  Ves. 
59.  The  plaintiff  must  show  that 
he  has  a  present  existing  right  in 
the  property  in  order  to  have  a  re- 
ceiver appointed.  Steele  v.  Aspy, 
128  Ind.  367,  27  N.  E.  739. 

32  Cincinnati,  &c.  R.  Co.  v.  Sloan, 
31  Ohio  St.  1. 

33  American,  &c.  Co.  v.  Toledo,  &c. 
R.  Co.  29  Fed.  416,  420,  421;  Fluker 
v.  Emporia  City  R.  Co.  48  Kans.  577, 

30  Pac.  18.    In  the  absence  of  gross 
abuse  or  fraud,  the  remedy  of  the 
stockholders  is  to  elect  new  officers. 
Edison  v.  Edison,  &c.  Co.  52  N.  J. 
Eq.  620,  29  Atl.  195. 

34  Cincinnati,  &c.  R.  Co.  v.  Sloan, 

31  Ohio   St.  1;    Union  Mutual  Life 
Ins.  Co.  v.  Union- Mills,  &c.  Co.  37 
Fed.    286;    Union   Trust   Co.   v.    St. 
Louis,  &c.  R.  Co.  4  Dillon   (U.   S.) 
114;  Cheever  v.  Rutland,  &c.  R.  Co. 
39     Vt.     653;      Woods'     Railroads 
(Minor  edition)  2015. 


§  541] 


RECEIVERS. 


770 


slight  grounds  and  merely  because  a  receivership  would  do  no  harm  ;35 
nor  upon  good  grounds  where  it  would  be  useless,  as,  for  instance, 
where  there  are  no  assets  nor  anything  which  could  be  made  available 
to  satisfy  a  judgment;36  nor  where  it  appears  that  in  the  latter  case 
the  plaintiff  expects  some  of  the  defendants  to  pay  his  claim  rather 
than  suffer  annoyance  from  a  receiver.37  Indeed,  a  court  of  equity  will 
not  interfere  in  any  case  where  such  interference  would  be  a  "vain  and 
fruitless  thing;"38  nor  where  there  is  an  adequate  remedy  at  law.39 

§  541.  Receiver  will  not  be  appointed  merely  because  parties  con- 
sent.— The  mere  fact  that  the  parties  consent  to  the  appointment  of  a 
receiver  is  not  sufficient,40  especially  where  the  rights  of  third  persons 
are  likely  to  be  affected,41  or  the  property  is  in  the  hands  of  a  person 
not  made  a  party  to  the  suit.42  If  it  appears  that  the  consent  was 
given  for  the  mere  purpose  of  preventing  the  seizure  of  the  property 
of  the  corporation  upon  legal  process,  and  without  any  intent  to 
satisfy  the  plaintiff's  demands  against  it,  the  receiver  will  be  dis- 
charged.43 Courts  confine  themselves  strictly  to  the  business  of  set- 
tling, according  to  the  principles  of  law  and  equity,  the  real  contro- 


35  Smith  v.  Port  Dover,  &c.  R.  Co. 
12  Ont.  App.  R.  288,  25  Am.  &  Eng. 
R.  Gas.  639;  Orphan  Asylum  Soc. 
v.  McCartee,  1  Hopk.  Ch.  (N.  Y.) 
429  (488);  Blondheim  v.  Moore,  11 
Md.  365. 

38  Bigelow  v.  Union  Freight  R.  Co. 
137  Mass.  478.  See  Birmingham,  &c. 
R.  Co.  In  re.  L.  R.  18  Ch.  Div.  155, 
3  Am.  &  Eng.  R.  Cas.  616.  Where 
the  company  is  shown  to  have  no  as- 
sets a  receiver  will  not  be  appoint- 
ed. Barton  v.  Enterprise  Loan,  &c. 
Assn.  114  Ind.  226,  16  N.  E.  486,  5 
Am.  St.  608. 

37  Smith  v.  Port  Dover,  &c.  Co.  12 
Ont.  App.  288,  25  Am.  &  Eng.  Cas. 
639. 

38  Simpson  v.  Ottawa,  &c.  R.  Co.  1 
Ch.    Chamb.    126.     A    receiver    will 
only  be  appointed  where  the  amount 
of  the   judgment   warrants   the   ex- 
pense.    Weekly  Notes   (Eng.  1884), 
63. 

39  Rice  v.  St.  Paul,  &c.  R.  Co.  24 


Minn.  464;  Pullan  v.  Cincinnati,  &c. 
R.  Co.  4  Biss.  (U.  S.)  35;  Overton  v. 
Memphis,  &c.  R.  Co.  10  Fed.  866; 
Stevens  v.  Davidson,  18  Gratt.  (Va.) 
819,  98  Am.  Dec.  692;  Milwaukee, 
&c.  R.  Co.  v.  Soutter,  2  Wall.  (U. 
S.)  510,  523. 

40Whelpley  v.  Erie  R.  Co.  6 
Blatchf.  (U.  S.)  271.  See  Sage  v. 
Memphis,  &c.  R.  Co.  18  Fed.  571; 
Vermont,  &c.  R.  Co.  v.  Vermont 
Cent.  R.  Co.  50  Vt.  500;  Vila  v. 
Grand  Island,  &c.  Co.  68  Neb.  222, 
94  N.  W.  136,  97  N.  W.  613,  63  L.  R. 
A.  791,  110  Am.  St.  400. 

41Whelpley  v.  Erie  R.  Co.  6 
Blatchf.  (U.  S.)  271. 

42Searles  v.  Jacksonville,  &c.  R. 
Co.  2  Woods  (U.  S.)  621  Einstein 
v.  Rosenfeld,  &c.  Mills,  38  N.  J.  Eq. 
309;  Gluck  v.  Becker  Rec.  of  Corp. 
61. 

43  Sage  v.  Memphis,  &c.  R.  Co.  18 
Fed.  571. 


771  HOW  PAR  JURISDICTION   HAS  BEEN   EXERCISED.       '    [§    542 

versies  which  come  within  the  " workshop  of  jurisprudence/'  and 
should  never  lend  themselves  to  the  schemes  of  those  who  wish  to 
manipulate  railroad  securities  for  purposes  of  adventurous  specula- 
tion.44 

§  542.  Extent  to  which  jurisdiction  has  been  exercised. — Courts 
of  equity,  by  reason  either  of  inherent  power  or  statutory  authority,  in 
the  United  States,  and  in  most  of  the  states,  have  interposed  with  re- 
ceivers for  railway  property  to-  the  extent  necessary  to  accomplish  the 
desired  auxiliary  aid,  sometimes  accompanying  the  dissolution  of 
the  corporation  and  winding  up  its  affairs,  sometimes  operating  the 
road  until  the  income  shall  have  discharged  the  primary  obligation,45 
and  at  other  times  operating  and  improving  the  road  with  view  to  its 
advantageous  sale.  They  have  even  interfered  to  complete  a  road  in 
construction  which  had  been  retarded  on  account  of  the  temporary 
lack  of  funds,48  and  in  rare  instances  have  taken  charge  of  lines 
to  compel  them  to  properly  perform  their  public  duty.47  But  the  right, 
in  such  cases,  to  divest  the  corporate  officers  of  their  powers  and 
supersede  them  by  receivers,  when  the  court  can  command  such  of- 
ficers by  injunction  or  other  process,  has  been  questioned,48  and,  al- 
though the  remedy  has  been  extended  in  some  cases,  other  courts  have 
refused  to  appoint  receivers  on  account  of  fraudulent  mismanagement 
by  corporate  officers  where  such  mismanagement  is  in  itself  ground 
for  their  removal.49  While  courts  of  equity  are  cautious  in  the  exer- 
cise of  this  remedy,  no  rule  can  be  laid  down  which  would  clearly 

"American  Loan,  &c.  Co.  v.  To-  &c.  R.  Co.  65  N.  H.  393,  23  Atl.  529, 

ledo,  &c.  R.  Co.  29  Fed.  416.  and  see  next  following  section. 

45  Sage  v.  Memphis,  &c.  R.  Co.  125  "  Long  Branch,  &c.  R.  Co.  In  re, 
U.  S.  361,  8  Sup.  Ct.  887,  and  Sage  24  N.  J.  Eq.  398;   Beach  Receivers, 
v.  Memphis,  &c.  R.  Co.  18  Fed.  571.  329;    Fishback    v.    Citizens'    St.    R. 
See  Barton  v.  Barbour,  104  U.  S.  126,  Co.   Nat.  Corp.    (Super.   Ct.  Marion 
137,  138.  Co.  Ind.)   March  4,  1892. 

46  Allen   v.    Dallas,    &c.    R.    Co.    3  48See  Cook  Stock  and  Stockhold- 
Woods  (U.  S.)  316;  Kennedy  v.  St.  ers,  infra,  §§  745  and  863,  and  cases 
Paul,  &c.  R.   Co.   2  Dillon    (U.   S.)  cited;  Waterbury  v.  Merchants',  &c. 
448.     See,   also,.  Boston,   &c.    Co.   v.  Co.  50  Barb.   (N.  Y.)  157;   Feather- 
Pacific  Short  Line,  &c.  Co.  104  Iowa  stone  v.  Cooke,  L.  R.  16  Eq.  298. 
311,   73   N.   W.   839.    But  mere   in-  49  See   preceding  note;    Edison   v. 
solvency  is  not  ordinarily  sufficient  Edison,  &c.  Co.  52  N.  J.  Eq.  620,  29 
ground  of  itself.   Farmers'  Loan  &c.  Atl.    195.     But    compare    Forbes   v. 
Co.  v.   Chicago,  &c.  R.  Co.  27  Fed.  Memphis,  &c.   R.   Co.  2  Woods    (U. 
146;   Boston,  &c.  R.  Co.  v.  Boston,  S.)   323;   Fisher  v.  Concord  R.  Co. 

50  N.  H.'  200. 


§    543]  RECEIVERS.  772 

define  the  grounds  for  its  exercise  or  draw  boundaries  which  would 
confine  it,  since  the  power  of  the  equity  court  has  been  so  enlarged  by 
statute  that  its  arm  can  be  interposed  in  nearly  every  instance  where 
complete  justice  would  otherwise  fail,  and  the  railroad  corporation50 
now  enjoys  few  exemptions  from  the  rules  which  apply  to  the  receiver- 
ship of  other  corporations. 

§  543.  Insolvency  as  ground  for  appointment  of  receiver. — In- 
solvency of  a  railway  corporation  is  not  of  itself  ground  for  the  ap- 
pointment of  a  receiver,  unless  made  so  by  statute.  Even  if  insolvency 
be  shown  the  court  will  refuse  to  appoint  a  receiver,  unless  it  can  in- 
terfere usefully  to  prevent  the  impairment  of  some  equitable  right 
or  of  the  value  of  some  claim  against  the  corporation.51  Where  in- 
solvency is  conceded  or  evident,  with  no  probability  of  recovery,  and 
there  are  dissensions  among  the  parties  in  interest,  or  disagreements 
within  the  corporate  management,  which  threaten  dissipation  of  the 
assets  and  endanger  the  securities  of  parties  in  interest,  a  receiver  will 
be  appointed  at  the  suit  of  the  proper  party.52  But,  ordinarily,  if  it 
be  shown  that  it  is  for  the  best  interest  of  all  concerned  to  leave  the 
directors  in  charge  of  affairs,  a  receiver  will  not  be  appointed;53 
nor  will  the  remedy  usually  be  exercised  if  the  corporation,  in  obedience 
to  a  statute,  is  making  the  same  disposition  of  the  earnings  of  the 
road  that  a  receiver  would  be  required  to  make,  and  no  assets  would 
be  available  in  his  hands  for  payment  of  the  plaintiff's  debt.54  Where, 
in  addition  to  the  insolvency  of  a  railroad  company,  its  property  is  in 
the  hands  of  parties  who  deny  the  right  of  the  stockholders  to  share 
in  the  management  of  the  property,  equity  may,  in  order  to  afford  re- 

50  See  Barton  v.  Barbour,  104  U.  S.  souri,  &c.  R.  Co.  36  Fed.  221;   At- 

126,  137,  J.38,  in  dissenting  opinion,  lantic  Trust  Co.  v.  Consolidated,  &c. 

61  Denike  v.  N.  Y.  &c.  Co.  80  N.  Y.  Co.  49  N.  J.  Eq.  402,  23  Atl.  934,  11 

599;  Farmers'  Loan,  &c.  Co.  v.  Chi-  R.  &  Corp.  L.  J.  223;    Bill  v.  New 

cago,  &c.   R.   Co.   27   Fed.  146;    Me-  Albany,  &c.  R.  Co.  2  Biss.   (U.   S.) 

George  v.  Big  Stone,  &c.  Co.  57  Fed.  390;    Ralph    v.    Wisner,    100    Mich. 

262.    In  absence  of  statute,  a  court  164,   58   N.   W.    837;    Kelly   v.   Ala- 

of  equity  has  no  authority  to  sit  as  bama,  &c.  R.  Co.  58  Ala.  489.     See, 

a   court  of  insolvency   to   liquidate  also,  'Cole   v.    Philadelphia,   &c.    R. 

the  affairs  of  an  insolvent  railway  Co.  140  Fed.  944. 

company.   Pond  v.  Farmingham,  &c.  M  Union  T.  Co.  v.  St.  Louis,  &c.  R. 

R.  Co.  130  Mass.  194;  Supreme  Sit-  Co.  4  Dillon   (U.  S.)  114;   Tysen  v. 

ting,  &c.  v.  Baker,  134  Ind.  293,  33  Wabash  R.  Co.  8  Biss.   (U.  S.)   247. 

N.   E.   1128;    Lawrence,   &c.    Co.   v.  "Smith  v.  Port  Dover,  &c.  R.  Co. 

Rockbridge  Co.  (Va.)  47  Fed.  755.  12  Ont.  App.  R.  288,  25  Am.  &  Eng. 

52  Mercantile    Trust    Co.    v.    Mis-  R.  Gas.  639. 


773         WHEN   INSOLVENCY   SUFFICIENT   WITHOUT   DEFAULT.          [§    544 

lief  to  such  stockholders,  on  their  petition,  appoint  a  receiver  to  take 
possession  of  the  property.55  So,  if  a  corporation  has  been  rendered 
insolvent  by  the  fraudulent  mismanagement  of  its  officers,  who  re- 
main in  charge  of  its  affairs,  upon  a  proper  application  by  the  parties 
in  interest,  its  property  may  be  put  into  the  hands  of  a  receiver.56 
So,  where  the  officers  of  an  insolvent  corporation  resign  their  respect- 
ive offices  and  abandon  its  property  to  the  court,57  it  is  proper  to 
appoint  a  receiver  to  take  charge  of  the  effects  of  the  corporation 
and  to  preserve  them  for  the  benefit  of  all  the  parties  in  interest.58 

§  544.  When  insolvency  is  sufficient  without  default. — As  a  general 
rule  inadequacy  of  mortgage  security,  coupled  with  insolvency  of  the 
mortgagor,  showing  that  a  receiver  is  necessary,  is  sufficient  ground 
for  the  relief.59  Where  the  company  is  manifestly  insolvent,  is  unable 
to  meet  its  obligations  to  pay  floating  debts,  and  cannot  borrow  money, 
and  is  in  imminent  peril  of  breaking  up,  although  no  default  has  yet 
occurred,  it  has  been  held  that  a  receiver  may  be  appointed,  at  the  suit 
of  a  bondholder,  in  order  to  preserve  the -corporate  property,60  but  a 
receiver  will  not  be  appointed  because  of  expected  insolvency  at  some 
future  time.61  In  all  cases  it  must  be  shown  that  the  insolvency  will 
endanger  or  impair  the  plaintiff's  rights  unless  the  property  is  pre- 
served by  a  receiver.02  In  general,  it  is  only  an  extreme  case  that  will 
move  a  court  of  equity  to  exercise  this  extraordinary  power  because  of 
insolvency,63  and  it  must  usually  appear  to  be  necessary  in  order  to 

53  Bill  v.  New  Albany,  &c.  R.  Co.  2  ed    where    the    purchasers    of    the 

Biss.   (U.  S.)  390.  equity    of    redemption    at    an  -as- 

Bs  Forbes  v.  Memphis,  &c.  R.  Co.  2  signee's  sale  have  diverted  the  use 

Woods   (U.   S.)    323.    See  Fisher  v.  of    the    property    and    appropriated 

Concord  R.  Co.  50  N.  H.  200.  the  income  to  which  the  mortgagee 

57  Smith  v.    Danzig,   64   How.   Pr.  is  entitled.  Gest  v.  New  Orleans,  &c. 

(N.  Y.)  320.  R.  Co.  30  La.  Ann.  28;    Brown,  Ex 

BSGluck  and  Becker  Rec.  of  Corp.  parte,  58  Ala.  536. 

§  18.  °°Brassey  v.  N.  Y.  &c.  R.  Co.  19 

59  High  Receivers,  §  376;  Kelly  v.  Fed.   663,   17   Am.   &   Eng.   R.    Cas. 

Alabama,  &c.  R.  Co.  58  Ala.  489;  Rug-  285.     See,  also,  Cole  v.  Philadelphia, 

gles  v.   Southern  Minnesota  R.  Co.  &c.  R.  Co.  140  Fed.  944. 

(U.    S.    Dist.    of    Minn.)    5    Chicago  61  Edison  v.  Edison,  &c.  R.  Co.  52 

Legal  News  110;  Kerp  v.  Michigan,  'N.  J.  Eq.  620,  29  Atl.  195. 

&c.   R.   Co.   6   Chicago   Legal   News  c2  Lawrence  Iron  Works  v.  Rock- 

101;    Dow  v.   Memphis,   &c.   R.   Co.  bridge   Co.   47  Fed.   755;    McGeorge 

20  Fed.  260,  17  Am.  &  Eng.  R.  Cas.  v.  Big  Stone  Gap  Imp.  Co.  57  Fed. 

324;     Central    Trust    Co.    v.    Chat-  262. 

tanooga,    &c.    R.    Co.    94    Fed.    275;  ^Pullan  v.  Cincinnati,  &c.  R.  Co. 

Cheever  v.  Rutland,  &c.  R.  Co.  39  4  Biss.  (U.  S.)  35. 
Vt.  653.   A  receiver  will  be  appoint- 


§    545]  EECEIVERS.  774 

preserve  the  best  interests  of  all  concerned.64  Insolvency  is  sometimes, 
by  statute,  made  a  ground  for  the  appointment  of  a  receiver,65  and 
in  that  case,  when  the  fact  of  insolvency  is  established,  the  court 
grants  the  application  as  a  matter  of  course.66 

§  545.  Default  in  payment  of  indebtedness  as  ground  for  appoint- 
ment.— Eeceivers  are  most  frequently  appointed  over  railway  property 
in  order  to  protect  mortgagees  and  bondholders  whose  securities  are 
a  lien  upon  the  road,  in  case  of  default  in  payment  of  the  principal  or 
interest  upon  obligations  thus  secured.67  But  default  in  itself  is  not 
necessarily  ground  for  this  extraordinary  remedy  ;68  it  must  be  shown, 
in  addition,  that  ultimate  loss  will  result  to  the  mortgagees  or  bond- 
holders if  the  property  is  permitted  to  remain  in  the  hands  of  the  com- 
pany,69 or  that  the  right  of  foreclosure  exists  and  that  a  receiver  is 
necessary  to  aid  the  foreclosure.70  Even  though  possession  has  been 
refused  upon  a  demand  made  by  trustees  under  a  mortgage  after  there 
has  been  a  default  in  the  payment  of  interest  upon  bonds  secured 
thereby,  a  receiver  will  not  be  appointed  unless  it  is  shown  to  be  neces- 
sary in  order  to  prevent  loss  to  the  bondholders,71  and  it  has  been  held 
that  a  receiver  will  not  be  appointed  in  a  case  where  the  default 

84  Stark  v.  Burke,  5  La.  Ann.  740;  Florence  v.  United   States,  &c.  Co. 

People  v.  Northern  R.  Co.  42  N.  Y.  104  Ala.  297,  16  So.  110. 

217.  CT  High  Receivers,  §  376. 

65  Sewell  v.  Cape  May,  &c.  R.  Co.  6S  Sage  v.  Memphis,  &c.  R.  Co.  125 
30  Am.  &  Eng.  R.  Cas.  155.  Failure  U.  S.  361,  8  Sup.  Ct.  887;  Morrison 
to  pay  a  judgment  duly  rendered  is  v.  Buckner,  1  Hempst.  (U.  S.)  442; 
cause  for  the  appointment  of  a  re-  Whitehead  v.  Wooten,  43  Miss.  523; 
ceiver  by  the  laws  of  Englarfd  and  American,  &c.  Co.  v.  Toledo,  &c. 
of  Kentucky.  Eng.  Railway  Com-  R.  Co.  29  Fed.  416;  Tysen  v.  Wa- 
panies  Act,  §  4;  Acts  1890,  Ky.  Ch.  bash,  &c.  R.  Co.  8  Bissell  (U.  S.) 
1039,  §  1.  The  appointment  of  a  re-  247;  Williamson  v.  New  Albany  R. 
ceiver  or  manager  under  this  section  Co.  1  Biss.  (U.  S.)  198;  Beach  Re- 
is  a  matter  of  right  whenever  the  ceivers,  §  330. 

judgment  creditor  of  a  railroad  cor-  69  Union    Trust   Co.   v.    St.   Louis, 

poration  is  unpaid.    Manchester,  &c.  &c.    R.    Co.    4    Dill.    (U.    S.)    114; 

R.  Co.,  In  re,  L.  R.  14  Ch.  Div.  645.  Cheever  v.  Rutland,  &c.  R.   Co.  39 

06  Beach  Receivers,   §   417;    Attor-  Vt.  653. 

ney-General  v.  Bank  of  Columbia,  1  "American  Loan,   &c.   Co.  v.   To- 

Paige  (N.  Y.)  511.    The  facts  show-  ledo,  &c.  R.  Co.  29  Fed.  416;  Beach 

ing  insolvency  should  be  specifically  Receivers,  §  331. 

set  forth,  as  a  mere  general  allega-  "Union   Trust   Co.    v.    St.   Louis, 

tion     is    usually    held    insufficient.  &c.  Co.  4  Dill.  (U.  S.)  114;  Cheever 

Newfoundland,  &c.  Co.  v.  Schack,  40  v.  Rutland,  &c.  R.  Co.  39  Vt.  653. 
N.  J.   Eq.   222,  1  Atl.   23;    Bank  of 


7.75          DEFAULTS  AS  GROUND  FOR  APPOINTMENT.       [§  545 

is  waived  by  agreement  for  extension  of  time,  but  the  directors  after- 
ward disagree  and  a  portion  of  them  rescind  the  agreement  and  pe- 
tition for  a  receiver.72  But  where,  in  case  of  default,  there  is  some 
other  attendant  circumstance  or  condition  present  which  endangers 
the  security  of  a  bondholder,  creditor  or  other  party  in  interest,  or 
where  the  default  is  evidence  of,  or  accompanies,  some  fraudulent  or 
unwise  mismanagement  by  the  officers  or  directors  which  threatens 
loss  to  stockholders  or  others,  a  receiver  may  be  appointed,  as,  for 
instance,  where  there  has  been  a  default  for  ten  years  in  the  payment 
of  interest  on  the  company's  bonds,  and  the  officers  refuse  to  permit 
an  inspection  of  the  company's  books  by  the  bondholders,73  or  where 
trustees  fail  to  take  possession  of  the  trust  property  upon  default, 
as  required  by  the  instrument  creating  the  trust,  and  this  without  re- 
gard to  any  probable  deficiency  of  the  trust  property  to  discharge  the 
debts  secured  by  the  deed  of  trust.74  Where  the  mortgage  covers  the 
tolls  and  income  of  a  road  and  the  earnings  are  diverted,  causing  de- 
fault in  payment  of  the  mortgage  debt,  a  receiver  will  ordinarily  be 
appointed,75  whether  the  default  be  followed  by  foreclosure  or  not. 
Default  in  the  payment  of  taxes,  the  company  allowing  portions  of 
its  property  to  be  sold  for  such  taxes,  has  been  held  to  be  a  strong 
indication  of  such  hopeless  insolvency  as  would  justify  the  appoint- 
ment of  a  receiver.76  A  receiver  may  be  appointed  before  default 
where  insolvency  is  manifest  and  it  is  shown  that  default  is  imminent 
and  that  the  corporation  is  on  the  verge  of  dissolution.77  So,  a 
receiver  was  appointed  at  the  suit  of  the  corporation  where  it  appeared 

"American  Loan,  &c.   Co.  v.   To-  v.  Dallas,  &c.  R.  Co.  3  Woods  (U.  S.) 

ledo,  &c.  R.  Co.  29  Fed.  416.  316. 

"Pullan  v.  Cincinnati,  &c.  R.  Co.  "Ruggles  v.  Southern  Minnesota 

4  Biss.  (U.  S.)  35.  R.  Co.  5  Chic.  L.  N.  110;   Hopkins 

71  Wilmer  v.  Atlanta,  &c.  R.  Co.  2  v.  Worcester  and  Birmingham  Canal 

Woods  (U.  S.)  409;  Shaw  v.  Norfolk  Proprietors,   L.   R.    6    Eq.   437;    De 

Co.  R.  Co.  5  Gray  (Mass.)  162.     See  Winton  v.  Brecon,  26  Beav.  533;  Al- 

Sacramento,  &c.  R.  Co.  v.  Superior  len  v.   Dallas,  &c.  R.   Co.   3  Woods 

Court,  55  Cal.  453;  Rice  v.  St.  Paul,  (U.  S.)  316;  Whitehead  v.  Wooten, 

&c.  R.  Co.  24  Minn.  464.   It  has  been  43  Miss.  523 ;  Morrison  v.  Buckner,  1 

held  that  where  the  deed  of  trust  au-  Hempst.  (U.  S.)  442. 

thorized  trustees  to  take  possession  '    ,78  Putnam  v.  Jacksonville,  &c.  Co. 

upon   default,   the   default  itself   is  61  Fed.  440. 

sufficient    ground    for    a    receiver,  "  Brassey  v.  New  York,  &c.  R.  Co. 

without  reference  to  the  inadequacy  19  Fed.  663,  22  Blatchf.  (U.  S.)  72; 

of    the    mortgage    security.     Allen  Long  Dock  Co.  v.  Mallery,  12  N.  J. 

Eq.  431. 


§    546]  RECEIVERS.  776 

that  public  interest  required  that  the  business  be  uninterrupted  and 
default  in  payment  of  interest  would  have  been  followed  by  such  a 
struggle  among  creditors  as  would  have  prevented  continuance  of  the 
corporate  business.78  As  a  general  rule,  however,  the  plaintiff  must 
first  pursue  his  remedy  at  law  if  an  adequate  remedy  is  open  to  him, 
or  if  he  have  a  simpler  equitable  remedy  he  must  pursue  that  before 
asking  for  the  extraordinary  aid  of  a  receivership;  and  it  has  been 
held  that  the  fact  that  the  right  of  possession  and  sale  is  given  to 
trustees  does  not  change  the  rule79  in  case  possession  is  refused.  In 
such  cases  a  receiver  will  ordinarily  be  denied  unless  the  trustee  has 
first  attempted  to  recover  possession  by  other  legal  or  equitable  means 
available.80  It  is  held  that  the  fact  that  the  charter  of  a  corporation 
specially  authorizes  the  appointment  of  a  receiver  in  a  particular 
contingency  does  not  oust  the  courts  of  jurisdiction  to  appoint  one  in 
a  proper  case.81 

§  546.  Appointment  in  foreclosure  proceedings. — The  right  to  a 
receiver  does  not  necessarily  accompany  the  right  to  foreclose;82  but 
it  is  held  to  exist  in  foreclosure  proceedings  where  for  any  reason 
"the  complainant  will  not  be  in  as  good  a  position  at  the  final  decree 
as  at  present."83  In  the  language  of  a  judge  who  is  now  a  member  of 
the  Supreme  Court  of  the  United  States,  "It  should  appear  that  there 
in  some  danger  to  the  property;  that  its  protection,  its  preservation, 
the  interests  of  the  various  holders,  require  possession  by  the  court 
before  a  receiver  should  be  appointed.  It  does  not  go  as  a  matter  of 
course;  and  yet  it  is  not  a  matter  that  a  court  can  refuse  simply  be- 

78  Wabash,  &c.  R.   Co.  v.   Central,  s2  Mercantile  Trust  Co.  v.  Missouri, 
&c.  R.  Co.  22  Fed.  138,  272,  23  Fed.  &c.  R.   Co.   36   Fed.   221,   36   Am.   & 
513,  515.     But  see  Hugh  v.  McRae,  Eng.  R.  Gas.  259;   American  Loan, 
Chase  466.  &c.  Co.  v.  Toledo,  &c.  R.  Co.  29  Fed. 

79  Dow  v.  Memphis,  &c.  R.  Co.  20  416;  Williamson  v.  New  Albany,  &c. 
Fed.  260;   Kennedy  v.  St.  Paul,  &c.  R.  Co.  1  Biss.  (U.  S.)  198;  Tysen  v. 
R.  Co.  2  Dill.   (U.  S.)   448;   McLane  Wabash,  &c.  Co.  8  Biss.  (U.  S.)  247. 
v.  Placerville,  &c.  R.  Co.  66  Cal.  606,  ra  Ruggles  v.  South.  Minn.  R.  Co. 
6  Pac.  748.  5  Chic.  L.  N.  110;  Kerp  v.  Michigan, 

80  Rice  v.  St.  Paul,  &c.  R.  Co.  24  &c.  R.  Co.  6  Chic.  L.  N.  101;  United 
Minn.  464.  States  Trust  Co.  v.  New  York,  &c. 

«Fripp  v.  Chard  R.  Co.  11  Hare  R.  Co.  101  N.  Y.  478,  5  N.  E.  316; 

241;   Allen  v.   Dallas,  &c.  R.   Co.  3  Decker  v.  Gardner,  124  N.  Y.  334,  26 

Woods  (U.  S.)  316;  Warner  v.  Ris-  N.  E.  814;  United  States  Trust  Co. 

ing  Fawn  Iron  Co.  3  Woods  (U.  S.)  v.  N.  Y.  &c.  R.  Co.  67  How.  Pr.  390. 
514;  note,  64  Am.  Dec.  486. 


777 


APPOINTMENT   IX    FORECLOSURE   PROCEEDINGS. 


[§  546 


cause  it  is  an  annoyance."84  Generally,  insolvency  of  the  mortgagor, 
coupled  with  inadequacy  of  the  mortgage  security,  is  sufficient  ground 
for  this  relief,85  and  when  the  interest  has  long  been  unpaid  and  the 
value  of  the  property  is  manifestly  insufficient,  a  receiver  will  usually 
he  appointed.86  If  the  entire  assets  of  an  insolvent  corporation  are 
insufficient  to  afford  security  for  the  payment  of  the  mortgage  indebt- 
edness, and  the  corporation  is  appropriating  its  earnings  to  its  own 
use,  a  receiver  will  be  appointed  pending  a  suit  to  foreclose,87  but 
where  it  is  clear  that  upon  foreclosure  the  property  will  bring  enough 
to  pay  the  debt,  interest  and  costs,  the  court  will  usually  decline  to 
exercise  that  power  on  the  ground  that  there  is  another  adequate  rem- 
edy.88 An  application  was  refused  on  this  ground  in  a  case  where 
mortgagees  were  seeking  to  foreclose  a  mortgage  executed  by  authority 
of  the  legislature  giving  the  mortgagees  the  right  of  possession.89 
The  mere  disagreement  of  mortgage  creditors  in  a  suit  to  foreclose  is 
not  sufficient  ground  for  the  appointment  of  a  receiver,  as  equity  will 
not  interpose  except  to  afford  some  incidental  relief,  and  will  not  ex- 
tend its  arm  simply  to  manage  the  property.90  Where  the  mortgage 


84  Mercantile  Trust  Co.  v.  Missouri, 
&c.  R.  Co.  36  Fed.  221,  224,  36  Am. 
&  Eng.  R.  Gas.  259. 

85  Kelly  v.  Trustees,  58  Ala.  489; 
Ruggles  v.  Southern  Minn.  R.  Co.  5 
Chic.  L.  N.  110;  Kerp  v.  Michigan, 
&c.  R.  Co.  6  Chic.  L.  N.  101;   Fre- 
linghuysen  v.   Colden,  4  Paige  Ch. 
(N.    Y.)    204;    Astor    v.    Turner,    2 
Barb.  (N.  Y.)  444. 

.""Pullan  v.  Cincinnati,  &c.  R.  Co. 
4  Biss.  (U.  S.)  35.  See  Farmers' 
Loan,  &c.  Co.  v.  Winona,  &c.  R.  Co. 
59  Fed.  957. 

87  Dow  v.  Memphis,  &c.  R.  Co.  20 
Fed.  260;  Cheever  v.  Rutland,  &c. 
R.  Co.  39  Vt.  653.  See  Brassey  v. 
N.  Y.  &c.  R.  Co.  19  Fed.  663;  Kerp 
v.  Michigan,  &c.  R.  Co.  6  Chic.  L.  N. 
101.  The  court  will  never  appoint  a 
receiver,  except  where  the  right 
and  necessity  to  do  so  are  clear. 
Dow  v.  Memphis,  &c.  R.  Co.  supra; 
Overton  v.  Memphis,  &c.  R.  Co. 
10  Fed.  866;  Texas,  &c.  R.  Co.  v. 
Rust,  17  Fed.  275;  Sage  v.  Memphis, 


&c.  R.  Co.  18  Fed.  571;  Credit  Co.  v. 
Arkansas  Cent.  R.  15  Fed.  46.  See 
ante,  §  545. 

^Pullan  v.  Cincinnati,  &c.  R.  Co. 
4  Biss.  (U.  S.)  35;  Shotwerfl  v. 
Smith,  3  Edw.  Ch.  (N.  Y.)  588; 
Burlingame  v.  Parce,  12  Hun  (N. 
Y.)  144.  Where  a  railroad  company 
has  sublet  a  leased  line  contrary 
to  the  provisions  of  the  lease,  a  re- 
ceiver will  not  be  appointed  in  a 
suit  by  the  lessor  to  enforce  a  for- 
feiture of  the  lease  when  it  ap- 
pears that  the  lessor  is  responsible, 
and  is  operating  the  road.  Boston, 
&c.  R.  v.  Boston,  &c.  R.  65  N.  H. 
393,  25  Atl.  529. 

89  Rice  v.  St.  Paul,  &c.  R.  Co.  24 
Minn.  464.    See,  also,  Patten  v.  Ac- 
'cessory  Transit  Co.  4  Abb.  Pr.   (N. 
Y.)   235;  Boston,  &c.  R.  Co.  v.  New 
York,  &c.  R.  Co.  12  R.  I.  220. 

90  American  Loan,  &c.  Co.  v.  Toledo, 
&c.  R.  Co.  29  Fed.  416.  But  the  fact 
that  the  company  is  well  managed 
does   not  always  preclude  the   ap- 


§    547]  RECEIVERS.  778 

covers  the  tolls  and  income  of  the  road,  which  would  otherwise  be 
diverted  from  payment  of  the  debt,  a  receiver  will  be  appointed  in- 
cidental to  the  foreclosure.91  So,  where  a  road  hopelessly  insolvent  is 
about  to  be  foreclosed,  and  owing  to  dissensions  among  bondholders 
there  is  no  other  way  to  apply  the  rents  and  profits  of  the  road  to  its 
debts,  an  application  for  a  receiver  may  be  granted.92  And  a  receiver 
has  been  appointed,  after  decree,  at  the  suit  of  bondholders  entitled 
to  the  net  income,  when,  according  to  statute,  the  sale  must  be  de- 
layed six  months.93  Where,  in  a  suit  to  foreclose,  the  court  directs 
the  officers  of  the  corporation  to  remain  in  possession,  to  conduct  the 
business  subject  to  its  orders,  and  to  account  to  the  court,  it  has  been 
held  that  these  officers  are  thereby  constituted  receivers  of  the  court.9* 

§  547.  Other  grounds  for  appointment. — It  is  difficult  to  classify 
cases  in  which  a  receiver  will  be  appointed,  for  the  reason  that  the 
grounds  and  purpose  of  the  relief  and  the  extent  to  which  it  may  be 
pursued,  lie  so  largely  in  the  discretion  of  the  court.95  There  is  a  large 
number  of  cases  in  which  receivers  have  been  appointed  which  do  not 
fall  under  the  classes  just  discussed.  Where  there  is  no  person  author- 
ized to  hold  the  corporate  property,  the  majority  of  the  stockholders 
failing  to  elect  directors,96  or  where  the  corporation  has  ceased  to  act 
and  the  officers  have  converted  the  property  to  their  own  use,97  when 
the  officers,  owning  a  majority  of  the  stock  and  controlling  the  road, 
fail  to  keep  it  in  repair,  thereby  endangering  the  rights  of  stock- 

pointment  of  a  receiver.    Van  Ben-  93  Benedict  v.   St.   Joseph,  &c.   R. 

thuysen   v.   Central,   &c.   R.   Co.    63  Co.  19  Fed.  173. 

Hun  (N.  Y.)  627,  17  N.  Y.  S.  709.  9*  Fifty-four  First  Mortgage  Bonds, 

81  De  Winton  v.  Brecon,  26  Beav.  In  re,  15  S.  C.  304 ;  Brown,  Ex  par'te, 
533;   Allen  v.  Dallas,  &c.  R.  Co.  3  15  S.  C.  518.  See  Williams,  Ex  parte, 
Woods  (U.  S.)  316.  This  follows  the  18   S.   C.   299,  as  to  rights  of  pur- 
general    doctrine    that    where    the  chasers  in  such  a  case, 
mortgage    provides   that   the    mort-  95  See  Mercantile  Trust  Co.  v.  Mis- 
gagee  shall  have  the  rents,  default  souri,  &c.  R.  Co.  36  Fed.  221. 
in  payment  of  the  debt  may  be  suf-  86  Lawrence  v.  Greenwich  Fire  Ins. 
ficient  cause  for  appointment  of  a  Co.  1  Paige  (N.  Y.)   587;  Dobson  v. 
receiver  to  collect  such  rents.    See  Simonton,   78  N.   C.   63;   Edison  v. 
Whitehead  v.  Wooten,  43  Miss.  523;  Edison,  &c.  Co.  52  N.  J.  Eq.  620,  29 
also,    Central    Trust    Co.    v.    Chat-  Atl.  195. 
tanooga,  &c.  R.  Co.  94  Fed.  275.  87Conro  v.  Gray,  4  How.  Pr.   (N. 

92  Mercantile  Trust  Co.  v.  Missouri,  Y.)   166;   Chicago,  &c.  R.  Co.  v.  Ca- 

&c.  R.   Co.   36   Fed.   221,  36  Am.  &  son,  133  Ind.  49,  32  N.  E.  827. 
Eng.  R.  Cas.  259. 


779  OTHER  GROUNDS  FOR  APPOINTMENT.         [§  547 

holders  and  rendering  the  road  unproductive,98  or  squander  or  em- 
bezzle its  assets,  with  the  connivance  of  the  directors;99  where  the 
directors  execute  a  lease,  which  works  injury  to  the  stockholders,  in 
violation  of  a  by-law  forbidding  contracts  involving  the  franchises  of 
the  road  ;100  where  purchasers  of  an  assignee  in  bankruptcy  are  operat- 
ing the  road  for  their  exclusive  benefit  and  appropriate  the  income 
to  which  the  mortgage  bondholders  are  entitled  ;101  or  where  the  gov- 
erning body  is  so  divided  by  dissension  that  it  cannot  conduct  the  cor- 
porate business,102  it  has  been  held  that  a  receiver  may  be  appointed 
upon  proper  application.  So,  where  several  railroad  companies,  ten- 
ants in  common  of  the  right  to  pass  through  a  tunnel  or  to  use  a  rail- 
road station  erected  for  their  joint  use,103  are  engaged  in  a  dispute 
as  to  their  respective  rights  therein,  it  has  been  held  that  the  court 
may  appoint  a  receiver  to  protect  the  rights  of  the  injured  party, 
if  such  rights  cannot  readily  be  protected  by  other  means.  The 
dissolution  of  a  corporation  by  decree  of  court  is  cause  for  the  ap- 
pointment of  a  statutory  receiver  in  most,  if  not  all,  of  the  states.104 
It  has  been  held  that  bondholders  have  a  right  to  have  a  receiver  ap- 
pointed to  complete  a  road,  the  construction  of  which  has  been 
stopped  on  account  of  lack  of  funds,  when  completion  by  a  certain 
time  is  the  condition  of  a  valuable  land  grant  which  constitutes  their 
principal  security.105  The  fact  that  stockholders  of  a  corporation  dis- 
obey an  injunction  restraining  them  from  voting  to  effect  an  illegal 

98  Wayne  Pike   Co.   v.   Hammons,  Co.  21  N.  J.  Eq.  298 ;  Russell  v.  East 
129  Ind.  368,  27  N.  E.  487,  491.  Anglican  R.  Co.  3  M.  &  G.  104;  Fripp 

99  Forbes  v.  Memphis,  &c.  R.  Co.  2  v.    Chard    R.    Co.     11    Hare    239 ; 
Woods   (U.  S.)   323;   Fisher  v.  Con-  Shrewsbury  R.  Co.  v.  Chester  R.  Co. 
cord  R.  Co.  50  N.  H.  200.    A  receiver  14  L.  T.  217,  433;  Midland  R.  Co.  v. 
may  be  appointed  to  investigate  the  Ambergate    R.    Co.    10    Hare    359; 
validity  of  sales  made  by  a  corpo-  Beach  Receivers,  §  339. 

ration,  during  and  with  knowledge  104  Stimson      Am.      Stat.      (1892), 

of  insolvency.     Nichols  v.  Perry,  11  §  8335.     See  Texas  Trunk  R.  Co.  v. 

N.  J.  Eq.  126.  State,  83  Tex.  1,  18  S.  W.  199,  hold- 

100  Stevens  v.  Davidson,  18  Gratt.  ing   that   a   court   declaring   a   for- 
(Va.)  819,  98  Am.  Dec.  692.  feiture  of  the  franchises  of  a  rail- 

101  Gest  v.  New  Orleans,  &c.  R.  Co.  road    company    may   appoint   a   re- 
30  La.  Ann.  28.  'ceiver  to  operate  the  road  in  such 

102  Featherstone  v.  Cooke,  L.  R.  16  a  manner  as  to  subserve  the  public 
Eq.  Cas.   298;    Trade  Auxiliary  Co.  interests. 

v.  Vickers,  L.  R.   16  Eq.  Cas.  303;  105  Allen   v.   Dallas,   &c.    R.    Co.    3 

Edison  v.  Edison,  &c.  Co.  52  N.  J.  Woods  (U.  S.)  316;  Kennedy  v.  St. 

Eq.  620,  29  Atl.  195.  Paul,  &c.   R.   Co.  2   Dillon    (U.   S.) 

103  Delaware,  &c.  R.  Co.  v.  Erie  R.  448. 


§    548]  RECEIVERS.  780 

or  unauthorized  consolidation,  is  not  a  ground  for  the  appointment  of 
a  receiver  for  the  corporation,  since,  in  the  absence  of  any  authority 
to  consolidate,  the  original  corporation  would  continue  to  exist  in  its 
integrity,  with  all  its  rights  of  property  and  franchises  unaffected  by 
such  acts  of  the  stockholders.106  Where  the  application  alleges  that 
all  the  property  of  the  company  is  mortgaged  to  one  class  of  creditors ; 
that  it  owes  large  amounts  to  other  creditors,  one  of  whom  has  at- 
tached all  its  property,  and  that  it  is  proposing  to  lease  its  property  to 
him  for  a  long  term  of  years  at  a  rental  which  is  insufficient  to  pay 
the  interest  upon  its  indebtedness,  but  there  is  no  allegation  that  the 
plaintiff  has  any  lien  upon,  or  any  particular  right  in,  any  of  the 
property,  and  there  is  no  showing  of  any  fraud  or  breach  of  trust  on 
the  part  of  those  who  are  managing  the  corporate  affairs,  a  receiver 
will  not  be  appointed.107  It  has  also  been  held  that  a  receiver  will  not 
be  appointed  at  the  suit  of  one  who  has  purchased  stock  alleged  to 
have  been  illegally  issued,  and  who  claims  the  right  tg.  recover  the 
purchase-price  of  such  stock,  when  it  appears  that  the  money  received 
for  the  sale  of  the  stock  has  been  mingled  with  the  general  funds  of 
the  corporation,  so  that  it  cannot  be  traced  nor  identified.108  Failure 
to  perform  a  public  duty  has  been  held  to  be  ground  for  the  appoint- 
ment of  a  receiver;109  but  the  doctrine  has  not  received  any  general 
application,  and  is  of  doubtful  soundness.  Indeed,  we  think  it  is 
clearly  unsound  as  applied  to  ordinary  cases  in  which  there  is  nothing 
more  than  nonf  easance. 

§  548.    Appointment  upon  application  of  unsecured  creditors. — 

Ordinarily  the  application  of  unsecured  creditors  for  the  appointment 
of  a  receiver  will  be  denied  on  the  ground  that  there  is  a  remedy  at 
law,110  but  when  the  remedy  at  law  has  been  found  unavailing  or  is 

108  Railway  Co.  v.  Jewett,  37  Ohio  107  Pond  v.  Farmingham,  &c.  R.  Co. 

St.  649.     Injunction,  at  the  suit  of  130  Mass.  194. 

the  state,  to  prevent  a  corporation  10S  Whelpley    v.     Erie    R.     Co.    6 

from  misusing  and  abusing  its  cor-  Blatchf.   (U.  S.)  271. 

porate  franchises  and  privileges  and  109  Long  Branch,  &c.  R.  Co.,  In  re, 

maintaining  its  property  as  a  nui-  24  N.  J.  Eq.  398;   Fishback  v.  Citi- 

sance,  though  its  acts  also  constitute  zens'  St.  R.  Co.  Nat.  Corp.  Rep.  (Ind. 

a  crime,  may  be  aided,  when  neces-  Super.  Ct.  of  Marion  county),  March 

sary,  by  the  more  effective  remedy  4,  1892;  Beach  Receivers,  §  329. 

of  a  receiver.     Columbian  Athletic  110  Putnam  v.  Jacksonville,  &c.  R. 

Club  v.  State,  143  Ind.  98,  40  N.  E.  Co.  61  Fed.  440;   Milwaukee,  &c.  R. 

914,  28  L.  R.  A.  727,  52  Am.  St.  407.  Co.  v.  Soutter,  2  Wall.  (U.  S.)   510, 


781 


APPLICATION    OF    UNSECURED   CREDITORS. 


[§  548 


manifestly  useless,111  and  the  corporation  has  equitable  assets  which 
are  not  available  upon  execution,112  or  which  are  in  danger  of  being 
dissipated113  the  equitable  relief  may  be  invoked;  but  courts  have 
refused  to  interfere  where  the  liability  had  not  been  liquidated  or 
established,114  where  labor  claims  existed  against  several  companies 
operating  one  road,  but  their  accounts  were  in  confusion,  and  the  dis- 
tribution of  the  debt  was  in  doubt,  such  claims  not  having  been  re- 
duced to  judgment  ;115  and  in  one  case,  where  a  receiver  was  about  to  be 
discharged,  the  court  refused  to  continue  him  in  order  to  settle  claims 
which  were  in  dispute,  and  which  were  comparatively  small.116  Where 
it  appears  that  an  execution  issued  upon  a  judgment  against  the  cor- 
poration has  been  returned  nulla  bona,  but  that  there  are  equitable 
assets  which  cannot  be  reached  by  execution  a  court  of  equity  will 
appoint  a  receiver.117  And  even  though  no  execution  has  been  issued  in 


523;  Parmly  v.  Tenth  Ward  Bank,  3 
Edw.  Ch.  395  (417);  Beach  Law  of 
Railways,  §  696;  High  Receivers, 
§  10,  and  cases  cited.  The  case 
must  undoubtedly  be  exceptional  to 
justify  this  relief  in  a  suit  by  a  sim- 
ple creditor.  Johnson  v.  Farnum, 
56  Ga.  144;  Ballin  v.  Ferst,  55  Ga. 
546;  Gregory  v.  Gregory,  1  J.  &  S.  1. 
See  3  Pom.  Eq.  Jur.  §  1334.  But 
see,  where  the  defendant  admits  in- 
solvency and  joins  in  the  prayer, 
Horn  v.  Pere  Marquette  R.  Co.  151 
Fed.  627. 

111  Sage  v.  Memphis,  &c.  R.  Co.  125 
U.  S.  361,  8  Sup.  Ct.  887;   Conro  v. 
Gray,  4  How.  Pr.  (N.  Y.)  166;  State 
v.   Georgia  Co.    (N.   C.)    54   Am.  & 
Eng.  R.  Cas.  299. 

112  Covington  Draw  Bridge   Co.  v. 
Shepherd,  21  How.  (U.  S.)  112;  Fur- 
ness  v.   Caterham   R.   Co.   25   Beav. 
614;   Palmer  v.  Clark,  4  Abb.  N.  C. 
(N.   Y.)    25;    Wood   v.   Dummer,    3 
Mason    (U.   S.)    308;    Ward  v.  Mfg. 
Co.  16  Conn.  593;  Adler  v.  Milwau- 
kee Mfg.  Co.  13  Wis.  57  (63);  Grif- 
fith v.  Mangam,  73  N.  Y.  611;  Bart- 
lett  v.  Drew,  57  N.  Y.  587;   Curling 
v.  Marquis  Townshend,  19  Ves.  628; 
Bloodgood  v.  Clark,  4  Paige  (N.  Y.) 
574;   Osborn  v.  Heyer,  2  Paige   (N. 


Y.)  342;  Johnson  v.  Tucker,  2  Tenn. 
Ch.  398. 

113  Turnbull  v.  Prentiss  Lumber 
Co.  55  Mich.  387,  21  N.  W.  375. 

luCook  v.  Detroit,  &c.  R.  Co.  45 
Mich.  453,  8  N.  E.  74;  Putnam  v. 
Jacksonville,  &c.  R.  Co.  61  Fed.  440. 

115  Putnam  v.  Jacksonville,  &c.  R. 
Co.  61  Fed.  440. 

118  Milwaukee,  &c.  R.  Co.  v.  Sout- 
ter,  2  Wall.  (U.  S.)  510,  523. 

117  Covington  Draw  Bridge  Co.  v. 
Shepherd,  21  How.  (U.  S.)  112;  Fur- 
ness  v.  Caterham  R.  Co.  25  Beav. 
614;  Palmer  v.  Clark,  4  Abb.  N.  C. 
(N.  Y.)  25;  Wood  v.  Dummer,  3 
Mason  (U.  S.)  308;  Ward  v.  Mfg. 
Co.  16  Conn.  593;  Adler  v.  Milwau- 
kee, &c.  Co.  13  Wis.  57  (63);  Grif- 
fith v.  Mangam,  73  N.  Y.  611;  Bart- 
lett  v.  Drew,  57  N.  Y.  611;  Bartlett 
v.  Drew,  57  N.  Y.  587.  In  Union 
Trust  Co.  v.  Illinois  Midland  R.  Co. 
117  U.  S.  434,  458,  6  Sup.  Ct.  809, 
,the  court  said:  "The  co-plaintiffs 
with  Hervey  were  judgment  cred- 
itors of  the  Paris  and  Decatur  Co., 
with  executions  returned  unsatis- 
fied. The  bill  set  out  the  precarious 
condition  of  all  the  property  held 
and  used  by  the  Illinois  Midland 
Co.,  and  the  necessity  for  a  receiver 


§  548] 


EECEIVEES. 


782 


the  latter  case  circumstances  may  be  present  which  call  for  the  same 
remedy.118  An  application  by  a  judgment  creditor  for  the  appoint- 
ment of  a  receiver  may  be  entertained  where  the  bill  alleges  that  the 
property  is  so  heavily  mortgaged  that  any  attempt  to  enforce  the 
plaintiff's  debt  by  sale  on  execution  would  be  unavailing,  since  no 
bids  for  more  than  a  nominal  amount  would  be  received ;  while  if  the 
property  were  placed  in  the  hands  of  a  receiver  and  carefully  operated 
for  the  transportation  of  passengers  and  freight  there  would  be  a  large 
surplus  each  year  for  the  payment  of  his  debt.119  The  equitable  aid 


in  the  interest  of  all  the  creditors 
of  all  four  of  the  corporations  [the 
Illinois  Midland  Co.,  and  the  three 
corporations  of  which  it  was  com- 
posed, and  whose  debts  it  had  as- 
sumed] to  prevent  the  levy  of  exe- 
cutions upon  such  property;  and  it 
prayed  for  a  judicial  ascertainment 
and  marshalling  of  all  the  debts  of 
all  the  corporations,  and  their  pay- 
ment and  adjustment  as  the  respec- 
tive rights  and  interests  of  the  cred- 
itors might  appear,  and  for  general 
relief.  The  plaintiffs  set  forth  that 
they  represented  a  majority  of  the 
stock  in  all  the  corporations.  This 
bill  was  quite  sufficient  to  enable 
a  court  of  equity  to  administer  the 
property  and  marshal  the  debts,  in- 
cluding those  due  the  mortgage 
bondholders,  making  proper  parties 
before  adjudging  the  merits." 
Courts  are  sometimes  required  by 
statute  to  make  an  appointment  un- 
der such  circumstances.  Manches- 
ter, &c.  R.  Co.,  In  re,  L.  R.  14  Ch. 
Div.  645.  But  it  generally  rests  in 
the  discretion  of  the  court,  in  view 
of  all  the  circumstances.  Plaintiff 
alleged  that  he  had  recovered  a 
judgment  against  one  of  the  defend- 
ant companies,  and  that  it  had 
transferred  its  road  to  the  other  de- 
fendant, that  the  grantee  never  op- 
erated the  road,  nor  had  the  grantor 
any  power  to  make  the  transfer, 
which  was  made  for  the  sole  pur- 


pose of  defrauding  plaintiff;  and  it 
prayed  a  receiver.  A  receiver  was 
appointed.  Louisville,  &c.  R.  Co.  v. 
Southworth,  38  111.  App.  225. 

118  Sage    v.    Memphis,    &c.    R.    Co. 
125  U.  S.  361,  8  Sup.  Ct.  887;  Conro 
v.   Gray,   4   How.   Pr.    (N.  Y.)    166. 
A  tax  is  a  "debt"  which  the  state 
and  county  may  enforce  against  a 
corporation  by  creditors'  bill  for  the 
appointment    of    a    receiver.      The 
state  and  county  are  not  precluded 
from  bringing  such  a  suit  because 
there   is  a  specific  remedy  for  the 
collection   of  taxes   in   the   revenue 
act;   nor  because  the  state  has  the 
right  to  have  the  charter  of  the  cor- 
poration declared  forfeited  when  it 
fails    to    pay    its    taxes.      State    v. 
Georgia  Co.   (N.  Car.  1893)   54  Am. 
&  Eng.  R.  Cas.  299.     In  Kentucky 
the      enforcement      of      judgments 
against   railway   companies,   by   an 
equitable  suit  for  the  appointment 
of  a  receiver  to  take  possession  of 
and  operate  the  road  until  the  debts 
against  the  company  shall  be  paid 
is    provided    for    by    statute.      Act 
April  24,  1890    (Pub.  Acts  1889-90, 
c.  1039,  p.  109). 

119  Sage  v.  Memphis,  &c.  R.  Co.  125 
U.    S.    361,   8   Sup.   Ct.   887.     In   an- 
nouncing the  opinion  of  the  court 
in    this    case,    Mr.    Justice    Harlan 
said:    "We  do  not  mean  to  say  that 
a  single  judgment  creditor  or  any 
number  of  such  creditors  of  a  rail- 


783 


APPLICATION  OF  SECURED  CREDITORS. 


549 


formerly  so  frequently  invoked  to  assist  creditors  at  large,  grew  out 
of  the  narrowness  of  the  legal  remedy  by  execution,  often  useless  be- 
cause it  could  not  reach  equitable  assets.120  In  many  of  the  code  states 
statutory  provision  has  been  made  for  the  appointment  of  receivers 
in  proceedings  supplementary  to  execution,  thus  doing  away  in  some 
cases  with  the  "creditors'  bill"  of  chancery  practice;121  and  in  addition 
the  statutes  have  given  wider  scope  to  the  writ  of  execution,  extend- 
ing legal  relief  to  many  cases  where  resort  to  equity  was  formerly 
necessary.  Thus  the  instances  in  which  the  unsecured  creditor  has 
no  other  remedy  are  now  less  numerous  than  under  the  English 
chancery  practice  and  the  requirement  that  a  strong,  clear  case  must 
be  made,122  in  connection  with  the  reluctance  of  the  courts  to  divest 
such  large  interests  of  the  corporate  management  in  order  to  satisfy 
claims  which  are  generally  comparatively  small,123  has  resulted  in  a 
very  rare  and  sparing  exercise  of  this  power  of  the  court  of  equity  in 
aid  of  the  unsecured  creditor  of  a  railway  corporation,  although  the 
appointment  of  a  statutory  receiver  of  the  effects  of  a  judgment 
debtor,  on  supplementary  proceedings,  is  very  frequent.124 

§  549.    Appointment  upon  application  of  secured  creditors. — It  is 

to  preserve  the  security  of  the  mortgagee  or  bondholder  that  the  con- 
trol of  the  property  and  business  of  railway  corporations  is  most  often 
assumed  by  a  court  of  equity.125  Besides  being  available  in  connection 
with  foreclosures126  the  remedy  of  a  receivership  is  often  employed 


road  company  are  entitled,  as  mat- 
ter of  right,  to  have  its  property 
put  in  the  hands  of  a  receiver, 
merely  because  of  its  failure  or  re- 
fusal to  pay  its  debts.  Whether  a 
receiver  shall  be  appointed  is  al- 
ways a  matter  of  discretion,  to  be 
exercised  sparingly  and  with  great 
caution  in  the  case  of  quasi  public 
corporations  operating  a  public 
highway,  and  always  with  reference 
to  the  special  circumstances  of  each 
case  as  it  arises.  All  that  we  say 
in  this  connection  is  that,  under 
the  circumstances  presented  in  this 
case,  the  appointment  of  a  receiver 
was  within  the  power  of  the  court. 
The  order  appointing  him  to  oper- 
ate and  manage  the  property  was 


not  a  nullity."  See,  also,  Sage  v. 
Memphis,  &c.  R.  Co.  18  Fed.  571, 
where  the  receiver  was  discharged 
because  appointed  by  collusion. 

120  3  Pom.  Eq.  Jur.  §  1415. 

121  High  Receivers,  §  401. 

122  3  Pom.  Eq.  Jur.  §  1415. 

123  Milwaukee,  &c.  Co.  v.   Soutter, 
2   Wall.    (U.    S.)    510,   523.     Under 
N.  Y.  statute  receiver  will  not  be 
appointed   at  suit  of  a  creditor  at 
large.    Lehigh,  &c.  Co.  v.  Central  R. 

'of  N.  J.  43  Hun  (N.  Y.)  546. 

^Heroy  v.  Gibson,  10  Bosw.  (N. 
Y.)  591;  Coates  v.  Wilkes,  92  N.  C. 
376;  Flint  v.  Webb,  25  Minn.  263. 

123  High  Receivers,  §  376;  ante, 
§  545,  and  cases  cited. 

126  See  ante,  §  546. 


§    549]  RECEIVERS.  784 

at  the  suit  of  mortgagees  or  bondholders  in  cases  of  default,127  in- 
solvency/28 fraud  or  mismanagement  by  officers,  or  the  commission 
or  some  other  act  that  endangers  the  mortgage  security.129  Exi- 
gencies may  arise  to  threaten  the  destruction  or  depreciate  the  value 
of  the  property  which  would  not  justify  foreclosure  and  which  might, 
before  cause  for  foreclosure  could  accrue,  materially  impair  the  pe- 
titioner's security,130  and  equity  many  times  intervenes  with  a  receiver 
in  such  cases;  or  in  cases  where  the  mortgage  covers  the  tolls  and 
income  of  the  road,  they  may  be  so  diverted  as  to  give  cause  for  the 
appointment  of  a  receiver.131  "Where  bonds  are  secured  by  a  deed  of 
trust  in  the  nature  of  a  mortgage,  it  is  frequently  provided  that  the 
mortgagee  or  trustee  may  take  possession  upon  default.  In  that  case, 
if  the  trustees,  being  denied  possession,  have  a  remedy  at  law  or  an 
ordinary  remedy  in  equity  to  obtain  possession,  they  must,  as  a  rule, 
first  pursue  such  remedy  before  a  receiver  will  be  appointed132  unless 
such  remedy  be  manifestly  useless133  or  such  a  condition  exist  as  would 
make  a  receiver  necessary  immediately  after  possession  should  be  ac- 
quired.134 Where  there  is  a  trust  deed  in  the  nature  of  a  mortgage,  the 
trustee  must  first  have  failed,  refused  or  neglected  to  perform  his  duty 
under  the  trust  deed  before  the  individual  bondholder  can  himself 
petition  for  a  receiver,  to  act  instead  of  the  trustee,  or  in  conjunction 
with  him,  but  where  the  trustee  has  failed  to  do  his  duty  the  bond- 
holder may  invoke  the  aid  of  a  receiver.135  And  it  has  been  held 
that  when  the  trustee,  on  being  applied  to  in  pursuance  of  the  terms 

127  See  ante,  §  545.  5  Chic.  L.  N.  110;  Tysen  v.  Wabash 

1MSee  ante,  §  543.  R.  Co.  8  Biss.   (U.  S.)  247;  Allen  v. 

129  See  ante,  §  547.  Dallas,  &c.  R.  Co.  3  Woods  (U.  S.) 

130  Brassey  v.  New  York,  &c.,R.  Co.  316,  326. 

19  Fed.  663,  17  Am.  &  Eng.  R.  Gas.  132  Rice  v.  St.  Paul,  &c.  R.  Co.  24 

285;    American  L.   &  T.  Co.  v.  To-  Minn.   464;    High  Receivers,   §   379. 

ledo,  &c.  R.   Co.  29   Fed.   416,  417;  133  Imperial  Mercantile  Credit  As- 

Kennedy  v.  St.  Paul,  &c.  Co.  2  Dill,  sociation  v.   Newry,  &c.   R.   Co.   Ir. 

(U.   S.)    448;    Whelpley  v.  Erie   R.  Rep.  2  Eq.  1. 

Co.    6    Blatch.    (U.    S.)    271;    Long  13*Crewe  v.  Edleston,  1  DeG.  &  J. 

Dock   Co.  v.   Mallery,  12  N.  J.   Eq.  93,   109,   per  Lord   Justice   Turner; 

431;    Mercantile   Trust   Co.   v.   Mis-  Allen  v.  Dallas,  &c.  R.  Co.  3  Woods 

souri,  &c.  R.  Co.  36  Fed.  221;  Penn-  (U.  S.)   316;  High  Receivers,  §  382. 

sylvania  Co.  &c.  v.  Jacksonville,  &c.  135  Shaw  v.  Norfolk,  &c.  R.  Co.  5 

R.  Co.  55  Fed.  131.  Gray    (Mass.)    162;    Wilmer  v.   At- 

131Dumville  v.  Ashbrooke,  3  Russ.  lanta,  &c.  R.   Co.  2  JWoods   (U.   S.) 

99,   note  *;    Hopkins  v.   Worcester,  409;   Sacramento,  &c.  R.  Co.  v.  Su- 

&c.    Proprietors,   L.   R.    6    Eq.    437;  perior  Ct.   55  Cal.  453;    Rice  v.  St. 

Ruggles  v.   Southern  Minn.   R.   Co.  Paul,  &c.  R.  Co.  24  Minn.  464. 


785  APPLICATION   OF  SECURED   CREDITORS.  [[§    549 

of  the  trust,  refuses  to  sue,  the  bondholders  may  themselves  sue,  but 
must  make  the  trustee,  the  corporation  and  all  other  bondholders 
parties.136  If  one  or  more  bondholders  have  a  right  to  institute  pro- 
ceedings they  necessarily  act  for  all  standing  in  a  similar  position 
and  cannot  secure  individual  relief  at  the  expense  of  others  holding 
the  same  security;137  and  it  has  been  held  that  where  the  sufficiency 
of  the  security  is  doubtful  all  other  creditors  similarly  situated  must 
have  notice  in  order  that  they  may  protect  their  interests.138  The  rule 
laid  down  by  Lord  Eldon  in  the  leading  English  case  has  been  fol- 
lowed in  some  states  as  the  fundamental  law  concerning  the  right  of 
a  junior  mortgagee  to  invoke  the  appointment  of  a  receiver,  but  it  is 
based  upon  the  common-law  theory  of  the  mortgage.  This  rule  is  to 
the  effect  that  while  the  first  mortgagee  is  in  possession  and  any  por- 
tion of  the  mortgage  debt  remains  unpaid,139  the  junior  mortgagee 
can  only  secure  the  appointment  of  a  receiver  by  paying  off  the  bal- 
ance of  the  first  mortgage  or  offering  to  pay  such  claim,  and  in  the 
general  application  of  the  rule  it  has  been  held  that  where  the  elder 
mortgagee  has  not  asserted  his  right  to  possession  or  to  the  rents 
and  income  the  junior  mortgagee  has  a  right  to  do  so;140  but  a  re- 
ceivership on  the  application  of  the  junior  mortgagee  will  not  operate 
to  defeat  the  priority  or  the  rights  of  the  elder  mortgagee,141  except 
that  in  some  cases  it  is  held  that  his  right  of  election  to  take  posses- 
sion is  defeated,142  the  court  having  taken  possession  for  all  parties. 

134  Commonwealth  v.  Susquehanna,  43;  Miltenberger  v.  Logansport,  &c. 

&c.  R.  Co.   122   Pa.   St  306,  15  Atl.  R.  Co.  106  U.  S.  286,  1  Sup.  Ct.  140. 

448,  1  L.  R.  A.  225.  U1  Berney  v.  Sewell,  1  Jac.  &  W. 

13T  Jackson   v.   Ludeling,   21   Wall.  627;   Cortleyeu  v.  Hathaway,  11  N. 

(U.    S.)    616;    Vose   v.    Bronson,    6  J.  Eq.  42,  64  Am.  Dec.  478. 

Wall.    (U.  S.)   452;   Stanton  v.  Ala-  142  Beverly    v.    Brooke,    4    Grattan 

bama,  &c.  R.  Co.  2  Woods   (U.  S.)  (Va.)    187;    High  Receivers,   §   689. 

523;    New   Orleans,    &c.    R.    Co.   v.  Lord  Eldon,  in  Berney  v.  Sewell,  1 

Parker,  143  U.  S.  42,  58,  12  Sup.  Ct.  Jac.  &  W.  627,  held  that  the  appoint- 

364;  Galveston  R.  Co.  v.  Cowdrey,  11  ment  of  a  receiver  at  the  applica- 

Wall.  (U.  S.)  459.  tion    of   a  junior   mortgagee    could 

138  Railway    Co.   v.    Orr,    18    Wall,  not  prejudice  the  right  of  the  elder 
(U.  S.)   471.     See  Overton  v.  Mem-  mortgagee  to  take  possession  at  any 
phis,  &c.  R.  Co.  10  Fed.  866;   Pen-  'time    and    thus    dispossess    the    re- 
nock  v.  Coe,  23  How.   (N.  Y.)   117;  ceiver.    It  seems,  however,  that  this 
Taylor  Priv.  Corp.  §  815.  doctrine  has  yielded  in  Virginia  to 

139  Berney  v.  Sewell,  1  Jac.  &  W.  the  generally  accepted  theory  that 
627.  a  receiver,  as  an  officer  of  the  court, 

"°Ranney  v.  Peyser,  83  N.  Y.  1;     takes  possession   for  all  parties   in 
Howell  v.  Ripley,  10  Paige  (N.  Y.)     interest  and  holds  such  possession 

until  his  function  is  discharged. 
ELL.  RAILROADS — 50 


§   549]  RECEIVERS.  786 

The  stringency  of  this  rule  has  been  relaxed  in  many  of  the  states,  in 
the  federal  courts  and  even  in  rare  English  cases,  and  where  a  clear 
case  is  made  showing  that  the  mortgagee  in  possession  is  irresponsible, 
is  committing  waste  or  material  injury,  endangering  the  security,  or 
is  fraudulently  or  carelessly  mismanaging  the  property  so  as  to  impair 
the  junior  mortgage,  a  receiver  may  be  appointed  at  the  suit  of  the 
junior  mortgagee.143  As  we  have  seen,  if  the  senior  mortgagee  be  in 
possession  and  conduct  the  business  so  as  to  imperil  the  second  mort- 
gage security  a  receiver  may  be  appointed,  or  if  he  have  the  right, 
by  the  terms  of  his  mortgage,  to  take  possession  and  refuses  or  neg- 
Jects  to  do  so,  the  junior  mortgagee  may  sometimes  invoke  the  aid 
of  a  receiver  to  secure  the  rents  and  profits.  So,  also,  in  cases  where 
the  mortgagor  retains  possession,  the  junior  mortgagee  may  some- 
times invoke  the  remedy  to  insure  the  proper  management  of  the 
property  and  to  compel  the  proper  application  of  the  revenues.  It  has 
been  held  that  at  the  petition  of  the  junior  mortgagee  a  receiver  may 
be  directed  to  borrow  money  in  order  to  pay  the  interest  on  first 
mortgage  bonds  where  default  would  precipitate  foreclosure  and  prove 
disastrous  to  the  second  mortgage  security144  and  a  receiver  has  been 
appointed  on  the  application  of  a  junior  mortgagee  to  operate  a  road 
and  apply  the  revenues  where  lack  of  harmony  existed  in  the  man- 
agement, and  without  the  rents  and  profits  the  security  was  wholly 
inadequate,  and  where,  under  the  existing  management,  the  junior 
mortgagee  might  be  postponed  indefinitely.145  The  interference  of 
the  court  under  such  circumstances  rests  upon  the  ground  of  neces- 
sity to  compel  a  proper  application  of  the  revenues,  and  prevent  dis- 
sipation of  the  property.146  In  case  the  mortgage  security  is  inade- 
quate, the  debtor  insolvent,  and  the  property  about  to  be  sold  for  taxes, 
a  junior  mortgagee,  whose  debt  is  not  due,  may,  pending  foreclosure, 
have  an  interlocutory  order  appointing  a  receiver  to  collect  rents.147 

143Bolles  v.  Duff,  35  How.  Pr.   (N.  144  Lloyd  v.  Chesapeake,  &c.  R.  Co. 

Y.)    481;    Williams  v.  Robinson,  16  65  Fed.  351. 

Conn.    517;    Beverly    v.    Brooke,    4  145  Mercantile    Trust    Co.    v.    Mis- 

Gratt.   (Va.)  187;  Meaden  v.  Sealey,  souri,  &c.  R.  Co.  36  Fed.  221,  1  L. 

6  Hare  620;  Codrington  v.  Parker,  16  R.  A.  397. 

Ves.  469;    Lloyd  v.  Passingham,  16  148Hiles  v.   Moore,  15   Beav.   175; 

Ves.    59;    Huguenin   v.    Baseley,   13  Bryan  v.  Cormick,  1  Cox  422;  High 

Ves.  105;   Corcoran  v.  Doll,  35  Cal.  Receivers,  §  682. 

476;    Rowe   v.   Wood,   2   Jac.   &  W.  147  Buchanan  v.  Berkshire,  &c.  Co. 

553;  Boston,  &c.  R.  Co.  v.  New  York,  96  Ind.  510,  531. 
&c.    R.    Co.    12    R.    I.    220;    Wiltsie 
Mortgage  Foreclosures,  §  680. 


787      APPOINTMENT   UPON   APPLICATION   OF   STOCKHOLDERS.        '[§    550 


§  550.  Appointment  upon  application  of  stockholders. — As  a  gen- 
eral rule  a  receiver  will  not  be  appointed  upon  the  application  of  a 
stockholder,  because  of  mismanagement  or  internal  dissensions,  until 
after  he  has  applied  to  the  directors  and  officers  of  the  corporation, 
and,  in  some  cases,  to  the  other  stockholders.148  But,  as  we  have  al- 
ready seen,149  where  the  directors  and  persons  in  charge  are  fraudu- 
lently depriving  the  minority  stockholders  of  their  rights,  dissipating 
the  property  and  the  like,  so  that  it  would  be  useless  to  apply  to  them 
for  relief,  and  especially  if  they  have  already  brought  about  a  state  of 
insolvency,  a  receiver  may  generally  be  appointed  on  the  application  of 
stockholders.150  So,  where  a  controlling  interest  in  the  stock  of  one 
railroad  company  was  purchased  by  another,  which  thus  secured  the 
election  of  a  board  of  trustees  consisting  of  its  own  officers  and  em- 
ployes, and  such  board  then  executed  an  illegal  traffic  agreement  or 
lease  whereby  the  entire  control  of  the  franchises  and  property  of  the 
former  company  was  surrendered  to  the  latter,  it  was  held  that 
minority  stockholders  of  the  former  could  maintain  a  bill  to  annul 
such  agreement  without  first  applying  to  the  board  of  trustees  for 
relief,  and  the  court  appointed  a  receiver  upon  their  application, 
which  also  showed  that  the  company,  as  managed  by  the  company 
owning  the  majority  of  its  shares,  could  not  pay  operating  expenses 
and  was  wholly  insolvent.151  But  a  receiver  will  not  be  appointed  upon 


148  Hand   v.    Dexter,   41    Ga.    454; 
Converse  v.   Dimock,   22   Fed.   573; 
Rathbone  v.  Parkersburg,  &c.  Co.  31 
W.  Va.  798,  8  S.  E.  570;   Strong  v. 
McCagg,  55  Wis.  624,  13  N.  W.  895; 
Pond  v.  Framingham,  &c.  R.  Co.  130 
Mass.  194;   Hawes  v.  Oakland,  104 
U.  S.  450.    See,  also,  Roman  v.  Wool- 
folk,  98  Ala.  219,  13  So.  212;  Hardee 
v.     Sunset    Oil    Co.     56     Fed.     51; 
Wheeler  v.  Pullman,  &c.  Co.  143  111. 
197,  32  N.  E.  420,  17  L.  R.  A.  818; 
Fluker  v.  Emporia  City  R.  Co.  48 
Kans.  577,  30  Pac.  18. 

149  Ante,  §§  543,  547. 

150  See    1    Morawetz    Priv.     Corp. 
§§  242,  245,  273;  Miner  v.  Belle  Isle, 
&c.  Co.  93  Mich.  97,  53  N.  W.  218, 
17   L.   R.   A.   412;    State   v.   Second 
Judicial  Dist.  Ct.  15   Mont.  324,  39 
Pac.  316,  27  L.  R.  A.  392,  48  Am.  St. 
682;    Featherstone  v.  Cooke,  L.  R. 


16  Eq.  298;  Albert  v.  State,  65  Ind. 
413;  Hall  v.  Astoria,  &c.  Co.  5  R.  & 
Corp.  L.  J.  412;  Wayne  Pike  Co.  v. 
Hammons,  129  Ind.  368,  27  N.  E. 
487;  Conro  v.  Gray,  4  How.  Pr.  (N. 
Y.)  166;  Hay  wood  v.  Lincoln  Lum- 
ber Co.  64  Wis.  639,  28  N.  W.  184; 
Porter  v.  Industrial,  &c.  Co.  5  Misc. 
(N.  Y.)  262,  25  N.  Y.  S.  328;  Towle 
v.  American,  &c.  Society,  60  Fed. 
131;  Lewis,  In  re,  52  Kan.  660,  35 
Pac.  287;  Schmidt  v.  Mitchell,  101 
Ky.  570,  41  S.  W.  929,  72  Am.  St. 
427;  Du  Puy  v.  Transportation,  &c. 
Co.  82  Md.  408,  33  Atl.  889,  34  Atl. 
910.  See,  also,  Culver  Lumber  Co. 
v.  Culver  (Ark.),  99  S.  W.  391.  Sev- 
eral of  these  decisions  are  based 
on  statutory  provisions,  but  the 
others  seem  to  have  been  decided  on 
general  principles  of  equity. 
151Earle  v.  Seattle,  &c.  R.  Co.  56 


551] 


EECEIVERS. 


788 


the  application  of  a  stockholder  acting  in  the  interest  of  persons 
hostile  to  the  company  ;152  and  mere  insolvency  is  generally  insufficient 
to  authorize  the  appointment  of  a  receiver  at  the  instance  of  a  stock- 
holder, in  the  absence  of  any  statutory  provision  upon  the  subject.153 
In  many  of  the  states,  however,  there  are  statutory  provisions  au- 
thorizing the  appointment  of  a  receiver,  in  certain  cases,  at  the  suit 
of  a  stockholder.154  A  former  shareholder  is  not  entitled  to  a  receiver, 
upon  the  ground  of  mismanagement  by  the  officers  and  directors,  after 
he  has  parted  with  all  his  interest  in  the  corporation  and  its  effects,155 
and  •  in  no  case  in  which  a  stockholder  seeks  the  appointment  of  a 
receiver  upon  the  ground  of  a  breach  of  trust  or  mismanagement  by 
those  in  control  will  the  court  appoint  a  receiver  if  he  has  participated 
or  acquiesced  for  a  long  time  therein.156 

§551.  Appointment  upon  application  of  corporation. — A  receiver 
may  be  appointed,  in  a  proper  case,  upon  the  application  of  the  com- 
pany itself.  Thus,  it  has  been  held  that  a  receiver  may  be  appointed 
upon  the  application  of  a  railroad  company  where  it  is  shown  that  the 
company  is  hopelessly  insolvent,  that  its  property  is  likely  to  be 
seized  by  different  courts  and  scattered  abroad,  its  assets  dissipated 
and  its  system  disrupted  and  broken  up  into  fragments  to  the  ir- 
reparable injury  and  damage  of  all  persons  having  an  interest  in  the 
road.157  It  is  said,  however,  that  the  court,  in  such  a  case,  cannot 


Fed.  909.  See,  also,  Evans  v.  Union 
Pac.  R.  Co.  58  Fed.  497;  Stevens  v. 
Davison,  18  Gratt.  (Va.)  819,  98  Am. 
Dec.  692.  But  compare  Wallace  v. 
Fierce-Wallace  Pub.  Co.  101  Iowa 
313,  70  N.  W.  216,  38  L.  R.  A.  122, 
63  Am.  St.  389.  In  Putnam  v.  Ruch, 
54  Fed.  216,  a  receiver  was  appoint- 
ed upon  the  application  of  a  stock- 
holder because  the  charter  had  been 
repealed. 

152  Belmont  v.  Erie  R.  Co.  52  Barb. 
(N.  Y.)  637. 

153  Merryman  v.  Carroll,  &c.  Co.  4 
Railw.  &  Corp.  L.  J.  12;  ante,  §  543. 
But  see  Cole  v.  Philadelphia,  &c.  R. 
Co.  140  Fed.  944. 

154  See    Supreme    Sitting,    &c.    v. 
Baker,  134  Ind.  293,  33  N.  E.  1128, 
20  L.  R.  A.  210,  and  note,  where  the 


statutes  are  referred  to  and  the  au- 
thorities reviewed. 

155  Smith  v.  Wells,  20  How.  Pr.  (N. 
Y.)  158.  See,  also,  Dimpfell  v.  Ohio, 
&c.  R.  Co.  110  U.  S.  209,  3  Sup.  Ct. 
573. 

158  Hyde  Park,  &c.  Co.  v.  Kerber,  5 
Bradw.  (111.)  132;  Gray  v.  Chaplin, 
2  Russ.  126;  Hager  v.  Stevens,  2 
Halst.  Ch.  374  (6  N.  J.  Eq.  374 );% 
Hood  v.  First  Nat.  Bank,  29  Fed." 
55;  Downing  v.  Dunlap,  &c.  R.  Co. 
93  Tenn.  221,  24  S.  W.  122. 

^Wabash,  &c.  R.  Co.  v.  Central 
T.  Co.  22  Fed.  272;  Quincy,  &c.  R. 
Co.  v.  Humphreys,  145  U.  S.  82,  12 
Sup.  Ct.  787;  Central  Trust  Co.  v. 
Wabash,  &c.  R.  Co.  29  Fed.  618,  623 ; 
Brassey  v.  New  York,  &c.  R.  Co.  19 
Fed.  663. 


789    APPOINTMENT  UPON  APPLICATION  OF  CORPORATION.     [§  551 

displace  vested  liens,  but  must  require  the  property  to  be  held  and 
preserved  by  the  receiver  for  the  benefit  of  all  concerned,  as  their 
interests  may  appear.158  It  undoubtedly  requires  a  very  strong  show- 
ing to  justify  the  appointment  of  a  receiver  upon  the  application  of 
the  corporation,  but  we  think  there  are  cases  in  which  the  court  has 
the  power  to  make  the  appointment,  and  is  justified  in  exercising  it. 
There  are  decisions,  however,  which  seem  to  hold  that  a  receiver  can 
never  be  appointed  upon  the  application  of  the  corporation.  In  one  of 
them  it  is  said  that  a  statutory  provision  that  no  receiver  of  a  cor- 
poration shall  ever  be  appointed  upon  its  own  petition  is  but  a  legisla- 
tive declaration  of  the  rule  recognized  by  courts  of  equity.159  In  an- 
other case  it  is  said :  "That  a  court  of  equity  has  no  inherent  power, 
except  in  some  few  cases  of  particular  jurisdiction,  to  appoint  a  re- 
ceiver, except  as  an  incident  to  and  in  a  suit  pending,  has  hitherto, 
with  the  exception  of  the  Wabash  case,160  been  a  universally  accepted 
doctrine ;  and  outside  of  that  case  the  doctrine  that  a  court  of  equity, 
without  statutory  authority,  has  jurisdiction,  upon  the  application 
of  an  insolvent  corporation,  to  take  charge  and  administer  its  affairs 
through  a  receiver,  not  only  has  no  support,  but  whenever  suggested 
has  been  repudiated."161  It  is  doubtless  the  general  rule  that  there 

^Quincy,    &c.    R.    Co.    v.    Hum-  in  the  preceding  note,  as  well  as  in 

phreys,   145  U.   S.   82,  12   Sup.   Ct.  the  case  now  under  consideration. 
787.  161  State  v.  Ross,  122  Mo.  435,  25  S. 

158  Texas,   &c.   R.    Co.   v.    Gay,    86  W.   947,   23   L.   R.   A.    534.     Citing 

Tex.  571,  26  S.  W.  599,  25  L.  R.  A.  Jones  v.  Leadville,  10  Colo.  464,  -17 

52,  citing  Robinson  v.   Hadley,   11  Pac.  272;  French  Bank  Case,  53  Cal. 

Beav.  614;  Leddel  v.  Starr,  19  N.  J.  495;    Smith  v.   Los  Angeles   Super. 

Eq.  159;  Marr  v.  Littlewood,  2  Myl.  Ct.  97  Cal.  348,  32  Pac.  322;   Hugh 

&    Cr.    455.      See,   also,   Kimball   v.  v.  McRea,  Chase,  Dec.  466,  Fed.  Gas. 

Goodburn,  32  Mich.  10.     In  another  No.  6840;  People  v.  St.  Clair  Circuit 

case  the  same   court  suggests  that  Judge,    31    Mich.    456;    Kimball    v. 

the  directors,  as  trustees  for  stock-  Goodburn,  32  Mich.  10 ;  Neall  v.  Hill, 

holders  and  creditors,  would  be  the  16  Cal.  145,  76  Am.  Dec.  508;  French 

proper  parties  to  institute  the  suit.  v.  Gifford,  30  Iowa  148;  Whitehead 

Mcllhenny  v.  Binz,  80  Tex.  1,  13  S.  v.  Wooten,  43  Miss.  523;   Attorney- 

W.  655,  26  Am.  St.  705.  General  v.  Utica  Ins.  Co.  2  Johns. 

180  Wabash,  &c.  R.  Co.  v.  Central  ^Ch.  371;  Whitfleld,  Ex  parte,  2  Atk. 

T.  Co.  22  Fed.  269,  and  Central  Trust  '315,  330;  Wait  Insolv.  Corp.  §  183; 

Co.  v.  Wabash,  &c.  R.  Co.  29  Fed.  Gluck  &  B.  Receivers,   §   27.     See, 

618.     These  cases,  which  we  have  also,  Vila  v.  Grand  Island,  &c.  Co. 

already  cited,   go   further,   perhaps,  68  Neb.  222,  94  N.  W.  136,  97  N.  W. 

than  the  others  heretofore  cited  in  613,  63  L.  R.  A.  791,  110  Am.  St. 

the  same  connection,  and  are  criti-  400. 
cized  in  one  of  the  Texas  cases  cited 


§    552]  RECEIVERS.  790 

must  ordinarily  be  a  pending  suit,  and  that  a  corporation  cannot  have 
a  receiver  appointed  on  its  ex  parte  application  alone,  and  it  may  be 
true  that  the  "Wabash  Case,"  in  so  far  as  it  seems  to  authorize  the 
appointment  of  a  receiver,  in  the  absence  of  a  pending  suit,  violates 
the  general  rule,  but  it  is  said  that  there  is  no  rule  without  exceptions, 
and,  in  any  event,  we  think  that  where  a  suit  is  pending,  as,  for  in- 
stance, where  all  interested  persons  are  made  parties  and  the  com- 
pany asks  other  relief  in  addition  to  the  appointment  of  a  receiver, 
the  facts  may  be  such  and  the  emergency  so  great  as  to  require  the 
appointment  upon  the  application  of  the  company.162 

§  552.  What  court  may  appoint. — The  power  of  appointing  a  re- 
ceiver is  generally  exercised  only  by  courts  having  original  jurisdic- 
tion.163 But  where  an  appellate  court  has  jurisdiction  of  the  suit  by 
appeal,  and  of  the  parties,  it  may  appoint  a  receiver  of  the  property 
in  controversy  pending  the  appeal,  if  necessary  in  order  to  protect  its 
appellate  jurisdiction,  or  to  make  its  decree  effective.164  On  the  other 
hand,  it  has  been  held  that  where  a  mortgage  is  foreclosed  and  an 
appeal  taken  from  the  decree  of  foreclosure,  the  suit  may  be  consid- 
ered as  still  pending  for  the  purpose  of  an  application  for  a  receiver 
of  the  rents  and  profits,  and  that  the  court  that  rendered  the  decree 
is  the  proper  court  to  hear  and  determine  the  application.165  The  gen- 
eral rule  is  that  an  appeal  removes  the  entire  case,  or  so  much,  as  is 
appealed  to  the  appellate  court,  but  there  may  be  collateral  or  inde- 
pendent matters,  distinct  from  the  questions  involved  in  the  appeal, 
which  are  not  taken  from  the  jurisdiction  of  the  trial  court.166  Owing 
to  the  fact  that  all  long  lines  of  railroad  pass  through  many  counties, 
and  frequently  through  several  states,  and  that  the  immediate  juris- 

162  See  Dickerman  v.  Northern  T.  95  U.  S.  1;  Pacific  R.  Co.  v.  Missouri 

Co.  176  U.  S.  181,  20  Sup.  Ct  311;  Pacific  R.  Co.  15  Am.  R.  80;  Allen 

Park  v.  New  York,  &c.  R.  Co.  70  v.  Harris,  4  Lea  (Tenn.)  190. 

Fed.  641.  165Brinkman  v.  Ritzinger,  82  Ind. 

183  Pacific  R.  Co.  v.  Ketchum,  95  U.  "358.  See,  also,  Beard  v.  Arbuckle,  19 

S.  1.  "W.  Va.  145;  Grantham  v.  Lucas,  15 

164  West     v.     Weaver,     3     Heisk.  W.  Va.  425,  431;  Lottimer  v.  Lord, 

(Tenn.)  589.     See  Kerr  v.  White,  7  4  E.  D.  Smith   (N.  Y.)   183;   Penn 

Baxt.     (Tenn.)     394.      For    a    case  Mut.   Ins.  Co.  v.  Semple,  38  N.  J. 

where,  under  the  circumstances,  the  Eq.  314.     But  compare   Havemeyer 

Supreme  Court  of  the  United  States  v.   Superior  Court,   84   Cal.   327,   24 

declined  to  appoint  a  receiver,  but  Pac.  121,  10  L.  R.  A.  627,  18  Am.  St. 

without  denying  its  jurisdiction  to  192. 

do  so,  see  Pacfiic  R.  Co.  v.  Ketchum,  1M  Elliott  App.  Proc.  §§  541-546. 


791  COURT  FIRST  OBTAINING  JURISDICTION  RETAINS  IT.         [§'   553 

diction  of  a  circuit  court  of  the  United  States  is  usually  more  ex- 
tensive than  that  of  the  local  courts,  and  because  it  is  desirable  to 
have  the  receiverships  of  the  various  parts  of  a  railroad  controlled  by 
courts  which  administer  a  uniform  system  of  laws  and  are  governed 
.by  the  same  rules  when  sitting  as  courts  of  equity,  applications  for 
the  appointment  of  receivers  for  railroad  corporations  are  usually 
made  to  the  federal  courts.  These  courts  are  controlled  by  the  prin- 
ciples of  equity  as  developed  in  the  high  court  of  chancery  of  Eng- 
land, which  principles,  indeed,  are  followed  in  the  interpretation  and 
construction  of  the  various  statutes  that  have  been  enacted  to  regulate 
the  appointment  of  receivers.167  In  the  states  in  which  courts  of  law 
and  courts  of  equity  remain  distinct,  the  power  to  appoint  receivers 
is  usually  in  the  courts  of  chancery,  while  in  the  code  states  it  is 
usually  in  the  courts  of  general  jurisdiction  having  both  law  and 
equity  jurisdiction.  The  particular  court  having  jurisdiction  to  ap- 
point a  statutory  receiver  of  a  corporation  for  insolvency,  non-user 
or  abuse  of  its  corporate  rights,  or  any  other  cause  leading  to  its  dis- 
solution, is  generally  determined  by  the  statutory  law  in  the  several 
states  having  statutes  upon  this  subject.168  It  was  formerly  the  prac- 
tice, in  many  cases,  to  refer  the  matter  to  a  master  to  select  the  re- 
ceiver,169 but  this  practice  is  seldom  resorted  to  at  the  present  time, 
and,  in  most  jurisdictions,  the  appointment  must  be  made  by  the 
court.  A  court  commissioner,  it  has  been  held,  has  no  jurisdiction  to 
appoint  a  receiver.170  Where  a  suit  is  pending  in  a  federal  court  for 
the  foreclosure  of  a  railroad  mortgage  and  the  appointment  of  a  re- 
ceiver, it  will  take  jurisdiction  of  another  bill  filed  by  lienholders, 
without  regard  to  the  citizenship  of  the  parties,  on  the  ground  that 
their  right  to  enforce  their  liens  in  the  state  court  will  be  cut  off 
when  the  federal  court  takes  possession  of  the  property,  and  hence 
their  suit  may  be  regarded  as  an  ancillary  suit.171 

§  553.     Court  first  obtaining  jurisdiction  retains  it — Conflict  of 
jurisdiction. — The  court  which  first  acquires  jurisdiction  of  an  action 

167  It  has  been  held  that  the  fed-  169  See  Wiltsie  Mortg.  Foreclosures, 

eral  courts  will  follow  the  supreme  §§  629,  640-644. 

court  of  the  state  in  its  interpreta- 1  17°  Quiggle  v.  Trumbo,  56  Cal.  626. 

tion  of  a  state  statute,  but  that  the  in  Central  Trust  Co.  v.  Bridges,  57 

Texas  satute  does  not  apply  to  re-  Fed.    753.      See,    also,    Conwell    v. 

ceivers  of  a  federal  court.     Guar-  White  Water  Canal  Co.  4  Biss.   (U. 

anty  Trust  Co.  v.  Galveston  City  R.  S.)    195;   Krippendorf  v.  Hyde,  110 

Co.  107  Fed.  311.  U.  S.  276,  4  Sup.  Ct.  27;  Pacific  R. 

163Stimson  Am.  St.  (1892)  §§8332,  Co.  v.  Missouri  Pac.  R.  Co.   1  Mc- 

8335,  8360,  8901.  Crary  647,  3  Fed.  772. 


553] 


RECEIVERS. 


792 


for  the  appointment  of  a  receiver  will  retain  it  to  the  end  of  the  liti- 
gation, to  the  exclusion  of  other  courts  of  co-ordinate  jurisdiction.172 
One  court  will  not  attempt,  by  a  writ  of  mandamus,  to  control  the 
action  of  receivers  appointed  by  another  court.173  A  state  court  will 
refuse  to  entertain  a  suit  to  foreclose  against  property  in  the  hands  of 
a  federal  court,174  and  a  federal  court  will  not  entertain  a  bill  to 
compel  an  accounting  by  a  receiver  who  is  acting  under  the  order  of 
a  state  court  by  which  he  was  appointed.175  Nor  will  a  federal  court 
enjoin  a  receiver  in  possession  of  a  railroad  under  the  appointment  of 
a  state  court  from  issuing  receiver's  certificates,  or  restrain  the  parties 
from  carrying  out  an  agreement  sanctioned  by  the  state  court.178  But 
the  pendency  of  an  action  in  a  state  court  to  set  aside  an  assignment 
as  fraudulent  and  have  a  receiver  appointed  has  been  held  to  be  no 
bar  to  a  creditors'  bill  in  a  federal  court  by  parties  not  before  the  state 
court.177  Where  a  receiver  has  been  regularly  appointed  and  has  ob- 
tained possession  of  the  property,  he  cannot  be  interfered  with  by 
the  officers  of  another  court  in  which  a  second  suit  has  been  begun.178 
Indeed  it  would  seem  to  be  the  better  law  that  it  is  not  necessary  that 


172Gaylord  v.  Fort  Wayne,  &c.  R. 
Co.  6  Biss.  (U.  S.)  286;  Bill  v.  New 
Albany,  &c.  R.  Co.  2  Biss.  (U.  S.) 
390;  Ohio,  &c.  R.  Co.  v.  Fitch,  20 
Ind.  498;  McCarthy  v.  Peake,  18 
How.  Pr.  138,  9  Abb.  Pr.  (N.  Y.) 
164;  O'Mahony  v.  Belmont,  37  N.  Y. 
Super.  Ct.  380;  Pugh  v.  Brown,  19 
Ohio  202,  211;  Stearns  v.  Stearns, 
16  Mass.  167;  Judd  v.  Bankers',  &c. 
Co.  31  Fed.  182;  Riesner  v.  Gulf,  &c. 
R.  Co.  89  Tex.  656,  36  S.  W.  53,  33 
L.  R.  A.  171,  59  Am.  St.  84;  High 
Receivers,  §§  49,  50. 

173  State  v.  Marietta,  &c.  R.  Co.  35 
Ohio  St.  154.     See,  also,  Shields  v. 
Coleman,  157  U.  S.  168,  15  Sup.  Ct. 
570. 

174  Milwaukee,  &c.   R.   Co.  v.  Mil- 
waukee, '  &c.    R.    Co.    20    Wis.    165 
(174),  88  Am.  Dec.  735.     See,  also, 
State  v.  Miller,  54  Kans.  244,  38  Pac. 
269.    But  compare  Attorney-General, 
In  re,  113  Wis.  623,  88  N.  W.  912. 

17BConkling  v.  Butler,  4  Biss.  (U. 
S.)  22. 


178Reinach  v.  Atlantic,  &c.  R.  Co. 
58  Fed.  33.  See,  generally,  as  to 
when  federal  court  will  not  inter- 
fere with  or  displace  receiver  ap- 
pointed by  state  court,  Lancaster  v. 
Asheville  St.  R.  Co.  90  Fed.  129; 
Central  Trust  Co.  v.  South  Atlantic, 
&c.  R.  Co.  57  Fed.  3;  Davis  v.  Rail- 
road Co.  1  Woods  (U.  S.)  661;  Wood 
v.  Oregon,  &c.  Co.  55  Fed.  901. 

177Rejall  v.  Greenhood,  60  Fed. 
784.  But  see  Central  Trust  Co.  v. 
South  Atlantic,  &c.  R.  Co.  57  Fed.  3. 

178  Young  v.  Montgomery,  &c.  R. 
Co.  2  Woods  (U.  S.)  606;  Wilmer  v. 
Atlanta,  &c.  R.  Co.  2  Woods  (U.  S.) 
409;  Fort  Wayne,  &c.  R.  Co.  v.  Mel- 
lett,  92  Ind.  535;  O'Mahony  v.  Bel- 
mont 5  J.  &  S.  (N.  Y.)  380.  Prop- 
erty in  the  hands  of  a  receiver  of 
a  state  court  cannot  be  levied  upon 
by  the  United  States  marshal  in  be- 
half of  a  judgment  creditor.  Wis- 
wall  v.  Sampson,  14  How.  (U.  S.) 
52. 


793 


COURT  FIRST  OBTAINING  JURISDICTION  RETAINS  IT.         [§'   553 


the  court  which  first  takes  jurisdiction  of  the  case,  shall  also  first 
take,  by  its  officers,  actual  possession  of  the  property  in  controversy, 
and  that  it  is  sufficient  that  it  shall  have  jurisdiction  of  the  subject- 
matter  and  of  the  parties,  and  that  its  aid  shall  have  been  regularly 
invoked.179  The  fact  that  an  action  covering  substantially  the  same 
issues  is  begun  in  a  state  court  after  the  filing  of  a  bill  against  a 
railroad  company  in  the  United  States  Circuit  Court  in  which  the  ap- 
pointment of  a  receiver  is  asked  for,  but  before  an  appointment  is 
made,  and  that  the  state  court  proceeds  to  appoint  a  receiver  and  to 
put  him  in  possession  of  the  property,  will  not  affect  the  jurisdiction 
of  the  circuit  court;  but  it  will  proceed  in  due  course  to  appoint  a 
receiver,  if  occasion  for  such  action  is  shown,  and  will  assert  its  juris- 
diction.180 And  it  is  even  held  that  after  the  technical  but  not  neces- 


179  Illinois  Steel  Co.  v.  Putnam,  68 
Fed.  515;  Adams  v.  Mercantile 
Trust  Co.  66  Fed.  617;  May  v.  Print- 
up,  59  Ga.  128;  Union  Trust  Co.  v. 
Rockford,  &c.  R.  Co.  6  Biss.  (U.  S.) 
197,  per  Blodgett,  J.;  Kerp  v.  Michi- 
gan, &c.  R.  Co.  6  Chicago  Leg.  News 
101;  Sedgwick  v.  Menck,  6  Blatch. 
(U.  S.)  156.  But  see  Moran  v. 
Sturges,  154  U.  S.  256,  14  Sup.  Ct. 
1019.  In  Texas  it  is  held  that  on 
an  appeal  from  an  order  of  a  state 
court  appointing  a  receiver  of  a  rail- 
road, where  it  appears  that  the  fed- 
eral court  had  already  appointed  a 
receiver  for  such  road,  but  it  does 
not  appear  when  the  suit  in  which 
he  was  appointed  was  instituted,  the 
order  of  the  state  court  will  not  be 
disturbed.  Texas  Trunk  R.  Co.  v. 
State,  83  Tex.  1,  18  S.  W.  199;  Wil- 
mer  v.  Atlanta,  &c.  Co.  2  Woods  409. 
(Woods,  J.)  In  New  York,  under 
the  code,  the  court  has  jurisdiction 
of  a  cause  and  all  the  subsequent 
proceedings  from  the  time  process 
is  served  or  a  provisional  remedy  is 
allowed,  and  a  second  court  will  de- 
cline to  take  jurisdiction  or  appoint 
a  receiver  where  the  first  court  has 
granted  an  injunction.  McCarthy  v. 
Peake,  18  How.  Pr.  138;  High  Re- 


ceivers, §  49.  In  Gaylord  v.  Fort 
Wayne,  &c.  R.  Co.  6  Biss.  (U.  S.) 
286,  Drummond,  J.,  says:  "The 
principle  upon  this  subject  is  prop- 
erly stated  in  the  opinion  of  the 
circuit  court  of  the  northern  district 
of  Illinois,  in  the  case  of  the  U.  T. 
Co.  v.  Rockford,  R.  Co.,  reported  in 
7  Chicago  Legal  News  33:  that  the 
court  which  first  takes  cognizance 
of  the  controversy  is  entitled  to  re- 
tain jurisdiction  to  the  end  of  the 
litigation,  and  incidentally  to  take 
the  possession  or  control  of  the  res, 
the  subject-matter  of  the  contro- 
versy, to  the  exclusion  of  all  inter- 
ference from  other  courts  of  con- 
current jurisdiction,  and  that  the 
proper  application  of  this  principle 
does  not  require  that  the  court 
which  first  takes  jurisdiction  of  the 
controversy  shall  also  first  take  the 
actual  possession  of  the  thing  in 
controversy." 

180  Memphis  v.  Dean,  8  Wall.  (U. 
SO  64;  Jones  Corp.  Bonds,  §  463. 
In  Bill  v.  New  Albany,  &c.  R.  Co,  2 
Biss.  (U.  S.)  390,  it  was  held  that 
such  action  on  the  part  of  the  state 
court  would,  if  justice  required  it, 
be  treated  as  an  interference,  and 
the  federal  court  would  refuse  to 


RECEIVERS. 


794 


sarily  final  dismissal  of  a  suit  in  the  federal  court,  a  suit  in  a  state 
court  for  the  appointment  of  a  receiver  will  not  supersede  the  juris- 
diction of  the  federal  court  as  to  any  further  matters  connected  with 
the  receivership  in  that  court.181  It  has  been  held,  however,  that  when 
the  second  suit  relates  to  a  different  cause  of  action,  this  rule  does 
not  apply,  although  the  thing  which  the  litigation  concerns  is  the 
same  in  both  cases,  and  that,  in  such  a  case,  priority  of  possession 
determines  the  priority  of  right  to  hold  the  property.182  Where  a  re- 
ceiver appointed  by  a  state  court  in  a  suit  between  the  railroad  com- 
pany and  a  judgment  creditor  was  in  actual  possession,  it  was  held 
that  the  United  States  Circuit  Court  had  no  jurisdiction  to  compel 
such  receiver  to  surrender  possession  to  a  receiver  appointed  by  it  in 
a  suit  between  the  mortgage  creditors  and  the  company,  instituted  be- 
fore the  suit  in  the  state  court  was  begun.183  The  soundness  of  this 


recognize  a  decree  of  foreclosure 
rendered  in  the  state  court  in  an 
action  brought  after  suit  was  be- 
gun in  the  federal  court,  but  before 
final  adjudication. 

181  Union    Trust   Co.   v.    Rockford, 
&c.  R.  Co.  6  Biss.  (U.  S.)  197. 

182  Memphis  v.  Dean,  8  Wall.    (U. 
S.)    64.     In  Wilmer  v.  Atlanta,  &c. 
R.  Co.  2  Woods  (U.  S.)  409,  Woods, 
J.,  in  taking  the  opposite  view,  says: 
"It  is  well  settled  that  realty  out  of 
the  state  may  be  reached  by  acting 
on  the  person.     Mitchell  v.  Bunch, 
2    Paige   Ch.    (N.   Y.)    606,   22   Am. 
Dec.   669;    Ramsey  v.  Brailsford,   2 
Des.  (S.  Car.)  582,  note  2  Am.  Dec. 
698.     In  the  case  in   Paige  it  was 
held  that  if  the  person  of  the  de- 
fendant  is   within    its   jurisdiction, 
the  court  has  jurisdiction  as  to  his 
property  situated   without  such  ju- 
risdiction.    When    the    property   is 
situated  outside  the  territorial  juris- 
diction of  the  court,  the  court  may 
require  assignments  to  be  made  by 
the  defendant  to  the  receiver.  *  *  * 
Especial   attention   is  called  to  the 
cases    of   Wiswall    v.    Sampson,    14 
How.     (N.    Y.)     52;    Chittenden    v. 
Brewster,  2  Wall.   (U.  S.)   191;  Bill 


v.  The  New  Albany  R.  Co.  2  Biss. 
(U.  S.)  390.  An  examination  of 
the  cases  cited  will  show  that  actual 
seizure  of  property  has  not  been 
considered  necessary  to  the  jurisdic- 
tion of  the  court  in  a  case  where 
the  possession  of  the  property  is 
necessary  to  the  relief  sought.  The 
commencement  of  the  action  and 
service  of  process,  or,  according  to 
some  of  the  cases,  the  simple  com- 
mencement of  the  suit  by  the  filing 
of  the  bill,  is  sufficient  to  give  the 
court  jurisdiction  to  the  exclusion 
of  all  other  courts.  *  *  *  If 
this  court,  upon  the  bill  filed  in 
this  case,  has  the  power  to  take  pos- 
session of  the  entire  property  grant- 
ed by  the  trust  deed,  as  we  have 
already  decided  it  has,  then  the  fil- 
ing of  the  bill  asking  this  court  to 
take  possession  of  and  administer 
the  trust  property,  and  the  service 
of  process  excluded  the  jurisdiction 
of  all  other  courts  to  take  posses- 
sion of  and  administer  the  same 
property  or  any  part  thereof."  But 
see  opinion  of  Bradley,  J.,  in  next 
note. 

183  Wilmer  v.  Atlanta,  &c.  R.  Co.  2 
Woods    (U.    S.)    409,    425,    per   Mr. 


795 


COURT  FIRST  OBTAINING  JURISDICTION  RETAINS  IT.         [§'   553 


decision  has  many  times  been  questioned,184  although  it  has  received 


Justice  Bradley.  In  refusing  a  writ 
of  assistance  to  put  the  receiver  ap- 
pointed by  Judge  Woods  of  the  fed- 
eral court  in  possession  of  the  prop- 
erty, Mr.  Justice  Bradley  said:  "It 
is  too  well  settled  to  admit  of  con- 
troversy that  where  two  courts  have 
concurrent  jurisdiction  of  a  subject 
of  controversy  the  court  which  first 
assumes  jurisdiction  has  it  exclu- 
sive of  the  other.  But  where  the 
objects  of  the  suit  are  different,  this 
rule  does  not  apply,  although  the 
thing  about  or  in  reference  to  which 
the  litigation  is  had  is  the  same  in 
both  cases.  *  *  *  The  contro- 
versy not  being  the  same  nor  the 
parties  the  same,  there  is  no  con- 
flict as  to  the  question  or  cause. 
But  *  *  *  there  has  arisen  a 
conflict  of  jurisdiction  as  to  the 
thing  or  subject-matter.  *  *  * 
The  test,  I  think,  is  this:  Not 
which  action  was  first  commenced, 
nor  which  cause  of  action  has  pri- 
ority or  superiority,  but  which 
court  first  acquired  jurisdiction 
over  the  property.  If  the  Fulton 
county  court  had  the  power  to  take 
possession  when  it  did  so,  and  did 
not  invade  the  possession  or  juris- 
diction of  this  court,  its  possession 
will  not  be  interfered  with  by  this 
court;  the  parties  must  either  go  to 
that  court  and  pray  for  the  removal 
of  its  hand,  or,  having  procured  an 
adjudication  of  their  rights  in  this 
court  must  wait  until  the  action  of 
that  court  has  been  brought  to  a 
close  and  judicial  possession  has 
ceased.  Service  of  process  gives  ju- 
risdiction over  the  person.  Seizure 
gives  jurisdiction  over  the  property; 
and  until  it  is  seized,  no  matter  when 
the  suit  was  commenced,  the  court 
does  not  have  jurisdiction.  The  al- 
leged collusion  and  fraud  of  the  par- 


ties cannot  alter  the  case.  It  is  a 
question  between  the  two  courts; 
and  we  must  respect  the  possession 
and  jurisdiction  of  the  sister  court. 
We  cannot  take  the  property  out  of 
its  hands  unless  it  has  first  wrong- 
fully taken  it  out  of  our  hands. 
This,  as  we  have  shown,  has  not 
been  done.  The  application  for  a 
writ  of  assistance  and  for  an  at- 
tachment must  be  denied."  See, 
also,  Barton  v.  Keyes,  1  Flippin  (U. 
S.)  61;  Levi  v.  Columbia,  &c.  Ins. 
Co.  1  Fed.  206;  Walker  v.  Flint,  7 
Fed.  435;  Erwin  v.  Lowry,  7  How. 
(U.  S.)  172;  Griswold  v.  Central, 
&c.  R.  Co.  9  Fed.  797;  Covell  v. 
Heyman,  111  U.  S.  176,  3  Sup.  Ct. 
355;  Heidritter  v.  Oilcloth  Co.  112 
U.  S.  294,  5  Sup.  Ct.  135;  Beach 
Mod.  Eq.  §  723. 

1S4  See  May  v.  Printup,  59  Ga.  128, 
where  it  was  held  that  the  filing  of 
a  bill  is  sufficient  to  give  jurisdic- 
tion of  the  thing  in  controversy,  in 
a  case  where  the  only  recovery  can 
be  out  of  the  property;  and  that  a 
state  court  which  takes  possession 
of  a  railroad  pending  an  application 
to  the  United  States  Circuit  Court 
for  the  appointment  of  a  receiver 
should  surrender  such  possession 
when  it  is  shown  that  the  suit  in 
the  state  court  was  filed  by  collu- 
sion of  the  parties  after  the  suit  in 
the  federal  court  was  begun.  In 
Adams  v.  Mercantile  Trust  Co.  66 
Fed.  617  (C.  C.  of  App.),  Pardee,  J., 
says,  concerning  the  opposing  views 
pf  Judge  Woods  and  Mr.  Justice 
Bradley,  Wilmerv.  Atlanta,  &c.  Co. 
supra:  "The  views  expressed  by 
Judge  Woods  have  been  accepted 
and  followed  in  this  circuit,  at  least, 
and  we  fully  concur  therein,  as  a 
correct  exposition  of  the  law,  and 
one  particularly  applicable  to  the 


§  553] 


RECEIVERS. 


796 


recognition  in  some  jurisdictions.185  It  has  been  held,  however,  that 
the  general  rule  that  the  court  which  first  takes  cognizance  of  a  suit 
has  the  exclusive  right  to  decide  every  question  arising  therein,  is  sub- 
ject to  limitations,  that  it  is  only  when  property  is  in  possession  of  the 
court,  either  actually  or  constructively  that  it  can  be  protected  from 
the  process  of  other  courts,186  and  that  other  courts  may  take  any 
action  which  does  not  amount  to  an  interference  with  the  possession 
of  the  first  court  acquiring  jurisdiction.187  So,  in  a  comparatively 
recent  case,188  it  was  held  that  the  fact  that  a  prior  suit  for  foreclosure 


present  case;  while  the  decision  of 
Mr.  Justice  Bradley,  doubted  by 
himself,  is  open  to  the  objection 
that  thereby  jurisdiction  is  fre- 
quently made  to  depend  upon  a  race 
between  marshals  and  sheriffs,  like- 
ly to  result  in  unseemly  controver- 
sies between  the  state  and  federal 
courts."  In  Illinois  Steel  Co.  v.  Put- 
nam (C.  C.  of  App.),  68  Fed.  515, 
517,  McCormick,  J.,  says:  "Where 
a  bill  in  equity  brings  under  the  di- 
rect control  of  the  court  all  the 
property  and  estate  of  the  defend- 
ants, *  *  *  and  the  possession 
and  control  of  the  property  are  nec- 
essary to  the  exercise  of  the  juris- 
diction of  the  court,  the  filing  of  the 
bill  and  service  of  process  is  an 
equitable  levy  on  the  property,  and 
pending  the  proceedings  such  prop- 
erty may  properly  be  held  to  be  in 
gremio  legis.  The  actual  seizure  of 
the  property  is  not  necessary  to  pro- 
duce this  effect,  where  the  posses- 
sion of  the  property  is  necessary  to 
the  granting  of  the  relief  sought. 
In  such  cases  the  commencement  of 
the  suit  is  sufficient  to  give  the  court 
whose  jurisdiction  is  invoked  the 
exclusive  right  to  control  the  prop- 
erty." 

185  Merchants',  &c.  Bank  v.  Trus- 
tees, 63  Ga.  549;  East  Tenn.  &c.  R. 
Co.  v.  Atlanta,  &c.  R.  Co.  49  Fed. 
608. 

188  Buck  v.  Colbrath,  3  Wall.  (U. 
S.)  334. 


187  Andrews  v.   Smith,  19  Blatchf. 

(U.  S.)  100,  5  Fed.  833.  The  ap- 
pointment of  a  receiver  by  one 
court  will  not  be  regarded  as  an  in- 
terference with  the  jurisdiction  of 
another  court,  which  has  granted 
an  injunction  concerning  property 
without  taking  it  into  possession. 
San  Antonio,  &c.  R.  Co.  v.  Davis 

(Tex.  Civ.  App.),  30  S.  W.  693. 

188  East  Tennessee,   &c.   R.   Co.   v. 
Atlanta,  &c.  R.  Co.  49  Fed.  608.    The 
court   said:     "The    rule    upon    that 
subject   in    this   state    is    deducible 
from   the  decision   of  the   supreme 
court    in    Merchants',    &c.    Bank   v. 
Trustees,    63    Ga.    549,    where    the 
court  uses   this   language:     'But   it 
would  seem  here  that  the  stockhold- 
ers' bill  has  been  pending  here  for 
a  long  time  in  the  circuit  court  of 
the  United  States,  and  no  receiver 
is    yet    appointed.      Perhaps    none 
ever  will  be.     Is  the  judgment  cred- 
itor to  wait  until  one  is  to  be  ap- 
pointed?    He   is   not   even   in   this 
case  made  a  party  to  the  bill  in  the 
United    States   court.      If   he   were, 
and  if  the  bill  there  filed  was  simi- 
lar to  this  in  review  here,  and  could 
accomplish  the  same  end,  to  wit,  the 
collection  of  this  debt  by  the  judg- 
ment creditor,  having  the  final  proc- 
ess of  the  state  court  in  his  hands, 
even     then    we    should    rule    that 
neither  law,  nor  equity,  nor  comity 
would   require  the  equity   court  to 
wait  upon  the  United  States  court 


797  EXTRATERRITORIAL  JURISDICTION.  [§    554 

was  pending  in  the  state  court,  with  no  immediate  purpose  to  ask 
for  a  receiver,  did  not  prevent  the  federal  court  from  taking  jurisdic- 
tion and  appointing  a  receiver,  and  that  after  such  receiver  had  taken 
possession  he  could  not  be  required  to  deliver  possession  to  a  receiver 
afterwards  appointed  by  the  state  court  in  the  prior  suit. 

§  554.  Extraterritorial  jurisdiction. — A  court  of  equity  cannot, 
as  a  rule  at  least,  acquire  extraterritorial  jurisdiction  by  appointing 
receivers  for  property  lying  entirely  outside  of  the  state  or  district 
in  which  such  court  is  organized.189  Many  cases  are  found,  however, 
in  which  a  receiver  has  been  appointed  over  property  lying  within  the 
jurisdiction  and  other  property  lying  outside  of  the  state  or  country 
where  the  parties  interested  in  the  property  were  personally  before 
the  court  and  subject  to  its  orders,  and  the  property  in  separate  juris- 
dictions went  to  make  up  an  entity  or  belonged  to  the  same  corporate 
body.190  Thus,  where  a  single  railroad  corporation  created  by  the 
concurrent  legislation  of  several  states  owns  a  line  extending  into 
each  of  those  states,  a  court  having  jurisdiction  over  the  corporate 
body  may  acquire  control  of  all  its  property  by  requiring  it  to  execute 
assignments,  or  otherwise  transfer  the  title  to  the  receiver.191  And  it 
was  held  in  one  case  that  even  though  receivers  had  already  been 
appointed  by  the  state  courts  of  Georgia,  North  Carolina  and  South 
Carolina  to  take  charge  of  the  several  parts  of  a  railroad  incorporated 
by  and  extending  across  the  three  states,  but  having  its  principal 
office  at  Atlanta,  in  the  state  of  Georgia,  the  circuit  court  for  the 
northern  district  of  Georgia,  in  which  suit  had  been  brought  before 

in  a  case  like  this.'    The  application  Pac.  R.  69  Fed.  871;  Ellis  v.  Boston, 

of  that  decision  is  that  neither  law,  &c.  R.  Co.  107  Mass.  1;  Mead  v.  New 

equity,  nor  comity  will  require  the  York,  &c.  R.  Co.  45  Conn.  199,  223; 

United    States   court  to   wait   upon  State  v.  Northern  Cent.  R.  Co.   18 

the  state  court  in  a  case  like  this."  Md.    193;     ante,    §    27.      See,    also, 

138  Atkins  v.  Wabash,  &c.  R.  Co.  29  Blackburn   v.    Selma,   &c.   R.   Co.   2 

Fed.  161;   Booth  v.  Clark,  17  How.  Flip.    (U.  S.)   525,  3  Fed.  Cas.  526; 

(U.   S.)    321;    Texas,   &c.  R.   Co.  v.  Central  Trust  Co.  v.  Wabash,  &c.  R. 

Gay,  86  Tex.  571,  26  S.  W.  599,  25  Co.    29   Fed.    618.     High   Receivers, 

L.  R.  A.  52,  where  the  court  care-  §  42,  and  authorities  cited, 

fully  reviews  the  authorities  bear-  l91Muller  v.  Dows,  94  U.  S.  444; 

ing    upon    the    question.      But    see  Northern   Indiana  R.  Co.  v.   Michi- 

Lewis  v.  American,  &c.  Co.  119  Fed.  gan  Cent.  R.  Co.  15   How.    (U.   S.) 

391,  where  the  corporation  made  no  233;  Port  Royal,  &c.  R.  Co.  v.  King, 

objection.  93  Ga.  63,  19  S.  E.  809,  24  L.  R.  A. 

190Muller  v.  Dows,   94  U.  S.  444;  730. 
Farmers'  Loan,  &c.  Co.  v.  Northern 


§  554] 


RECEIVERS. 


798 


any  suit  had  been  instituted  in  the  state  courts,  had  jurisdiction  to 
appoint  a  receiver  for  the  whole  line.192  On  the  other  hand,  it  has 
been  held  that  a  federal  court  in  one  state  has  no  jurisdiction  over  a 
railroad  in  another  state  and  cannot  appoint  a  receiver  of  such  rail- 
road, although  it  is  the  property  of  a  consolidated  corporation  created 
by  congress.193  It  is  somewhat  difficult  to  reconcile  or  distinguish  the 
apparently  conflicting  decisions  upon  this  subject,  but  we  are  inclined 
to  think  that  the  true  distinction  is  this :  Where  the  corporation  is  not 
within  the  jurisdiction  of  the  court,  or  where  no  part  of  the  property 
is  within  its  jurisdiction,  and  it  cannot  get  possession  or  control  of 
the  property  without  sending  its  process  to  another  state,  it  has  no 
power  to  appoint  a  receiver  of  such  property;  but  where  the  corpora- 
tion is  a  corporation  of  the  same  state,  consolidated  or  otherwise, 
although  it  may  have  lines  extending  into  other  states,  if  it  is  an  in- 


sequent  application  to  that  court  for 
a  writ  of  assistance  to  enable  the 
receiver  to  get  possession  of  the 
property  of  the  railroad  company 
in  Georgia,  which  the  receiver  ap- 
pointed by  the  courts  of  that  state 
refused  to  surrender,  the  applica- 
tion was  refused  by  Judge  Bradley. 
The  reason  upon  which  Judge  Brad- 
ley based  his  refusal  of  the  writ 
was  that  the  state  court  had  first 
acquired  jurisdiction  over  the  prop- 
erty by  taking  actual  possession 
thereof,  and  such  jurisdiction 
should  not,  therefore,  be  disturbed 
by  a  court  of  co-ordinate  jurisdic- 
tion in  a  suit  by  other  plaintiffs 
upon  a  different  cause  of  action. 
See  Guarantee  Trust  Co.  v.  Phila- 
delphia, &c.  R.  Co.  69  Conn.  709,  38 
Atl.  792,  38  L.  R.  A.  804. 

193  Texas,  &c.  R.  Co.  v.  Gay,  86  Tex. 
571,  25  S.  W.  599,  25  L.  R.  A.  52. 
The  court  also  held  that  the  person 
so  appointed,  being  permitted  by  the 
company  to  take  possession  and  op- 
erate the  road,  was  merely  the 
agent  of  the  company  and  that  the 
company  was  liable  for  his  negli- 
gence. 


v.  Atlanta,  &c.  Co.  2 
Woods  (U.  S.)  409.  In  announcing 
the  opinion  of  the  court  appointing 
a  receiver,  Judge  Woods  said:  "As 
the  property  of  the  defendant  com- 
pany is  one  entire  and  indivisible 
thing,  and  as  it  is  all  covered  by  one 
deed  of  trust,  there  seems  to  be  no 
good  reason  why  this  court  should 
not  appoint  a  receiver  for  the  whole, 
even  though  a  part  of  the  property 
may  extend  into  another  state.  The 
court  having  jurisdiction  of  the  de- 
fendant can  compel  it  to  do  all  in 
its  power  to  put  the  receiver  in  pos- 
session of  the  entire  property.  If 
other  persons  outside  of  the  terri- 
torial jurisdiction  of  this  court  have 
seized  the  property  of  the  defendant 
the  receiver  may  be  compelled  to 
ask  the  assistance  of  the  courts  of 
that  jurisdiction  to  aid  him  in  ob- 
taining possession,  but  that  is  no 
reason  why  we  should  hesitate  to 
appoint  a  receiver  for  the  whole 
property.  We  think  the  courts  of 
other  jurisdictions  would  feel  con- 
strained, as  a  matter  of  comity,  to 
afford  all  necessary  aid  in  their 
power  to  put  the  receiver  of  this 
court  in  possession."  But  on  a  sub- 


799 ANCILLARY  APPOINTMENT — COMITY.  [§    555 

divisible  entirety  and  the  court  has  jurisdiction  of  all  necessary  par- 
ties, a  receiver  may  be  appointed  for  the  entire  road. 

§  555.  Ancillary  appointment — Comity. — Railroad  receiverships 
are  generally  extended  over  the  property  of  the  company  in  other 
jurisdictions  by  ancillary  appointment,  for  the  rule  of  comity  and 
the  interests  of  all  concerned  require  that  the  road  should  be  operated 
as  an  entirety  and  under  one  management.194  For  this  reason  the 
question  considered  in  the  preceding  section,  as  to  the  power  of  a 
court  to  appoint  a  receiver  of  an  entire  road  extending  into  other 
jurisdictions,  is  not  of  such  vital  importance  as  it  would  otherwise 
be.  It  is  customary  to  appoint  as  ancillary  receiver  the  same  person 
that  was  originally  appointed  and  to  leave  the  management  of  the  re- 
ceivership very  largely  to  the  court  in  which  the  receiver  was  first 
appointed,  to  which  court  the  receivers  are  usually  required  to  ac- 
count.195 But  it  is  held  that  these  matters,  so  far  as  the  appointment 
and  control  of  the  ancillary  receiver  are  concerned,  rest  in  the  dis- 
cretion of  the  court  appointing  him.196  In  a  recent  case197  the  court 
refused  to  appoint  a  separate  receiver  for  a  branch  line  of  a  street 
railway  where  a  receiver  had  already  been  appointed  for  the  entire 
railway.  Where  a  new  suit  is  brought  in  the  same  court  concerning 

184  New  York,  &c.  R.   Co.  v.   New  v.  Wabash,  &c.  R.  Co.  29  Fed.  618; 

York,  &c.  R.  Co.  58  Fed.  268;   Port  Port  Royal,  &c.  R.  Co.  v.  King,  93 

Royal,  &c.  R.   Co.   v.  King,   93   Ga.  Ga.  63,  19  S.  E.  909,  24  L.  R.  A.  730; 

63,  19  S.  E.  809,  24  L.  R.  A.  730;  Chattanooga,  &c.   R.   Co.   v.  Felton, 

Dillon  v.  Oregon,  &c.  R.  Co.  66  Fed.  69  Fed.  273.     See,  also,  Baldwin  v. 

622;    Platt  v.    Philadelphia,   &c.   R.  Hosmer,   101   Mich.   432,   59   N.   W. 

Co.   54   Fed.   569.     See,   also,   Guar-  432;   Ware  v.   Supreme  Sitting   (N. 

antee  Trust  Co.  v.  Philadelphia,  &c.  J.),  28  Atl.  1041;  Clyde  v.  Richmond 

R.  Co.  69  Conn.  709,  38  Atl.  792,  38  R.  Co.  56  Fed.  539. 

L.  R.  A.  804;   Person  v.  Leary,  126  186  Atkins   v.   Wabash,   &c.   R.    Co. 

N.  Car.  504,  36  S.  E.  35,  127  N.  Car.  29   Fed.   161;    Central  Trust  Co.  v. 

114,  37  S.  E.  149.     But  see  Mercan-  Texas,  &c.  R.  Co.  22  Fed.  135.     See, 

tile  Trust  Co.  v.  Kanawha,  &c.  R.  also,    Shinney    v.    North   American, 

Co.   39   Fed.   337,   in  which   it  was  &c.  Co.  97  Fed.  9;   Sands  v.  Greely, 

held,  contrary  to  the  ruling  in  some  88  Fed.  130;  Security  Sav.  &c.  Ass'n 

of  the  other  cases  above  cited,  that  v.  Moore,  151  Ind.  174,  50  N.  E.  869. 

a  United  States  circuit  court  would  m  Clap  v.  Interstate  R.  Co.  61  Fed. 

not  take  jurisdiction  of  a  bill  whose  537.     The   court  said  that  the   ap- 

only  purpose  is  to  obtain  an  ancil-  pointment    of   a    separate    receiver 

lary  receivership.  would  do  no  good,  but  would  simply 

195  Jennings  v.  Philadelphia,  &c.  R.  complicate  matters  and  cause  addi- 

Co.  23  Fed.  569;  Central  Trust  Co.  tional  expense. 


555] 


RECEIVERS. 


800 


the  same  property,  requiring  the  aid  of  a  receiver,  as,  for  instance, 
where  creditors  obtain  the  appointment  of  a  receiver  and  a  new  suit 
is  brought  by  the  mortgage  trustees  to  foreclose,  the  receivership  will 
be  extended  so  as  to  reach  the  subject-matter  of  the  second  suit,  and 
independent  receivers  will  not  be  appointed.198  The  appointment  of 
a  receiver  by  the  courts  in  one  jurisdiction  will  be  recognized  by  the 
courts  of  other  jurisdictions,  and  his  title  to  the  property  of  the  in- 
solvent corporation  be  enforced  by  those  courts,199  so  long,  at  least, 
as  his  claims  are  not  opposed  to  those  of  the  citizens  of  the  state  in 
which  he  is  compelled  to  sue.200  The  rule  of  comity  between  the  courts 
of  different  states  requires  that  a  receiver  appointed  by  a  competent 
court  of  another  state,  with  authority  to  sue,  shall  be  permitted  to 
maintain  a  suit  in  his  own  name,201  but  this  courtesy  will  not,  ordi- 
narily, be  extended  so  as  to  work  detriment  to  citizens  of  the  state 
in  which  the  suit  is  brought.202  Comity  does  not,  as  a  rule,  require 
that  property  should  be  turned  over  to  a  receiver  appointed  by  the 
courts  of  another  state  if  such  action  is  opposed  to  the  interests  of 


193  Lloyd  v.  Chesapeake,  &c.  R.  Co. 
65  Fed.  351;  Mercantile  Trust  Co. 
v.  Kanawha,  &c.  R.  Co.  39  Fed.  337; 
Buswell  v.  Supreme  Sitting,  &c.  161 
Mass.  224,  36  N.  E.  1065,  23  L.  R. 
A.  846;  Oilman  v.  Ketcham,  84  Wis. 
60,  54  N.  W.  395,  23  L.  R.  A.  52,  36 
Am.  St.  899;  State  v.  Jacksonville, 
&c.  R.  Co.  15  Fla.  201;  Howell  v. 
Ripley,  10  Paige  (N.  Y.)  43. 

199Metzner  v.  Bauer,  98  Ind.  425; 
Patterson  v.  Lynde,  112  111.  196; 
Central  Trust  Co.  v.  Wabash,  &c.  R. 
Co.  29  Fed.  618;  Buswell  v.  Supreme 
Sitting,  &c.  161  Mass.  224,  36  N.  E. 
1065,  23  L.  R.  A.  846;  Failey  v.  Tal- 
bee,  55  Fed.  892;  Farmers'  Loan, 
&c.  Co.  v.  Northern  Pac.  R.  Co.  69 
Fed.  871;  Hale  v.  Tyler,  104  Fed. 
757;  Davis  v.  Gray,  16  Wall.  (U.  S.) 
219;  Boulware  v.  Davis,  90  Ala.  207, 
8  So.  84,  9  L.  R.  A.  601.  See,  gen- 
erally, as  to  the  title  and  rights  of 
a  receiver  in  other  jurisdictions 
than  that  in  which  he  is  appointed, 
Oilman  v.  Hudson  River,  &c.  Co.  84 
Wis.  60,  54  N.  W.  395,  23  L.  R'.  A. 


52,  and  note,  36  Am.  St.  899;  Schuy- 
ler's,  &c.  Co.,  Re,  136  N.  Y.  169,  32 
N.  E.  623,  20  L.  R.  A.  391,  and  note; 
Actions  by  Foreign  Receivers,  37 
Cent.  L.  J.  315. 

200  Chandler  v.  Siddle,  3  Dill.  (U. 
S.)  477;  Bagby  v.  Atlantic,  &c.  R. 
Co.  86  Pa.  St.  291.  See,  also,  To- 
ronto Gen.  Trust  Co.  v.  Chicago, 
&c.  R.  Co.  123  N.  Y.  37,  25  N.  E. 
198,  20  Am.  St.  718. 

201Metzner  v.  Bauer,  98  Ind.  425; 
Bagby  v.  Atlantic,  &c.  R.  Co.  86  Pa. 
St.  291;  Hurd  v.  Elizabeth,  41  N.  J. 
Law  1;  Lycoming  Fire  Ins.  Co.  v. 
Wright,  55  Vt.  526;  Peters  v.  Fos- 
ter, 56  Hun  (N.  Y.)  607,  10  N.  Y.  S. 
389;  Toronto,  &c.  Trust  Co.  v.  Chi- 
cago, &c.  R.  Co.  123  N.  Y.  37,  47,  25 
N.  E.  198.  But  see  Booth  v.  Clark, 
17  How.  (U.  S.)  322;  Day  v.  Postal 
Telegraph  Co.  66  Md.  354;  Hazard 
v.  Durant,  19  Fed.  471. 

202Runk  v.  St.  John,  29  Barb.  (N. 
Y.)  585;  Merchants'  Nat.  Bank  v. 
McLeod,  38  Ohio  St.  174. 


801 


ANCILLARY   APPOINTMENT COMITY. 


[§'   555 


local  creditors,  and  courts  will  not,  in  such  a  case,  enforce  the  claims 
of  such  a  receiver  in  opposition  to  those  of  citizens  of  their  own 
state.203  It  has  also  been  held  that  a  receiver  appointed  by  a  foreign 
court  does  not  acquire,  by  such  appointment,  any  title  superior  to 
that  of  a  non-resident  attaching  creditor;204  as  the  available  legal 
remedy  of  a  receiver  is  coextensive  only  with  the  jurisdiction  of  the 
court  by  which  he  was  appointed  when  the  right  of  precedence  or  pri- 
ority of  creditors  is  asserted  in  respect  to  property  or  funds  of  a  non- 
resident debtor  which  the  receiver  has  not  yet  reduced  to  possession.205 
But  in  regard  to  this  question,  as  in  regard  to  the  entire  subject  of 
the  relative  rights  of  a  receiver  in  a  foreign  jurisdiction,  and  attach- 
ing or  garnishing  creditors,  the  authorities  seem  to  be  hopelessly  in 
conflict.  The  solution  of  the  problem  depends  so  largely  upon  the  idea 
of  comity  entertained  in  the  particular  jurisdiction  in  which  the  ques- 
tion arises,  that  it  is  impossible  to  lay  down  any  rule  that  will  be  ap- 
plied in  all  jurisdictions.  We  think,  however,  that  one  who  is  a  resi- 
dent of  the  same  state  in  which  the  debtor  resides  and  in  which  a 
receiver  has  been  appointed  should  not  be  permitted  to  go  into  a 
foreign  jurisdiction  and  there  obtain  relief  which  he  could  not  obtain 
in  his  own  state,  by  attachment  or  garnishment  proceedings,  securing 
a  priority  over  the  receiver  appointed  for  the  entire  property.206  But, 


203  Kurd  v.  Columbus  Ins.  Co.  55 
Me.  228;  Day  v.  Postal  Tel.  Co.  66 
Md.  354,  7  Atl.  608;  Runk  v.  St. 
John,  29  Barb.  (N.  Y.)  585;  Faw- 
cett  v.  Supreme  Sitting,  &c.  64  Conn. 
170,  29  Atl.  614,  24  L.  R.  A.  815  (a 
questionable  decision);  Lycoming, 
&c.  Insurance  Co.  v.  Wright,  55  Vt. 
526;  Thurston  v.  Rosenfield,  42  Mo. 
474,  97  Am.  Dec.  351.  "That  the 
officer  of  a  foreign  court  should  not 
be  permitted,  as  against  the  claims 
of  creditors  resident  here,  to  re- 
move from  this  state  the  assets  of 
the  debtor,  is  a  proposition  that 
seems  to  be  asserted  by  all  the  de- 
cisions." Kurd  v.  Elizabeth,  41  N. 
J.  L.  1. 

201  Patterson  v.  Lynde,  112  111.  196; 
Catlin  v.  Wilcox,  &c.  Co.  123  Ind. 
477,  24  N.  E.  250,  8  L.  R.  A.  62,  18 
Am.  St.  338. 

ELL.   RAILROADS — 51 


205  Catlin  v.  Wilcox,  &c.  Co.  123 
Ind.  477,  24  N.  E.  250,  8  L.  R.  A.  62, 
18  Am.  St.  338;  State  v.  Jackson- 
ville, &c.  R.  Co.  15  Fla.  201;  Farm- 
ers', &c.  Ins.  Co.  v.  Needles,  52  Me. 
17;  Hunt  v.  Columbian  Ins.  Co.  55 
Me.  290. 

208  Oilman  v.  Ketcham,  84  Wis.  60, 
54  N.  W.  395,  23  L.  R.  A.  52,  and 
note,  36  Am.  St.  899;  Bagby  v.  At- 
lantic, &c.  R.  Co.  86  Pa.  St.  291; 
Merchants'  Nat.  Bank  v.  McLeod,  38 
Ohio  St.  174.  See,  also,  Cole  v.  Cun- 
ningham, 133  U.  S.  107,  10  Sup.  Ct. 
269;  Bacon  v.  Home,  123  Pa.  St. 
452,  16  Atl.  794,  2  L.  R.  A.  355; 
Waite,  Re,  99  N.  Y.  433;  Woodward 
v.  Brooks,  128  111.  222,  20  N.  E.  685, 
3  L.  R.  A.  702,  15  Am.  St.  104;  Hal- 
sted  v.  Straus,  32  Fed.  279;  Whipple 
v.  Thayer,  16  Pick.  (Mass.)  25,  26 
Am.  Dec.  626. 


555] 


RECEIVERS. 


802 


as  we  have  already  seen,  it  is  held  by  some  courts,  in  accordance  with 
what  is  probably  the  weight  of  authority,  that  a  resident  of  a  third 
state  may  obtain  priority  over  a  foreign  receiver.  It  seems  to  us,  how- 
ever, that,  to  be  consistent,  the  court  ought,  at  least,  to  refuse  to  aid 
an  attaching  non-resident  creditor  to  obtain  priority  over  a  receiver 
of  the  property,  although  he  was  appointed  in  a  foreign  jurisdiction.207 
There  is  more  reason  for  holding,  in  accordance  with  the  exception 
generally  made  in  favor  of  domestic  creditors,  that  the  courts  of  one 
state  may  allow  its  own  creditors  to  obtain  priority,  by  attachment  or 
garnishment  of  property  therein,  over  a  foreign  receiver  who  has  not 
yet  taken  actual  possession  of  such  property,208  but  the  practical  effect 
of  such  action  might  sometimes  be  very  disastrous  to  great  interests 
and  its  justice  may  well  be  doubted.  Some  courts,  however,  have  gone 
so  far  as  to  hold  that  after  a  receiver  has  taken  actual  possession  of 
property  and  brought  it  in  the  course  of  his  duty  into  another  juris- 
diction, domestic  creditors  therein  may  attach  it  and  thus  obtain  a 
superior  right  to  it.209  This  seems  to  us  to  be  palpably  erroneous  and 
unsound.210  Where  a  suit  in  which  a  state  court  has  appointed  a  re- 


207Se.e  Long  v.  Girdwood,  150  Pa. 
St.  413,  24  Atl.  711,  23  L.  R.  A.  32, 
and  note;  May  v.  First  Nat.  Bank, 
122  111.  551, 13  N.  E.  806;  Schuyler's, 
&c.  Co.,  Re,  136  N.  Y.  169,  32  N.  E. 
623,  20  L.  R.  A.  391,  and  note;  Kurd 
v.  Elizabeth,  41  N.  J.  L.  1;  Bock- 
over  v.  Life  Assn.  77  Va.  85. 

208  Taylor  v.  Columbian  Ins.  Co.  14 
Allen  (Mass.)  353;  Warren  v. 
Union  Nat.  Bank,  7  Phila.  156; 
Cleveland,  &c.  Co.  v.  Crawford,  9 
Railw.  &  Corp.  L.  J.  171.  See,  also, 
Willits  v.  Waite,  25  N.  Y.  577;  Hunt 
v.  Columbian  Ins.  Co.  55  Me.  290, 
92  Am.  Dec.  592;  Lichtenstein  v. 
Gillett,  37  La.  Ann.  522;  Rhawn  v. 
Pearce,  110  111.  350,  51  Am.  R.  691. 

208  Humphreys  v.  Hopkins,  81  Cal. 
551,  22  Pac.  892,  6  L.  R.  A.  792,  15 
Am.  St.  76  (Thornton  and  McFar- 
land,  JJ.,  dissenting.) 

210  Chicago,  &c.  R.  Co.  v.  Keokuk, 
&c.  Co.  108  111.  317,  48  Am.  R.  557; 
Pond  v.  Cooke,  45  Conn.  126,  29  Am. 
R.  668;  Cagill  v.  Wooldridge,  8  Baxt. 


(Tenn.)  580,  35  Am.  R.  716;  Killmer 
v.  Hobart,  58  How.  Pr.  (N.  Y.)  452. 
See,  also,  the  criticism  of  Mr.  Free- 
man in  15  Am.  St.  81.  See  further, 
upon  the  general  subject  of  attach- 
ment and  garnishment  of  property 
over  which  a  receiver  has  been  ap- 
pointed and  protection  of  receivers 
by  the  courts,  Schindelholz  v.  Cul- 
lum,  55  Fed.  885;  Central  Trust  Co. 
v.  Chattanooga,  &c.  R.  Co.  68  Fed. 
685;  United  States  Trust  Co.  v. 
Omaha,  &c.  R.  Co.  61  Fed.  531;  Ver- 
mont, &c.  R.  Co.  v.  Vermont  Cent.  R. 
Co.  46  Vt.  792;  Chafee  v.  Quidnick 
Co.  13  R.  I.  442;  Sercomb  v.  Catlin, 
128  111.  556,  21  N.  E.  606,  15  Am.  St. 
147;  Reynolds  v.  Adden,  136  U.  S. 
348,  10  Sup.  Ct.  843;  Barnett  v.  Kin- 
ney,  147  U.  S.  476,  13  Sup.  Ct.  403; 
Straughan  v.  Hallwood,  30  W.  Va. 
274,  4  S.  E.  394,  8  Am.  St.  29,  and 
note;  Parsons  v.  Charter  Oak  Ins. 
Co.  31  Fed.  305;  McAlpin  v.  Jones, 
10  La.  Ann.  552;  Relfe  v.  Rundle, 
103  U.  S.  222;  Cole  v.  Oil  Well,  &c. 


803 


PROCEDURE EX   PARTE  APPLICATION. 


[§'  556 


ceiver  is  removed  to  the  United  States  Circuit  Court  under  the  law  for 
the  removal  of  causes,  the  receiver  is  not  thereby  discharged,  but  re- 
mains in  possession  until  removed  by  the  federal  court,  and  may  be 
required  to  account  to  it  for  the  manner  in  which  he  has  discharged 
his  trust.211 


§  556.  Procedure — Ex  parte  application. — Courts  of  equity  are 
very  unwilling  to  appoint  a  receiver  upon  an  ex  parte  application212 
since  it  would  be  unjust  to  condemn  a  man  unheard  and  to  dispossess 
him  of  property  prima  facie  his,  and  hand  over  its  enjoyment  to  an- 
other whose  claim  to  it  he  has  had  no  opportunity  to  contest.213  But 
where  it  is  shown  that  the  defendant  has  left  the  state  or  cannot  be 
found,214  or  where,  for  some  other  reason,  it  becomes  absolutely  neces- 


Co.  57  Fed.  534;  Ames  v.  Union,  &c. 
R.  Co.  60  Fed.  966. 

211  Hinckley  v.  Oilman,  &c.  Co.  100 
U.  S.  153;   Mack  v.  Jones,  31  Fed. 
189. 

212  Cleveland,  &c.  R.  Co.  v.  Jewett, 
37  Ohio  St  649;   People  v.  Albany, 
&c.  R.  Co.  55  Barb.  (N.  Y.)  344,  369; 
People  v.  Albany,  &c.  R.  Co.  7  Abb. 
Pr.    N.    S.    (N.    Y.)    265;    Devoe   v. 
Ithaca,  &c.  R.  Co.  5  Paige   (N.  Y.) 
521;  Whitehead  v.  Wooten,  43  Miss. 
523;    Bisson  v.  Curry,  35  Iowa  72; 
Blondheim   v.    Moore,   11   Md.    365; 
Cook  v.  Detroit,  &c.  R.  Co.  45  Mich. 
453,  8  N.  W.  74;  Young  v.  Rollins, 
85  N.  Car.  485;  Vila  v.  Grand  Island, 
&c.  Co.  68  Neb.  222,  94  N.  W.  136, 
97  N.  W.  613,  63  L.  R.  A.  791,  110 
Am.   St.   400.     See,  also,  as  to  the 
necessity  for  due  notice  to  the  op- 
posing party,  State  v.  Jacksonville, 
&c.  R.  Co.  15  Fla.  201;  Fredenheim 
v.  Rohr,  87  Va.  764,  13  S.  E.  193; 
Ruffner  v.  Mairs,  33  W.  Va.  655,  11 
S.  E.  5;   Turgeau  v.  Brady,  24  La. 
Ann.   348;    Meridian  News,   &c.   Co. 
v.  Diem,  &c.  €o.  70  Miss.  695,  12  So. 
702;  Crowder  v.  Moore,  52  Ala.  221; 
French    v.    Gifford,    30    Iowa    148; 
Johns  v.  Johns,  23  Ga.  31;  Word  v. 
Word,  90  Ala.  81,  7  So.  412;   Howe 


v.  Jones,  57  Iowa  130,  8  N.  W.  451, 
10  N.  W.  299;  Turnbull  v.  Prentiss 
Lumber  Co.  55  Mich.  387,  21  N.  W. 
375.  In  Whitney  v.  Hanover  Nat. 
Bank,  71  Miss.  1009,  15  So.  33,  23  L. 
R.  A.  531,  it  was  held  that  the  ap- 
pointment of  a  receiver  for  a  bank 
on  its  own  ex  parte  application  was 
void  and  subject  to  collateral  at- 
tack. 

213  Arnold  v.  Bright,  41  Mich.  207, 
2   N.  W.  16;    Baker  v.   Backus,  32 
111.    79.     Notice    is    sometimes    re- 
quired by  statute.   May  v.  Greenhill, 
80  Ind.  124;  Moritz  v.  Miller,  87  Ala. 
331;  Whitehead  v.  Wooten,  43  Miss. 
523. 

214  People  v.  Norton,  1  Paige    (N. 
Y.)     17;     Sandford    v.    Sinclair,    8 
Paige  (N.  Y.)  373;  Gibbons  v.  Main- 
waring,  9  Sim.  77;  Dowling  v.  Hud- 
son,  14  Beav.   423.    See  Whitehead 
v.   Wooten,   43   Miss.   523;    Pressley 
v.  Harrison,  102  Ind.  14,  19.    Thus, 
where  no  officer  of  the  corporation 
can  be  found  on  whom  service  of  no- 
tice can  be  made,  the  court  may,  in 
its    discretion,    appoint    a    receiver 
without  notice   to   the   corporation. 
Maish  v.  Bird,  59  Iowa  307;  Dayton 
v.  Borst,  31  N.  Y.  435.    So,  where  a 
foreign   corporation    has   discontin- 


556] 


RECEIVERS. 


804 


sary  for  the  court  to  interfere  before  there  is  time  to  give  notice  to  the 
opposite  party,  in  order  to  prevent  the  destruction  or  loss  of  prop- 
erty,215 a  receiver  may  be  appointed  without  notice.  The  particular 
facts  and  circumstances  which  render  such  a  summary  proceeding 
proper  should  be  set  forth  in  the  bill  or  petition  on  which  the  appli- 
cation is  founded,216  and  the  court  should,  it  seems,  in  case  a  receiver 


ued  its  organization,  and  its  officers 
have  neglected  to  hold  meetings,  but 
have  converted  the  corporate  prop- 
erty to  their  own  use,  sold  it,  and 
retain  the  proceeds  of  the  sale.  De 
Bemer  v.  Drew,  57  Barb.  (N.  Y.) 
438.  But  where  it  is  shown  that  all 
the  property  of  the  defendant  is  in 
the  hands  and  under  the  control  of 
another  railroad  corporation  which 
is  operating  the  road,  the  non-resi- 
dence of  the  defendant's  officers  will 
not  excuse  a  failure  to  give  notice 
to  its  lessee  of  an  application  for  a 
receiver.  Wabash  R.  Co.  v.  Dyke- 
man,  133  Ind.  56,  32  N.  E.  823. 

215  Platt  v.  Philadelphia,  &c.  R.  Co. 
54  Fed.  569;  Cleveland,  &c.  R.  Co. 
v.  Jewett,  37  Ohio  St.  649;  Oil  Run 
Petroleum  Co.  v.  Gale,  6  W.  Va.  525, 
545;  Gibson  v.  Martin,  8  Paige  Ch. 
(N.  Y.)  481;  Sims  v.  Adams,  78  Ala. 
395;  Hardy  v.  McClellan,  53  Miss. 
507;  Ashurst  v.  Lehman,  86  Ala. 
370;  Olmstead  v.  Distilling,  &c.  Co. 
67  Fed.  24.  In  a  suit  by  judgment 
creditors  against  a  railroad  com- 
pany for  the  appointment  of  a  re- 
ceiver, although  the  complaint  al- 
leged that  executions  had  been  lev- 
ied on  defendant's  rolling  stock,  pre- 
venting its  operation,  that  it  and  its 
predecessor  were  both  insolvent, 
that  there  were  large  quantities  of 
stock  along  the  road  under  contract 
for  immediate  shipment,  and  a  great 
quantity  of  grain  to  be  threshed 
within  the  next  ten  days,  which 
would  be  shipped  over  defendant's 
road  if  it  was  in  operation,  and  that 
if  trains  were  not  running  on  the 


road  at  once,  great  damage  would 
accrue  both  to  citizens  and  to  de- 
fendants, it  was,  nevertheless,  held 
that  the  facts  alleged  did  not  justify 
the  appointment  of  a  receiver  with- 
out notice  to  defendant.  Chicago, 
&c.  R.  Co.  v.  Cason,  133  Ind.  49,  32 
N.  E.  827.  See  Wabash,  &c.  R.  Co. 
v.  Dykeman,  133  Ind.  56,  32  N.  E. 
823. 

219  People  v.  Albany,  &c.  R.  Co.  55 
Barb.  (N.  Y.)  344,  affirmed  57  N.  Y. 
161;  Wabash  R.  Co.  v.  Dykeman, 
133  Ind.  56,  32  N.  E.  823;  French 
v.  Gifford,  30  Iowa  148;  Moritz  v. 
Miller,  87  Ala.  331,  6  So.  269;  Ver- 
planck  v.  Mercantile  Ins.  Co.  2  Paige 
(N.  Y.)  438.  Affidavits  of  the  belief 
of  plaintiff  or  his  attorneys  that  im- 
mediate action  is  necessary  for  the 
protection  of  complainants,  and  that 
the  defendants  would  make  use  of 
the  delay  occasioned  by  giving  no- 
tice to  spirit  away  or  dispose  of 
their  effects,  have  been  held  insuffi- 
cient. Moritz  v.  Miller,  87  Ala.  331, 
6  So.  269;  Thompson  v.  Tower  Mfg. 
Co.  87  Ala.  733,  6  So.  928.  In  Wa- 
bash R.  Co.  v.  Dykeman,  133  Ind.  56, 
32  N.  E.  823,  the  court  said:  "The 
statement  in  the  verified  complaint 
that  there  was  an  emergency  for 
the  immediate  appointment  of  a  re- 
ceiver, without  notice,  was  not  a 
sufficient  showing.  This  was  a  mere 
statement  of  an  opinion.  The  facts 
on  which  the  opinion  was  founded 
should  have  been  pleaded  in  order 
to  enable  the  court  to  judge  of  its 
correctness." 


805        PARTIES  TO  PBOPEEDINGS  FOR  APPOINTMENT.      [§'  557 

is  granted,  save  to  the  defendant  the  right  thereafter  to  apply,  upon 
meritorious  grounds,  for  relief  against  the  order.217 

§  557.    Parties  to  proceedings  for  appointment  of  receiver. — If  the 

property  of  the  defendant  corporation  is  in  the  possession  of  a  lessee, 
such  lessee  should  be  made  a  party  to  the  proceedings  for  the  ap- 
pointment of  a  receiver218  and  served  with  notice  of  the  application.219 
But  it  seems  that  a  receiver  of  the  rents  and  profits  may  be  appointed 
without  making  the  lessee  a  party.220  It  has  also  been  held  that  an 
insolvent  stockholder  is  not  a  necessary  party  defendant  to  a  proceed- 
ing for  the  appointment  of  a  receiver  and  to  compel  individual  stock- 
holders to  pay  their  subscriptions  for  the  benefit  of  the  corporate 
creditors.221  Many  of  the  states  have  laws  providing  that  upon  the 
dissolution  of  any  corporation  if  a  receiver  is  not  appointed  by  some 
court  of  competent  authority  the  directors  or  managers  of  the  affairs 
of  such  corporation  at  the  time  of  its  dissolution,  by  whatever  name 
they  may  be  known  in  law,  shall  be  the  trustees  of  creditors  and  stock- 
holders of  the  corporation  dissolved,  and  shall  have  full  power  to 
settle  the  affairs  of  the  corporation,  collect  and  pay  the  outstanding 
debts  and  divide  among  the  stockholders  the  moneys  and  other  prop- 
erty that  shall  remain  after  the  payment  of  debts  and  necessary  ex- 
penses.222 After  the  title  to  the  corporate  property  has  vested  in  the 
officers  as  trustees  under  such  a  statute,  a  receiver  can  afterward  be 
appointed  only  in  an  action  or  proceeding  to  which  they  are  parties.223 

§  558.  Appointment  upon  motion  or  petition  and  notice — Affida- 
vits.— Since  the  appointment  of  a  receiver  is  generally  regarded  as  an 
interlocutory  order,  and  not  as  in  any  sense  a  decision  upon  the 

m  People  v.  Norton,  1  Paige    (N.  ^  Wilson  v.  California,  &c.  Co.  95 

Y.)   17.  Mich.  117,  54  N.  W.  643. 

a8Kerp  v.  Michigan,  &c.  R.  Co.  6  «  Stimson  Am.  St.  (1892),  §  8356, 

Chicago    Leg.    N.    101;    Wabash    R.  citing  the  laws  of  New  York,  New 

Co.  v.  Dykeman,  133  Ind.  56,  32  N.  Jersey,  Ohio,  Wisconsin,  Kansas,  Ne- 

E.  823;   Wiltsie  Mort.  Foreclosures,  braska,    Maryland,    Delaware,    Ten- 

§  157.   See,  also,  Searles  v.  Jackson-  nessee,  Missouri,  Texas,  California, 

ville,  &c.  R.  Co.  2  Woods    (U.   S.)  Nevada,  Colorado,  Washington,  Da- 

621,  626.  kota,     Idaho,    Wyoming,    Alabama, 

218  Wabash  R.  Co.  v.  Dykeman,  133  Florida,  New  Mexico,  Oklahoma. 

Ind.  56,  32  N.  E.  823.  ^  People  v.  O'Brien,  111  N.  Y.  1, 

^Kerp  v.  Michigan,  &c.  R.  Co.  6  7  Am.  St.  684;  Parker  v.  Browning, 

Chicago  Leg.  N.  101.  8   Paige    (N.  Y.)    388,  35  Am.  Dec. 

717. 


558] 


KECEIVEES. 


806 


merits,224  the  appointment  is  usually  made  upon  motion,225  or  peti- 
tion supported  by  affidavit,226  with  notice  to  the  opposite  party.227  It 
is  the  better  practice  to  pray  for  a  receiver  in  the  original  bill,228  but 
a  receiver  may  be  appointed  on  the  final  hearing,  even  after  decree, 
although  not  prayed  for  in  the  original  bill.229  In  passing  upon  the 
necessity  for  a  receiver  the  court  will  consider  the  sworn  answer  of 
the  defendant,230  and  affidavits  offered  in  its  support.231  Under  the 


224  Cincinnati,  &c.  R.  Co.  v.  Sloan, 
31  Ohio  St.  1;  Chicago,  &c.  Min.  Co. 
v.  United  States,  &c.  Co.  57  Pa.  St. 
83;    Hottenstein  v.  Conrad,  9  Kan. 
435. 

225  Hursh  v.   Hursh,   99   Ind.  500; 
Hottenstein  v.  Conrad,  9  Kan.  435; 
Commercial,  &c.  Bank  v.  Corbett,  5 
Sawy.  (U.  S.)  172;  Blakeney  v.  Du- 
faur,    15    Beav.    40,    42;    Cooke    v. 
Gwyn,  3  Atk.  689  (653). 

228  An  application  for  the  appoint- 
ment of  a  receiver  pending  litiga- 
tion is  made  upon  petition  or  mo- 
tion. Affidavits  and  counter  affida- 
vits may  be  filed,  or  oral  testimony 
heard  as  to  the  necessity  for  a  re- 
ceiver. Pouder  v.  Tate,  96  Ind.  330; 
Hursh  v.  Hursh,  99  Ind.  500.  See 
Wiltsie  Mort.  Foreclosures,  §  633; 
1  Elliott  Gen.  Pr.  §  395. 

227  See  ante,  §  556.  It  has  been 
held  unnecessary  to  serve  notice  on 
a  trustee  for  bondholders,  who  is 
insane  and  confined  in  an  asylum 
in  a  foreign  country.  Ettlinger  v. 
Persian,  &c.  Co.  66  Hun  94,  30  N. 
Y.  S.  772.  In  Beck  v.  Ashkettle,  18 
R.  I.  374,  27  Atl.  505,  it  was  held 
that  personal  notice  was  necessary 
under  the  statute,  and  that  leaving 
a  copy  at  the  last  and  usual  abode 
of  the  debtor,  who  had  absconded, 
was  insufficient.  We  doubt  the 
soundness  of  this  decision.  See  as 
to  short  notice  being  sufficient  in 
an  emergency,  Miltenberger  v.  Lo- 
gansport  R.  Co.  106  U.  S.  286,  1 
Sup.  Ct.  140,  158;  Haugan  v.  Net- 
land,  51  Minn.  552,  53  N.  W.  873. 


228  See  Beach  Receivers,  §  130;  U. 
S.  Equity  Rule  21;    1  Elliott  Gen. 
Pr.  §  395. 

229  Connelly    v.    Dickson,    76    Ind. 
440;   Bowman  v.  Bell,  14  Sim.  392; 
Shannon  v.  Hanks,  88  Va.   338,  13 
S.  E.  437.   See,  also,  Merritt  v.  Gib- 
son, 129  Ind.  155,  27  N.  E.  136,  15 
L.  R.  A.  277. 

^Rankin  v.  Rothschild,  78  Mich. 
10,  43  N.  W.  1077;  Goodman  v.  Whit- 
comb,  1  J.  &  W.  569;  1  Elliott  Gen. 
Pr.  §  395.  As  a  general  rule  the  an- 
swer is  to  be  taken  as  true  in  so 
far  as  it  is  responsive  to  the  allega- 
tions of  the  bill,  at  least  in  the  ab- 
sence of  sufficient  evidence  to  the 
contrary.  Thompson  v.  Diffenderfer, 
1  Md.  Ch.  489;  Voshell  v.  Hynson, 
26  Md.  82;  Buchanan  v.  Comstock, 
57  Barb.  (N.  Y.)  568;  Callanan  v. 
Shaw,  19  Iowa  183.  The  answer  of 
one  defendant  only,  where  a  ma- 
terial co-defendant  has  not  an- 
swered, must  be  regarded  merely  as 
an  affidavit.  Kershaw  v.  Mathews, 
1  Russ.  (Eng.  Ch.)  362.  Where  af- 
fidavits are  offered  in  support  of 
the  answer  and  to  overcome  the  case 
made  by  the  affidavits  in  support  of 
the  motion,  counter  affidavits  may 
be  admitted  on  the  part  of  the  plain- 
tiff. There  can  be  no  just  reason  for 
excluding  any  facts  material  to  the 
judgment  of  the  court  and  which 
will  enable  it  to  act  intelligently  in 
the  exercise  of  a  sound  discretion. 
Young  v.  Rollins,  85  N.  Car.  485,  12 
Am.  &  Eng.  R.  Cas.  455. 

^Pouder    v.    Tate,    96    Ind.    330; 


807 


WHO  MAY  APPOINT — APPOINTMENT  IN  VACATION.         [§559 


modern  practice  affidavits  may  also  be  received  in  opposition  to  the 
answer.232  A  receiver  may  be  appointed,  in  a  proper  case,  before 
answer233  and  even  before  an  appearance  is  entered,234  but  the  court 
will  only  act  where  a  clear  case  of  necessity  for  the  appointment  of 
a  receiver  at  such  a  time  is  made  out.235 

§  559.  Who  may  appoint — Appointment  in  vacation. — In  the  ab- 
sence of  a  statute  specially  authorizing  such  a  proceeding,  a  receiver 
cannot  be  appointed  by  a  judge  or  judges  of  a  court  in  vacation.236 
It  is  competent,  however,  for  the  legislature  by  statute  to  grant  to  a 
judge  in  vacation  authority  to  appoint  a  receiver,237  even  upon  an 
ex  parte  application.238  It  has  been  held  by  the  supreme  court  of 


Hursh  v.  Hursh,  99  Ind.  500;  Ladd 
v.  Harvey,  21  N.  H.  514;  Rhodes  v. 
Lee,  32  Ga.  470. 

**2  Dan.  Chanc.  PL  &  Pr.  1736; 
2  Beach  Mod.  Eq.  Pr.  §  729.  See, 
also,  Hayes  v.  Heyer,  4  Sandf.  Ch. 
(N.  Y.)  485  (517);  Sobernheimer  v. 
Wheeler,  45  N.  J.  Eq.  614,  18  Atl. 
234. 

^Vann  v.  Barnett,  2  Bro.  Ch.  158; 
Williams  v.  Jenkins,  11  Ga.  595; 
Whitehead  v.  Wooten,  43  Miss.  523; 
Weis  v.  Goetter,  72  Ala.  259;  2 
Beach  Mod.  Eq.  Pr.  §  724.  But  see 
Ranger  v.  Champion,  &c.  Co.  52 
Fed.  609;  Union  Mut.  L.  Ins.  Co.  v. 
Union,  &c.  Co.  37  Fed.  286. 

^Tanfield  v.  Irvine,  2  Russ.  149. 
See,  also,  Henshaw  v.  Wells,  9 
Humph.  (Tenn.)  568. 

233  Latham  v.  Chaffee,  7  Fed.  525; 
Turnbull  v.  Prentiss  Lumber  Co.  55 
Mich.  387,  21  N.  W.  375;  Micou  v. 
Moses,  72  Ala.  439;  Clark  v.  Ridgely, 
1  Md.  Ch.  70.  Facts  should  be  spe- 
cifically stated  and  not  merely  upon 
information  and  belief.  Cofer  v. 
Echerson,  6  Iowa  502;  Heavilon  v. 
Farmers'  Bank,  81  Ind.  249;  Hanna 
v.  Hanna,  89  N.  Car.  68;  Grandin  v. 
LeBar,  3  N.  Dak.  447,  50  N.  W.  151. 

236  Newman  v.  Hammond,  46  Ind. 
119;  Hammock  v.  Loan,  &c.  Co.  105 
U.  S.  77;  Hervey  v.. Illinois  Midland 
R.  Co.  28  Fed.  169.  See,  also,  Chase 


v.  Miller,  88  Va.  791,  14  S.  E.  545; 
Conkling  v.  Ridgley,  112  111.  36,  54 
Am.  R.  204.  But  compare  Walters 
v.  Anglo-American,  &c.  Co.  50  Fed. 
316;  Greeley  v.  Provident  Sav.  Bank, 
103  Mo.  212,  15  S.  W.  429.  May  do 
so  in  chambers.  Horn  v.  Pere  Mar- 
quette  R.  Co.  151  Fed.  627. 

237  Pressley  v.  Lamb,  105  Ind.  171, 
4  N.  E.  682.  See,  also,  First  National 
Bank  v.   U.    S.   Encaustic   Tile   Co. 
105  Ind.  227,  4  N.  E.  846;  Brewster 
v.  Hartley,  37  Cal.  15,  99  Am.  Dec. 
237;    Bitting  v.  Ten  Eyck,  85   Ind. 
357;    McMurtry  v.   Tuttle,   13    Neb. 
232,  13  N.  W.  213;   Morriss  v.  Vir- 
ginia  Insurance   Co.   85   Va.   588,   8 
S.  E.  383;  Greeley  v.  Provident  Sav. 
Bank,   103    Mo.    212,   15    S.   W.   429. 
In    Pressley    v.    Lamb,    supra,    the 
court  held  that  a  judge  in  vacation, 
acting  under  the  statute  authorizing 
the  appointment  of  a  receiver,  is  ex- 
ercising   quoad    hoc    "the    judicial 
power  of  the  state." 

238  Real    Estate   Associates   v.    Su- 
perior  Court,   60   Cal.   223.    An  ap- 
pointment of  a  receiver  can  only  be 
made  in  the  absence  of  notice  to  the 
opposite  party,  in  Indiana,  upon  suf- 
ficient cause  shown  by  affidavit.    R. 
S.  Ind.  1894,   §  1244.     See  Pressley 
v.  Harrison,  102  Ind.  14,  1  N.  E.  188; 
Hardy  v.  McClellan,  53  Miss.  507. 


§    560]  RECEIVERS.  808 

Georgia  that  the  appointment  of  a  receiver  for  a  corporation  is  not 
necessarily  the  exercise  of  a  judicial  power,  but  that  such  an  appoint- 
ment might  be  made  by  the  legislature,  or  authorized  by  it  to  be 
made  by  the  executive  department  of  the  state.239  The  case  referred  to 
has  been  cited  by  several  text-writers,240  apparently  with  approval, 
but  we  doubt  its  soundness.  Other  questions  relating  to  the  subject 
of  this  section  have  already  been  considered  elsewhere.241 

§  560.  Suit  must  generally  be  pending. — Since  the  appointment  of 
a  receiver  by  a  court  of  equity  is  generally  held  to  be  merely  an 
auxiliary  proceeding  in  aid  of  a  pending  suit  to  determine  the  ulti- 
mate rights  of  the  parties  to  the  property  for  which  a  receiver  is 
sought,242  it  is  the  general  rule  that  a  receiver  can  only  be  appointed 
for  a  corporation  when  there  is  a  suit  actually  pending  and  that  a 
court  of  chancery  is  not  ordinarily  justified  in  appointing  a  receiver 
before  the  filing  of  a  complaint  or  bill.243  Under  the  ancient  practice 
of  the  court  of  chancery  in  England,  a  receiver  was  not  appointed 
until  after  the  coming  in  of  the  defendant's  answer,  but  it  is  now 
settled,  both  in  this  country  and  in  England,  that  the  appointment 
may  be  made  before  answer,  provided  a  special  necessity  therefor  is 
shown  to  exist.244  Except  under  extraordinary  circumstances,  as  where 
the  defendant  had  left  the  state  to  avoid  process  or  the  like,  the  rule 
seems  to  have  been  that  a  court  could  get  no  jurisdiction  to  appoint 
a  receiver  until  after  service  of  process  and  notice  of  the  motion.245 
If  an  immediate  necessity  therefor  is  shown  to  exist,  the  application 
for  a  receiver  may  be  entertained  when  the  action  is  commenced, 
which,  under  the  rule  in  Indiana,  is  when  process  is  issued,  or  an  ap- 

239  Carey  v.  Giles,  9  Ga.  253.  See,  2«  Dale  v.  Kent,  58  Ind.  584;  Press- 
also,  Foote  v.  Forbes,  25  Kan.  359;  ley  v.  Harrison,  102  Ind.  14,  1  N.  E. 
United  States  v.  Ferreira,  13  How.  188;  Merchants'  &c.  Bank  v.  Kent, 
(U.  S.)  40;  Toledo,  &c.  R.  Co.  v.  43  Mich.  292,  5  N.  W.  627;  Hardy  v. 
Dunlap,  47  Mich.  456,  11  N.  W.  271.  McClellan,  53  Miss.  507;  Guy  v. 

340  High  Receivers,  §§  39,  343;  Doak,  47  Kans.  236,  27  Pac.  968; 

Beach  Receivers,  §  407.  Crowder  v.  Moone,  52  Ala.  220;  ante, 

241  See  ante,  §  552.  §  540.      See,    also,    Vila    v.    Grand 

242  Hottenstein  v.  Conrad,   9  Kan.  Island,  &c.  Co.  68  Neb.  222,  94  N.  W. 
435;    Cooke    v.    Gwyn,    3    Atk.    698  136,  97  N.  W.  613,  63  L.  R.  A.  791; 
(653);    Bufkin   v.   Boyce,    104    Ind.  Brant,  In  re,  96  Fed.  257,  and  an- 
53,  3  N.  E.  615;    Chicago,  &c.  Min.  thorities  cited. 

Co.  v.  U.   S.  Petroleum  Co.   57  Pa.        244  High  on  Receivers,  §§  105,106. 
St.    83;    Cincinnati,    &c.    R.    Co.    v.        24SWhitehead  v.  Wooten,  43  Miss. 
Sloan,  31  Ohio  St.  1.  523;  Edwards  Receivers  13,  14. 


809  WHO   MAY   BE  APPOINTED   RECEIVER.  [§'   561 

pearance  to  the  action  entered,  in  the  manner  recognized.246  In  a 
recent  case  where  the  service  was  defective  and  the  defendant  had 
entered  a  special  appearance  to  quash  the  notice,  it  was  held  that  a 
suit  was  pending  so  as  to  warrant  the  appointment  of  a  receiver.247 

§  561.  Who  may  be  appointed  receiver. — It  is  customary,  where 
all  the  parties  in  interest  are  before  the  court  and  can  agree  upon  a 
person  to  act  as  receiver,  to  appoint  the  receiver  chosen  by  them.248 
Where  this  cannot  be  done,  two  or  more  persons  are  often  agreed  upon, 
each  of  whom  is  expected  to  represent  and  look  after  the  interests  of 
one  of  the  parties.249  But  the  court  is  not  necessarily  controlled  by 
the  expressed  wish  of  the  parties,  in  making  its  selection  of  a  receiver. 
Other  interests  may  be  affected  by  the  action  of  the  court  besides  those 
of  the  parties  to  the  suit.  It  is  also  practically  impossible  in  many 
cases  to  obtain  the  consent  of  the  several  holders  of  the  capital  stock 
of  the  corporation  and  of  the  different  series  of  bonds  secured  by 
mortgage  upon  its  property.250  As  was  well  said  by  Justice  Miller, 
in  pronouncing  a  judgment  removing  the  receivers  chosen  by  the 
parties,  to  make  way  for  a  receiver  selected  by  the  court :  "A  receiver 
is  strictly  and  solely  the  officer  of  the  court.  It  is  his  duty  so  to 
conduct  the  business  that  the  lawful  rights  and  legal  interest  of  all 
persons  in  the  property  and  in  the  business  shall  be  protected,  as  far 
as  possible,  with  equal  and  exact  justice.  This  is  much  more  likely 
to  be  done  by  a  receiver  who  has  no  interest  in  the  capital  stock  of 
the  road,  none  in  its  debts,  and  no  obligation  to  those  who  have.  Such 
a  person,  acting  under  the  control  of  the  court,  seeking  its  advice, 
and  bound  in  a  sufficient  surety  for  the  faithful  performance  of  his 
duty,  is  the  proper  one  for  such  an  office.  On  the  other  hand,  while 

246  Pressley  v.   Harrison,  102   Ind.  a  receiver,  of  course  I  shall  appoint 

14,  18,  1  N.  E.  188,  per  Mitchell,  J.  whoever  you  agree  upon."   See,  also, 

See  Pressley  v.  Lamb,  105  Ind.  171,  Pound,  In  re,  42  Ch.  D.  402. 

4  N.  E.  682,  and  dissenting  opinion  24£>  Jones  Corp.  Bonds  and   Mortg. 

of  Judge   Mitchell,  on   page  191   et  §  459. 

seq. ;  Jones  v.  Bank  of  Leadville,  10  25°  In  Sage  v.  Memphis,  &c.  R.  Co. 

Colo.  464,  17  Pac.  272;   Crowder  v.  18  Fed.  571,  it  appeared  that  a  re- 

Moone,  52  Ala.  220;  Jones  v.  Schall,  deiver  had  been  appointed  by  collu- 

45  Mich.  379,  8  N.  W.  68.  sion  between  the   plaintiff  and   de- 

217  Hellebush    v.    Blake,    119    Ind.  fendant,  for  the  purpose  of  prevent- 

349,  21  N.  E.  976.  ing  unsecured  creditors  from  recov- 

248  In  Mercantile  Trust  Co.  v.  Mis-  ering  their  claims  by  actions  at  law, 

souri,  &c.  R.  Co.  36  Fed.  221,  Judge  and  the  court  removed  the  receiver. 
Brewer  said:  "If  parties  agree  upon 


§  561] 


RECEIVERS. 


810 


it  may  be  true  that  a  large  personal  interest  may  stimulate  the  activity 
and  direct  the  vigilance  of  the  receiver,  it  is  equally  true  that  such 
vigilance,  whenever  occasion  offered,  will  be  directed  unduly  to  ad- 
vancing that  personal  interest,  and  that  activity  to  securing  personal 
advantages."251  In  accordance  with  this  rule,  a  party  to  the  cause 
should  not,  as  a  rule,  be  appointed  receiver.252  But  a  party  whose 
interest  extends  only  to  a  single  claim  is  sometimes  appointed  receiver 
to  wind  up  the  business  of  the  corporation.253  Stockholders  and  di- 
rectors of  insolvent  corporations  should  not  be  appointed  unless  the 
case  is  exceptional  and  urgent  ;254  nor,  as  a  general  rule,  should  persons 
nearly  related  to  a  party  or  to  the  judge,255  preferred  or  other  cred- 
itors having  hostile  interests  to  the  majority,256  or  others  whose  inter- 
ests or  relations  are  such  that  they  cannot  well  stand  indifferent 
between  the  interested  parties.257  Where  insolvency  is  due  to  the 
mismanagement  of  the  officers,  it  would  be  clearly  inadvisable  to  hand 
over  the  road  to  those  whose  administration  has  proved  disastrous.258 


251  Meier  v.  Kansas  Pac.  R.  Co.  5 
Dill.    (U.  S.)   476.     See,  also,  Wood 
v.  Oregon,  &c.  Co.  55  Fed.  901;  Shan- 
non v.  Hanks,  88  Va.  338,  13  S.  E. 
437. 

252  Young  v.  Rollins,  85  N.  C.  485; 
Finance   Co.   v.   Charleston,    &c.   R. 
Co.  45  Fed.  436.     Neither  the  solic- 
itor employed  by  complainant,  nor 
his  law  partner,  is  such  a  disinter- 
ested person  as  may  properly  be  ap- 
pointed to  act  as  receiver  in  a  fore- 
closure suit.     Merchants',  &c.   Nat. 
Bank    v.    Kent    Circuit    Judge,    43 
Mich.   292,   5   N.   W.   627;    Baker  v. 
Backus,  32   111.  79.     But  see  Shan- 
non v.  Hanks,  88  Va.  338,  13  S.  E. 
437.    Special  circumstances  may  jus- 
tify   the    appointment   of    a    party. 
Robinson   v.    Taylor,    42    Fed.    803, 
812;   Blakeney  v.   Dufaur,  15  Beav. 
40. 

253  In  the  matter  of  Knickerbocker 
Bank,  19  Barb.  (N.  Y.)  602;  Taylor 
v.  Life  Assn.  of  America,  3  Fed.  465. 

254  Atkins  v.  Wabash,  &c.  R.  Co.  29 
Fed.  161;  Farmers'  Loan,  &c.  Co.  v. 
Northern  Pac.  R.  Co.  61  Fed.  546. 


See,  also,  McCullough  v.  Merchants', 
&c.  Co.  29  N.  J.  Eq.  217;  Attorney- 
General  v.  Bank,  1  Paige  (N.  Y.) 
511.  But  compare  Fifty-four  First 
Mortgage  Bonds,  In  re,  15  S.  Car! 
304.  Certainly  an  officer  who  is 
speculating  in  the  stock  of  a  corpo- 
ration should  not  be  appointed. 
Olmstead  v.  Distilling,  &c.  Co.  67 
Fed.  24. 

255  Williamson  v.  Wilson,  1  Bland 
418;  25  U.  S.  St.  at  Large,  Ch.  373, 
§  7. 

256  People's  Bank  v.  Fancher,  21  N. 
Y.  S.  545. 

257  See   Lupton   v.    Stephenson,   11 
Ir.  Eq.  484;   New  York,  &c.  R.  Co. 
v.   New  Ydrk,   &c.   R.   Co.    58   Fed. 
268;   Sutton  v.  Jones,  15  Ves.  584; 
Benneson  v.  Bill,  62  111.  408. 

258  Williamson  v.  New  Albany,  &c. 
R.  Co.  1  Biss.  (U.  S.)  198;  People  v. 
Third    Avenue    Savings    Bank,    50 
How.  Pr.   (N.  Y.)   22;   Wait  Insolv. 
Corp.    §   171.     See,   also,   Atkins   v. 
Wabash,   &c.    R.    Co.    29    Fed.    161; 
Finance  Co.  v.  Charleston,  &c.  R.  Co. 
45  Fed.  436. 


811 


WHO   MAY   BE   APPOINTED   RECEIVER. 


[§    561 


A  person  who  cannot,  with  the  aid  of  others,  manage  a  business 
successfully,  is  as  a  general  rule  regarded  as  unfit  to  wind  it  up 
alone.259  But  since  it  is  necessary  that  the  receiver  of  a  railroad  shall 
be  some  person  who,  by  reason  of  his  responsibility  and  business 
capacity  and  of  his  familiarity  with  the  conduct  of  a  business  enter- 
prise of  this  character  is  fully  competent  to  have  the  management  of 
the  road,  cases  may  arise  in  which  it  is  proper  that  officers  of  the 
corporation,  to  whom  no  fault  is  imputed,  should  be  made  receivers.260 
The  selection  of  the  receiver  is  a  matter  resting  very  largely  in  the 
discretion  of  the  court,  and  while  the  court  will  usually  be  guided  by 
the  rules  already  stated,  the  relationship  of  the  receiver  either  to  the 
parties  or  the  cause  will  seldom  constitute  an  absolute  disqualification, 
in  the  absence  of  any  statutory  provision  upon  the  subject.  Thus,  a 
party  to  the  suit  may  be  perfectly  competent  in  some  cases.261  So  may 
a  relative  of  one  of  the  parties,262  or  a  non-resident.263  And  one 


239  McCullough  v.  Merchants'  Loan, 
&c.  Co.  29  N.  J.  Eq.  217;  Jones  Cor- 
porate Bonds  and  Mortg.  §  459. 

260  Meyer  v.  Johnston,  53  Ala.  237. 
An  order  that  the  president  and  di- 
rectors of  a  railroad  corporation, 
under  the  order  and  subject  to  this 
court,  shall  continue  in  possession 
of  the  road,  conduct  and  carry  on  its 
business,  and  make  a  report  to  the 
court  of  its  condition,  earnings, 
profits  and  expenditures,  was  held 
to  constitute  such  president  and  di- 
rectors receivers  of  the  road.  But 
upon  their  failure  to  file  accounts 
and  perform  the  other  duties  re- 
quired of  them,  they  were  removed 
and  a  single  receiver  appointed  in 
order  to  place  the  property  "more 
substantially  in  the  hands  and  un- 
der the  custody  and  order  of  this 
court."  Gibbes  v.  Greenville,  &c. 
R.  Co.  15  S.  Car.  304.  The  fact  that 
one  is  an  officer  of  a  railroad  com- 
pany will  not  prevent  his  appoint- 
ment as  receiver  thereof  where  he 
is  familiar  with  the  condition  and 
necessities  of  the  railway,  is  an  effi- 
cient manager,  and  the  insolvency 
of  the  company  was  not  promoted 


by  bad  management  on  his  part,  and 
where  the  parties  interested  consent. 
Farmers'  Loan,  &c.  Co.  v.  Northern 
Pac.  R.  Co.  61  Fed.  546;  Fowler  v. 
Jarvis,  &c.  Co.  63  Fed.  888;  Ralston 
v.  Washington,  &c.  R.  Co.  65  Fed. 
557.  See,  also,  Manchester,  &c.  R. 
Co.,  In  re,  14  Ch.  D.  645;  Mercantile 
Trust,  &c.  Co.  v.  Florence,  &c.  Co. 
Ill  Ala.  119,  19  So.  17;  Fowler  v. 
Jarvis,  &c.  Co.  63  Fed.  888;  Barber 
v.  International  Co.  73  Conn.  587, 
48  Atl.  758;  Moran  v.  Wayne  Cir. 
Judge,  125  Mich.  6,  83  N.  W.  104. 
So,  held  where  the  officer  was  spe- 
cially fitted  for  the  place  and  all 
parties  agreed  upon  him  except  a 
small  minority  of  the  bondholders, 
although  he  had  not  only  been  an 
officer  but  was  also  related  to  some 
of  the  large  stockholders  and  bond- 
holders. Bowling  Green  Trust  Co. 
v.  Virginia,  &c.  Co.  133  Fed.  186. 
-  261Hubbard  v.  Guild,  1  Duer  (N. 
Y.)  662. 

262  High     Receivers,     §     67.       See 
Shainwald  v.  Lewis,  8  Fed.  878. 

263  Taylor  v.  Life  Assn.  3  Fed.  465; 
Farmers'    Loan,    &c.    Co.    v.    Cape 
Fear,  &c.  R.  Co.   62  Fed.  675;   Wil- 


562] 


RECEIVERS. 


812 


corporation,  having  authority  to  act  as  trustee  and  receiver,  may  be 
appointed  receiver  of  another  corporation.264 

§  562.  Order  appointing  receiver. — The  order  of  appointment 
should  clearly  designate  the  property  over  which  the  receiver  is  ap- 
pointed,265 and  the  court  may  embody  such  directions  and  impose  such 
conditions  therein  as  are  just  and  proper.266  The  penalty  of  the  bond 
should  usually  be  fixed  and  the  general  terms  of  the  order  prescribed 
at  the  time  it  is  granted.267  But  it  is  customary,  in  most  jurisdictions, 
for  the  attorney  of  the  moving  party  to  draw  up  and  submit  the  form 
of  order  to  the  opposite  party  and  to  the  court,  after  which  it  is  filed 
with  the  clerk  in  the  form  approved  by  the  court.268  Copies  are  also 
required,  in  some  jurisdictions,  to  be  served  upon  all  the  interested 
parties.269  If  the  mortgagor  is  in  possession  the  order  may  direct 
him  to  deliver  possession  to  the  receiver,270  and  it  is  proper  to  direct 
the  receiver  therein  to  account  from  time  to  time  and  to  keep  down 
incumbrances  out  of  the  rents  and  profits.271  It  may  also,  in  a  proper 
case,  reserve  to  other  incumbrancers  or  parties  the  right  to  afterwards 
come  in,  and  may  state  that  the  appointment  is  made  without  preju- 
dice.272 In  short,  the  court  may  give  therein  all  such  directions  as  are 


mer  v.  Atlanta,  &c.  R.  Co.  2  Woods 
(U.  S.)  409.  See,  also,  Roby  v. 
Smith,  131  Ind.  342,  30  N.  E.  1093, 
15  L.  R.  A.  792,  31  Am.  St.  439; 
Farmers'  Loan,  &c.  Co.  v.  Chicago, 
&c.  R.  Co.  27  Fed.  146.  But,  for 
obvious  reasons,  the  appointment  of 
a  non-resident  is  not  advisable. 
Meier  v.  Kansas  Pac.  R.  Co.  5  Dill. 
(U.  S.)  476;  Borton  v.  Brines-Chase 
Co.  175  Pa.  St.  209,  34  Atl.  597. 

264  Knickerbocker  Bank,  In  re,  19 
Barb.  (N.  Y.)  602;  Kimmerle  v.  Do- 
wagiac  Mfg.   Co.   105   Mich.   640,  63 
N.   W.   529    (trust   company) ;    Ver- 
mont, &c.  R.  Co.  v.  Vermont  Cent. 
R.  Co.  46  Vt.  792. 

265  Crow  v.   Wood,    13   Beav.    271; 
O'Mahoney  v.  Belmont,  62  N.  Y.  133; 
2  Dan.  Chanc.  PI.  &  Pr.  1737. 

266  United  States  Trust  Co.  v.  New- 
York,  &c.  R.  Co.  25  Fed.  800;  Cen- 
tral Trust  Co.  v.  St.  Louis,  &c.  R. 
Co.  41  Fed.  551;   West  v.  Chasten, 


12  Fla.  315.  The  order  may  provide 
that  the  company  shall  turn  over  to 
the  receiver  its  books  and  papers. 
American  Const.  Co.  v.  Jacksonville, 
&c.  R.  Co.  52  Fed.  937  (also  its 
seal) ;  Engel  v.  South,  &c.  Co.  66  L. 
T.  R.  155. 

287  Wiltsie  Mortgage  Foreclosures, 
§  644. 

26S  Wiltsie  Mortgage  Foreclosures, 
§  644. 

269  Whitney  v.  Belden,  4  Paige  Ch. 
(N.  Y.)  140;  Rankin  v.  Pine,  4  Abb. 
Pr.  (N.  Y.)  309;  Wiltsie  Mort.  Fore- 
closures, §  644. 

""Griffith  v.  Griffith,  2  Ves.  Sen. 
400;  Everett  v.  Belding,  22  L.  J.  Ch. 
75. 

271  2  Dan.  Chanc.  PI.  &  Pr.  1573. 

272  Smith    v.    Effingham,    2    Beav. 
232;     Wiltsie     Mort.     Foreclosures, 
§    645.      The    court    may    withhold 
from  the  receiver  a  portion  of  the 
assets  upon  which  there  is  a  mort- 


813 


EFFECT    OF   APPOINTMENT. 


[§    563 


just  and  proper  to  enable  the  receiver  to  perform  his  duties  until  the 
further  order  of  the  court  and  to  preserve  the  rights  of  interested 
parties  until  the  merits  of  the  case  can  be  fully  determined.  But  the 
court  has  no  power,  ordinarily  at  least,  to  take  into  its  custody  or 
control,  through  a  receiver,  upon  a  bill  to  foreclose  a  mortgage,  prop- 
erty not  covered  by  the  mortgage,  nor  to  make  any  order  which  will 
delay  and  hinder  creditors  from  subjecting  property  not  covered  by 
the  mortgage  to  the  payment  of  their  debts.273 

§  563.  Effect  of  appointment. — As  already  stated,  the  appoint- 
ment of  a  receiver  usually  determines  no  rights  and  is  not  an  adjudi- 
cation upon  the  merits  of  the  case.274  It  gives  him  the  right  to  the 
possession  and  control  of  the  property,275  but  it  does  not  divest  or 
retroactively  affect  existing  liens  or  vested  rights  of  third  persons.276 
It  has  also  been  held  that  it  does  not  deprive  secured  creditors  of  the 
right  to  possess  and  enforce  their  securities,  and  if  the  receiver  has 
obtained  possession  of  them  he  may  be  compelled  to  deliver  them 
up.277  But  the  lienholder  may  be  compelled  to.  go  into  the  same  court 
to  enforce  his  lien  where  the  entire  estate  is  being  administered.278' 
The  legal  title  is  not  transferred  to  the  receiver  by  a  mere  inter- 
locutory appointment,279  but,  at  least  after  he  has  once  taken  posses- 


gage  about  to  be  enforced  under 
power  of  sale.  Weihl  v.  Atlanta, 
&c.  Co.  89  Ga.  297,  15  S.  E.  282. 

273  Scott  v.  Farmers'  Loan,  &c.  Co. 
69  Fed.  17;    Hook  v.   Bosworth,  64 
Fed.  443. 

274  Ante,  §  558;  Colvin,  In  re,  3  Md. 
Ch.  Dec.  278;  Beverley  v.  Brooke,  4 
Gratt.  (Va.)  187;  Tripp  v.  Chard  R. 
Co.  11  Hare  264;  Central,  &c.  Co.  v. 
Buchanan,  90  Fed.  454;    1  Elliott's 
Gen.  Pr.  §  194. 

275  Post,    §    565.     Property   in   his 
possession  is  in  custodia  legis.    Mer- 
chants' Ins.  Co.,  In  re,  3  Biss.    (U. 
S.)    162;    Robinson  v.   Atlantic,  &c. 
Co.  66  Pa.  St.  160;   1  Elliott's  Gen. 
Pr.  §  195.    But  see  Illinois  Steel  Co. 
v.  Putnam,  68  Fed.  515. 

276  Favorite   v.    Deardorff,   84   Ind. 
555;  Arnold  v.  Weimer,  40  Neb.  216, 
58    N.    W.    709;    State   v.    Superior 


Court,  8  Wash.  210,  35  Pac.  1087,  25 
L.  R.  A.  354;  Artizan's  Bank  v. 
Treadwell,  34  Barb.  (N.  Y.)  553; 
Wilson  v.  Allen,  6  Barb.  (N.  Y.) 
542;  Lorch  v.  Aultman,  &c.  Co.  75 
Ind.  162;  Davenport  v.  Kelly,  42  N. 
Y.  193;  Snow  v.  Winslow,  54  Iowa 
200,  6  N.  W.  191. 

277  Risk  v.  Kansas,  &c.  Co.  58  Fed. 
45. 

278  Ellis  v.  Vernon  Ice,  &c.  Co.  86 
Tex.  109,  23  S.  W.  858;  Wiswall  v. 
Sampson,  14  How.  (U.  S.)  52;  Rob- 
inson v.  Atlantic,  &c.  R.  Co.  66  Pa. 
St.  160;   Skinner  v.  Maxwell,  68  N. 

'Car.  400.  See,  also,  Cole  v.  Phila- 
delphia, &c.  R.  Co.  140  Fed.  944; 
Park  v.  New  York,  &c.  R.  Co.  70 
Fed.  641. 

278  Foster  v.  Townshend,  2  Abb.  N. 
Gas.  (N.  Y.)  29;  Attorney-General 
v.  Coventry,  1  P.  Wins.  306;  Fos- 


§  5G3] 


RECEIVERS. 


814 


sion,  he  has  a  possessory  title  or  special  property.280  His  rights  to  the 
property  are  superior  to  subsequent  attachments,  or  executions281  in 
the  same  jurisdiction,  but  not  to  prior  valid  attachments,282  or  execu- 
tions already  levied.283  The  appointment  of  a  receiver  for  a  corpora- 
tion does  not  dissolve  the  corporation.284  Pending  suits  against  the 
corporation  are  not  necessarily  abated,285  but  the  right  of  the  cor- 
poration to  sue  is  generally  suspended  by  the  appointment.286  It  may 
keep  up  its  organization  and  still  perform  many  acts  as  a  corporation, 
notwithstanding  the  fact  that  the  custody,  control  and  management 
of  its  property  are  in  the  hands  of  a  receiver.287  The  subject  of  the 


dick  v.  Schall,  99  U.  S.  235;  Union 
Bank  v.  Kansas  City  Bank,  136  U. 
S.  223,  10  Sup.  Ct.  1013;  Manlove 
v.  Burger,  38  Ind.  211;  Tillinghast 
v.  Champlin,  4  R.  I.  173,  67  Am. 
Dec.  510;  St.  Louis,  &c.  Co.  v.  San- 
doval,  &c.  Co.  Ill  111.  32;  Ellis  v. 
Boston,  &c.  R.  Co.  107  Mass.  1; 
Keeney  v.  Home  Ins.  Co.  71  N.  Y. 
396,  27  Am.  R.  60. 

280  Chicago,  &c.  R.  Co.  v.  Keokuk, 
108   111.  317,  48  Am.  R.  557;    Boyle 
v.  Townes,  9  Leigh  (Va.)  158;  Sing- 
erly  v.    Fox,   75    Pa.    St.   112.     His 
title  dates  back  to  the  time  of  mak- 
ing the  order.     East  Tennessee,  &c. 
R.  Co.  v.  Atlanta,  &c.  R.  Co.  49  Fed. 
608;    Steele  v.   Sturges,   5  Abb.   Pr. 
(N.  Y.)   442;   Maynard  v.  Bond,  67 
Mo.  315. 

281  McDonald  v.  Charleston,  &c.  R. 
Co.  93  Tenn.  281,  24  S.  W.  252;  State 
v.   Ellis,   45   La.   Ann.   1418,   14    So. 
308;  Harrison  v.  Waterberry,  &c.  Co. 
(Tex.),    27    S.   W.    109;    Skinner  v. 
Maxwell,   68   N.   Car.   400;    Ames  v. 
Trustees,  20  Beav.  332;   Swift's.  &c. 
Works  v.  Johnsen,  26  Fed.  828.    See, 
also,  Horn  v.  Pere  Marquette  R.  Co. 
151   Fed.   627.     But  see   as  to  real 
estate  when  there  is  no  conveyance 
to  the   receiver,   St.   Louis,  &c.   Co. 
v.  Sandoval,  &c.  Co.  Ill  111.  32. 

282  Jones  v.  Bank,  10  Colo.  464,  20 
Am.   &   Eng.   Corp.    Cas.    554;    Kitt- 
redge  v.  Osgood,  161  Mass.  384,  37 
N.  E.  369. 


283  Chautauqua,  &c.  Bank  v.  Risley, 
19  N.  Y.  369,  75  Am.  Dec.  347; 
Becker  v.  Torrance,  31  N.  Y.  631; 
Talladega,  &c.  Co.  v.  Jenifer,  &c.  Co. 
102  Ala.  259,  14  So.  743. 

^Kincaid  v.  Dwindle,  59  N.  Y. 
548;  State  v.  Railroad  Comrs.  41  N. 
J.  L.  235;  Heath  v.  Missouri,  &c.  R. 
Co.  83  Mo.  617;  Jones  v.  Bank.  10 
Colo.  464,  20  Am.  &  Eng.  Corp.  Cas. 
554;  National  Bank  v.  Insurance  Co. 
104  U.  S.  54;  Taylor  Priv.  Corp. 
§  432. 

285  Mercantile   Ins.   Co.   v.   Jaynes, 
87   111.    199;    Toledo,   &c.   R.    Co.   v. 
Beggs,  85  111.  80.  28  Am.  R.  613;  St. 
Louis,  &c.  R.  Co.  v.   Holladay,  131 
Mo.  440,  33  S.  W.  49;  Wilder  v.  New 
Orleans,  87  Fed.  843.     So  it  is  held 
that  it  may  still  be  sued.    Wyatf  v. 
Ohio,   &c.  R.   Co.   10   111.  App.   289; 
Pringle  v.  Woolworth,  90  N.  Y.  502; 
Allen  v.  Central  R.  Co.  42  Iowa  683; 
St.  Joseph,  &c.  R.  Co.  v.  Smith,  19 
Kans.  225. 

286  Post,  §  568;  Kokomo  City  St.  R. 
Co.  v.  Pittsburgh,  &c.  R.  Co.  25  Ind. 
App.    335,    58    N.    E.    211.     But   see 
American   Bank  v.   Cooper,   54   Me. 
438;    People  v.  Barnett,  91  111.  422. 
There    are    probably    exceptions    to 
this  rule  in  regard  to  franchises  or 
matters  in  which  the  receiver  may 
have  no  interest. 

287  See  McCalmont  v.  Philadelphia, 
&c.  R.  Co.  7  Fed.  386,  3  Am.  &  Eng. 


815  COLLATERAL   ATTACK   ON   APPOINTMENT.  [§    564 

liabilities  of  the  corporation  and  of  the  receiver  will  be  treated  in 
another  section. 

§  564.  Collateral  attack  on  appointment. — The  order  or  judgment 
appointing  a  receiver  is  not  open  to  collateral  attack  for  any  errors 
in  the  proceedings  if  the  appointment  was  made  by  a  court  having 
jurisdiction  of  the  case.  It  can  only  be  assailed,  as  a  rule,  in  a  direct 
proceeding  for  that  purpose.288  Thus,  where  a  receiver  was  appointed 
by  the  judge  in  vacation,  under  a  statute  authorizing  such  an  appoint- 
ment in  certain  actions,  and  a  complaint  was  duly  filed  and  both 
parties  appeared  before  the  judge,  it  was  held  that  the  appointment 
could  not  be  collaterally  attacked  by  a  creditor  for  error  of  the  judge 
in  deciding  that  the  complaint  stated  a  cause  of  action  of  the  kind 
designated,  nor  for  any  other  mere  irregularity  or  error  in  the  order 
and  proceedings.289  So,  where  a  complaint  for  the  foreclosure  of  a 
mortgage  prayed  for  the  appointment  of  a  receiver  to  collect  the 
rents,  it  was  held  that  it  challenged  the  mortgagor  to  assert  his  right 
to  the  rent  as  well  as  to  contest  the  appointment  of  a  receiver,  and 
that  a  decree  adjudging  that  the  mortgagee  was  entitled  to  the  rents 
and  appointing  a  receiver  to  collect  them  and  apply  them  to  the 
mortgage  debt  rendered  the  matter  res  adjudicata  and  could  not  be 
collaterally  attacked  by  the  mortgagor.290  But  it  has  been  held  that 
a  stockholder  may  show,  in  a  suit  by  a  receiver  to  collect  an  unpaid 

R.  Cas.  163;  State  v.  Merchant,  37  glian  R.  Co.  3  Macn.  &  G.  104;  Ed- 
Ohio  St.  251,  9  Am.  &  Eng.  R.  Cas.  rington  v.  Pridham,  65  Tex.  612; 
516;  Lehigh,  &c.  Co.  v.  Central,  &c.  Greenawalt  v.  Wilson,  52  Kans.  109, 
R.  Co.  35  N.  J.  Eq.  349;  Louisville,  34  Pac.  403;  Skinner  v.  Lucas,  68 
-&c.  R.  Co.  v.  Cauble,  46  Ind.  277;  Mich.  424,  36  N.  W.  203;  Comer  v. 
State  v.  Wabash  R.  Co.  115  Ind.  466,  Bray,  83  Ala.  217,  3  So.  554;  Shields 
17  N.  E.  909;  Ohio,  &c.  R.  Co.  v.  v.  Coleman,  157  U.  S.  168,  15  Sup. 
Russell,  115  111.  52,  23  Am.  &  Eng.  R.  Ct.  570;  Booher  v.  Perrill,  140  Ind. 
Cas.  149.  529,  40  N.  E.  36;  Kerr  Receivers, 
^Richards  v.  People,  81  111.  551;  166.  But  see  State  v.  Ross,  122  Mo. 
Attorney-General  v.  Guardian,  &c.  435,  25  S.  W.  947,  23  L.  R.  A.  534; 
Ins.  Co.  77  N.  Y.  272;  Jones  v.  Blun,  Edee  v.  Strunk,  35  Neb.  307,  53  N. 
145  N.  Y.  333,  39  N.  E.  954;  Davis  W.  70;  Whitney  v.  Hanover  Nat. 
v.  Shearer,  90  Wis.  250,  62  N.  W.  Bank,  71  Miss.  1009,  15  So.  33,  23 
1050;  Smith  v.  Hopkins,  10  Wash.  L.  R.  A.  531,  where  receiver's  title 
77,  38  Pac.  854;  Keokuk,  &c.  Co.  v.  is  necessarily  in  question. 
Davidson,  13  Mo.  App.  561;  Cook  2S»  Pressley  v.  Lamb,  105  Ind.  171, 
v.  Citizens'  Nat.  Bank,  73  Ind.  256;  189,  4  N.  E.  682. 
Hatfield  v.  Cummings,  153  Ind.  280,  a>0  Storm  v.  Ermantrout,  89  Ind. 
50  N.  E.  817;  Russell  v.  East  An-  214. 


§  565] 


RECEIVERS. 


816 


subscription,  that  the  receiver  was  improperly  appointed  by  a  decree 
not  binding  upon  the  stockholder.291  The  soundness  of  this  decision, 
however,  is  questionable.292 

§  565.  Title  and  possession  of  receiver. — The  appointment  of  a 
receiver  gives  him  the  right  to  immediate  possession  and  control  of 
the  property  over  which  he  is  appointed.293  Where  the  defendants,  or 
persons  claiming  under  them,  refuse  to  surrender  possession,  the  court 
appointing  him  will  assist  the  receiver  by  an  order  directing  the  sur- 
render of  the  specific  property  to  him294  and  will,  if  necessary,  enforce 
its  order  by  attachment.295  In  Iowa  it  is  held  that  a  receiver  may  call 
upon  the  sheriff  to  aid  in  enforcing  his  right  to  take  possession  of 
property  committed  to  his  charge  by  the  court.296  But  where  a  third 
person  holds  property  under  claim  of  title  the  court  will,  in  general, 
require  the  title  of  the  receiver  to  be  established  by  action  before  it 
will  interfere.297  The  title  of  a  receiver  vests,  by  relation,  at  the  date 


291  Chandler  v.  Brown,  77  111.  333. 
See,   also,   Libby   v.    Rosekrans,    55 
Barb.  (N.  Y.)  202. 

292  See  Taylor  Priv.   Corp.   §   542; 
Schoonover    v.    Hinckley,    48    Iowa 
82;   Burton  v.  Schildbach,  45  Mich. 
504,  8  N.  W.  497.    The  appointment 
of  a  receiver  cannot  be  attacked  on 
the  ground  of  mere  irregularity  or 
error,  in  a  proceeding  by  him  to  en- 
force a  mechanic's  lien  in  favor  of 
the  corporation  for  which  he  is  re- 
ceiver.    Florence,  &c.  Co.  v.  Hanby, 
101  Ala.  15,  13  So.  343. 

293Fosdick  v.  Schall,  99  U.  S.  235; 
Ellis  v.  Boston,  &c.  R.  Co.  107  Mass. 
1 ;  Yeager  v.  Wallace,  44  Pa.  St.  294 ; 
Union  Trust  Co.  v.  Weber,  96  111. 
346,  3  Am.  &  Eng.  R.  Cas.  583.  See, 
also,  Appleton  Water  Works  Co.  v. 
Central  Trust  Co.  93  Fed.  286.  But 
see  Illinois  Steel  Co.  v.  Putnam,  68 
Fed.  515;  Wiswall  v.  Sampson,  14 
How.  (U.  S.)  52. 

^Geisse  v.  Beall,  5  Wis.  224; 
Thornton  v.  Washington  Savings 
Bank,  76  Va.  432;  Cohen,  In  re,  5 
Cal.  494;  People  v.  Central  City 
Bank,  53  Barb.  (N.  Y.)  412.  See, 


also,  Horn  v.  Pere  Marquette  R.  Co. 
151  Fed.  627. 

295  Miller  v.  Jones,  39  111.  54.  Or 
punish  interference  as  a  contempt. 
Thomas  v.  Cincinnati,  &c.  R.  Co.  62 
Fed.  803;  Secor  v.  Toledo,  &c.  R. 
Co.  7  Biss.  (U.  S.)  513.  Or  enjoin 
it.  Fidelity  Trust,  &c.  Co.  v.  Mobile 
St.  R.  Co.  53  Fed.  687;  Metropolitan 
Trust  Co.  v.  Columbus,  &c.  R.  Co.  95 
Fed.  18. 

298  State  v.  Rivers,  66  Iowa  653,  24 
N.  W.  260. 

297Gelpeke  v.  Milwaukee,  &c.  R. 
Co.  11  Wis.  454;  Coleman  v.  Salis- 
bury, 52  Ga.  470;  Levi  v.  Karrick, 
13  Iowa  344;  Parker  v.  Browning,  8 
Paige  (N.  Y.)  388,  35  Am.  Dec.  717. 
In  Gelpeke  v.  Milwaukee,  &c.  R.  Co. 
11  Wis.  454,  Dixon,  C.  J.,  speaking 
for  the  court,  said:  "I  know  of  no 
case  where  it  has  been  adjudged 
that  the  possession  of  a  stranger, 
who  sets  up  a  superior  title,  in  pur- 
suance of  which  he  claims  to  have 
entered  and  to  hold,  might  be  thus 
disturbed.  *  *  *  Courts  can  only 
act  in  such  cases,  where  the  rights 
of  the  parties  are  obvious,  and  not 


817  AUTHORITY,  RIGHTS  AXD  DUTIES  OF  RECEIVER.  [§    566 

of  his  appointment,  notwithstanding  delay  on  his  part  in  qualifying.298 
Indeed,  it  is  held  that  even  though  the  receiver  does  not  qualify  at  all, 
but  declines  to  act,  the  property  is  still  in  the  custody  of  the  court,299 
since  a  receiver  is  only  the  ministerial  officer  of  the  court  which  ap- 
points him  and  his  possession  is  the  possession  of  the  court.300  This 
rule  has  even  been  applied  as  against  the  claim  of  a  state  for  taxes, 
and  it  is  held  that  property  in  the  hands  of  a  receiver  of  a  federal 
court  cannot  be  reached  by  proceedings  for  the  collection  of  state  taxes 
without  the  consent  of  such  court.301  Where  a  person  purchases  prop- 
erty with  notice  that  proceedings  are  pending  for  the  appointment  of 
a  receiver,  it  has  been  held  that  he  takes  it  subject  to  the  rights  of 
such  receiver,  if  one  is  granted.302 

§  566.    Authority,  rights  and  duties  of  receiver — Control  by  court. 

— The  term  "receiver,"  as  used  in  England,  is  employed  to  designate 
a  person  appointed  by  a  court  of  chancery  at  the  suit  of  some  party 
in  interest  who  receives  rents,  or  other  income,  and  pays  ascertained 
outgoings  with  a  view  to  conserving  property  until  it  can  be  sold  for 
the  payment  of  debts  and  liabilities  of  an  insolvent  person  or  corpora- 
tion. If  it  is  necessary  to  continue  the  business  a  "manager"  is  ap- 
pointed.303 But  in  the  United  States  a  receiver  of  a  railroad  is 
understood  to  be  a  ministerial  officer  of  a  court  of  chancery,  appointed 
as  an  indifferent  person  between  the  parties  to  a  suit,  whose  duty  it  is 
not  only  to  preserve  the  tangible  property  of  the  corporation,  but, 
also,  its  franchises  and  business,  that  the  value  of  the  railroad  as  a 
whole  may  not  be  impaired,304  and  that  the  rights  of  the  public  to 
have  it  kept  in  operation  as  a  public  highway  may  not  be  infringed. 

the  subject  of  doubts  or  serious  con-  302  Weed  v.  Smull,  3  Sandf.  Ch.  (N. 

troversy."  Y.)  273. 

298  Maynard  v.  Bond,  67  Mo.  315 ;  ^  Manchester,  &c.  R.  Co.,  In  re,  L. 

Rutter  v.  Tallis,  5   Sandf.    (N.  Y.)  R.  14  Ch.  645.    A  manager  of  a  rail- 

610;  Hardwick  v.  Hook,  8  Ga.  354.  way  company  may  be  appointed  at 

m  Skinner  v.  Maxwell,  68  N.  Car.  the  suit  of  a  judgment  creditor.    38 

400.  and  39  Viet  Ch.  31;  30  and  31  Viet. 

800  Robinson  v.  Atlantic,  &c.  R.  Co.  Ch.  127. 

66  Pa.  St.  160;   Ohio,  &c.  R.  Co.  v.  ,  ^  Barton   v.    Barbour,   104    U.    S. 

Fitch,  20  Ind.  498;  Skinner  v.  Max-  126;    Wallace  v.    Loomis,   97   U.    S. 

well,  68  N.  Car.  400;  Merchants'  Ins.  146,  162;    Milwaukee,  &c.  R.  Co.  v. 

Co.,  In  re,  3  Biss.  (U.  S.)  165.  Soutter,  2  Wall.    (U.  S.)   510;   Mer- 

"O'Oakes   v.   Myers,   68   Fed.   807;  cantile  Trust  Co.  v.  Missouri,  &c.  R. 

Tyler,  In  re,  149  U.  S.  164,  13  Sup.  Co.  36  Fed.  221;  Florida  v.  Jackson- 

Ct.  785.  ville,  &c.  R.  Co.  15  Fla.  201,  206. 
ELL.  RAILROADS — 52 


5G6] 


RECEIVERS. 


818 


To  this  end  he  is  empowered  to  hire  and  pay  workmen,  agents,  and  all 
necessary  assistants,  to  make  contracts  for  the  carriage  of  passengers 
and  freight,  and  to  do  such  other  acts  as  are  necessary  in  maintaining 
the  railroad  as  a  going  concern.305  In  the  management  of  such  a  com- 
plicated business  as  the  operation  of  a  railroad  a  large  discretion  is 
necessarily  given  to  a  receiver.  It  may,  perhaps,  be  laid  down  as  a 
general  proposition  that  all  outlays  made  by  the  receiver,  in  good 
faith,  in  the  ordinary  course,  with  a  view  to  promote  the  business  of 
the  road  and  to  render  it  profitable  and  successful,  are  fairly  within 
the  line  of  discretion  which  is  necessarily  allowed  to  a  receiver  in- 
trusted with  the  management  and  operation  of  a  railroad  in  his 
hands.306  Thus,  rebates  of  freight,  paid  in  accordance  with  a  cus- 
tomary practice  necessary  to  secure  business  for  the  railway,  when 
not  illegal,  the  purchase-price  of  a  truck  and  team  of  horses,  and  the 
expenses  of  drayage  and  wharfage  have  been  held  to  be  outlays 
properly  within  the  discretion  of  the  receiver.307  So  of  counsel  and 
witness  fees  in  necessary  litigation  involving  the  receivership.308  But 
the  receiver  should  usually  seek  the  advice  of  the  court  in  advance, 
especially  in  case  of  any  unusual  expenditures,309  and  even  then,  if 
the  hearing  is  ex  parte,  the  judge  may  afterwards  change  has  mind.310 


305  Ordinarily,  the  duties  of  a  re- 
ceiver only  comprise  the  operation 
and  management  of  the  road,  the 
payment  of  current  expenses,  and 
the  application  of  the  residue  of 
the  earnings  and  receipts  to  the  ex- 
tinguishment of  the  indebtedness,  to 
secure  which  the  receiver  was  ap- 
pointed. Bank  of  Montreal  v.  Chi- 
cago, &c.  R.  Co.  48  Iowa  518.  While 
a  receiver  may,  of  course,  purchase 
material  essential  for  the  operation 
of  the  road,  he  cannot  bind  the  trust 
by  a  purchase  of  material  not  want- 
ed, excessive  in  price  and  defective 
in  quality.  T  °high  Coal,  &c.  Co.  v. 
Central  R.  Co.  35  N.  J.  Eq.  426.  See, 
generally,  as  to  his  appointment  and 
powers  for  the  purpose  of  keeping 
it  a  going  concern,  Erb  v.  Morasch, 
177  U.  S.  584,  20  Sup.  Ct.  819;  Van- 
derbilt  v.  Central  R.  Co.  43  N.  J. 
Eq.  669,  12  All.  188;  Merley  v.  Sagi- 


naw  Circuit  Judge,  117   Mich.  246, 
75  N.  W.  466,  41  L.  R.  A.  817. 

306Cowdrey  v.  Railroad  Co.  1 
Woods  (U.  S.)  334;  Cowdrey  v.  Gal- 
veston,  &c.  R.  Co.  93  U.  S.  352;  Mar- 
tin v.  New  York,  &c.  R.  Co.  36  N. 
J.  Eq.  109.  See,  also  Continental 
Trust  Co.  v.  Toledo,  &c.  R.  Co.  59 
Fed.  514. 

307  Cowdrey     v.     Railroad     Co.     1 
Woods  (U.  S.)  334,  affirmed  in  93  U. 
S.  352. 

308  Cowdrey     v.     Railroad     Co.     1 
Woods  (U.  S.)  334;  Trustees  of  In- 
ternal, &c.  Fund  v.  Greenough,  105 
U.    S.    527;    Montgomery   v.    Peters- 
burg Sav.  &c.  Co.  70  Fed.  746. 

300  Cowdrey  v.  Galveston,  &c.  R. 
Co.  93  U.  S.  352. 

310  Missouri  Pac.  R.  Co.  v.  Texas, 
&c.  R.  Co.  31  Fed.  862.  See,  also, 
Chamberlain,  Ex  parte,  55  Fed.  704, 
706. 


819 


CONTRACTS   OF   RECEIVERS. 


[§    567 


§  567.  Contracts  of  receivers. — A  receiver  may,  in  general,  make 
binding  contracts  on  any  subject  within  the  scope  of  his  authority; 
and  one  who  has,  in  good  faith,  executed  such  a  contract,  should  not 
be  denied  compensation,  even  though  the  contract  should  appear  to 
have  been  improvident  and  opposed  to  the  best  interests  of  the  trust.311 
He  may  contract  to  carry  freight  at  a  specified  rate  even  from  points 
beyond  the  terminus  of  his  road  to  a  point  on  such  road,  and  an  order 
of  court  is  not  necessary  to  authorize  him  to  do  so.312  So,  lie  may 
effect  insurance  upon  the  property  in  his  hands  without  special  au- 
thority from  the  court.313  But  a  receiver  cannot  bind  the  company 
by  a  contract  to  perform  duties  of  a  personal  nature  through  a  long 
series  of  years,314  nor  bind  the  trust  property  by  a  lease  involving  a 
large  expenditure  of  money  and  extending  beyond  the  time  of  the 
receivership.315  Where  an  executory  contract  cannot,  consistently  with 
the  interests  of  the  trust,  be  enforced  against  the  receiver,  and  the 
contractor  has  in  good  faith  expended  money  in  preparation  for  its 
performance,  it  is  said  that  he  should  yet  be,  made  whole  by  an  allow- 
ance of  damages  out  of  the  fund,  unless  it  appears  that  he  has  been 
guilty  of  collusion  or  bad  faith.316  For  a  court  of  equity  cannot 


8U  Vanderbilt  v.  Central  R.  Co.  43 
N.  J.  Eq.  669,  12  Atl.  188.  A  re- 
ceiver of  a  railroad  who  is  operat- 
ing the  road  and  managing  and  con- 
trolling its  business  will  be  pre- 
sumed to  have  authority  to  make 
contracts  relative  to  the  carriage  of 
goods,  until  the  authority  conferred 
upon  him  by  the  court  is  shown. 
Bayles  v.  Kansas  Pac.  R.  Co.  13 
Colo.  181,  22  Pac.  341,  5  L.  R.  A. 
480. 

312  Kansas  Pac.  R.  Co.  v.  Bayles,  19 
Colo.   348,   35   Pac.   744.     See,   also, 
San  Antonio,  &c.  R.  Co.  v.  Barnett 
(Tex.    Civ.    App.),    44    S.    W.    20; 
Philadelphia  Investment  Co.  v.  Ohio, 
&c.  R.  Co.  41  Fed.  378;   Vanderbilt 
v.  Little,  51  N.  J.  Eq.  289,  26  Atl. 
1025;     Farmers'    Loan,    &c.    Co.    v. 
Northern  Pac.  R.  Co.  120  Fed.  873, 
57  C.  C.  A.  533;    Northern  Pac.  R. 
Co.  v.  American,  &c.  R.  Co.  195  U. 
S.  439,  25  Sup.  Ct.  84. 

313  Thompson  v.   Phrenix   Ins.   Co. 


136  U.  S.  287,  10  Sup.  Ct.  1019,  3 
Lewis'  Am.  R.  &  Corp.  R.  119.  See, 
also,  Brown  v.  Hazlehurst,  54  Md. 
26. 

314  Martin  v.  New  York,  &c.  R.  Co. 
36  N.  J.  Eq.  109,  12  Am.  &  Eng.  R. 
Gas.  448.     In  this  case  the  receiver 
agreed   with    a   landowner   to    give 
him  a  free  annual  pass  for  himself 
over   the    road    during   his   life,   in 
part  consideration  of  the  release  of 
a  right  of  way  across  his  land,  and 
the    court    held    that    the    contract 
could  not  be  enforced  against  the 
company. 

315  Chicago  Vault  Co.  v.   McNulta, 
153  U.  S.  554,  14  Sup.  Ct.  915. 

(318  Little  v.  Vanderbilt,  26  Atl. 
1025;  Vanderbilt  v.  Little,  51  N.  J. 
Eq.  289,  26  Atl.  1025.  If  the  con- 
duct of  the  receiver  require  it,  the 
court  might  compel  him  to  reim- 
burse the  fund  for  what  would  thus 
be  taken  from  it.  Vanderbilt  v.  Cen- 
tral R.  Co.  43  N.  J.  Eq.  669,  12  Atl. 


567] 


RECEIVERS. 


820 


revoke  or  annul  at  the  pleasure  of  the  chancellor  the  contracts  of  a 
receiver  within  the  scope  of  the  authority  conferred  by  the  order 
appointing  him.317  But  one  who  contracts  with  a  receiver  must  be 
assumed  to  know  that,  if  he  seeks  to  enforce  his  contract,  it  must 
come  under  the  scrutiny  of  a  court  of  equity;  and  it  will  not  be  en- 
forced when  it  appears  that  the  unreasonableness  and  improvidence 
of  the  contract  were  brought  to  his  notice  before  he  had  taken  any 
steps  toward  its  performance,818  And  no  contracts  beyond  such  as 
are  essential  or  at  least  proper  in  order  to  the  successful  operation 
of  the  road  may  be  made  without  the  sanction  of  the  court.319  There 
are  some  contracts,  of  course,  made  by  the  corporation  before  the  ap- 
pointment of  a  receiver  which  remain  binding  after  his  appointment, 
but  there  are  others  which  are  not  binding  upon  him  unless  he,  in 
some  way,  ratifies  them.320  Where  a  receiver  is  appointed  for  a  rail- 
road which  embraces  leased  lines  he  does  not  necessarily  assume  re- 
sponsibility for  the  covenants  of  the  leases,  nor  take  the  place  of  the 
lessees,  but  he  is  entitled  to  a  reasonable  time  in  which  to  determine 
whether  to  adopt  or  renounce  them.321  But  in  extraordinary  cases, 
involving  a  large  outlay  of  money,  the  receiver  should  apply  to  the 
court  in  advance  and  obtain  its  authority  for  the  purchase  or  im- 
provement proposed,322  and  this  is  always  the  safest  course  in  case  of 
doubt.  In  several  cases  the  courts  have  refused  to  confirm  the  action 


188.      See    Moran    v.    Lydecker,    27 
Hun    (N.  Y.)   582. 

317  Vanderbilt  v.  Central  R.  Co.  43 
N.  J.  Eq.  669,  12  Atl.  188. 

318  In  Lehigh  Coal,  &c.  Co.  v.  Cen- 
tral R.   Co.   35   N.   J.   Eq.   426,  the 
court,   by  Van   Fleet,   V.   C.,  said: 
"All  persons  dealing  with  receivers 
do  so  at  their  peril,  and  are  bound 
to  take  notice  of  their  incapacity  to 
conclude  a  binding  contract  without 
the  sanction  of  the  court."    But  see 
as   to   reimbursement   for   expenses 
and  losses   incurred   in  good   faith, 
Vanderbilt  v.   Little,   51   N.   J.   Eq. 
289,  26  Atl.  1025. 

3U)  Lehigh  Coal,  &c.  Co.  v.  Central 
R.  of  N.  J.  35  N.  J.  Eq.  426;  Mc- 
Minnville,  &c.  R.  Co.  v.  Huggins,  3 
Baxt.  (Tenn.)  177;  Taylor  v.  Phila- 
delphia, &c.  R.  Co.  9  Fed.  1. 

320  Seattle,  &c.  R.  Co.,  In  re,  61  Fed. 


541;  Kansas  Pac.  R.  Co.  v.  Bayles, 
19  Colo.  348,  35  Pac.  744;  Girard, 
&c.  Co.  v.  Cooper,  51  Fed.  332;  Cen- 
tral Trust  Co.  v.  Wabash,  &c.  R.  Co. 
52  Fed.  908;  Ames  v.  Union  Pac.  R. 
Co.  60  Fed.  966;  Howe  v.  Harding, 
76  Tex.  17,  13  S.  W.  41,  18  Am.  St. 
17;  1  Lewis'  Am.  R.  &  Corp.  502. 

321  Clyde  v.  Richmond,  &c.  R.  Co. 
63  Fed.  21;  Ames  v.  Union  Pac.  R. 
Co.    60    Fed.    966,    citing   numerous 
authorities;    St.  Joseph,  &c.  R.  Co. 
v.  Humphreys,  145  U.  S.  105,  12  Sup. 
Ct.  795,  60  Am.  &  Eng.  R.  Gas.  431, 
and  note;    United  States  Trust  Co. 
v.  Wabash,  &c.  R.  Co.  150  U.  S.  287, 
14  Sup.  Ct.  86.    But  see  New  York, 
&c.  R.  Co.  v.  New  York,  &c.  R.  Co. 
58  Fed.  268. 

322  Bradley,  J.,  in  Cowdrey  v.  Rail- 
road Co.  1  Woods  (U.  S.)  331. 


821 


SUITS   BY   RECEIVERS — AUTHORITY   TO    SUE. 


[§    568 


of  receivers  in  reducing  wages  of  employes  without  notice  to  the  em- 
ployes.323 A  receiver,  in  a  suit  to  foreclose  a  second  mortgage,  may 
be  directed  to  pay  interest  on  first  mortgage  bonds  to  prevent  the 
foreclosure  of  the  first  mortgage,  where  it  is  to  the  interest  of  the 
second  mortgage  bondholders  and  the  general  creditors  to  prevent 
such  foreclosure,  although  the  application  is  opposed  by  the  first 
mortgage  bondholders  and  a  majority  of  the  second  mortgage  bond- 
holders who  are  also  interested  in  the  first  mortgage.824  So,  a  receiver 
may  be  authorized  in  a  proper  case  to  complete  work  already  begun,325 
or  to  pledge  collaterals  to  secure  loans  necessary  for  the  operation  of 
the  road.326 

§  568.  Suits  by  receivers — Authority  to  sue. — The  right  of  a  cor- 
poration to  sue  is  generally  suspended  by  the  appointment  of  an  acting 
receiver.327  But  the  receiver,  unless  specially  empowered  by  statute, 
cannot,  ordinarily,  maintain  a  suit  upon  any  debt  or  claim  accruing 
to  the  corporation  which  he  represents  without  an  order  from  the  court 
appointing  him,  directing  such  suit  to  be  brought.328  A  general  per- 
mission to  bring  all  necessary  suits  is  usually  given,  however,  in  the 


323  Ames  v.  Union  Pac.  R.  Co.  60 
Fed.  674;  Ames  v.  Union  Pac.  R.  Co. 

62  Fed.  7,  4  Inters.  Com.  R.  619.   As 
to  controversies  with  employes,  see, 
generally,  Platt  v.  Philadelphia,  &c. 
R.  Co.  65  Fed.  660 ;  Arthur  v.  Oakes, 

63  Fed.  310;  United  States  Trust  Co. 
v.  Omaha,  &c.  R.  Co.  63  Fed.  737; 
Thomas  v.  Cincinnati,  &c.  R.  Co.  62 
Fed.   17;    Continental   Trust   Co.  v. 
Toledo,  &c.  R.  Co.  59  Fed.  514;  Seat- 
tle, &c.  R.  Co.,  In  re,  61  Fed.  541; 
Ellis  v.  Boston,  &c.  R.  Co.  107  Mass. 
1;   Dexter  v.  Union  Pac.  R.  Co.  75 
Fed.  947. 

324  Lloyd  v.  Chesapeake,  &c.  R.  Co. 
65  Fed.  351. 

^Florence,  &c.  Co.  v.  Hanby,  101 
Ala.  15,  13  So.  343;  Miltenberger  v. 
Logansport,  &c.  R.  Co.  106  U.  S.  286, 
1  Sup.  Ct.  140;  Morrison  v.  Forman, 
177  111.  427,  53  N.  E.  73;  Gibert  v. 
Washington  City,  &c.  R.  Co.  33  Gratt. 
(Va.)  586.  But  not,  ordinarily,  to 


complete  the  road.     See  last  three 
authorities  above  cited. 

326  Clarke  v.  Central  R.  &c.  Co.  54 
Fed.  556. 

327  Davis  v.  Ladoga  Creamery  Co. 
128  Ind.  222,  27  N.  E.  494;  Griffin  v. 
Long  Island  R.  Co.  102  N.  Y.  449; 
Curtis  v.  Mcllhenny,  5  Jones  Eq.  (N. 
C.)  290. 

^Garver  v.  Kent,  70  Ind.  428; 
Davis  v.  Ladoga  Creamery  Co.  128 
Ind.  222,  27  N.  E.  494;  Bishop  v. 
McKillican,  124  Cal.  321,  57  Pac.  76, 
71  Am.  St.  68;  Screven  v.  Clark,  48 
Ga.  41;  Davis  v.  Snead,  33  Gratt. 
(Va.)  705;  Battle  v.  Davis,  66  N.  C. 
252;  Merritt  v.  Merritt,  16  Wend. 
(N.  Y.)  405;  Coope  v.  Bowles,  28 
How.  Pr.  (N.  Y.)  10;  Patrick  v. 
Eells,  30  Kans.  680,  2  Pac.  116;  State 
v.  Games,  68  Mo.  289;  Glenn  v.  Bu- 
sey,  5  Mackey  (D.  C.)  233;  Booth  v. 
Clark,  17  How.  (U.  S.)  322;  Ward 
v.  Swift,  6  Hare  (Eng.)  309.  See, 
also,  ante,  §  537. 


§  568] 


RECEIVERS. 


822 


order  making  the  appointment.329  But  authority  to  sue  will  extend 
only  to  causes  of  action  embraced  within  the  terms  of  the  order.330 
The  weight  of  authority  is  to  the  effect  that  even  where  leave  to  sue 
has  been  granted,  a  receiver  cannot,  in  the  absence  of  statutory  author- 
ity, institute  and  conduct  actions  in  his  own  name,  in  matters  con- 
cerning his  receivership,  unless  specially  authorized  by  the  court 
from  which  he  receives  his  appointment,331  and  that  he  must,  unless 
so  authorized,  bring  his  action  in  the  name  of  the  corporation  or  party 
in  whom  was  the  right  of  action  before  the  receiver  was  appointed.332 
The  reason  for  this  is  that  the  legal  title  to  choses  in  action  or  other 
property  which  he  is  authorized  to  reduce  to  possession,  is  ordinarily 
not  transferred  to  the  receiver,  but  remains  in  the  owner.  Neither 
the  reason  nor  the  rule,  it  seems,  controls  in  case  a  receiver  brings 
suit  upon  a  contract  made  with  him  as  such,333  or  seeks  to  recover 
damages  for  the  seizure  and  conversion  of  property  after  it  came 
into  his  possession,334  since 'a  receiver,  being  the  instrument  used  by 
the  court  in  accomplishing  its  purpose,  or  carrying  into  effect  its 
decree,  must  be  presumed  to  have  the  power  to  take  all  such  steps  as 
are  essential  to  enforce  the 'performance  of  contracts  and  agreements 
made  with  him  in  the  course  of  his  receivership,335  and  to  protect 
the  property  in  his  possession.336  That  a  court  of  equity  may  empower 


329  Beach    Receivers,    §  651.     Such 
general  authority  may  be  given  by 
an  order  made  subsequent  to  the  or- 
der   appointing    the    receiver.     La- 
throp  v.  Knapp,  37  Wis.  307. 

330  Beach  Receivers,  §  651.    An  or- 
der authorizing  the  receiver  to  sue 
for  all  the  assets  of  every  kind  and 
character  does  not  give  a  right  to 
maintain    an    action    for    injury    to 
property  not  in  the  receiver's  pos- 
session.    Alexander  v.  Relfe,  9  Mo. 
App.  133.     See  Screven  v.  Clark,  48 
Ga.  41. 

331  King  v.  Cutts,  24  Wis.  627;  Yea- 
ger  v.  Wallace,  44  Pa.  St.  294;  New- 
ell v.  Fisher,  24  Miss.  392;  Manlove 
v.  Burger,  38  Ind.  211;  High  Receiv- 
ers, §  209. 

332  Cases  in  preceding  note.   Where 
statute  authority  is  lacking,  it  must 
appear  by  the  averments  of  the  com- 


plaint that  the  court  appointing  the 
plaintiff  as  receiver  authorized  him 
to  sue  in  his  own  name  in  matters 
concerning  his  receivership,  or  he 
cannot  recover  in  an  action  in  his 
own  name  for  a  debt  due  the  corpo- 
ration. Carver  v.  Kent,  70  Ind.  428. 
But  see  Boyd  v.  Royal  Ins.  Co.  Ill 
N.  Car.  372,  16  S.  E.  389. 

^Pouder  v.  Catterson,  127  Ind. 
434,  26  N.  E.  66. 

331  Singerly  v.  Fox,  75  Pa.  St.  112 ; 
Kehr  v.  Hall,  117  Ind.  405,  20  N.  E. 
279.  A  receiver  may  maintain  re- 
plevin for  property  which  has  been 
wrongfully  taken  out  of  his  posses- 
sion. Boyle  v.  Townes,  9  Leigh 
(Va.)  158. 

"^Pouder  v.  Catterson,  127  Ind. 
434,  26  N.  E.  66. 

338  Kehr  v.  Hall,  117  Ind.  405,  20  N. 
E.  279. 


823 


SUITS   BY   RECEIVERS — AUTHORITY   TO    SUE. 


[§'   568 


its  receiver  to  bring  all  actions  in  his  own  name  as  receiver  which 
may  be  necessary,  instead  of  suing  in  the  name  of  the  corporation  or 
joining  it  with  him  even  in  the  absence  of  any  statutory  provisions  on 
the  subject  is  the  settled  doctrine  of  nearly  all  the  modern  cases.337 
And  the  courts  of  some  of  the  states  have  gone  to  the  extent  of  holding 
that  the  appointment  of  a  receiver  authorizes  him,  virtute  officii,  to 
bring  all  necessary  suits  in  the  discharge  of  his  trust,  and  makes 
him  so  far  the  assignee  of  the  legal  title  that  he  must  sue  in  his  own 
name.338  Authority  is  expressly  given  to  the  receiver  by  statute  in 
many  of  the  states  to  prosecute  and  defend  actions  in  his  own  name  as 


837  Davia  v.  Gray,  16  Wall.  (U.  S.) 
203;  Frank  v.  Morrison,  58  Md.  423; 
Inglehart  v.  Bierce,  36  111.  133;  La- 
throp  v.  Knapp,  27  Wis.  215;  Hard- 
wick  v.  Hook,  8  Ga.  354;  Helme  v. 
Littlejohn,  12  La.  Ann.  298;  Boyle 
v.  Townes,  9  Leigh  (Va.)  158; 
Henning  v.  Raymond,  35  Minn.  303, 
29  N.  W.  132;  Wray  v.  Jamison,  10 
Humph.  (Tenn.)  185;  High  Receiv- 
ers, §  209;  Beach  Receivers,  §  688; 
Gluck  &  Becker  Rec.  of  Corp.  pp. 
155,  156.  But  in  Pennsylvania  and 
some  other  states,  where  the  re- 
ceiver is  the  mere  custodian  of  the 
property,  he  is  held  to  have  no  title 
upon  which  to  maintain  a  suit  in 
his  own  name,  but,  if  authorized  to 
bring  suit,  must  sue  in  the  name  of 
the  corporation.  Dick  v.  Struthers, 
25  Fed.  103;  Yeager  v.  Wallace,  44 
Pa.  St.  294;  Farmers',  &c.  Ins.  Co. 
v.  Needles,  52  Mo.  17;  Comer  v. 
Bray,  83  Ala.  217,  3  So.  554. 

338  Helme  v.  Littlejohn,  12  La.  Ann. 
298;  Baker  v.  Cooper,  57  Me.  388; 
Wray  v.  Jamison,  10  Humph. 
(Tenn.)  185.  In  Wilkinson  v.  Ru- 
therford, 49  N.  J.  L.  241,  8  Atl.  507, 
the  court  said:  "It  has  already  been 
shown  that  there  is  no  statutory  defi- 
nition of  the  powers  of  the  receiver. 
The  question,  consequently,  that 
arises,  is  as  to  the  inherent  abilities 
of  a  receiver  by  force  of  the  usual 
rules  of  jurisdiction.  I  cannot 


agree  to  the  doctrine  that  a  receiver 
is  a  mere  custodian  of  the  property 
of  the  person  whom,  in  certain 
cases,  he  is  made  to  supplant,  and  it 
would  seem  he  is  an  assignee  of  the 
assets  within  the  scope  of  his  office. 
There  seems  to  be  no  reason  why 
his  powers  should  not  be  held  to  be 
co-extensive  with  his  functions;  and 
it  is  clear  that  he  cannot  conven- 
iently perform  those  functions  un- 
less upon  the  theory  that  some  in- 
terest in  the  property,  akin  to  that 
of  an  assignee's,  passes  to  him.  The 
receiver  is  to  discharge  the  execu- 
tory duty  of  collecting  the  debts, 
and  taking  into  his  possession,  even 
against  antagonistic  claims,  the  tan- 
gible property;  and  after  his  ap- 
pointment, a  sale  of  such  property 
by  the  insolvent  would,  it  is  pre- 
sumed, be  absolutely  void;  and  yet, 
if  the  interest  in  the  property  was 
not  vested  in  the  receiver,  it  would 
be  difficult  to  find  ground  on  which 
to  validate  the  transaction.  *  *  * 
These  embarrassments,  as  well  as 
many  others  of  a  like  kind,  are  obvi- 
ated by  the  adoption  of  the  doctrine 
(that,  virtute  officii,  a  receiver  be- 
comes a  provisional  assignee  of  the 
property  committed  to  him,  and  this 
doctrine  is  recognized  in  the  case  of 
Harrison  v.  Maxwell,  44  N.  J.  L. 
316." 


569] 


RECEIVERS. 


824 


receiver.339  Where  this  power  is  made  absolute  it  is  not  necessary  for 
him  to  show  a  special  authority  from  the  court  appointing  him  to 
prosecute  an  action,340  though  he  must  set  forth  sufficient  facts  to  show 
his  character  as  receiver,  and  that  he  is  the  person  authorized  by  the 
statute  to  act  on  behalf  of  the  corporation.341  Where,  as  is  the  case  in 
Indiana,  a  receiver  is  given  power  to  bring  and  defend  actions,  collect 
debts,  etc.,  in  his  own  name,  "under  the  control  of  the  court,  *  *  * 
and  generally  to  do  such  acts  respecting  the  property,  as  the  court  or 
judge  thereof  may  authorize,"  the  complaint  must  allege  that  suit 
was  brought  by  direction  of  the  court  appointing  the  receiver  or  it 
will  be  fatally  defective.342 

§569.  When  receiver  may  maintain  suit — Defenses  to  receiver's 
suit. — The  court  may  empower  its  receiver  to  sue  upon  any  rights  of 
action  which  belong  to  the  person  or  corporation  whose  property  has 
been  put  into  the  receiver's  hands.343  But  a  receiver  usually  has  no 
power  to  maintain  suits  where  the  party  whose  effects  he  receives 
could  not  have  sued,  and  the  fact  that  an  order  of  court  directs  him 
to  bring  the  suit  will  not  add  to  his  right  to  maintain  it.344  This  rule, 


339Stimson  Am.  Stat.  (1892) 
§  8362,  citing  laws  of  California, 
Idaho,  Washington,  Montana,  Wy- 
oming, Utah,  Mississippi,  Rhode 
Island,  Ohio,  Michigan,  Maryland, 
North  Carolina,  Colorado.  See  Rev. 
Stat.  Ind.  1894,  §  1242. 

340  Miller   v.   Mackenzie,    29   N.   J. 
Eq.  291. 

341  Miami   Exporting  Co.   v.  Gano, 
13  Ohio  269;  Asheville  Division  No. 
15  v.  Aston,  92  N.  Car.  578;  Gluck  & 
Becker  Rec.  of  Corp.  156. 

3l2Garver  v.  Kent,  70  Ind.  428; 
Moriarity  v.  Kent,  71  Ind.  601.  See 
Davis  v.  Ladoga  Creamery  Co.  128 
Ind.  222,  27  N.  E.  494. 

343  Griffin  v.  Long  Island  R.  Co. 
102  N.  Y.  449,  7  N.  E.  735;  Coope  v. 
Bowles,  28  Howe  Pr.  (N.  Y.)  10,  42 
Barb.  (N.  Y.)  87;  Litchfield  Bank 
v.  Peck,  29  Conn.  384;  Mcllrath  v. 
Snure,  22  Minn.  391.  As  to  suits 
against  stockholders  for  unpaid  sub- 
scriptions, see  Cutting  v.  Damerel, 


88  N.  Y.  410;  Sagory  v.  Dubois,  3 
Sandf.  Ch.  (N.  Y.)  466;  Means'  Ap- 
peal. 85  Pa.  St.  75;  Lathrop  v. 
Knapp,  37  Wis.  307;  Starke  v. 
Burke,  5  La,  Ann.  740;  Schoonover 
v.  Hinckley,  48  Iowa  82;  Clarke  v. 
Thomas,  34  Ohio  St.  46;  Stillman 
v.  Dougherty,  44  Md.  380;  Sawyer 
v.  Hoag,  17  Wall.  (U.  S.)  610;  Up- 
ton v.  Tribilcock,  91  U.  S.  45.  In 
Illinois  a  suit  can  be  maintained 
against  the  stockholders  only  when 
they  were  made  parties  to  the  suit 
in  which  a  receiver  was  appointed. 
Chandler  v.  Brown,  77  111.  333.  As 
to  suits  against  corporate  officers  for 
breach  of  trust  and  for  gross  mis- 
management and  neglect  of  duty, 
see  McCarty's  Appeal,  110  Pa.  St. 
379,  4  Atl.  925 ;  Ackerman  v.  Halsey, 
37  N.  J.  Eq.  356. 

3ULa  Follett  v.  Akin,  36  Ind.  1; 
State  v.  Sullivan,  120  Ind.  197,  21 
N.  E.  1093,  22  N.  E.  325;  Hyde  v. 
Lynde,  4  N.  Y.  387. 


825        RIGHT  OP  RECEIVER  TO  SUE  IN  OTHER  JURISDICTIONS.         [§    570 


however,  as  we  have  elsewhere  shown,345  is  not  without  its  exceptions, 
for  there  are  cases  in  which  a  receiver  may  maintain  a  suit  that  the 
corporation  could  not  have  maintained.  As  a  general  rule,  the  same 
defenses  may  be  interposed  to  an  action  by  the  receiver  on  a  demand 
due  the  corporation  that  could  have  been  set  up  in  a  suit  by  the  cor- 
poration itself.346  This  rule  is  subject  to  the  exception,  however,  that 
where  the  receiver  is  suing  in  the  interest  of  the  creditors,  no  defense 
is  available  against  him  which  could  not  equitably  be  opposed  to  a 
suit  by  them.  Thus,  it  has  been  held  that  a  receiver  appointed  at 
the  instance  of  creditors  may  recover  dividends  that  were  fraudulently 
paid  by  the  corporation  after  it  became  insolvent,347  or  a  subscription 
which  the  creditors  themselves  could  enforce  although  the  corporation 
could  not,348  and  it  has  been  held  that  a  debtor  cannot  interpose  a 
judgment  recovered  upon  a  promissory  note  of  the  corporation  as  a 
set-off  to  an  action  by  the  receiver  to  enforce  payment  of  his  indebted- 
ness due  the  corporation.349 

§  570.    Right  of  receiver  to  sue  in  other  jurisdictions — Comity. — 

Some  authorities  hold  that  a  receiver  owing  his  appointment  to  the 
common  law  jurisdiction  of  a  court  of  equity  cannot  sue  outside  of  the 
jurisdiction  of  the  court  which  appointed  him.350  This  rule  is'gen- 


345  Ante,  §  537. 

346  Brooks  v.  Bigelow,  142  Mass.  6, 
6  N.  E.  766;  Litchfield  Bank  v.  Peck, 
29  Conn.  384;  Cox  v.  Volkert,  86  Mo. 
505;   Chase  v.  Petroleum  Bank,  66 
Pa.  St.  169;   Moise  v.  Chapman,  24 
Ga.  249;  Van  Wagoner  v.  Paterson, 
&c.  Co.  23  N.  J.  Law  283 ;  Thomas  v. 
Whallon,    31    Barb.     (N.    Y.)     172; 
Hade  v.  McVay,  31  Ohio  St.  231. 

^Osgood  v.  Ogden,  4  Keyes  (N. 
Y.)  70. 

348  Cole  v.  Satsop  R.  Co.  9  Wash. 
487,  37  Pac.  700,  43  Am.  St.  858. 
See,  generally,  as  to  collection  of 
subscriptions  by  receivers,  note  to 
Thompson  v.  Reno  Sav.  Bank,  3  Am. 
St.  797,  833. 

319  Where  the  effect  of  allowing  a 
set-off  would  be  to  prefer  one  cred- 
itor over  another,  a  set-off  will  not 
be  allowed.  Singerly  v.  Fox,  75  Pa. 
St.  112;  Clark  v.  Brockway,  3  Keyes 


(N.  Y.)  13;  Litchfield  Bank  v. 
Church,  29  Conn.  137;  Williams  v. 
Traphagen,  38  N.  J.  Eq.  57.  See, 
also,  Lanier  v.  Gayoso,  &c.  Inst.  9 
Heisk.  (Tenn.)  506.  But  a  set-off 
may  sometimes  be  allowed.  See 
High  Receivers,  §  247;  Cox  v.  Vol- 
kert, 86  Mo.  505;  Colt  v.  Brown,  12 
Gray  (Mass.)  233;  Hade  v.  McVay, 
31  Ohio  St.  231;  Berry  v.  Brett,  6 
Bosw.  (N.  Y.)  627. 

350  Farmers',  &c.  Ins.  Co.  v.  Needles, 
52  Mo.  17;  Hope  Mut.  L.  Ins.  Co.  v. 
Taylor,  2  Robt.  (N.  Y.)  278;  War- 
ren v.  Union  Nat.  Bank,  7  Phila. 
(Pa.)  156;  Moseby  v.  Burrow,  52 
Tjex.  396.  See  Bartlett  v.  Wilbur,  53 
Md.  485;  Graydon  v.  Church,  7 
Mich.  36;  Moreau  v.  Du  Bellet  (Tex. 
Civ.  App.)  27  S.  W.  503.  See,  also, 
"Actions  by  Foreign  Receivers,"  37 
Cent.  L.  J.  315. 


570] 


RECEIVERS. 


826 


erally  followed,  in  the  older  cases,  and  also  in  some  of  the  more  re- 
cent ones,  by  the  federal  courts  with  regard  to  receivers  appointed  by 
the  United  States  courts  in  other  districts,351  and  is  based  upon  the 
ground  that  a  court  of  chancery  has  no  authority  to  act  beyond  its 
jurisdiction,  and  that  consequently  a. receiver  at  common  law  is  not 
clothed  with  power  to  sue  in  a  foreign  jurisdiction.352  But  the  better 
rule,  as  it  seems  to  us,  and  one  which  is  well  sustained  by  authority, 
is  that,  although  a  receiver  has  not,  as  a  matter  of  absolute  right,  any 
extraterritorial  jurisdiction  or  authority  to  sue  in  a  foreign  juris- 
diction, yet  as  a  matter  of  comity,  receivers  duly  appointed  and  quali- 
fied, and  invested  with  authority  to  sue  for  and  collect  the  corporate 


351  Booth  v.  Clark,  17  How.  (U.  S.) 
322;  Wilkinson  v.  Culver,  23  Blatchf. 
(U.  S.)  416;  Brigham  v.  Ludding- 
ton,  12  Blatchf.  (U.  S.)  237;  Holmes 
v.  Sherwood,  3  McCrary  (U.  S.) 
405;  Hazard  v.  Durant,  19  Fed.  471, 
Fowler  v.  Osgood,  141  Fed.  20.  See, 
also,  Quincy,  &c.  R.  Co.  v.  Hum- 
phreys, 145  U.  S.  82,  12  Sup.  Ct. 
787;  Hale  v.  Allinson,  188  U.  S.  56, 
23  Sup.  Ct.  244;  Great  Western  Min. 
&c.  Co.  v.  Harris,  198  U.  S.  561,  25 
Sup.  Ct.  770.  In  Booth  v.  Clark, 
supra,  the  court  said:  "A  receiver 
has  no  extraterritorial  power  of  of- 
ficial action;  none  which  the  court 
appointing  him  can  confer,  with  au- 
thority to  enable  him  to  go  into  a 
foreign  jurisdiction  to  take  posses- 
sion of  the  debtor's  property;  none 
which  can  give  him,  upon  the  prin- 
ciple of  comity  a  privilege  to  sue 
in  a  foreign  court  or  another  juris- 
diction, as  the  judgment  creditor 
himself  might  have  done,  where  his 
debtor  may  be  amenable  to  the  tri- 
bunal which  the  creditor  may  seek. 
*  *  *  We  think  that  a  receiver 
could  not  be  admitted  to  the  comity 
extended  to  judgment  creditor  with- 
out an  entire  departure  from  chan- 
cery proceedings  as  to  the  manner 
of  his  appointment,  the  securities 
which  are  taken  from  him  for  the 
performance  of  his  duties,  and  the 


direction  which  the  court  has  over 
him  in  the  collection  of  the  assets 
of  the  debtor  and  the  application 
and  distribution  of  them."  It  may 
be  that  the  act  of  March  3,  1887,  as 
corrected  August  13,  1888,  found  in 
25  U.  S.  Stat.  L.  433,  may  have  some 
bearing  upon  this  question,  but  so 
far  as  we  know,  the  point  has  never 
been  made. 

3=2  But  where  the  receivers  were 
appointed  under  statutory  provi- 
sions existing  at  the  organization  of 
the  corporation  and  entering  into 
and  forming  part  of  its  charter,  by 
which  the  rights  and  duties  of  such 
receivers  were  defined,  it  was  held 
that  the  shareholders  and  creditors 
of  the  corporation  were  charged 
with  notice  of  the  charter  right  of 
the  corporation  to  have  all  of  its 
property  transferred  to  a  receiver 
if  it  should  become  insolvent,  and 
must  be  held  to  have  impliedly 
agreed  that,  in  such  case,  they  would 
be  bound  by  the  laws  of  the  state 
in  which  the  corporation  was  organ- 
ized, so  far  as  they  formed  a  part  of 
the  charter  of  the  company.  Par- 
sons v.  Charter  Oak  L.  Ins.  Co.  31 
Fed.  305;  Davis  v.  Life  Association, 
11  Fed.  781;  Relfe  v.  Rundle,  103 
U.  S.  222;  Bockover  v.  Life  Associa- 
tion, 77  Va.  85. 


827        RIGHT  OF  RECEIVER  TO  SUE  IN  OTHER  JURISDICTIONS.        [§    570 

assets  situated  in  other  states,  may,  and  usually  will,  be  permitted  to 
maintain  suits  in  the  courts  of  such  other  states.353  This  rule,  how- 
ever, is  said  to  be  subject  to  the  exception  that  while  a  receiver  may 
invoke  the  aid  of  a  foreign  court  in  obtaining  possession  of  property 
or  funds  within  its  jurisdiction,  aid  will  only  be  extended  as  against 
those  who  were  parties  to,  or  in  some  way  in  privity  with,  the  pro- 
ceedings in  which  his  appointment  was  made,  or  who  are  in  possession 
of  the  property  or  effects  of  the  estate  without  right.354  It  is  generally 
the  policy  of  each  state  to  retain  within  its  control  the  property  of  a 
foreign  debtor  until  all  domestic  claims  have  been  satisfied,  and  in 
many  of  the  states  comity  will  not  be  extended  by  the  courts  to  enable 
a  receiver  to  take  possession  of,  and  withdraw  from  the  state,  property 
or  funds  which  were  already  in  such  state  and  which  resident  creditors 
are  seeking  to  subject  to  the  payment  of  their  debts,  by  proceedings 
duly  instituted  for  that  purpose.355  After  a  receiver  has  reduced  the 
property  or  effects  of  the  corporation  to  possession  he  becomes  vested 
with  a  special  property  therein,  and  is  entitled  to  protect  this  special 
property,  while  it  continues,  by  action,  in  like  manner  as  if  he  was  the 
absolute  owner.356  This  property  interest  of  the  receiver  will  usually 
be  recognized  and  enforced  by  the  courts  of  other  states,  not  alone 
upon  principles  of  comity,  but  as  a  matter  of  right.357  If  he  recovers 
judgment  against  a  debtor  in  his  own  name  as  receiver,  he  may  main- 
tain an  action  against  the  debtor  in  another  jurisdiction  upon  such 

853  Bagby  v.  Atlantic,  &c.  R.  Co.  86     Ind.  477,  24  N.  E.  250,  8  L.  R.  A. 
Pa.  St.  291;   Hurd  v.  Elizabeth,  41     62,  18  Am.  St.  340. 

N.  J.  L.  1;  Metzner  v.  Bauer,  98  Ind.  ""Kurd  v.  Elizabeth,  41  N.  J.  L. 

425;  Hoyt  v.  Thompson,  5  N.  Y.  320;  1;   Lycoming  Fire  Insurance  Co.  v. 

Sercomb  v.   Catlin,  128   111.   556,   21  Wright,     55     Vt.     526;     Willitts     v. 

N.  E.  606,  15  Am.  St.  147;  Lycoming  Waite,  25  N.  Y.  577.     See  State  v. 

Fire  Ins.  Co.  v.  Wright,  55  Vt  526;  Jacksonville,  &c.  R.  Co.  15  Fla.  201; 

High  Receivers,   §§   239,  244;   ante,  Thurston  v.  Rosenfield,  42  Mo.  474, 

§  555.     See,  also,  "Actions  by  For-  97   Am.   Dec.   351.     "We  decline  to 

eign  Receivers,"  37  Cent.  L.  J.  315,  extend  our  wonted  courtesy  so  far 

and  authorities  cited  on  page  318;  as  to  work  detriment  to  citizens  of 

Wyman  v.  Eaton,  107  Iowa  214,  77  our   own    state   who   had    been    in- 

N.  W.  865,  43  L.  R.  A.  695,  70  Am.  duced  to  give  credit  to  the  foreign 

St.  193;   Howarth  v.  Angle,  162  N.  -  insolvent."     Runk   v.   St.    John,   29 

Y.  179,  56  N.  E.  489,  47  L.  R.  A.  725;  Barb.  (N.  Y.)  585.     See  ante,  §  555. 

Wigton  v.  Bosler,  102  Fed.  70;  New  350Pouder   v.    Catterson,    127    Ind. 

York,  &c.  R.   Co.  v.  New  York,  &c.  434,  26  N.  E.  66;  Kehr  v.  Hall,  117 

R.  Co.  58  Fed.  268;   Davis  v.  Gray,  Ind.  405,  20  N.  E.  279;   Gluck  and 

16  Wall.  (U.  S.)  219.  Becker  Rec.  of  Corp.  185. 

854  Catlin   v.   Wilcox,    &c.   Co.    123  357  See  ante,  §§  555,  563. 


571] 


RECEIVERS. 


828 


judgment,  as  a  judgment  creditor.358  So  where  he  takes  the  debtor's 
note  in  payment  of  a  claim  due  the  corporation,  the  receiver  may 
bring  suit  in  a  foreign  state  to  collect  the  note.359  A  receiver  may 
take  property  of  which  he  has  obtained  legal  possession  into  other 
jurisdictions  without  affecting  his  title  thereto.  And  the  citizens  of 
other  states  into  which  the  property  is  taken  by  the  receiver  in  the 
performance  of  his  duties,  cannot  proceed  against  such  property  by 
attachment  for  the  debts  of  the  corporation.360  So,  if  property  is 
wrongfully  and  without  the  receiver's  consent,  taken  out  of  his  pos- 
session, it  has  been  held  that  he  may  follow  it  and  reclaim  it  wher- 
ever found,  and  the  courts  of  foreign  states  will  aid  him  to  recover  it.361 

§  571.    Suits  against  receivers — Leave  to  sue  must  be  obtained. — 

In  the  absence  of  any  statutory  provisions  on  the  subject,  it  is  the 
general  rule  that  a  suit  cannot  be  maintained  against  a  receiver  with- 
out leave  of  the  court  appointing  him,362  but  it  has  been  held  that 
where  the  suit  is  brought  in  such  court,  the  fact  that  it  entertains  the 
suit  is  sufficient  to  establish  the  granting  of  leave  to  sue.363  Since 


358  Wilkinson  v.  Culver,  25  Fed. 
639. 

350Inglehart  v.  Bierce,  36  111.  133. 

360Crapo  v.  Kelly,  16  Wall.  (U.  S.) 
610;  Pond  v.  Cooke,  45  Conn.  126; 
Chicago,  &c.  R.  Co.  v.  Keokuk,  &c. 
Co.  108  111.  317;  Cagill  .v.  Wooldridge, 
8  Baxter  (Tenn.)  580.  But  it  has 
been  held  in  California  that  cars 
belonging  to  a  railroad  which  is  be- 
ing operated  by  a  receiver  appointed 
by  the  United  States  Circuit  Court 
in  another  state  may  be  attached  for 
a  debt  due  a  citizen  of  California, 
if  they  are  sent  into  that  state  in 
the  transaction  of  the  business  of 
the  company.  Humphreys  v.  Hop- 
kins, 81  Cal.  551,  22  Pac.  892,  6  L. 
R.  A.  792,  15  Am.  St.  76.  See,  how- 
ever, comments  on  this  case  in  note 
to  §  555,  ante.  See  Gluck  and 
Becker  Rec.  of  Corp.  186. 

361  McAlpin  v.  Jones,  10  La.  Ann. 
552. 

362  Wiswall   v.    Sampson,   14   How. 
(U.  S.)   52;   Barton  v.  Barbour,  104 


U.  S.  126;  St.  Joseph,  &c.  R.  Co.  v. 
Smith,  19  Kans.  225;  Rogers  v.  Mo- 
bile, &c.  R.  Co.  (Tenn.)  12  Am.  & 
Bng.  R.  Cas.  442;  Martin  v.  Atchi- 
son,  2  Idaho  590,  33  Pac.  47;  Keen 
v.  Breckenridge,  96  Ind.  69;  Melendy 
v.  Barbour,  78  Va.  544 ;  Little  v.  Du- 
senberry,  46  N.  J.  Law  614,  50  Am. 
R.  445;  De  Graffenried  v.  Bruns- 
wick, &c.  R.  Co.  57  Ga.  22;  Heath  v. 
Missouri,  &c.  R.  Co.  83  Mo.  617,  623; 
Miller  v.  Loeb,  64  Barb.  (N.  Y.) 
454;  Meredith,  &c.  Bank  v.  Simpson, 
22  Kans.  414;  Reed  v.  Richmond, 
&c.  R.  Co.  (Va.)  33  Am.  &  Eng.  R. 
Cas.  503;  Reed  v.  Axtell  &  Myers, 
84  Va.  231,  4  S.  E.  587.  A  judgment 
in  favor  of  a  receiver  in  an  action 
against  him  begun  without  leave  of 
court  is,  it  seems,  a  nullity,  and  con- 
stitutes no  defense  to  a  subsequent 
action.  Comer  v.  Felton,  61  Fed. 
731. 

363  Ft.  Dodge  v.  Minneapolis,  &c. 
R.  Co.  87  Iowa  389,  54  N.  W.  243. 
In  this  case  it  was  held  that,  where 


8#9  SUITS    AGAINST     RECEIVERS.  [§    571 

the  receiver  is  but  the  irhand"  of  the  court,  it  is  held  that  any  inter- 
ference with  his  possession  and  control  of  the  property  by  suit  or 
otherwise  is  an  interference  with  the  process  of  the  court,  and  not  to 
be  tolerated.364  And  it  is  argued  that  to  permit  the  institution  of 
such  suits  and  the  taking  of  judgments  against  the  receiver  would 
result  in  the  creation  of  new  liens  upon  the  property  in  the  hands  of 
the  receiver,  over  which  the  court  would  have  no  control,  thereby 
clouding  the  title  to  the  property,  and  that  the  whole  purpose  of  the 
litigation  in  equity  and  of  the  taking  possession  of  property  through 
the  receiver,  would  be  defeated.365  In  accordance  with  this  view  it 
was  held  that  a  court  had  no  jurisdiction  to  entertain  a  suit  against 
the  receiver  of  a  railroad  corporation,  where  it  was  shown  that  leave 
to  sue  had  not  been  obtained,  although  the  receiver  was  appointed  by 
a  court  of  the  state  of  Virginia  and  was  transacting  business  in  the 
District  of  Columbia,  where  the  suit  was  brought.366  The  court  also 
held  that  the  rule  requiring  leave  to  sue  applies  not  only  to  cases 
where  the  purpose  of  the  suit  is  to  take  from  the  receiver  property 
which  is  actually  in  his  possession,  placed  there  by  order  of  the  court, 
but  embraces  as  well  any  suit  to  recover  judgment  against  a  receiver 
for  a  money  demand,  even  though  the  cause  of  action  arose  out  of  the 
operation  of  a  railroad  by  the  receiver.367  In  cases  where  leave  to 

mandamus  against  a  receiver  is  in-  pass  upon  the  general  question  as 

stituted  in  the  court  which  appoint-  to  the  right  to  sue  foreign  receivers 

ed  him,  and  the  court  entertains  the  doing  business  outside  of  the  juris- 

action,  he  cannot  object  that  it  is  diction  by  which  they  were  appoint- 

an  improper  remedy,  or  that  the  re-  ed.      In    Fort    Dodge    v.    Minneapo- 

lief    sought    might    have    been    ob-  lis,  &c.  R.   Co.  87   Iowa  389,  54  N. 

tained  in  a  more  summary  and  less  W.  243,  55  Am.  &  Eng.  R.  Gas.  58, 

formal  manner.     See,  also,  Ratcliff  it   was   held   that   comity   does   not 

v.   Baer,  &c.   Co.    (Ark.)    72    S.   W.  demand  that  the  enforcement  of  a 

896.  statute    requiring    the    construction 

384  Thompson    v.    Scott,    4    Dillon  of  railroad  crossings  should  be  de- 
(U.  S.)  508;  Barton  v.  Barbour,  104  ferred   to   await  the  action   of  the 
U.  S.  126.  courts  of  another  state,  which  ap- 

385  Thompson  v.  Scott,  4  Dillon  (U.  pointed   a  receiver   in   reference  to 
S.)  508.  the  property  of  the  corporation  situ- 

366  Barton  v.  Barbour,  104  U.  S.  '  ated  in  that  state. 
126.  But  in  this  case  the  injury  307  Barton  v.  Barbour,  104  U.  S. 
sued  for  was  received  while  travel-  126.  Mr.  Justice  Woods,  in  deliver- 
ing on  defendant's  road  in  Virginia,  ing  the  opinion  of  the  court  in  this 
and  the  fund  from  which  payment  case,  said:  "The  evident  purpose  of 
was  sought  to  be  enforced  was  in  a  suttor  who  brings  his  action 
Virginia,  and  the  court  declined  to  against  a  receiver  without  leave  is 


RECEIVERS. 


830 


sue  is  essential,  it  may  be  given,  in  the  case  of  a  railroad  operated  by 
a  receiver,  by  a  general  leave  to  all  persons  having  demands  against 
the  receiver  as  such,  for  liabilities  incurred  by  him  in  operating  the 
road,  without  applying  to  the  court  for  leave  to  do  so,  to  bring  suit 
thereon  in  any  other  court  having  jurisdiction.368  An  application  for 


to  obtain  some  advantage  over  the 
other  claimants,  upon  the  assets  in 
the  receiver's  Tiands.  His  judg- 
ment, if  he  recovered  one,  would  be 
against  the  defendant  in  his  capac- 
ity as  receiver,  and  the  execution 
would  run  against  the  property  in 
his  hands  as  such."  See  this  case 
severely  criticized  in  Lyman  v.  Cen- 
tral Vermont  R.  Co.  59  Vt.  167,  10 
Atl.  346,  and  see  also  cases  cited  in 
notes  6,  2,  infra,  pages  803,  804. 

388  Dow  v.  Memphis,  &c.  R.  Co.  20 
Fed.  260.  In  this  case  the  following 
order  was  made:  That  persons  hav- 
ing demands  or  claims  of  any  char- 
acter against  the  receiver  may,  with- 
out applying  to  this  court  for  leave 
to  do  so,  bring  suit  thereon  against 
the  receiver  in  any  court  in  this 
state  having  jurisdiction,  or  may  file 
their  petition  and  have  their  claim 
adjudicated  in  this  court  at  their 
election.  This  clause  shall  not  be 
construed  as  authorizing  the  levy 
of  any  writ  or  process  on  the  prop- 
erty in  the  hands  of  the  receiver, 
or  taking  the  same  from  his  cus- 
tody or  possession.  Judge  Caldwell 
said:  "The  general  .license  to  sue 
the  receiver  is  given  because  it  is 
desirable  that  the  right  of  the  citi- 
zen to  sue  in  the  local  state  courts 
on  the  line  of  the  road  should  be  in- 
terfered with  as  little  as  possible. 
It  is  doubtless  convenient  and  a  sav- 
ing and  protection  to  the  railroad 
company  and  its  mortgage  bond- 
holders, to  have  the  litigation  grow- 
ing out  of  the  operation  of  a 
long  line  of  railroad  concentrated 
in  a  single  court,  and  on  the 


equity  side  of  that  court,  where 
justice  is  administered  without  the 
intervention  of  a  jury.  But,  in 
proportion  as  the  railroad  and  its 
bondholders  profit  by  such  an  ar- 
rangement, the  citizen  dealing  with 
the  receiver  is  subjected  to  incon- 
venience and  expense,  and  he  is  de- 
prived of  the  forum,  and  the  right 
of  trial  by  jury,  to  which,  in  every 
other  case  of  legal  cognizance,  he 
has  the  right  to  appeal  for  redress. 
It  is  not  necessary,  for  the  accom- 
plishment of  the  purposes  for  which 
receivers  of  railroads  are  appointed, 
to  impose  such  burdens  and  depriva- 
tions on  citizens  dealing  with  the  re- 
ceiver; and  neither  the  railroad 
company  nor  its  bondholders  have 
any  equity  to  ask  it.  Where  prop- 
erty is  in  the  hands  of  a  receiver 
simply  as  a  custodian,  or  for  sale 
or  distribution,  it  is  proper  that  all 
persons  having  claims  against  it, 
or  upon  the  fund  arising  from  its 
sale,  should  be  required  to  assert 
them  in  the  court  appointing  a  re- 
ceiver. But  a  very  different  ques- 
tion is  presented  where  the  court 
assumes  the  operation  of  a  railroad 
hundreds  of  miles  in  length,  and 
advertises  itself  to  the  world  as  a 
common  carrier.  This  brings  it 
into  constant  and  extensive  business 
relations  with  the  public.  Out  of 
the  thousands  of  contracts  it  enters 
into  daily  as  a  common  carrier, 
some  are  broken  and  property  is 
damaged  and  destroyed,  and  passen- 
gers injured  and  killed  by  the  neg- 
ligent and  tortious  acts  of  its  re- 
ceiver and  its  agents.  *  *  *  When 


831 


EFFECT  OF  FAILURE  TO  OBTAIN  LEAVE  TO  SUE. 


[§'  572 


leave  to  sue  is  addressed  to  the  sound  discretion  of  the  court,369  and 
should  not  be  granted  unless  the  petition  states  a  prima  facie  cause  of 
action  against  the  receiver;  but  the  court  should  not,  as  a  rule,  un- 
dertake to  decide  the  case  in  advance.370 

§  572.  Effect  of  failure  to  obtain  leave  to  sue. — It  has  been  held 
that  a  complaint  in  such  a  suit  which  does  not  allege  that  leave  to 
bring  an  action  has  been  obtained  is  insufficient  on  demurrer.371  But 
a  complaint  which  does  not  aver  that  leave  to  sue  has  been  obtained 
is  sufficient  to  withstand  a  motion  in  arrest  of  judgment  after  verdict 
upon  issue  joined.372  The  objection  that  the  action  was  begun  without 
leave  of  court  should  be  interposed  by  the  receiver  at  the  first  oppor- 
tunity, if  he  relies  upon  the  protection  of  the  court  as  a  defense. 
After  he  has  voluntarily  submitted  to  the  authority  of  the  court  and 
joined  issue  without  objection,  it  has  been  held  to  be  too  late  for  him 
to  urge  that  leave  to  sue  him  was  not  first  obtained.373  It  has  been 


a  court,  through  its  receiver,  be- 
comes a  common  carrier,  and  enters 
the  lists  to  compete  with  other  com- 
mon carriers  for  the  carrying  trade 
of  the  country,  it  ought  not  to  claim 
or  exercise  any  special  privileges 
denied  to  its  competitors  and  op- 
pressive to  the  citizen.  The  court 
appointing  a  receiver  cannot,  of 
course,  permit  any  other  jurisdic- 
tion to  interfere  with  its  possession 
of  the  property,  or  control  its  ad- 
ministration of  the  fund,  but  in  the 
case  of  long  lines  of  railroad,  the 
question  of  the  legal  liability  of  its 
receiver  to  the  demands  of  the  citi- 
zen, growing  out  of  the  operation 
of  the  road,  should  be  remitted  to 
the  tribunals  that  would  have  juris- 
diction if  the  controversy  had  arisen 
between  the  citizen  and  the  railroad 
company,  giving  to  the  citizen  the 
option  of  seeking  his  redress  in  such 
tribunals,  or  in  the  court  appoint- 
ing the  receiver." 

369  Meeker  v.  Sprague,  5  Wash.  St. 
242,  31  Pac.  628.  But  see  Conwell 
v.  Lawrence,  46  Kans.  83,  26  Pac. 
461. 


370  Jordan  v.  Wells,   3  Woods    (U. 
S.  C.  C.)  527.     See  Palys  v.  Jewett, 
32  N.  J.  Eq.  302,  to  the  effect  that 
leave  will  usually  be  granted  unless 
there  is  some  good  reason  for  not 
granting  it. 

371  Keen   v.   Breckenridge,   96   Ind. 
69;    Wayne  Pike  Co.  v.   State,   134 
Ind.    672,   34   N.   E.   440;    Barton   v. 
Barbour,   104   U.    S.    126.     But   see 
Kinney  v.  Crocker,  18  Wis.  74;   St. 
Joseph,  &c.  R.  Co.  v.  Smith,  19  Kans. 
225 ;  Allen  v.  Central  R.  Co.  42  Iowa 
683. 

372  Elkhart  Car  Works  Co.  v.  Ellis, 
113  Ind.  215,  15  N.  E.  249. 

373  Elkhart  Car  Works  Co.  v.  Ellis, 
113  Ind.  215,  15  N.  E.  249;  Hubbell 
v.   Dana,  9  How.  Pr.    (N.  Y.)    424; 
Roxbury  v.  Central  Vermont  R.  Co. 
4  R.  &  Corp.  L.  J.  204;  Naumburg 
v.  Hyatt,  24  Fed.  898,  901;  Mulcahey 
v.  Strauss,  151  111.  70,  37  N.  E.  702; 
Flentham  v.   Steward,  45  Neb.  640, 
63  N.  W.  924.     See  Jerome  v.  Mc- 
Carter,  94  U.  S.  734;  Comer  v.  Fel- 
ton,  61  Fed.  731;  and  see  article  in 
25    Am.    L.    Reg.     (N.    S.)    289,    in 
which  the  position  is  taken  that  the 


572] 


KECEIVERS. 


832 


held,  however,  that  parties  who 'bring  such  a  suit  without  leave  may 
be  punished  for  contempt,374  and  that  the  proceedings  may  be  re- 
strained,375 or  stayed,  or  set  aside  on  motion.376  The  constitutional 
right  to  sue  in  the  federal  courts  in  certain  cases  does  not  enable  a 
litigant  to  maintain  a  suit  without  leave  in  one  of  those  courts  against 
a  receiver  appointed  by  a  state  court.377  It  has  been  held,  however, 
that  where  the  receiver,  wrongfully  or  by  mistake,  takes  possession 
of  the  property  of  a  third  person,  such  person  may  bring  suit  therefor 
against  him  personally  as  a  matter  of  right ;  for,  in  such  case,  the  re- 
ceiver would  be  acting  ultra  vires,  and  cannot  be  held  to  represent 
the  court  by  which  he  was  appointed.378  A  number  of  cases,  also, 
while  admitting  the  general  doctrine  that  a  court  of  equity  may  draw 
to  itself  all  controversies  to  which  the  receiver  is  a  party,  hold  that 
it  is  not  bound  to  do  so,  but  may  properly  leave  the  determination  of 
actions  at  law  for  money  demands,  the  exact  amount  of  which  is  un- 
certain, to  be  determined  by  other  courts  of  competent  jurisdiction,379 
and  that  the  lack  of  leave  to  sue  does  not  affect  the  jurisdiction  of  the 
court  in  which  such  a  suit  is  brought,380  and  does  not  invalidate  a 


receiver  cannot  give  jurisdiction  by 
waiving  the  objection. 

374  Kennedy  v.  Indianapolis,  &c.  R. 
Co.  3  Fed.  97;  Wiswall  v.  Sampson, 
14  How.   (U.  S.)  52,  67. 

375  Evelyn  v.   Lewis,   3   Hare  472; 
Tink  v.  Rundle,  10  Beav.  318. 

378  De  Groot  v.  Jay,  30  Barb.  (N. 
Y.)  483;  Taylor  v.  Baldwin,  14  Abb. 
Pr.  (N.  Y.)  166. 

377  Reed  v.  Axtell,  84  Va.  231,  4  S. 
E.  587. 

378  Parker    v.    Browning,    8    Paige 
(N.  Y.)  388,  35  Am.  Dec.  717;  Paige 
v.    Smith,    99    Mass.    395;    Hills    v. 
Parker,   111    Mass.    508,    15   Am.    R. 
63.     In  this  latter  case  the  owner 
of   a    locomotive    in    use    upon    the 
road  of  an  insolvent  railroad  corpo- 
ration  was    permitted    to    maintain 
an   action   of   replevin    against   the 
receiver  of  such  corporation  to  re- 
cover his  property,  without  having 
first  obtained  leave  of  court.     Chris- 
tian  Jansen   Co.,   In   re,   128   N.   Y. 
550,  28  N.  E.  665,  holds  that  even 


though  property  is  wrongfully  in 
the  possession  of  a  corporation,  it 
cannot  be  replevied  without  leave 
of  court  after  it  comes  into  the  pos- 
session of  a  receiver  appointed  in 
voluntary  proceedings  to  dissolve 
the  corporation. 

379  St.  Joseph,  &c.  R.  Co.  v.  Smith, 
19  Kans.  225;  Kinney  v.  Crocker,  18 
Wis.   74;    Allen  v.   Cent.   R.   &c.   42 
Iowa  683;  Chautauqua  County  Bank 
v.  Risley,  19  N.  Y.  369,  75  Am.  Dec. 
347;  Blumenthal  v.  Brainerd,  38  Vt. 
402,  91  Am.  Dec.  349. 

380  Lyman  v.  Central  Vermont  R. 
Co.  59  Vt.  167,  10  Atl.  346;  Blumen- 
thal v.  Brainerd,  38  Vt.  402,  91  Am. 
Dec.    349;     Nichols    v.    Smith,    115 
Mass.    332;    Kinney   v.    Crocker,   18 
Wis.  74;  Allen  v.  Central  R.  Co.  42 
Iowa  683.     In   Kinney   v.   Crocker, 
supra,  the  court  said:    "A  court  of 
equity   will,   on  proper  application, 
protect  its  own  receiver,  when  the 
possession  which  he  holds  under  the 
order  of  the  court  is  sought  to  be 


833 


EFFECT  OF  RECENT  ACT  OF  CONGRESS. 


.[§  573 


judgment  rendered  by  such  court  in  case  the  proceedings  are  not 
stayed  by  the  court  which  appointed  the  receiver.381 

§  573.  Effect  of  recent  Act  of  Congress. — It  would  seem  highly 
proper  that  suits  upon  causes  of  action  arising  from  the  negligent 
operation  of  a  railroad  by  a  receiver,  or  from  a  breach  of  contracts 
made  in  the  course  of  such  operation,382  should  be  tried  in  a  court  of 
law  with  the  aid  of  a  jury,  and  this  is  sometimes  urged  as  a  reason 
for  denying  that  leave  to  sue  is  jurisdictional.383  The  view  that  leave 


disturbed."  And  again:  "But  in  all 
these  cases  it  is  not  a  question  of 
jurisdiction  in  the  courts  of  law, 
but  only  a  question  whether  equity 
will  exercise  its  own  acknowledged 
jurisdiction  of  restraining  suits  at 
law,  under  such  circumstances,  and 
itself  dispose  of  the  matter  involved. 
It  follows  that  although  a  plaintiff 
in  such  case,  desiring  to  prosecute 
a  legal  claim  for  damages  against  a 
receiver  might,  in  order  to  relieve 
himself  from  the  liability  to  have 
his  proceeding  arrested  by  an  exer- 
cise of  its  equitable  jurisdiction, 
very  properly  obtain  leave  to  prose- 
cute; yet  his  failure  to  do  so  is  no 
bar  to  the  jurisdiction  of  the  court 
of  law,  and  no  defense  to  an  other- 
wise legal  action  in  the  trial.  There 
can  be  no  room  to  question  this  con- 
clusion in  all  cases  where  there  is 
no  attempt  to  interfere  with  the  ac- 
tual possession  of  property  which 
the  receiver  holds  under  the  order 
of  the  court  of  chancery,  but  only 
an  attempt  to  obtain  a  judgment  at 
law  in  a  claim  for  damages." 

381  De  Groot  v.  Jay,  30  Barb.    (N. 
Y.)  483;  Taylor  v.  Baldwin,  14  Abb. 
Pr.  166. 

382  For    instances    in    which    such 
suits  have  been  maintained,  see  Al- 
len v.  Central  R.  Co.  42  Iowa  683; 
Blumenthal  v.  Brainerd,  38  Vt.  402, 
91  Am.  Dec.  349;   Newell  v.  Smith, 
49    Vt.    255;     Paige    v.    Smith,    99 

ELL.  RAILROADS — 53 


Mass.  395;  Nichols  v.  Smith,  115 
Mass.  332;  Barter  v.  Wheeler,  49  N. 
H.  9,  6  Am.  R.  434;  Kain  v.  Smith, 
80  N.  Y.  458;  Lyman  v.  Central  Ver- 
mont R.  Co.  59  Vt.  167,  10  Atl.  346; 
Lamphear  v.  Buckingham,  33  Conn. 
237;  Ballou  v.  Farnum,  9  Allen 
(Mass.)  47.  See,  also,  Klein  v. 
Jewett,  26  N.  J.  Eq.  474. 

383  In  a  dissenting  opinion  in  the 
case  of  Barton  v.  Barbour,  104  U.  SI 
126,  Mr.  Justice  Miller  said:  "In 
the  case  before  us  the  plaintiff  sues 
to  recover  damages  for  a  personal 
injury,  caused  by  an  act  done  by 
the  receiver  or  his  agents  in  the 
transaction  of  business  as  a  com- 
mon carrier,  in  which  he  was  large- 
ly and  continuously  engaged.  Why 
should  the  receiver  not  be  sued  like 
any  one  else  on  such  a  cause  of  ac- 
tion, in  any  court  of  competent  ju- 
risdiction? The  reply  is  because  he 
is  a  receiver  of  the  road  on  which 
plaintiff  was  injured,  and  holds  his 
appointment  at  the  hands  of  a  Vir- 
ginia court  of  chancery.  If  this  be 
a  sufficient  answer,  then  the  rail- 
road business  of  the  entire  country, 
amounting  to  many  millions  of  dol- 
lars per  annum,  may  be  withdrawn 
from  the  jurisdiction  of  the  ordi- 
nary courts  having  cognizance  of 
such  matters,  and  all  the  disputes 
arising  out  of  these  vast  transac- 
tions must  be  tried  alone  in  the 
court  which  appointed  the  receiver. 


§  573] 


RECEIVERS. 


834 


to  sue  in  such  a  case  ought  not  to  be  required  has  been  taken  by  Con- 
gress, and  it  is  now  provided384  that  every  receiver  or  manager  of  any 
property  appointed  by  any  court  of  the  United  States  may  be  sued 
in  respect  of  any  act  or  transaction  of  his  in  carrying  on  the  business 
connected  with  such  property,  without  the  previous  leave  of  the  court 
in  which  such  receiver  or  manager  was  appointed ;  but  such  suit  shall 
be  subject  to  the  general  equity  jurisdiction  of  the  court  in  which  he 
was  appointed,  so  far  as  the  same  shall  be  necessary  to  the  ends  of 
justice.  It  is  held  that  this  act  gives  an  absolute  right  to  sue  a  re- 
ceiver appointed  by  a  federal  court  in  any  court  having  jurisdiction 
of  the  subject-matter.385  The  judgment  of  the  court  trying  such  suit 
is  as  final  and  conclusive  against  the  receiver  as  against  any  other 
suitor,  and  will  not  be  disturbed  by  the  court  appointing  him  because 
of  any  suggestion  that  he  has  not  obtained  justice  in  the  other  court.386 


Not  only  this,  but  the  right  of  trial 
by  jury,  which  has  been  regarded 
as  secured  to  every  man  by  the  con- 
stitutions of  the  several  states  and 
of  the  United  States,  is  denied  to 
the  person  injured,  and  though  his 
case  has  no  element  of  equitable 
jurisdiction  he  is  compelled  to  sub- 
mit it  to  a  court  of  chancery  or  to 
one  of  the  masters  of  such  court. 
In  an  action  for  a  personal  injury, 
which  has  always  been  considered 
as  eminently  fitted  for  a  jury,  and 
especially  in  the  assessment  of  dam- 
ages, this  constitutional  right  is  de- 
nied because  the  receiver  of  a  rail- 
road, and  not  its  owners,  committed 
the  wrong."  We  fail  to  see,  how- 
ever, how  these  considerations  meet 
the  question.  They  may  constitute 
forcible  reasons  against  requiring  a 
trial  without  a  jury  in  the  court 
which  appointed  the  receiver,  but 
they  do  not  seem  to  be  in  point  upon 
the  mere  question  of  the  jurisdic- 
tion of  another  court  where  no  leave 
to  sue  is  granted.  Leave  will  be 
given  unless  there  is  good  reason 
for  withholding  it,  and  trial  by  jury 
may  be  had  in  any  proper  case. 
384  Act  of  Congress  of  March  3, 


1887,  as  corrected  by  act  of  August 
13,  1888,  §  3,  24  U.  S.  St.  554,  25  U. 
S.  St.  436;  2  Desty's  Fed.  Proc. 
§  231. 

385  Texas,  &c.  R.  Co.  v.  Gay,  86 
Tex.  571,  26  S.  W.  599,  25  L.  R.  A. 
52;  Dillingham  v.  Russell,  73  Tex. 
47,  11  S.  W.  139,  3  L.  R.  A.  634,  15 
Am.  St.  753;  Central  Trust  Co.  v. 
St.  Louis,  &c.  R.  Co.  40  Fed.  426; 
McNulta  v.  Lockridge,  141  U.  S.  327, 
332,  12  Sup.  Ct.  11.  See,  also,  Ma- 
lott  v.  Shimer,  153  Ind.  35,  54  N.  E. 
101,  74  Am.  St.  278.  Notwithstand- 
ing an  order  of  court  discharging 
the  receiver  and  restoring  the  prop- 
erty to  the  receiver  without  fore- 
closure, and  giving  a  limited  time 
within  which  all  claims  must  be 
presented,  a  suit  may  subsequently 
be  brought  against  the  receiver  per- 
sonally to  recover  damages  for  per- 
sonal injuries  due  to  the  negligence 
of  his  employes.  Texas,  &c.  R.  Co. 
v.  Johnson,  151  U.  S.  81,  14  Sup.  Ct. 
250.  But  see  Decker  v.  Gardner, 
124  N.  Y.  334,  26  N.  E.  814,  11  L. 
R.  A.  480. 

388  "This  court  will  not  entertain 
the  suggestion  that  its  receiver  will 
not  obtain  justice  in  the  state 


835 


EFFECT   OF  RECENT   ACT   OF   CONGRESS. 


573 


The  act  applies  to  receivers  appointed  before  it  was  passed  as  well  as 
to  those  afterwards  appointed,  and  they  may  be  sued  without  leave 
in  the^same  manner  as  those  subsequently  appointed.387  And  it  has 
been  held  that  a  receiver  may  be  sued  under  the  provisions  of  this 
act,  in  respect  to  an  act  of  his  predecessor  in  the  office.388  Actions 
for  personal  injuries  caused  by  a  station  platform  being  out  of  repair 
are  included,389  as  well  as  actions  for  injuries  caused  in  the  running  of 
trains.  But  it  has  been  held  that  such  statute  does  not  authorize  a 
suit  by  a  stockholder  against  the  directors  and  receivers,  without  leave 
of  court,  upon  a  cause  of  action  which  accrued  before  the  appoint- 
ment of  the  receivers  and  upon  which  they  have  refused  to  bring 
suit.390  Neither  is  a  proceeding  in  garnishment  a  suit  against  the  re- 
ceiver for  "any  act  or  transaction  of  his,"  within  the  meaning  of  the 
statute.391  The  subjection  of  such  suits  to  the  general  equity  juris- 
diction of  the  court  does  not  invest  it  with  appellate  or  supervisory 
jurisdiction  over  state  courts  in  which  the  suits  may  be  brought,  and 
it  cannot  annul,  vacate  or  modify  their  judgments.  This  provision 


courts."  Central  Trust  Co.  v.  St. 
Louis,  &c.  R.  Co.  41  Fed.  551,  42  Am. 
&  Eng.  R.  Gas.  26;  Dillingham  v. 
Hawk,  60  Fed.  494.  The  appoint- 
ing court  has  no  jurisdiction  to  en- 
join the  prosecution  of  an  action 
against  its  receiver  where  author- 
ized by  the  statute.  Texas,  &c.  R. 
Co.  v.  Johnson,  151  U.  S.  81,  14  Sup. 
Ct.  250;  Central  Trust  Co.  v.  East 
Tennessee,  &c.  R.  Co.  59  Fed.  523. 
But  this  statute  does  not  limit  nor 
destroy  the  right  of  the  federal 
court  to  protect  property  in  the 
hands  of  its  receivers  from  external 
attack.  Tyler,  Ex  parte,  149  U.  S. 
164,  191,  13  Sup.  Ct.  785,  793. 

387  See  Texas,  &c.  R.  Co.  v.  Cox, 
145  U.  S.  593,  12  Sup.  Ct.  905.  But 
see  Missouri  Pac.  R.  Co.  v.  Texas, 
&c.  R.  Co.  41  Fed.  311. 

^McNulta  v.  Lockridge,  141  U. 
S.  327,  12  Sup.  Ct.  11.  But  see  Jones 
v.  Schlaphack,  81  Fed.  274. 

389  Fullerton  v.  Fordyce,  121  Mo. 
1,  25  S.  W.  587,  42  Am.  St.  516.  See, 
also,  Central  Trust  Co.  v.  St.  Louis, 


&c.  R.  Co.  40  Fed.  426;  McNulta  v. 
Lockridge,  137  111.  270,  31  Am.  St. 
362;  Texas,  &c.  R.  Co.  v.  Cox,  145 
U.  S.  593,  12  Sup.  Ct  905. 

^Swope  v.  Villard,  61  Fed.  417. 
And  that  it  does  not  authorize  an 
independent  suit,  without  leave  of 
court,  to  foreclose  a  mortgage  on 
property  in  the  hands  of  a  receiver. 
American  Loan,  &c.  ,Co.  v.  Central 
Vt.  R.  Co.  84  Fed.  917. 

391  Central  Trust  Co.  v.  Chatta- 
nooga, &c.  R.  Co.  68  Fed.  685;  Cen- 
tral Trust  Co.  v.  East  Tennessee,  &c. 
R.  Co.  59  Fed.  523.  Contra,  Irwin 
v.  McKechnie,  58  Minn.  145,  59  N. 
W.  987,  26  L.  R.  A.  218,  49  Am.  St. 
495.  As  to  the  general  rule  forbid- 
ding garnishment  of  property  in  the 
hands  of  a  receiver,  see  Jackson  v. 
'Lahee,  114  111.  287,  2  N.  E.  172;  Co- 
lumbian Book  Co.  v.  De  Golyer,  115 
Mass.  67;  Taylor  v.  Gillean,  23  Tex. 
508 ;  McGowan  v.  Myers,  66  Iowa  99, 
23  N.  W.  282;  Smith  v.  McNamara, 
15  Hun  (N.  Y.)  447. 


574] 


RECEIVERS. 


836 


merely  gives  the  United  States  court  a  right  to  control  suits  which 
seek  to  deprive  the  receiver  of  possession  of  the  property,  and  all 
process  of  execution  which  would  have  the  effect,  so  far  as  may  be 
necessary  to  the  ends  of  justice,  in  preventing  the  road  from  being 
broken  into  parts,  or  deprived  of  its  rolling  stock,  so  as  to  impair  the 
value  as  a  going  concern.392  In  other  words,  the  time  and  mode  of 
paying  a  judgment  rendered  by  a  state  court  remain  under  the  con- 
trol of  the  court  appointing  the  receiver,  although  the  amount  of 
such  judgment  cannot  be  changed.  Some  of  the  states  have  similar 
statutes,  conferring  a  general  authority  upon  all  persons  to  sue  re- 
ceivers engaged  in  operating  railroads  under  appointment  by  any 
court  of  equity.  The  act  of  congress  giving  permission  to  sue  a  federal 
receiver  applies  in  any  court  of  competent  jurisdiction  and  is  not 
limited  to  suits  in  the  federal  courts.393  But  it  does  not  give  permis- 
sion to  sue  a  receiver  of  a  state  court  without  the  consent  of  the  court 
appointing  him,394  and  it  has  been  held  that  a  receiver  cannot  be  sued 
under  such  act,  without  leave  of  court,  for  alleged  wrongful  acts  com- 
mitted in  the  operation  of  the  road  before  he  became  receiver.395 

§  574.  Rule  where  suit  has  been  commenced  before  appointment 
of  receiver. — Where  suit  has  been  commenced  against  the  corporation 
before  the  appointment  of  a  receiver  such  suit  may  be  prosecuted  to 
judgment,  and  such  judgment  will  establish  as  against  the  receiver 
the  rightful  amount  of  the  claim.396  In  some  jurisdictions,  however, 


392  Eddy  v.  Lafayette,  49  Fed.  807; 
Central  Trust  Co.  v.  St.  Louis,  &c. 
R.  Co.  41  Fed.  551;  Dillingham  v. 
Hawk,  60  Fed.  494. 

383  Central  Trust  Co.  v.  East  Tenn. 
&c.  R.  Co.  59  Fed.  523;  Texas,  &c. 
R.  Co.  v.  Johnson,  151  U.  S.  81,  14 
Sup.  Ct.  250.  Applied  to  a  receiver 
appointed  by  a  territorial  court  in 
Wheeler  v.  Smith,  81  Fed.  319. 

394  Porter  v.  Sabin,  149  U.  S.  473, 
13  Sup.  Ct.  1008. 

395  Jones    v.    Schlapback,    81    Fed. 
274.    But  compare  McNulta  v.  Lock- 
ridge,  141  U.  S.  327,  12  Sup.  Ct.  11. 
See,  also,  to  the  effect  that  the  stat- 
ute relates  only  to  suits  arising  out 
of  the  acts  of  the  receiver  relative 
to  his  duties  concerning  the  prop- 


erty in  his  hands,  Coster  v.  Park- 
ersburg  Branch  R.  Co.  131  Fed.  115; 
Minot  v.  Martin,  95  Fed.  734.  See, 
also,  to  the  effect  that  a  receiver  re- 
quired to  manage  and  operate  the 
property  according  to  the  laws  of 
the  state  in  which  it  is  situated  in 
the  same  manner  as  the  owner  or 
possessor  thereof,  under  said  act,  is 
subject  to  a  law  of  the  state  making 
railroad  companies  liable  for  the 
negligence  of  employes  having  su- 
perior authority,  Peirce  v.  Van  Du- 
sen,  78  Fed.  693,  69  L.  R.  A.  705. 

388  Pine  Lake  Iron  Co.  v.  Lafayette 
Car  Works,  53  Fed.  853.  But  such 
a  judgment  does  not  constitute  a 
lien  upon  the  property  in  the  re- 
ceiver's hands.  Bell  v.  Chicago,  &c. 


837 


SUIT   COMMENCED   BEFORE   APPOINTMENT. 


[§  574 


the  receiver  should  be  substituted  as  a  party  defendant.  The  recovery 
of  a  judgment  against  the  receiver  appointed  by  a  court  of  equity  has 
no  further  effect  than  to  fix  the  amount  of  the  plaintiff's  claim.  An 
execution  issued  thereon  cannot  be  levied  upon  the  property  in  the 
receiver's  hands  without  leave  from  the  court  by  which  the  receiver 
was  appointed.397  This  rule  is  not  changed  as  to  the  United  States 
courts  by  the  provisions  of  the  "Federal  Judiciary  Act,"  but  the  levy- 
ing of  execution  or  other  judicial  process  upon  property  in  the  hands 
of  its  receivers  is,  by  that  act,  left  under  the  control  of  fhe  court 
which  they  represent.398  Indeed,  the  very  object  of  appointing  a 
receiver  would  be  defeated,  if  he  could  be  stripped  of  the  property 
piecemeal  by  process  issued  by  rival  courts  at  the  suit  of  individual 
creditors.  It  has  been  held  that  a  sale  of  property  upon  execution 
while  it  was  in  the  possession  of  a  receiver  and  without  leave  of  court 
was  illegal  and  void,  although  the  levy  was  made  before  the  receiver 
was  appointed.399 


R.  Co.  34  La.  Ann.  785.  See,  also, 
Clark  v.  Bacorn,  116  Fed.:  617.  The 
receiver  of  a  railroad  company  may 
be  substituted  as  defendant  in  an  ac- 
tion for  tort  committed  by  the  com- 
pany before  his  appointment.  Decker 
v.  Gardner,  58  Hun  (N.  Y.)  602,  11 
N.  Y.  388.  But  see  Jones  v.  Penn- 
sylvania R.  Co.  19  D.  C.  (8  Mackey) 
178,  holding  that  the  fact  that  a  re- 
ceiver of  the  property  of  a  railroad 
company  has  been  appointed  will 
not  affect  the  right  of  recovery 
against  the  company  itself  for  per- 
sonal injuries,  where  the  receiver 
has  allowed  existing  officers  to  man- 
age the  business,  and  received  the 
net  earnings  of  the  road,  without 
taking  any  part  in  its  management, 
the  same  remaining  with  the  com- 
pany. Receivers  have  been  allowed 
to  come  in  in  many  cases.  Rust  v. 
United  Water  Works  Co.  70  Fed. 
129;  Andrews  v.  Steele  City  Bank, 
57  Neb.  173,  77  N.  W.  342.  But  it 
is  held  that  he  is  not  a  necessary 
party  and  need  not  be  substituted. 
Speckert  v.  German  Nat.  Bank,  98 
Fed.  151;  United  States  Vinegar  Co. 


v.  Spanner,  143  N.  Y.  676,  38  N.  E. 
731;  Kittridge  v.  Osgood,  161  Mass. 
384,  37  N.  E.  369. 

397  Coe  v.  Columbus,  &c.  R.  Co.  10 
Ohio  St.  372,  75  Am.  Dec.  518;  Skin- 
ner v.  Maxwell,  68  N.  C.  400 ;  Russel 
v.  East  Anglian  R.  Co.  6  Eng.  Rail- 
way &  Canal  Cases  501;    Missouri, 
&c.  R.  Co.  v.  Love,  61  Kans.  433,  59 
Pac.  1072. 

398  See    Central    Trust    Co.    v.    St. 
Louis,  &c.  R.  Co.  41  Fed.  551. 

399  Walling  v.  Miller,  108  N.  Y.  173, 
15  N.  E.  65,  2  Am.  St.  400.    Earl,  J., 
speaking  for  the  court,  says:    "The 
lien   of  the  execution   was   not   de- 
stroyed by  the  appointment  of  the 
receiver,  but  the  rights  and  inter- 
ests of  all  parties  in  the  property 
were  thereafter  to  be  adjusted  by 
the  court  which  appointed   the   re- 
ceiver, and  the  property  could  not 
be  taken  out  of  the   possession  of 
the  receiver,  and  sold  upon  execu- 
tion,  without  leave  of  court.     The 
execution   creditor  could   bring  hi, 
lien  to  the  attention  of  the  court  in 
the  action  in  which  the  receiver  was 
appointed,  and  ask  to  have  the  exe- 


575] 


EECEIVERS. 


838 


§  575.  Protection  of  receiver  by  the  court. — Not  only  in  the  mat- 
ter of  suits,  but  in  all  other  respects,  the  court  will  protect  its  receiver 
in  his  possession  and  control  of  the  property  committed  to  his  care. 
An  attempt  to  disturb  him  in  the  discharge  of  his  duties  with  refer- 
ence to  such  property  may  be  a  contempt  of  court.400  The  offender 
may  be  attached,  and,  if  the  circumstances  justify  it,  punished  by 
fine  and  imprisonment.401  The  wrongful  seizure  of  property  in  the 
hands  of  a  receiver  upon  process  from  another  court  is  a  contempt  on 
the  part  of  the  officers  executing  the  writ.402  And  it  is  also  contempt 
of  the  court  appointing  the  receiver  to  take  property  from  his  pos- 
session upon  distraint  for  rent.403  Actual  violence  offered  to  a  re- 
ceiver in  the  discharge  of  his  duties,  or  such  threats  of  violence  as  to 
intimidate  the  receiver  may  amount  to  such  an  interference.404  So 
may  violence  or  threats  by  which  the  servants  or  employes  of  the 


cution  satisfied  out  of  the  proceeds 
of  the  property.  But  persons  hav- 
ing liens  upon  the  property  had  no 
right  to  interfere  with  its  posses- 
sion by  the  receiver  and  without 
any  application  to  or  adjudication 
of  the  court,  sell  and  dispose  of  it, 
and  thus  dissipate  it,  and  deprive 
the  court  of  jurisdiction  to  admin- 
ister it."  See,  also,  Pelletier  v. 
Greenville,  &c.  Co.  123  N.  Car.  596, 
31  S.  E.  855,  68  Am.  St.  837.  It  has 
been  held  otherwise  where  the 
sheriff  retains  actual  possession  un- 
der an  attachment.  State  v.  Su- 
perior Court,  8  Wash.  210,  35  Pac. 
1087,  25  L.  R.  A.  354;  State  v. 
Graham,  9  Wash.  528,  36  Pac.  1085. 
^Secor  v.  Toledo,  &c.  R.  Co.  7 
Biss.  (U.  S.)  513;  King  v.  Ohio,  &c. 
R.  Co.  7  Biss.  (U.  S.)  529;  United 
States  v.  Kane,  23  Fed.  748;  Wa- 
bash,  &c.  R.  Co.,  In  re,  24  Fed.  217; 
Higgins,  In  re,  27  Fed.  443;  Chafee 
v.  Quidnick  Co.  13  R.  I.  442;  O'Ma- 
honey  v.  Belmont,  62  N.  Y.  133 ;  Ver- 
mont &  Canada  R.  Co.  v.  Vermont 
Cent.  R.  Co.  46  Vt.  792;  Hazelrigg 
v.  Bronaugh,  78  Ky.  62;  Richards  v. 
People,  81  111.  551;  Helmore  v. 
Smith,  56  L.  J.  Ch.  Div.  145. 


401  See    cases    in    preceding    note. 
An  interference  with  the  possession 
and  use  of  a  street  railway  in  the 
hands    of    a    receiver    may    be    en- 
joined.    Fidelity   Trust,  &c.   Co.   v. 
Mobile  St.  R.  Co.  53  Fed.  687.    The 
rule  that  property  in  the  hands  of 
a  receiver  is  in  custodia  legis,  and 
that  interference  with  such  posses- 
sion without  leave  of  the  court  is 
a  contempt,  is  as  applicable  in  the 
case   of   seizure  thereof   to   enforce 
payment  of  taxes  due  the  state  as 
in  any  other  case.    Tyler,  Ex  parte, 
149  U.  S.  164,  191,  13  Sup.  Ct.  785, 
793. 

402  Commonwealth    v.     Young,     11 
Phila.   (Pa.)   606.     See  Albany  City 
Bank  v.  Schermerhorn,  9  Paige  (N. 
Y.)  Ch.  373;  Citizens'  Bank  v.  Bay, 
&c.  110  Mich.  683,  68  N.  W.  649;  Mer- 
cantile Trust  Co.  v.  Baltimore,  &c. 
R.  Co.  79  Fed.  389 ;  Royal  Trust  Co. 
v.  Washburne,  &c.  R.  Co.  113  Fed. 
531. 

403  Noe  v.  Gibson,  7  Paige  (N.  Y.) 
Ch.  513. 

404  Fitzpatrick   v.    Eyre,    1    Hogan 
(Irish  Rolls)  171. 


839  PROTECTION   OF   RECEIVER  BY   THE   COURT.  [§    575 

receiver  are  prevented  from  carrying  on  the  business  as  directed  by 
the  court.  It  is  the  duty  of  the  court  to  see  that  property  which  is 
put  into  its  hands,  or  in  the  hands  of  its  receivers,  is  absolutely  pro- 
tected, and  that  nobody,  directly  or  indirectly,  wrongfully  interferes 
with  the  management  of  that  property.405  Where  the  employes  of  an- 
other road  who  have  struck,  or  any  other  persons,  prevent  the  servants 
of  a  receiver  from  working  and  thereby  interfere  with  the  operation 
of  the  road  as  directed  by  the  order  of  the  court,  they  are  guilty  of 
contempt  of  court.406  The  employes  of  a  railroad  operated  by  a  re- 
ceiver have  the  same  right  to  quit  work  that  other  employes  have, 
and  it  is  not  unlawful  for  them  to  use  arguments  and  persuasion  to 
induce  their  fellow  employes  to  do  the  same.  But  if  a  mere  request, 
or  mere  advice  to  quit  work,  is  accompanied  by  such  a  demonstration 
of  force  as  is  calculated  to  intimidate  the  receiver's  employes,  and 
induce  them  to  abandon  his  service  against  their  will,  it  will  be  pun- 
ished as  a  contempt.407  In  case  of  a  disagreement  between  the  receiver 
and  his  employes,  the  proper  course  for  them  to  pursue  is  to  petition 
the  court  for  an  order  directing  a  just  and  equitable  settlement  of 
the  differences.  The  court  will  direct  the  receiver  to  enter  into  such 
agreements  and  contracts  with  his  employes  as  may  give  them  reason- 
able protection  and  at  the  same  time  guard  the  rights  of  creditors 
and  others  interested  in  the  trust  property.408  Punishment  for  con- 
tempt is  usually  by  fine  and  imprisonment,  which  is  largely  within 
the  discretion  of  the  court  against  which  the  contempt  was  commit- 
ted,409 and  while  the  court  will  not  be  tenacious  of  any  mere  preroga- 

405  United  States  v.  Kane,  23  Fed.  petition  of  the  Brotherhood  of  Lo- 

748.  comotive    Engineers    for    an    order 

408  Higgins,  In  re,  27  Fed.  443 ;  Wa-  directing  the  receiver  to  enter  into 

bash   R.    Co.,    In    re,    24   Fed.    217;  a    contract   with    them   prescribing 

Doolittle,  In  re,  23  Fed.  544;  King  v.  the  terms  of  service,  the  qualifica- 

Ohio,  &c.  R.  Co.  7  Biss.  (U.  S.)  529;  tions  necessary  for  promotion,  and 

Secor  v.  Toledo,  &c.  R.  Co.  7  Biss.  the  rate   of   compensation.     He   re- 

(U.  S.)  513.  quired  the  petitioners,  however,  to 

407  United  States  v.  Kane,  23  Fed.  waive  rule  12  of  the  Brotherhood, 
748;  Higgins,  In  re,  27  Fed.  443.  by  which  it  is  provided  that  mem- 
See,  also,  Arthur  v.  Oakes,  63  Fed.  bers  shall  refuse  to  handle  the  cars 
310;  Farmers'  Loan,  &c.  Co.  v.  '  of  roads  with  which  the  Brother- 
Northern  Pac.  R.  Co.  60  Fed.  803;  hood  are  at  variance,  since  such 
Debs,  In  re,  158  U.  S.  564,  15  Sup.  rule  is  illegal,  and  a  compliance 
Ct.  900.  with  it  would  compel  the  engineers 

403  Waterhouse  v.   Comer,   55   Fed.  to  violate  the  interstate  commerce 

149,  53  Am.  &  Eng.  R.  Gas.  329.     In  law. 

this  case,  Judge  Speer  granted  the  ^  Higgins,    In    re,    27    Fed.    443. 


§    576]  EECEIVERS.  840 

tive  to  notice  an  unintentional  interference,410  or  to  visit  severe 
punishment  upon  the  offenders  for  a  first  or  unpremeditated  of- 
fense,411 it  is  the  duty  of  the  court  to  see  that  property  which  is  put 
into ,  its  hands,  or  in  the  hands  of  its  receivers,  is  absolutely  pro- 
tected, and  the  punishment  must  be  made  severe  enough  to  restrain 
and  prevent  all  interference  with  such  property.412  It  is  no  defense  to 
a  proceeding  for  contempt  in  interfering  with  the  receiver's  posses- 
sion of  property  placed  in  his  hands  by  the  court,  to  show  that  the 
order  appointing  him  was  erroneously  or  improvidently  made.413  An 
order  of  the  court  which  is  not  void  cannot  be  assailed  in  a  collateral 
proceeding,414  and  the  court  will  not  in  a  proceeding  to  punish  a  con- 
tempt review  the  questions  which  were  passed  upon  when  the  receiver 
was  appointed.415  The  fact  that  railroad  companies  are  in  some  sense 
public  agents  presents  an  additional  reason  why  judicial  control 
should  be  extended  as  far  as  possible  to  prevent  an  interference  with 
them  in  the  exercise  of  their  public  functions.416  An  injunction  will 
be  granted,  in  a  proper  case,  restraining  unlawful  interference  by 
strikers  or  others,  and  its  violation  is  punishable  as  a  contempt  of 
court.  This  matter,  however,  will  be  fully  considered  hereafter. 

§  576.  Liability  of  receivers — Generally. — A  receiver  is  the  mere 
officer  of  the  court  by  which  he  was  appointed  and  cannot  question 
any  order  made  by  the  court  with  reference  to  the  control  of  the  re- 
ceivership property,  but  must  implicitly  obey  all  such  orders.417  It 
follows  from  this  that  the  only  personal  liability  which  can  ordinarily 
attach  to  a  receiver  in  the  operation  of  a  railroad  is  for  some  wrong- 
ful or  unauthorized  act  of  his  own.  His  liability  for  acts  done  in  the 
discharge  of  his  duties  is  official  only,  and  such  acts  bind  only  the 
trust  estate.418  It  accords  with  sound  principle  and  reason  that  a  re- 
There  is  said  to  be  no  appeal  from  People  v.  Sturtevant,  9  N.  Y.  263, 
the  judgment  of  the  court  in  such  59  Am.  Dec.  536;  Howard  v.  Palmer, 
a  case.  Walk.  (Mich.)  391;  Russell  v.  East 

410  Doolittle,  In  re,  23  Fed.  544.  Anglian  R.  Co.  3  M.  &  G.  104. 

411  Doolittle,    In    re,    23    Fed.    544,        416  Delaware,  &c.  R.  Co.  v.  Erie  R. 
and  United  States  v.  Kane,  23  Fed.     Co.  21  N.  J.  Eq.  298. 

748.  *17  Herrick  v.  Miller,  123  Ind.  304, 

412  United  States  v.  Kane,  23  Fed.     24  N.  E.  111. 

748.  41S  See   Texas,  &c.   R.   Co.  v.   Cox, 

"3Kerr  Receivers,  166.  145  U.  S.  593,  12  Sup.  Ct.  905;  Mc- 

414  Cook  v.  Citizens'  National  Bank,  Nulta  v.  Lochbridge,  141  U.  S.  327, 
73  Ind.  256.  12  Sup.   Ct.   11.     A  receiver  is  not 

415  Richards  v.  People,  81  111.  551;  personally  liable  for  the  torts  of  his 


841 


LIABILITY    OF    RECEIVERS GENERALLY. 


[§    576 


ceiver  exercising  the  franchise  of  a  railroad  company  shall  be  held 
amenable,  in  his  official  capacity,  to  substantially  the  same  rules  of 
liability  that  are  applicable  to  the  company  while  it  exercises  the 
same  powers  of  operating  the  road.419  And  this  is  the  rule  estab- 
lished by  the  great  weight  of  modern  authority.420  As  has  been  seen, 
there  is  a  conflict  of  authority  as  to  whether  this  liability  can  be 
enforced  by  suit,  or  must  be  asserted  by  petition  in  the  court  by  which 
the  receiver  was  appointed,  but  the  cases  are  practically  unanimous 
in  holding  that  a  receiver  who  assumes  to  exercise  the  rights  and 
powers  of  a  common  carrier  becomes  answerable  in  his  official  capac- 


employes.  Kain  v.  Smith,  80  N.  Y. 
458;  Cardot  v.  Barney,  63  N.  Y.  281, 
20  Am.  R.  533;  Meara  v.  Holbrook, 

20  Ohio    St.    137,    5    Am.    R.    633; 
Klein  v.  Jewett,  26  N.  J.  Eq.  474; 
Erskine  v.  Mcllrath,  60  Minn.  485, 
62   N.    W.    1130;    Mersey    Docks   v. 
Gibbs,  11   H.  L.  Cas.  686.     Nor  on 
contracts  properly  made  in  his  of- 
ficial capacity.     Walsh  v.  Raymond, 
58  Conn.  251,  20  Atl.  464,  18  Am.  St. 
264;     Livingston     v.     Pettigrew,     7 
Lans.   (N.  Y.)   405.     See,  also,  Platt 
v.  New  York,  &c.  R.  Co.  170  N.  Y. 
451,  63  N.  E.  532;   Schmidt  v.  Gay- 
ner,   59   Minn.   303,   62    N.   W.    265. 
Nor  for  costs  in  actions  which  he 
prosecutes    by    direction    of    court. 
Columbian    Ins.   Co.   v.    Stevens,   37 
N.  Y.  536;   Devendorf  v.  Dickinson, 

21  How.  Pr.  (N.  Y.)  275.    But  a  re- 
ceiver is  personally  liable  upon  un- 
authorized contracts  entered  into  by 
him.    Ryan  v.  Rand,  20  Abb.  N.  Cas. 
(N.  Y.)   313.     See,  also,  Peoria,  &c. 
v.  Hickey,  110  Iowa  276,  81  N.  W. 
473,  80  Am.  St.  296;  Cake  v.  Mohum, 
164  U.  S.  311,  17  Sup.  Ct.  100.    And 
for  wrongful  and  negligent  acts  on 
his  part  by  which  loss  is  occasioned. 
Ricks  v.  Broyles,  78  Ga.  610,  3   S. 
E.  772,  6  Am.  St.  280;  Carr  v.  Mor- 
ris, 85  Va.  21,  6  S.  E.  613;   Brooks 
v.  Miller,  29  W.  Va.  499.     See,  also, 
Erwin     v.     Davenport,     9     Heisk. 


(Tenn.)  44;  Kain  v.  Smith,  80  N. 
Y.  458.  See,  also,  State,  &c.  Bank 
v.  Farming,  &c.  Co.  118  Iowa  698, 
92  N.  W.  712;  Kirker  v.  Owings,  98 
Fed.  499.  He  is  also  liable  like  any 
other  trustee  for  profits  which  he 
makes  out  of  a  use  of  the  money 
or  property  belonging  to  the  trust 
estate.  Ryan  v.  Merrill,  83  Ky.  352; 
Schwartz  v.  Keystone  Oil  Co.  153 
Pa.  St.  283,  25  Atl.  1018. 

tt9Sprague  v.  Smith,  29  Vt.  421, 
70  Am.  Dec.  424;  Little  v.  Dusen- 
berry,  46  N.  J.  L.  614,  50  Am.  R. 
445. 

120  Blumenthal  v.  Brainard,  38  Vt. 
402,  91  Am.  St.  349;  Newell  v. 
Smith,  49  Vt.  255;  Lyman  v.  Cen- 
tral Vermont  R.  Co.  59  Vt.  167,  10 
Atl.  346;  Melendy  v.  Barbour,  78 
Va.  544;  Toledo,  &c.  R.  Co.  v.  Beggs, 
85  111.  80,  28  Am.  R.  613;  Heath  v. 
Missouri,  &c.  R.  Co.  83  Mo.  617; 
Klein  v.  Jewett,  26  N.  J.  Eq.  474; 
Kinney  v.  Crocker,  18  Wis.  74; 
Paige  v.  Smith,  99  Mass.  395;  Sloan 
v.  Central  Iowa  R.  Co.  62  Iowa  728, 
16  N.  W.  331;  Farlow  v.  Kelly,  108 
IJ.  S.  288,  2  Sup.  Ct.  555;  Cowdrey 
v.  Galveston,  &c.  R.  Co.  93  U.  S.  352; 
Brown,  Ex  parte,  15  S.  C.  518.  See, 
also,  Wall  v.  Platt,  169  Mass.  398, 
48  N.  E.  270;  Burkes  v.  Ellis,  105 
Tenn.  702;  Central  Trust  Co.  v. 
East  Tenn.  &c.  R.  Co.  69  Fed.  353. 


577] 


RECEIVERS. 


842 


ity  for  all  injuries  and  losses  sustained  by  persons  dealing  with  him 
in  that  capacity  to  the  same  extent  in  general  that  the  corporation 
would  have  been  liable.421 

§  577.  Liability  for  torts. — Upon  the  principle  referred  to  in  the 
preceding  section  receivers  are  held  liable  for  damages  for  personal 
injuries  sustained  by  passengers422  and  employes,423  by  reason  of 
defects  in  the  road  or  equipment,424  or  the  negligence  or  misconduct 


421  Ohio,  &c.  R.  Co.  v.  Anderson,  10 
111.  App.  313;   Melendy  v.  Barbour, 
78  Va.  544;  Brown,  Ex  parte,  15  S. 
C.  518;   Lyman  v.  Central  Vermont 
R.  Co.  59  Vt.  167,  10  Atl.  346;  Meara 
v.  Holbrook,  20  Ohio  St.  137,  5  Am. 
R.  633;  Klein  v.  Jewett,  26  N.  J.  Eq. 
474;    Sloan  v.  Central   Iowa  R.  Co. 
62  Iowa  728,  16  N.  W.  331;  Rogers 
v.  Mobile,  &c.  R.  Co.  (Tenn.)  12  Am. 
&    Eng.    R.    Gas.    442;     McNulta    v. 
Lockridge,  137  111.  270,  27  N.  E.  452, 
31  Am.   St.  362;   note  to  Naglee  v. 
Alexandria,   &c.   R.   Co.    5   Am.    St. 
308,  315. 

422  Newell   v.   Smith,   49   Vt.   255; 
Mobile,  &c.  R.  Co.  v.  Davis,  62  Miss. 
271;  Dillingham  v.  Russell,  73  Tex. 
47,  11  S.  W.  139,  3  L.  R.  A.  634,  15 
Am.  St.   753;    Bartlett  v.  Keim,   50 
N.  J.  L.  260,  13  Atl.  7;  Little  v.  Du- 
senberry,  40  N.  J.  L.  614,  50  Am.  R. 
445;   Fullerton  v.  Fordyce,  121  Mo. 
1,  25  S.  W.  587,  42  Am.  St.  516.    But 
see  Cardot  v.  Barney,  63  N.  Y.  281, 
20  Am.  R.  533. 

423  Rogers  v.  Mobile,  &c.  R.  Co.  12 
Am.  &  Eng.  R.  Gas.  442;  Brown,  Ex 
parte,  15  S.  Car.  518;  Meara  v.  Hol- 
brook,  20    Ohio    St.    137,   5    Am.   R. 
633;    Sloan  v.  Central  Iowa  R.  Co. 
62  Iowa  728,  16  N.  W.  331;  Durkin 
v.  Sharp,  88  N.  Y.  225.    The  receiver 
of  a  railroad  company,  who  is  op- 
erating the  road,  cannot  escape  lia- 
bility for  injuries  to  his  employes 
owing  to  the  insufficient  number  of 
trackmen     employed    to    keep    the 
track  in  good  repair,  on  the  ground 


that  the  lack  of  sufficient  trackmen 
was  due  to  the  want  of  funds  in  his 
hands,  as  the  road  was  not  paying 
running  expenses.  Graham  v.  Chap- 
man, 58  Hun  (N.  Y.)  602,  11 
N.  Y.  S.  318.  It  is  held  in 
Texas  that  the  receiver  is  not 
liable  for  the  death  of  an  em- 
ploye under  a  statute  giving  a  right 
of  action  against  the  "proprietor, 
owner,  charter,  or  hirer"  of  a  rail- 
road for  injuries  resulting  in  death 
caused  by  his  negligence  or  that  of 
his  employes.  Yoakum  v.  Selph,  83 
Tex.  607,  19  S.  W.  145;  Houston,  &c. 
R.  Co.  v.  Roberts  (Tex.  Sup.),  19  S. 
W.  512;  Texas  Pac.  R.  Co.  v.  Col- 
lins, 84  Tex.  121,  19  S.  W.  365.  In 
a  joint  action  against  a  railroad 
company  and  its  receiver  for  the 
death  of  a  servant,  caused  by  the 
negligence  of  the  receiver,  a  recov- 
ery cannot  be  had  against  the  com- 
pany, where  the  receiver  was  not 
primarily  liable.  Texas  Pac.  R.  Co. 
v.  Collins,  84  Tex.  121,  19  S.  W.  365. 
424  The  fact  that  the  defect  existed 
when  the  receiver  took  possession 
does  not  relieve  him  from  liability 
for  an  injury,  caused  thereby  while 
he  is  operating  the  road.  A  receiver 
is  as  much  bound  to  remedy  exist- 
ing defects  which  render  the  opera- 
tion of  the  road  unsafe,  as  he  is  to 
discover  and  repair  new  defects  as 
they  arise.  Texas,  &c.  R.  Co.  v. 
Geiger,  79  Tex.  13;  Bonner  v.  May- 
field,  82  Tex.  234,  18  S.  W.  305. 


LIABILITY  FOR  TORTS. 


[§    577 


of  the  receiver's  servants.425  Receivers  as  such  have  also  been  held 
liable  for  damage  or  loss  of  goods  entrusted  to  them  for  carriage,426  for 
injuries  inflicted  upon  travelers,427  for  injuries  to  stock  arising  from  a 
failure  to  fence  the  road,428  and,  in  general,  for  all  damages  for  torts 
for  which  the  corporation  itself  would  be  liable  under  similar  circum- 
stances.429 Where  the  liability  of  a  railroad  company  is  merely  statu- 


425  A  receiver,  like  any  other  com- 
mon carrier,  is  liable  for  the  dam- 
ages occasioned  by  a  malicious  as- 
sault upon  a  passenger  by  the  con- 
ductor in  charge  of  a  train,  acting 
within  the  scope  of  his  employment. 
Dillingham  v.  Russell,  73  Tex.  47, 
11  S.  W.  139,  3  L.  R.  A.  634,  15  Am. 
St.  753.  See,  also,  Hunt  v.  Conner, 

26  Ind.  App.  41,  59  N.  B.  50. 

420  Kansas  Pacific  R.  Co.  v.  Searle, 
11  Colo.  1,  16  Pac.  328;  Paige  v. 
Smith,  99  Mass.  395;  Kinney  v. 
Crocker,  18  Wis.  74;  Newell  v. 
Smith,  49  Vt.  255;  Melendy  v.  Bar- 
bour,  78  Va.  544.  See  Mobile,  &c.  R. 
Co.  v.  Davis,  62  Miss.  271;  Cowdrey 
v.  Galveston,  &c.  R.  Co.  93  U.  S. 
352. 

427Lehigh  Coal,  &c.  Co.  v.  Central 
R.  Co.  42  N.  J.  Eq.  591,  8  Atl.  648; 
McNulta  v.  Lockridge,  137  111.  270, 

27  N.  B.  456,  31  Am.  St.  362. 

428  Central  Trust  Co.  v.  Wabash, 
&c.  R.  Co.  26  Fed.  12.  See,  also, 
Farrell  v.  Union  Trust  Co.  77  Mo. 
475,  13  Am.  &  Eng.  R.  Cas.  552; 
Brockert  v.  Central  Iowa  R.  Co.  82 
Iowa  369,  47  N.  W.  1026.  It  was 
held  by  the  Supreme  Court  of  Mis- 
souri in  the  case  of  Combs  v.  Smith, 
78  Mo.  32,  that  an  action  may  be 
maintained  against  the  receiver  of 
a  corporation  for  a  tort  committed 
by  the  corporation  or  its  servants 
before  his  appointment.  And  Judge 
Caldwell,  in  Dow  v.  Memphis,  &c.  R. 
Co.  20  Fed.  260,  held  that  where  the 
bill  for  foreclosure  was  filed  more 
than  a  year  after  default  in  the  pay- 


ment of  the  mortgage  debt,  the  re- 
ceiver should  be  required  to  pay  out 
of  the  earnings  of  the  road,  all  debts 
due  from  the  railroad  company  for 
operating  expenses,  including  dam- 
ages for  injuries  to  persons  or  prop- 
erty, for  a  period  of  six  months 
prior  to  the  appointment  of  the  re- 
ceiver. See  Miltenberger  v.  Logans- 
port  R.  Co.  106  U.  S.  286,  1  Sup.  Ct. 
140.  And  some  states  have  statutes 
prohibiting  any  railway  company 
from  creating  mortgage  liens  which 
shall  be  superior  to  judgments  for 
injuries  to  persons  or  property. 
But  the  weight  of  authority  hold 
that,  in  the  absence  of  statutory 
provisions  on  the  subject,  the  owner 
of  a  judgment  in  tort  for  injuries  to 
person  or  property  inflicted  in  the 
operation  of  the  railroad  before  the 
receiver  was  appointed  is  merely  a 
general  creditor  of  the  corporation, 
and,  as  such,  is  not  entitled  to  any 
priority  of  payment  over  the  mort- 
gagees. Central  Trust  Co.  v.  East 
Tennessee,  &c.  R.  Co.  30  Fed.  895; 
Farmers'  Loan,  &c.  Co.  v.  Green 
Bay,  &c.  R.  Co.  45  Fed.  664;  Dexter- 
ville,  &c.  Mfg.  Co.,  In  re,  4  Fed.  873. 
See  Frazier  v.  East  Tennessee,  &c. 
R.  Co.  88  Tenn.  138,  12  S.  W.  537. 

429  In  Klein  v.  Jewett,  26  N.  J.  Eq. 
'474,  Van  Fleet,  V.  C.,  speaking  for 
the  court,  said:  "A  receiver  operat- 
ing a  railroad  under  the  order  of  a 
court  of  equity  stands,  in  respect  to 
duty  and  liability,  just  where  the 
corporation  would  if  it  were  operat- 
ing the  road.  *  *  *  Whether  the 


§  577] 


EECEIVERS. 


844 


tory,  however,  it  does  not  always  follow  that  its  receiver  will  also 
be  liable  to  the  same  extent,  for  the  statute  may  not  embrace  receivers 
within  its  terms  or  meaning.  Thus,  it  has  been  held  that  a  receiver 
is  not  a  "proprietor,  owner,  charterer  or  hirer"  of  a  railroad  within 
the  meaning  of  a  statute  giving  a  right  of  action  for  damages  on  ac- 
count of  injuries,  resulting  in  death,  caused  by  the  negligence  of  any 
person  of  the  class  designated  or  his  servants  or  agents.430  So,  it  has 
been  held  that  a  statute  providing  that  certain  persons  engaged  in  the 
service  of  any  railway  corporation  shall  be  deemed  vice-principals 
and  that  certain  other  persons  engaged  in  such  service  shall  be  deemed 
fellow  servants,  does  not  apply  to  the  employes  of  the  receiver  of  such 
a  corporation.431  But,  on  the  other  hand,  it  has  been  held  that  a 
statute  making  railroad  companies  liable  for  injuries  to  an  employe, 
caused  by  the  negligence  of  coemployes  of  a  certain  class,  applies  to 
a  receiver  of  such  a  company  and  his  employes.432  No  general  rule 
can  be  laid  down  upon  this  subject,  but  we  think  that,  ordinarily, 
such  a  statute  applying  to  railroad  companies  would  also  apply  to 
their  receivers  engaged  in  the  operation  of  the  road.  The  question 


receiver  is  regarded  as  the  officer 
of  the  law  or  the  representative  of 
the  proprietors  of  the  corporation  or 
its  creditors,  or  as  combining  all 
these  characters,  he  is  entrusted  with 
the  powers  of  the  corporation  and 
must,  therefore,  necessarily  be  bur- 
dened with  its  duties  and  liabilities. 
There  can  be  no  such  thing  as  an  ir- 
responsible power,  exerting  force  or 
authority,  without  being  subject  to 
duty,  under  any  system  of  laws 
framed  to  do  justice.  It  is  an  in- 
separable condition  of  every  grant 
of  power  by  the  state,  whether  ex- 
pressed or  not,  that  it  shall  be  prop- 
erly exercised,  and  that  the  grantee 
shall  be  liable  for  injuries  result- 
ing directly  and  exclusively  from 
his  negligence." 

430  Turner  v.  Cross,  83  Tex.  218,  18 
S.  W.  578,  15  L.  R.  A.  262;  Dilling- 
ham  v.  Blake  (Tex.),  32  S.  W.  77; 
Allen  v.  Dillingham,  60  Fed.  176; 
Burke  v.  Dillingham,  60  Fed.  729. 


But  see  Murphy  v.  Holbrook,  20 
Ohio  St  137,  5  Am.  R.  633. 

431  Campbell  v.  Cook,  86  Tex.  630, 
26  S.  W.  486,  40  Am.  St.  878,  59  Am. 
&  Eng.  R.  Gas.  482,  distinguishing 
Church  of  Holy  Trinity  v.  United 
States,  143  U.  S.  457,  12  Sup.  Ct. 
511. 

*32Hornsby  v.  Eddy,  56  Fed.  461; 
Rouse  v.  Harry,  55  Kans.  589,  40  Pac. 
1007;  Union  Trust  Co.  v.  Thomason, 
25  Kans.  1;  Peirce  v.  Van  Dusen,  78 
Fed.  693,  24  C.  C.  A.  280,  69  L.  R. 
A.  705.  See,  also,  Eddy  v.  Lafayette, 
163  U.  S.  456,  16  Sup.  Ct.  1082.  But 
see  Beeson  v.  Busenbark,  44  Kans. 
669,  25  Pac.  48,  10  L.  R.  A.  839; 
Henderson  v.  Walker,  55  Ga.  481; 
Campbell  v.  Cook,  86  Tex.  630,  26 
S.  W.  486,  40  Am.  St.  878.  A  stat- 
ute of  limitations  in  favor  of  the 
company  has  also  been  held  appli- 
cable in  an  action  against  the  re- 
ceiver. Bartlett  v.  Keim,  50  N.  J. 
L.  260,  13  Atl.  7. 


845  MANDAMUS   TO   COMPEL  ACTION".  [§    578 

can  only  be  determined,  however,  by  a  reference  to  the  terms  and  pur- 
pose of  the  particular  statute  under  consideration  in  each  case.433 

§  578.  Receiver  is  bound  to  perform  duties  to  public — Mandamus. 
— A  receiver  is  also  bound,  in  general,  to  perform  the,  public  duties 
imposed  by  law  upon  the  corporation  whose  franchises  he  is  exercis- 
ing. It  has  been  held  that  he  may  be  compelled,  by  mandamus,  to  con- 
struct a  crossing  which  the  railroad  company  has  neglected  or  refused 
to  build;434  but  the  general  rule  is  that  a  receiver  will  not  be  com- 
pelled to  operate  the  road  or  perform  a  similar  public  duty  by  man- 
damus, both  because  the  court  which  appointed  him  may  order  and 
compel  him  to  do  so,  and  mandamus  usually  lies  only  when  there  is 
no  other  adequate  and  simple  remedy,  and  because  another  court  will 
not  interfere  with  the  court  which  appointed  him.435  The  court  which 
appointed  him  may  compel  him  to  perform  such  duty,  and  it  has  been 
held  that  the  failure  of  the  court  to  provide  funds  with  which  to 
perform  it  is  not  a  good  excuse  for  failing  to  obey  the  order  of  the 
court.436  There  may  be  public  duties,  however,  not  connected  with  the 
operation  of  the  road,  which  the  company,  rather  than  the  receiver, 
is  still  obliged  to  perform,  and  where  the  duties  are  statutory  the 
terms  of  the  statute  may  be  such  as  not  to  include  receivers,  although 
they  will  generally  be  required  to  perform  such  public  duties  connected 
with  the  operation  of  the  road  as  the  company  was  obliged  to  perform. 
The  fact  that  the  receiver  is  empowered  by  statute  to  operate  the  rail- 
road for  the  use  of  the  public  does  not  make  him  a  public  officer,  so  as 
to  destroy  this  liability.437  The  duty  of  operating  the  road  imposed  on 
the  receiver  by  such  a  statute  is  the  same  duty  to  the  public  which  is 
imposed  upon  every  railroad  corporation  acting  under  statutory  au- 
thority. Its  object  is  to  secure  the  continued  operation  of  the  road 
as  a  common  carrier  with  the  same  rights  and  subject  to  the  same 
liabilities  as  before  the  railroad  corporation  became  insolvent.  But 
it  seems  that  where  a  road  cannot  be  operated  except  at  a  loss,  and  the 
franchise  has  become  forfeited,  the  receiver  may  be  permitted  by  the 
court  to  dismantle  it  and  sell  the  rails,  after  repeated  attempts  and 

433  See  post,  §  1341.  ' 438  Peckham  v.  Dutchess,  &c.  R.  Co. 

434  Fort  Dodge  v.  Minneapolis,  &c.     145  N.  Y.  385,  40  N.  E.  15. 

R.  Co.  87  Iowa  389,  54  N.  W.  243,  55  437  Little  v.  Dusenberry,  46  N.  J.  L. 

Am.  &  Eng.  R.  Cas.  58.  614,  50  Am.  R.  445,  25  Am.  &  Eng. 

433  State  v.  Marietta,  &c.  R.  Co.  35  R.   Cas.   632.     But  see  Hopkins  v. 

Ohio  St.  154.  Connel,  2  Tenn.  Ch.  323. 


579] 


RECEIVERS. 


846 


failure  to  sell  the  road,  and  that  a  purchaser  who  held  receivers' 
certificates  is  not  bound  to  reconstruct  and  operate  it.437a 

§  579.  Liability  on  contracts. — The  receiver,  as  a  general  rule, 
cannot  be  compelled  to  perform  a  contract  of  the  corporation,  where 
no  lien  was  created  in  favor  of  the  other  contracting  party.438  Where, 
however,  a  receiver  continued  to  use  a  right  of  way,  which  had  been 
obtained  by  the  company  in  consideration  of  an  agreement  by  it  to 
pay  the  owner  a  certain  sum  each  month  for  the  use  of  water  from  a 
spring  upon  his  land,  it  was  held  that  the  receiver  was  bound  to 
perform  the  contract  so  long  as  he  used  the  right  of  way.439  And  he 
may  become  liable  as  receiver  by  adopting  advantageous  contracts.440 
It  is  improper  for  a  receiver  to  contract  for  supplies  with  a  company 
composed  of  the  superintendent  and  other  officers  of  the  railroad 
company  for  which  he  is  the  receiver,  but  he  may  give  an  unusually 
low  rate  of  freight  in  order  to  introduce  into  general  use  a  cheap  and 
valuable  article,  which,  if  brought  into  general  demand,  would  add 
greatly  to  the  freight  receipts  of  the  road.441  The  liability  of  a  re- 
ceiver, as  such,  upon  contracts  made  by  him  in  the  course  of  the  re- 
ceivership, depends,  of  course,  very  largely  upon  the  nature  and 
terms  of  the  contract  and  his  authority  to  make  it,  although  there 
are  cases  in  which  the  court  will  afford  relief  to  one  who  has  con- 
tracted with  a  receiver  who  had  no  authority  to  enter  into  the  con- 


437a  See  State  v.  Jack,  145  Fed.  281, 
affirming  113  Fed.  823;  Northern 
Pac.  R.  v.  Washington  Ter.  142  U. 
S.  492,  12  Sup.  Ct.  283. 

438  Express  Co.  v.  Railroad  Co.  99 
U.  S.  191.  See,  also,  Central  Trust 
Co.  v.  East  Tenn.  &c.  Co.  79  Fed.  19; 
General  Electric  Co.  v.  Whitney,  74 
Fed.  664;  U.  S.  Trust  Co.  v.  Wabash, 
&c.  R.  Co.  150  U.  S.  287,  14  Sup.  Ct. 
86;  Southern  Iron  Car  Line  v.  East 
Tenn.  &c.  R.  Co.  (Tenn.  Ch.)  42  S. 
W.  529.  The  receiver  of  a  railroad 
company  is  not  liable  for  removing 
a  switch,  which  the  company  had 
agreed  to  maintain,  where  he  has 
not  adopted  the  company's  contract 
as  his  own,  for  his  appointment  and 
acts  in  managing  the  property,  as 
an  officer  of  the  court,  do  not  ab- 


solve the  company  from  liability  for 
consequent  breaches  of  its  contracts. 
Brown  v.  Warner,  78  Tex.  543,  14  S. 
W.  1032,  11  L.  R.  A.  394,  22  Am.  St. 
67. 

439  Howe   v.   Harding,   76   Tex.   17, 
13  S.  W.  41,  1  Lewis  Am.  R.  &  Corp. 
R.  502. 

440  Whightsel    v.    Felton,    95    Fed. 
923;  St.  Joseph,  &c.  R.  Co.  v.  Hum- 
phreys,  145   U.   S.   105,  12    Sup.   Ct. 
795;   Woodruff  v.  Erie  R.  Co.  93  N. 
Y.  609;  Wells  v.  Higgins,  132  N.  Y. 
459,  30  N.  E.  861;  Mercantile  Trust, 
&c.  Co.  v.  Southern,  &c.  Co.  113  Ala. 
543,  21  So.  373;   De  Wolf  v.  Royal 
Trust  Co.  173  111.  435,  50  N.  E.  1049. 

441  Clarke  v.  Central  R.  &c.  Co.  66 
Fed.  16. 


847 


CLAIMS   ARISING   FROM   OPERATION   OF  ROAD. 


[§    580 


tract.442  The  receiver  is  not  personally  liable,  under  ordinary  cir- 
cumstances, to  one  who  contracts  with  him  as  receiver  in  regard  to 
matters  connected  with  his  trust.443 

§  580.    Liability  on  claims  arising  from  operation  of  the  road. — 

The  official  liability  of  the  receiver  for  claims  arising  from  the  opera- 
tion of  the  road  ceases  with  his  final  discharge.444  But  provision  is 
usually  made  in  the  order  discharging  him,  for  the  payment  of  such 
claims  either  by  the  railroad  company  or  by  the  purchasers  of  the 
property.445  The  expenses  attending  the  operation  of  the  road  by 
the  receiver  may  properly  constitute  a  first  claim  upon  all  moneys 
received  from  such  operation,  superior  to  the  lien  of  mortgage  cred- 
itors.446 Claims  for  damages  to  persons  or  property  arising  from  the 
operation  of  the  road  are  classed  as  operating  expenses,  and  are  en- 
titled as  such  to  priority  of  payment  over  mortgage  bonds.447  So, 


442  See  ante,  §  567. 

443  Livingston  v.  Pettigrew,  7  Lan- 
sing (N.  Y.  Sup.  Ct.)  405;  Newman 
v.  Davenport,  9  Baxter  (Tenn.)  538; 
Ellis  v.  Little,  27  Kans.  707,  41  Am. 
R.  434. 

444  Davis  v.  Duncan,  19  Fed.  477; 
Farmers'  Loan,  &c.  Co.  v.  Central  R. 
Co.    7    Fed.    537;     Archambeau    v. 
Platt,  173  Mass.  249,  53  N.  E.  816; 
Ryan  v.  Hays,  62  Tex.  42;    Mobile, 
&c.  R.  Co.  v.  Davis,  62  Miss.  271.  An 
order  of  a  federal  court  discharging 
the  receiver,  restoring  the  property 
to  the  company  without  foreclosure, 
and  requiring  that  all  claims  against 
the   receiver   shall   be   presented   to 
th»  court  before  a  given  date,  in  de- 
fault whereof  they  shall  be  barred, 
does  not,  in  view  of  the  judiciary 
act  of  1887-88,  making  receivers  lia- 
ble to  suit  in  any  competent  court 
without    leave    of    the    appointing 
court,  prevent  the  subsequent  recov- 
ery in  a  state  court  of  a  judgment 
in  personam   for  personal   injuries, 
or    its    enforcement    by    the    same 
court.  Texas,  &c.  R.  Co.  v.  Johnson, 
151  U.  S.  81,  14  Sup.  Ct.  250. 


445  See  Farmers'  Loan,  &c.  Co.  v. 
Central  R.  Co.  7  Fed.  537;  Texas, 
&c.  R.  Co.  v.  Adams,  78  Tex.  372,  14 
S.  W.  666,  22  Am.  St.  56. 

""Mobile,  &c.  R.  Co.  v.  Davis,  62 
Miss.  271;  Brown,  Ex  parte,  15  S. 
Car.  518;  Texas,  &c.  R.  Co.  v.  John- 
son, 76  Tex.  421,  13  S.  W.  463,  18 
Am.  St.  60;  Eastern  and  Midland 
R.  Co.,  In  re,  L.  R.  45  Ch.  D.  367,  45 
Am.  &  Eng.  R.  Gas.  71;  Clark  v. 
Central  R.  &c.  Co.  66  Fed.  803;  Wal- 
lace v.  Loomis,  97  U.  S.  146;  Beach 
Receivers,  §§  366,  367. 

447  Brown,  Ex  parte,  15  S.  Car.  518; 
Klein  v.  Jewett,  26  N.  J.  Eq.  474; 
Mobile,  &c.  R.  Co.  v.  Davis,  62  Miss. 
271;  Cowdrey  v.  Galveston,  &c.  R. 
Co.  93  U.  S.  352;  Green  v.  Coast 
Line,  &c.  R.  Co.  97  Ga.  15,  24  S.  E. 
814,  54  Am.  St.  379,  and  note;  South 
Carolina,  &c.  R.  Co.  v.  Carolina,  &c. 
R.  Co.  93  Fed.  543.  But  see  At- 
lantic, &c.  Co.  v.  Dana,  128  Fed.  209. 
Such  claims  must  be  paid,  in  the 
first  instance,  out  of  the  income  of 
the  property.  But  if  that  prove  in- 
sufficient, payment  may  be  made  out 
of  the  proceeds  arising  from  a  sale 


§  581] 


RECEIVERS. 


848 


also,  are  rents  accruing  during  the  receivership  upon  rolling  stock 
held  by  the  corporation  under  a  conditional  sale448  together  with  the 
cost  of  necessary  supplies449  and  the  wages  of  employes.450  Where  the 
receiver  undertakes  the  operation  of  another  road  than  that  over  which 
he  was  appointed,  under  a  lease,  he  assumes  the  same  liability  as  any 
other  lessee;  and  the  fact  that  the  contract  of  lease  was  entered  into 
with  the  permission  of  the  court  does  not  remove  such  liability, 
where  the  act  of  the  receiver  in  making  it  was  purely  voluntary.451 

§  581.     Liability  of  corporation. — The  corporation  itself  is  not  or- 
dinarily,   under    the    authorities,    held    liable    either    civilly452    or 


of  the  road.  Union  Trust  Co.  v. 
Illinois  Midland  R.  Co.  117  U.  S.  434, 
6  Sup.  Ct.  809. 

448  Kneeland  v.  American  L.  &  T. 
Co.  136  U.  S.  89,  10  Sup.  Ct.  950; 
Eastern  and  Midland  R.  Co.,  In  re, 
L.  R.  45  Ch.  D.  367,  45  Am.  &  Eng. 
R.  Gas.  71;  Woodruff  v.  Erie  R.  Co. 
93  N.  Y.  609;  Beach  Receivers,  §  372. 
As  to  prior  accrued  instalments  due 
upon  such  rolling  stock  at  the  time 
the  receiver  was  appointed,  the  ven- 
dors are  simply  general  creditors. 
Fidelity  Ins.  Co.  v.  Shenandoah  Val- 
ley R.  Co.  86  Va.  1,  9  S.  E.  759,  19 
Am.  St.  858;  Kneeland  v.  American 
L.  &  T.  Co.  supra;  Thomas  v. 
Peoria,  &c.  R.  Co.  36  Fed.  808. 

""Williamson  v.  Washington  City, 
&c.  R.  Co.  33  Gratt.  (Va.)  624;  Po- 
land v.  Lamoille  Valley  R.  Co.  52 
Vt.  144;  Kneeland  v.  Bass  Foundry, 
&c.  Works,  140  U.  S.  592,  11  Sup. 
Ct.  857;  Burnham  v.  Bowen,  111  U. 
S.  776,  4  Sup.  Ct.  675;  see  post, 
§  590. 

450  Hoover  v.  Montclair,  &c.  R.  Co. 
29  N.  J.  Eq.  4;  Meyer  v.  Johnston, 
53  Ala.  237;  Langdon  v.  Vermont, 
&c.  R.  Co.  54  Vt.  593;  McLane  v. 
Placerville,  &c.  R.  Co.  66  Cal.  606, 
6  Pac.  748;  Union  Trust  Co.  v.  Il- 
linois Midland  R.  Co.  117  U.  S.  434, 
6  Sup.  Ct.  809;  Cowdrey  v.  Galves- 
ton,  &c.  R.  Co.  93  U.  S.  352;  Stanton 


v.  Alabama,  &c.  R.  Co.  2  Woods  (U. 
S.)  506;  Kennedy  v.  St.  Paul,  &c. 
R.  Co.  2  Dill.  (U.  S.)  448. 

451  Kain  v.  Smith,  80  N.  Y.  458. 

452  Godfrey  v.  Ohio,  &c.  R.  Co.  116 
Ind.  30,  37  Am.  &  Eng.  R.  Cas.  8; 
Ohio,  &c.  R.  Co.  v.   Davis,  23   Ind. 
553,  85  Am.  Dec.  477;  Memphis,  &c. 
R.   Co.   v.    Hoechner,    67   Fed.   456; 
Kansas    Pac.    R.    Co.    v.    Wood,    24 
Kans.  619;   Turner  v.  Hannibal,  &c. 
R.  Co.  74  Mo.  602;  Stevens  v.  Atchi- 
son,    &c.    R.    Co.    87    Mo.    App.    26; 
Ohio,  &c.  R.  Co.  v.  Russell,  115  111. 
52,  3  N.  E.  561;    McNulta  v.  Lock- 
ridge,  137  111.  270,  27  N.  E.  452,  31 
Am.  St.  362;  Kansas  Pac.  R.  Co.  v. 
Searle,  11  Colo.  1,  16  Pac.  328;  Kan- 
sas, &c.  R.  Co.  v.  Dorough,  72  Tex. 
108,    10    S.    W.    711;     Thurman    v. 
Cherokee  R.  Co.  56  Ga.  376;   Mem- 
phis, &c.  R.  Co.  v.  Stringfellow,  44 
Ark.  322,  51  Am.  R.  598;   Erwin  v. 
Davenport,    9    Heisk.     (Tenn.)    44; 
Metz  v.  Buffalo,  &c.  R.  Co.  58  N.  Y. 
61,  17  Am.  R.  201;  Davis  v.  Duncan, 
19   Fed.   477.     See,   also,   Chamber- 
lain v.  New  York,  &c.  R.  Co.  71  Fed. 
636;    Sibson    v.    Hamilton,    &c.    Co. 
21  Wash.  362,  58  Pac.  219;  Missouri, 
&c.  R.  Co.  v.  Wood  (Tex.),  52  S.  W. 
93;   and  Archambeau  v.  New  York, 
&c.  R.  Co.  170  Mass.  272,  49  N.  E. 
435    (citing  text).     But  the  posses- 
sion of  the  receiver  must  usually  be 


849 


LIABILITY  OF   CORPORATION. 


[§  581 


criminally453  for  any  acts  or  upon  any  contracts  of  a  receiver  who  has 
full  possession  of  its  property  and  entire  charge  of  its  affairs.  Where, 
however,  the  receiver  has  used  money  which  should  have  been  applied 
to  the  payment  of  plaintiff's  claim  in  the  purchase  of  property  which  is 
afterward  surrendered  to  the  corporation  upon  the  receiver's  discharge, 
it  seems  that  a  court  of  equity  will  hold  the  corporation  liable  for  such 
claim  to  the  extent  of  the  property  so  received  by  it.454  The  corpora- 
tion, it  has  been  held,  continues  liable  for  taxes  imposed  upon  its  prop- 
erty or  business  while  managed  by  a  receiver.455  And  where  the  duty  of 


exclusive  in  order  to  exonerate  the 
company,  and  it  should  not  hold  it- 
self out  to  the  public  as  operating 
the  road.  Railroad  Co.  v.  Brown, 
'17  Wall.  (U.  S.)  445.  And  there  are 
other  cases  in  which  the  company 
has  been  held  liable,  as  where  the 
receiver  was  collusively  appointed 
or  the  profits  were  invested  in  bet- 
terments. See  Texas,  &c.  R.  Co.  v. 
Gay,  86  Tex.  571,  26  S.  W.  599,  25 
L.  R.  A.  52;  Holman  v.  Galveston, 
&c.  R.  Co.  14  Tex.  Civ.  App.  499,  37 
S.  W.  464;  Houston,  &c.  R.  Co.  v. 
McFadden,  91  Tex.  194,  40  S.  W.  216, 
42  S.  W.  593;  Stewart  v.  Railroad 
Co.  8  Ohio  N.  P.  179. 

453  State  v.  Wabash,  &c.  R.  Co.  115 
Ind.  466,  17  N.  E.  909,  1  L.  R.  A. 
179. 

454  The  net  earnings  of  the  road  in 
the  hands  of  the  receiver  are  charge- 
able with  the  expenses  of  operating 
the  road,  including  injuries  to  per- 
sons and  property.    And  where  such 
earnings  have  been  diverted  to  the 
purchase  of  property  and  permanent 
improvements     equity     will     follow 
them.     Mobile,  &c.  R.  Co.  v.  Davis, 
62  Miss.  271;   Texas,  &c.  R.  Co.  v. 
Johnson,  76  Tex.  421,  13  S.  W.  463, 
18  Am.  St.  60,  and  note;  Texas,  &c. 
R.  Co.  v.  White,  82  Tex.  543,  18  S. 
W.    478;    Houston,    &c.    R.    Co.    v. 
Crawford,    88    Tex.    277,    31    S.    W. 
176,   28   L.   R.    A.    761,    53   Am.    St. 
572;     Garrison    v.     Texas,    &c.    R. 

ELL.  RAILROADS — 54 


Co.  (Tex.)  30  S.  W.  725;  Texas,  &c. 
R.  Co.  v.  Bloom,  60  Fed.  979.  See, 
also,  Texas,  &c.  R.  Co.  v.  Johnson, 
151  U.  S.  81,  60  Am.  &  Eng.  R.  Cas. 
496,  and  note;  Texas,  &c.  R.  Co.  v. 
Bloom,  164  U.  S.  636,  17  Sup.  Ct. 
216;  Brunner,  &c.  Co.  v.  Central, 
&c.  Co.  18  Ind.  App.  174,  47  N.  E. 
686.  But  where  there  is  no  evi- 
dence that  earnings  have  been  di- 
verted to  the  betterment  of  the  road, 
an  instruction  that  the  company  is 
not  liable  is  proper.  Texas,  &c.  R. 
Co.  v.  Hoffman,  83  Tex.  286,  18  S. 
W.  741.  Rights  of  other  parties 
may  sometimes  prevent  the  applica- 
tion of  the  doctrine  stated  in  the 
text,  and  it  is  one  not  to  be  care- 
lessly applied.  It  is  possible  that 
the  court  went  too  far  in  some  cases 
cited,  but  we  believe  the  doctrine  is 
just  and  equitable. 

453  Philadelphia,  &c.  R.  Co.  v.  Com- 
monwealth, 104  Pa.  St.  80.  In  this 
case,  the  court  held  the  defendant 
liable  for  a  tax  upon  the  gross  re- 
ceipts coming  into  the  hands  of  the 
receiver.  The  court  said:  "If  the 
owner  of  this  property  was  not  to 
bear  the  burden  of  the  public 
charges  against  it,  we  are  at  a  loss 
to  determine  upon  whom  they 
should  fall.  The  receivers,  the  ap- 
pointees of  the  United  States  Cir- 
cuit Court,  were  owners  neither  of 
these  receipts  nor  of  the  property 
whence  they  were  derived,  and  they 


§  582] 


EECEIVERS. 


850 


a  railroad  corporation  to  erect  fences  along  its  line  is  made  absolute  by 
statute,  the  corporation  may  be  held  liable  for  damages  resulting  from 
a  failure  to  maintain  such  fences  while  a  receiver  is  in  charge  of  its 
property.456  The  appointment  of  a  receiver  does  not  relieve  the  corpo- 
ration from  the  consequences  of  any  neglect  of  duty  in  the  original  con- 
struction or  subsequent  maintenance  of  its  road,  but  it  may  be  held  lia- 
ble for  damages  directly  traceable  to  its  fault,  even  though  they  accrue 
during  the  receivership.  Thus,  a  corporation  is  liable  for  damages  re- 
sulting from  the  flooding  of  land  caused  by  the  negligent  construction 
of  one  of  its  culverts,  although  the  overflow  occurred  while  the  road 
was  in  the  hands  of  a  receiver.457 


§  582.  Receivers  of  leased  lines. — A  receiver  may,  with  the  con- 
sent of  the  lessors,  continue  in  possession  of  leased  lines  operated  by 
the  insolvent  corporation,  but  his  appointment  as  receiver  does  not 
necessarily  make  him  an  assignee  of  the  leases  so  as  to  give  the  rentals 
priority  over  the  mortgages.458  And  where  the  road  is  operated  under 


were  not  personally  accountable  for 
the  taxes  upon  them.  The  decree  of 
the  circuit  court  made  no  change  in 
the  title  to  this  property.  *  *  * 
The  commonwealth  was  entitled  to 
her  taxes,  and  that  the  owner  of  the 
property  taxed  should  be  made  to 
pay  the  charges  upon  it  is  a  conclu- 
sion that  is  but  just  and  reasona- 
ble." In  New  York,  where  the  prop- 
erty of  an  insolvent  corporation  has 
been  sequestrated,  and  is  in  the 
hands  of  a  receiver  appointed  in  a 
foreclosure  proceeding  who  has  in 
his  hands  money  derived  from  its 
gross  earnings  sufficient  to  pay  the 
taxes, — a  direct  application  for  an 
order  on  him  for  payment  may  be 
made  to  the  court  in  the  foreclosure 
proceeding,  by  the  attorney-general 
by  petition,  making  the  corporation 
and  the  receiver  parties.  Central 
Trust  Co.  v.  New  York  City,  &c.  R. 
Co.  110  N.  Y.  250,  18  N.  B.  92,  1  L. 
R.  A.  260,  13  Cent.  404,  18  N.  Y.  S. 
30,  4  R.  &  Corp.  L.  J.  462. 
488  Louisville,  &c.  R.  Co.  v.  Cauble, 


46  Ind.  277;  Ohio,  &c.  R.  Co.  v.  Fitch, 
20  Ind.  498;  Kansas,  &c.  R.  Co.  v. 
Wood,  24  Kans.  619;  Ohio,  &c.  R. 
Co.  v.  Russell,  115  111.  52,  3  N.  E. 
561.  It  seems  to  us,  however,  that 
where  the  receiver  has  possession 
and  entire  and  exclusive  control  of 
the  road  and  all  its  assets,  the  re- 
ceiver rather  than  the  corporation 
should  be  sued  when  the  injury  is 
caused  by  his  own  failure  to  fence, 
unless  the  terms  of  the  statute  are 
such  as  to  require  a  different  rule. 

457  Union  Trust  Co.  v.  Cuppy,  26 
Kans.  754;  Kansas  Pacific  R.  Co.  v. 
Wood,  24  Kans.  619.  But  the  re- 
ceiver is  also  liable  for  maintaining 
the  nuisance  erected  by  the  corpora- 
tion. Union  Trust  Co.  v.  Cuppy, 
supra. 

^Central  Trust  Co.  v.  Wabash, 
&c.  R.  Co.  34  Fed.  259;  ante,  §  567. 
Rent  accrued  under  a  railroad  lease 
prior  to  the  appointment  of  receiv- 
ers for  the  lessee  is  an  unsecured 
liability  entitled  to  no  priority.  New 
York,  &c.  R.  Co.  v.  New  York,  &c.  R. 


851 


EECEIVERS   OF  LEASED  LINES. 


[§'  582 


an  order  of  court  directing  separate  accounts  to  be  kept  with  the 
leased  lines,  and  expressly  recognizing  the  right  of  the  lessors  to  take 
possession  of  the  leased  lines  for  non-payment  of  rent  upon  making 
proper  application  therefor,  the  lessors  cannot  assert  such  a  lien 
against  the  earnings  of  the  general  system.458  The  fact  that  the 
leased  line  was  held  subject  to  resumption  of  control  by  the  lessors 
at  any  time  negatives  the  claim  that  the  rental  was  a  necessary  expense 
originating  in  the  course  of  the  receiver's  administration.460  And 
where  it  appears  that  the  earnings  of  the  road  did  not  suffice  to  pay 
for  necessary  labor  and  supplies  used  in  operating  the  road,  no  equity 
can  arise  for  the  payment  of  rental  on  the  theory  of  diverted  .earn- 
ings.461 On  the  other  hand,  where  the  court  appoints  receivers  for  a 
company,  for  the  benefit  of  that  company  and  its  creditors,  no  part 
of  the  expenses  of  the  receivership  are  chargeable  against  the  property 
of  another  road,  leased  by  the  insolvent  company,  the  receivership 
not  being  for  the  benefit  of  the  lessor  or  its  creditors.462  In  proceed- 
ings to  compel  a  receiver  in  a  foreclosure  suit  to  pay  rent  for  use  of 
tracks  and  terminal  facilities,  where  the  amount  of  rent  was  left 
uncertain,  a  contract  between  other  parties,  oppressive  in  its  terms, 
is  not  a  test  of  the  amount  of  rent  which  the  receiver  should  pay; 
and  it  not  being  shown  that  the  sum  paid  by  the  receiver  was  in- 
sufficient, the  dismissal  of  the  proceedings  was  proper.463  It  has  been 


Co.  58  Fed.  268.  But  there  may  be 
a  liability  for  rentals  by  adoption. 
Central  Trust  Co.  v.  Continental,  &c. 
Co.  86  Fed.  517;  Miltonberger  v.  Lo- 
gansport,  &c.  R.  Co.  106  U.  S.  286,  1 
Sup.  Ct.  140.  See,  also,  Thomas  v. 
Western  Car  Co.  149  U.  S.  95,  60  Am. 
&  Eng.  R.  Gas.  443. 

""Quincy,  &c.  R.  Co.  v.  Hum- 
phreys, 145  U.  S.  82,  12  Sup.  Ct.  787. 
A  railroad  receiver,  even  though  ap- 
pointed on  the  petition  of  the  com- 
pany itself,  and  for  the  express  pur- 
pose of  preventing  the  disintegra- 
tion of  the  system,  does  not  become 
liable  for  rentals  upon  leased  lines, 
eo  instanti,  by  the  mere  act  of  tak- 
ing possession,  but  is  entitled  to  a 
reasonable  time  to  ascertain  the  sit- 
uation of  affairs  and  determine 
what  to  do.  United  States  Trust  Co. 


v.  Wabash  W.  R.  Co.  150  U.  S.  287, 
14  Sup.  Ct.  86;  Seney  v.  Wabash  W. 
R.  Co.  150  U.  S.  310,  14  Sup.  Ct.  94; 
United  States  Trust  Co:  v.  Wabash, 
&c.  R.  Co.  150  U.  S.  287,  14  Sup.  Ct. 
86,  60  Am.  &  Eng.  R.  Cas.  480;  ante, 
§  567.  See,  also,  Johnson  v.  Lehigh, 
&c.  Co.  130  Fed.  932. 

^Quincy,  &c.  R.  Co.  v.  Hum- 
phreys, 145  U.  S.  82,  12  Sup.  Ct.  787. 

^Quincy,  &c.  R.  Co.  v.  Hum- 
phreys, 145  U.  S.  82,  12  Sup.  Ct.  787 ; 
Park  v.  New  York,  &c.  R.  Co.  57  Fed. 
799.  See,  also,  Cox  v.  Terre  Haute, 
&c.  R.  Co.  133  Fed.  371. 

462  Brown  v.  Toledo,  &c.  R.  Co.  35 
Fed.  444. 

""Peoria,  &c.  R.  Co.  v.  Chicago, 
&c.  R.  Co.  127  U.  S.  200,  8  Sup.  Ct. 
1125. 


§    583]  EECEIVEES.  852 

held,  however,  that  receivers  who  take  possession  of  cars  held  by  an 
insolvent  railroad  company  under  a  lease,  with  full  authority  to  do 
so,  and  operate  the  cars  with  full  knowledge  of  the  lease  and  the 
burdens  assumed  by  the  company,  are  bound  by  the  lease  as  as- 
signees of  the  company.464  It  has  also  been  held  that  the  court  has 
power,  on  consulting  the  receivers,  and  without  notice  to  the  mort- 
gagees, to  order  the  lease  of  another  road  which  is  found  necessary 
to  the  profitable  management  of  the  mortgaged  property,  and  to 
undertake  the  payment  of  rent  for  its  use.465 

§  583.  Receiver's  accounts. — Since  a  receiver  is  only  the  minis- 
terial officer  of  the  court  by  which  he  was  appointed,  deriving  his 
authority  from  its  orders,466  he  is  required  to  render  to  the  court  a 
strict  account  of  his  management  of  the  trust.467  These  accounts  must 
be  made  at  such  times  as  the  court  may  direct,468  and  a  failure  to 
render  an  account  when  required  may  be  cause  for  the  removal  of 
the  receiver.469  The  court,  at  the  instance  of  a  party  interested,  will 
compel  the  receiver  to  render  an  account  at  the  appointed  time.470 
The  receiver's  accounts  are  usually  referred  to  a  master,471  whose 
action  in  passing  them  is  held  to  be  judicial  rather  than  ministerial,472 

464  Eastern  v.   Houston,  &c.   R.   Co.  Stimson    Am.    Stat.     (1892),    citing 

38  Fed.   784;    Sparhawk   v.  Yerkes,  laws  of  New  York,  Ohio,  Michigan, 

142   U.    S.   1,   13,   12   Sup.   Ct.   104;  Mississippi  and  Nebraska. 

Woodruff  v.   Erie  R.   Co.   93   N.   Y.  *68  Mabry  v.  Harrison,  44  Tex.  286. 

609;  Otis,  In  re,  101  N.  Y.  580,  585,  See,  also,  De  Winton  v.  Brecon,  28 

5  N.  E.  571.  Beav.  200;  Adams  v.  Woods,  8  Cal. 

485  Mercantile  Trust  Co.  v.  Missou-  306. 

ri,  &c.  R.  Co.  41  Fed.  8,  43  Am.  &  "'Bertie    v.     Lord    Abingdon,     8 

Eng.  R.  Gas.  469.    See  United  States  Beav.  53.    So  declared  by  statute  in 

Trust  Co.  v.  Wabash,  &c.  R.  Co.  150  New  York:  Rev.  Stat.  Part  3,  Ch.  4, 

U.  S.  287,  14  Sup.  Ct.  86,  60  Am.  &  Tit.  2,  §  42. 

Eng.  R.  Cas.  480.  4TO  Adams   v.   Woods,   8   Cal.    306; 

460  ^  receiver  cannot  question  the  Lowe  v.  Lowe,  1  Tenn.  Ch.  515.    An 

order  of  the  court  in  reference  to  action  at  law  for  default  of  a  re- 

the    trust    property    in    his    hands,  ceiver  cannot  be  maintained  against 

Herrick  v.  Miller,  123  Ind.  304,  24  his   sureties   before   an   accounting. 

N.  E.  111.  French  v.  Dauchy,  134  N.  Y.  543,  31 

407  Hooper  v.  Winston,  24  111.  353;  N.  E.  1041. 

Akers  v.  Veal,  66  Ga.  302.    See,  also,  4T1  Foster    Federal    Practice    383, 

as  to  when  an  account  should  be  ap-  §  257. 

proved.  Heffron  v.  Rice,  149  111.  216,  4T2  Cowdrey     v.     Railroad     Co.     1 

36  N.  E.  562,  41  Am.  St.  271.    Provi-  Woods  (U.  S.)   331,  affirmed  in  Gal- 

sion  for  an  accounting  by  receivers  veston  R.  v.  Cowdrey,  11  Wall.   (U. 

is  made  by  statute  in  several  states.  S.)  459. 


853 


COMPENSATION   OF  RECEIVERS. 


[§ 


and  may  render  the  accounts  so  passed  proof  against  collateral  at- 
tack.473 The  books,  contracts  and  accounts  of  a  receiver  are  in  the  cus- 
tody of  the  law,  and  bondholders,  stockholders  or  creditors  are  en- 
titled, upon  reasonable  application,  to  the  privilege  of  inspecting 
them.474  Although  no  appeal  ordinarily  lies  in  favor  of  a  receiver 
from  an  order  of  court  made  with  reference  to  trust  property  in  the 
receiver's  hands,475  he  may  appeal  from  a  judgment  of  the  court 
erroneously  fixing  the  amount  of  property  in  his  hands,  and  directing 
him  to  turn  over  more  than  he  has  in  his  custody,  or  from  a  final 
decree  ascertaining  the  balance  for  which  he  is  liable.476 

§584.  Compensation  of  receiver. — Eeceivers  are  allowed  compen- 
sation for  services  rendered  in  the  proper  discharge  of  their  duties 
as  officers  of  the  court,  and  it  has  been  said  that  an  order  should  not 
be  made  directing  the  receiver  to  pay  over  the  entire  fund  in  his 
hands  without  in  some  way  providing  for  the  payment  of  his  com- 
missions.477 The  receiver's  compensation  is  payable  out  of  the  assets 
in  his  hands,478  and  it  has  been  held  that  a  receiver  who  has  been 


473  Farmers'  Loan,  &c.  Co.  v.  Cen- 
tral R.  Co.  1  McCrary  (U.  S.)  352,  2 
Fed.  751.     Unless  exceptions  to  the 
receiver's  account  are  first  taken  be- 
fore the  master,  and  the  receiver  is 
given  an  opportunity  to  sustain  his 
report  by  any  additional  evidence  at 
his  command  the  federal  courts  will 
decline  to  consider  them  when  taken 
before  the  court.    Cowdrey  v.  Rail- 
road Co.  1  Woods    (U.  S.)    331,  af- 
firmed in  Galveston  R.  v.  Cowdrey, 
11  Wall.    (U.  S.)   459.     It  has  been 
held,  however,  that  the  receiver  of 
a  corporation  to  which  lands  were 
fraudulently  conveyed  may  be  com- 
pelled, in  an  action  for  fraud,  to  ac- 
count for  rents  and  profits  received 
by  him  from  such  lands,  after  his 
accounts  as  receiver  have  been  ap- 
proved in  court,  and  he  has  been 
discharged.     Pondir   v.   New   York, 
&c.  R.  Co.  72  Hun    (N.  Y.)    384,  25 
N.  Y.  S.  560,  31  Abb.  N.  C.  29. 

474  Jones  Corporate  Bonds  &  Mort- 
gages,   §  531,   citing   Fowler's   Peti- 


tion, 9  Abb.  N.  C.  (N.  Y.)  268;  La- 
fayette Co.  v.  Neely,  21  Fed.  738.  In 
New  York  the  statute  provides  that 
the  receiver's  accounts,  statements, 
and  all  books  and  papers  of  the  cor- 
poration in  the  hands  of  such  re- 
ceiver, shall,  at  all  reasonable  times, 
be  open  for  the  inspection  of  all 
persons  having  an  interest  therein. 
Rev.  Stat.  Part  3,  Ch.  4,  Tit.  2,  §  42. 

475  Herrick  v.  Miller,  123  Ind.  304, 
24  N.  E.  111. 

476Hinckley  v.  Oilman,  &c.  R.  Co. 
94  U.  S.  467;  Hovey  v.  McDonald, 
109  U.  S.  150,  3  Sup.  Ct.  136;  How  v. 
Jones,  60  Iowa  70,  14  N.  W.  193; 
Adair  County  v.  Ownby,  75  Mo.  282. 

477Weston  v.  Watts,  45  Hun  (N. 
Y.)  219. 

/"Hayes  v.  Ferguson,  83  Tenn  1, 
54  Am.  R.  398;  Jaffray  v.  Raab,  72 
Iowa  335;  Seligman  v.  Laussy,  60 
Ga.  20;  Beckwith  v.  Carroll,  56  Ala. 
12;  Ferguson  v.  Dent,  46  Fed.  88; 
Izard,  Ex  parte,  L.  R.  23  Ch.  Div. 
75;  High  Receivers  (3d  ed.),  §  796. 


584] 


EECEIVEES. 


854 


legally  and  properly  appointed  cannot  be  compelled  to  accept  a  judg- 
ment against  the  person  procuring  his  appointment  in  payment  for 
his  services.479  Where  the  funds  in  court  are  not  sufficient  to  ade- 
quately compensate  the  receiver,  the  person  procuring  his  appointment 
may  be  compelled  to  pay  him  in  a  proper  case.480  The  rate  of  com- 
pensation is  fixed  by  statutes  applying  to  certain  classes  of  receiver- 
ships in  some  of  the  states,481  and  where  it  is  so  fixed  that  rate  must 
be  allowed,  regardless  of  the  value  of  the  services  rendered.482  But 
the  rule  in  England483  and  in  the  United  States,  in  all  cases  in  which 
the  compensation  is  not  definitely  fixed  by  law,484  is  that  the  amount 
of  compensation  to  be  allowed  is  a  matter  within  the  sound  discretion 
of  the  court  by  whom  the  receiver  was  appointed,  and  is  to  be  governed 
by  the  particular  circumstances  of  the  case.485  Where  the  duties  of  the 


479  Radford  v.  Folsom,  55  Iowa  276, 
7  N.  W.  604.    In  Hoppensack  v.  Hop- 
pensack,  61  How.  Pr.   (N.  Y.)   498, 
it  was  held  that  the  receiver,  being 
an  officer  of  the  court,  must  be  com- 
pensated  out  of  the  funds  in   the 
hands   of  the   court,  and  that  the 
owner  thereof,   in   case  they  were 
wrongfully  taken,  must  look  to  the 
person   who   procured  the  appoint- 
ment  of  the   receiver  for   redress. 
But  the  weight  of  authority  favors 
the  rule  that  a  receiver  who  is  im- 
properly  appointed   and   whose   ap- 
pointment  is   set  aside,   must   look 
only  to  the  plaintiff  for  remunera- 
tion.   Weston  v.  Watts,  45  Hun  (N. 
Y.)  219;  French  v.  Gifford,  31  Iowa 
428;   Moyers  v.  Coiner,  22  Fla.  422. 
Periodic  allowances  or  payments  be- 
fore the  termination  of  the  receiver- 
ship are  frequently  made.    See  Cow- 
drey  v.   Railroad   Co.  1  Woods    (U. 
S.)  331;  Martin  v.  Martin,  14  Oreg. 
165,  12  Pac.  234;   Henry  v.  Henry, 
103  Ala.  582,  15  So.  916;   Neave  v. 
Douglas,  26  L.  J.  Ch.  756;   Wilkin- 
son v.  Washington,  &c.  Co.  102  Fed. 
28;    Battery,  &c.   Bank  v.  Western, 
&c.  Bank,  126  N.  Car.  531,  36  S.  E. 
39. 

480  Tome  v.  King,  64  Md.   166,  21 


Atl.  279;  Chapman  v.  Atlantic,  &c. 
Co.  119  Fed.  257;  Ephraim  v.  Pa- 
cific Bank,  129  Cal.  589,  62  Pac.  177; 
Farmers'  Nat.  Bank  v.  Backus,  74 
Minn.  264,  77  N.  W.  142. 

481 20  Am.  &  Eng.  Ency.  of  Law 
169. 

482 Price  v.  White,  1  Bailey  Eq.  (S. 
Car.)  240.  A %  court  cannot  allow  a 
greater  compensation  than  the  per 
cent  upon  funds  passing  through 
the  receiver's  hands,  which  the  stat- 
ute fixes  as  his  compensation.  Ori- 
ent Mut.  Ins.  Co.,  In  re,  66  Hun  (N. 
Y.)  633,  21  N.  Y.  S.  237. 

483  High  Receivers  (3d  ed.),  §  782; 
Beach  Receivers,  §  760. 

^United  States  Trust  Co.  v.  New 
York,  &c.  R.  Co.  101  N.  Y.  478,  5  N. 
E.  316.  Some  states  provide  by 
statute  that  the  court  shall  make  a 
proper  allowance  to  the  receiver  by 
way  of  compensation.  Stimson  Am. 
Stat.  (1892),  §  8367,  citing  laws  of 
Indiana,  Mississippi,  Ohio,  Michi- 
gan; Rev.  Stat.  Me.  1883,  Ch.  51, 
§  51;  Gen.  Stat.  R.  I.  Ch.  140,  §  46; 
Code  Va.  1887,  §  3411. 

485Cowdrey  v.  Railroad  Co.  1 
Woods  (U.  S.)  331;  Jones  v.  Keen, 
115  Mass.  170;  Day  v.  Croft,  2 
Beav.  (Eng.)  488;  Crumlish's  Admr. 


855 


COAIPENSATIOX   OF  RECEIVERS. 


[§  584 


receiver  are  very  slight,486  or  where  one  of  the  parties  in  interest 
serves  as  receiver  to  protect  his  own  interests,487  the  court  may  be 
justified  in  granting  him  little  or  no  compensation.  And  in  case  the 
duties  of  a  receiver  prove  more  arduous  than  he  or  the  court  expected 
he  may  be  allowed  compensation  in  addition  to  that  fixed  by  the  order 
under  which  he  was  appointed.488  If  the  receiver's  duties  are  im- 


v.  Shenandoah,  &c.  R.  Co.  40  W.  Va. 
627,  22  S.  E.  90;  Northern  Ala.  R. 
Co.  v.  Hopkins,  87  Fed.  505;  Sher- 
ley  v.  Mattingly,  21  Ky.  L.  289,  51 
S.  W.  189;.  Geyser  Min.  Co.  v.  Salt 
Lake  Bank,  16  Utah  163,  51  Pac.  151. 
Sometimes  he  is  given  the  same 
compensation  as  the  president  of 
the  road,  and  his  duties  and  re- 
sponsibilities may  be  such  as  to 
entitle  him  to  even  greater  com- 
pensation. Central  Trust  Co.  v. 
Wabash,  &c.  R.  Co.  32  Fed.  187, 
188.  Receivers  of  railroads  are  fre- 
quently allowed  as  much  as  $10,000 
a  year.  See  1  Foster's  Fed.  Pr. 
§  258;  2  Beach  Mod.  Eq.  Pr.  §  739. 

486  Marr  v.  Littlewood,  2  M.  &  Craig 
(Eng.)  454.  A  railroad  receiver,  re- 
siding at  a  distance  from  the  prop- 
erty, who  entrusts  the  active  man- 
agement to  others,  will  not  be  al- 
lowed the  full  compensation  usually 
paid  to  railroad  presidents  and  re- 
ceivers who  are  the  active  executive 
heads  of  going  railroads.  Central 
Trust  Co.  of  New  York  v.  Cincin- 
nati, &c.  R.  Co.  (C.  C.)  58  Fed.  500. 
See,  also,  Boston,  &c.  Co.  v.  Cham- 
berlain, 66  Fed.  847. 

437  Steel  v.  Holladay,  19  Oreg.  517, 
25  Pac.  77;  Berry  v.  Jones,  11  Heisk. 
(Tenn.)  206,  27  Am.  R.  742;  Blake- 
ney  v.  Dufaur,  15  Beav.  (Eng.)  40. 

^Farmers'  Loan,  &c.  Co.  v.  Cen- 
tral R.  Co.  8  Fed.  60;  Adams  v.  Has- 
kell,  6  Cal.  475;  Stuart  v.  Boul- 
ware,  133  U.  S.  78,  10  Sup.  Ct.  242. 
In  Farmers'  Loan,  &c.  Co.  v.  Central 
R.  Co.  supra,  the  opinion  was  ex- 
pressed that  a  receiver  should  be 


allowed  compensation  in  case  he 
performs  duties  in  addition  to  those 
ordinarily  required  of  a  receiver, 
and  he  was  allowed  a  fee  for  serv- 
ices as  counsel.  But  in  other  cases 
where  claims  have  been  made  by 
receivers  for  compensation  for  legal 
services  rendered  while  acting  as 
such,  the  claims  have  been  disal- 
lowed and  the  opinion  expressed 
that  a  receiver  acting  also  in  other 
capacities  should  be  paid  for  his 
services  in  the  capacity  of  receiver 
only.  This  rule  is  based  upon  the 
public  policy  which  forbids  receiv- 
ers and  other  trustees  from  entering 
into  contracts  by  which  they  may 
make  a  personal  profit  from  the 
management  of  the  trust  estate.  It 
is  said  that  the  temptation  to  earn 
fees  as  counsel  would  be  liable  to 
warp  the  receiver's  judgment  as  to 
what  suits  are  proper  and  neces- 
sary. State  v.  Butler,  15  Lea 
(Tenn.)  113;  Battaile  v.  Fisher,  36 
Miss.  321.  See  as  to  the  general 
rule  that  a  receiver  cannot  employ 
himself  to  perform  services  in  addi- 
tion to  his  duties  as  a  receiver.  Bank 
of  Niagara,  In  re,  6  Paige  (N.  Y.) 
213 ;  Holcombe  v.  Holcombe^  13  N.  J. 
Eq.  413,  417;  Easton  v.  Houston,  &c. 
R.  Co.  40  Fed.  189;  Martin  v.  Mar- 
tin, 14  Oreg.  165,  12  Pac.  234;  Beach 
Receivers,  §  768.  In  Kimmerle  v. 
foowagiac,  &c.  Co.  105  Mich.  640,  63 
N.  W.  529,  it  is  held  that  a  corpora- 
tion appointed  as  a  receiver  is  not 
entitled  to  additional  compensation 
for  its  agent  who  performed  the  du- 
ties of  the  office. 


§    585]  RECEIVERS.  856 

perfectly  performed  because  of  his  negligence  or  misconduct,  the  court 
may  reduce  the  amount  of  his  compensation/89  and,  in  a  proper  case, 
may  even  refuse  him  any  compensation  whatever.490  It  is  the  practice 
in  most  jurisdictions  to  fix  the  amount  in  a  general  order  or  to  make 
allowances  to  the  receiver  for  his  own  compensation  and  necessary 
counsel  fees  on  his  ex  parte  application,  but  it  is  said  in  a  recent  case 
that,  in  the  absence  of  any  well-settled  rule  of  practice  or  general  or- 
der, motions  to  fix  the  compensation  of  receivers  or  their  counsel 
should  not  be  heard  ex  parte,  and  that  notice  should  be  given  to  all 
parties  in  interest.491  In  case  the  compensation  allowed  is  too  large  or 
too  small,  it  has  been  held  that  an  appeal  may  be  taken  from  the 
order.492  But  an  appellate  court  will  not  interfere  to  correct  the 
allowance  made  by  the  court  appointing  the  receiver  unless  it  has 
clearly  abused  the  discretion  with  which  it  is  vested.493  And  if  the 
facts  upon  which  the  allowance  was  based  are  not  before  the  appel- 
late court,  it  will  refuse  to  consider  the  question  as  to  whether  such 
allowance  was  excessive.494 

§  585.  Attorney's  fees. — The  receiver  is  entitled  to  the  benefit  of 
legal  counsel,  and  the  court  may  upon  application  appoint  one  of  the 
attorneys  practicing  before  it  to  serve  as  his  legal  adviser.495  The  fees 
of  such  counsel  for  necessary  services  in  connection  with  the  manage- 
ment of  the  trust  will  be  allowed  by  the  court  and  paid  out  of  the 
trust  property.496  The  amount  must  depend  largely  upon  the  cir- 

489  Beach  Receivers,  §  758.  **  Greeley  v.  Provident  Sav.  Bank, 

490Clapp  v.  Clapp,  49  Hun  (N.  Y.)  103  Mo.  212,  15  S.  W.  429;  Jones  v. 

195.    See,  also,  Sheets  Lumber  Co.,  Keen,  115  Mass.  170. 

In  re,  52  La.  Ann.  1337,  27  So.  809;  495  Blair  v.  St.  Louis,  &c.  R.  Co.  20 

Harrison  v.  Boydell,  6  Sim.  211.  Fed.  348. 

491  Merchants'  Bank  v.  Crysler,  67  498  Cowdrey     v.     Railroad     Co.     1 

Fed.  388,  citing  Daniel  Ch.  PI.  &  Pr.  Woods  (U.  S.)  331;  Howes  v.  Davis. 

1592,  1593.  4  Abb.  Pr.  (N.  Y.)  71.    As  to  allow- 

402  Russell  v.  First  Nat.  Bank,  65  ance  to  receiver  for  fees  paid  coun- 

lowa  242",  21  N.  W.  585;  Herndon  v.  sel,  see  Phinizy  v.  Augusta,  &c.  R. 

Hurter,    19    Fla.    397;    Tompson    v.  Co.  98  Fed.  776.    Where  there  are  no 

Huron,  &c.  Co.  5  Wash.  527,  32  Pac.  surplus  earnings,  an   attorney  who 

536;    Magee    v.    Cowperthwaite,    10  recovers  for  a  railroad,  in  the  hands 

Ala.  966.  of    a     receiver,     engines     formerly 

493  Stuart  v.  Boulware,  133  U.  S.  78,  leased   by   it  to  another  road,  and 

10   Sup.  Ct.   242;    Greeley  v.  Provi-  rent  for  their  use,  which  recovery 

dent  Sav.  Bank,  103  Mo.  212,  15  S.  inures  to  the  benefit  of  the  security 

W.  429;   Morgan  v.  Hardee,  71  Ga.  holders,  is  entitled  to  a  reasonable 

736;  Heffron  v.  Rice,  149  111.  216,  36  compensation,  to  be  paid  out  of  the 

N.  E.  562,  41  Am.  St.  271.  corpus  of  the  property.     Louisville, 


857 


ATTORNEY'S  FEES. 


[§  585 


cumstances  of  the  particular  case,  and  in  fixing  it,  as  in  fixing  the 
compensation  of  the  receiver,  the  court  is  invested  with  a  wide  dis- 
cretion.497 Indeed,  the  receiver  usually  pays  the  counsel  and  the 
court  makes  the  allowance  to  the  receiver.498  Not  only  the  fees  of  the 
receiver's  counsel  but  also  those  of  counsel  for  complainant  in  the 
suit  for  the  appointment  of  a  receiver  have  been  ordered  paid  out  of 
the  proceeds  of  a  sale  of  the  property.  Such  an  allowance,  if  made  with 
moderation  and  a  jealous  regard  for  the  rights  of  those  interested  in 
the  fund,  is  not  only  admissible  but  agreeable  to  the  principles  of 
equity  and  justice.499  Where  a  receiver  is  appointed  with  the  consent 
of  all  interested  parties,  and  to  the  advantage  of  all,  the  services 
rendered  by  the  complainant's  attorneys,  being  for  the  common  bene- 
fit, should  be  paid  for  from  the  assets  of  the  company.500  And  even 
though  the  creditors  do  not  all  consent,  if  the  litigation  result  in 
favor  of  the  plaintiff  and  the  fund  be  administered  for  the  benefit 
of  all  the  creditors,  it  is  only  fair  that  all  should  bear  their  ratable 
proportion  of  the  expense  of  procuring  the  receiver's  appointment. 
In  many  cases  the  claims  of  complainant's  counsel  have  been  allowed 
in  whole  or  in  part501  before  the  litigation  was  ended,  and  while  it  still 
remained  a  matter  of  doubt  whether  the  party  who  employed  the 
attorney  had  any  interest  in  the  fund.  But  this  practice  is  to  be  dis- 
couraged. The  better  course  is  to  defer  making  any  allowance  to 
plaintiff's  counsel  until  it  shall  have  been  demonstrated  that  his  em- 
ployment was  necessary  to  protect  the  interests  of  the  creditors.502 


&c.  R.  Co.  v.  Wilson,  138  U.  S.  501, 
11  Sup.  Ct.  405. 

487  Crumlish's  Admr.  v.  Shenan- 
doah,  &c.  R.  Co.  40  W.  Va.  625,  22 
S.  E.  90. 

498  Stuart  v.  Boulware,  133  U.   S. 
78,  10  Sup.  Ct.  242.    See,  also,  Phin- 
izy  v.  Augusta,  &c.  R.  Co.  98  Fed. 
776. 

499  Trustees  v.   Greenough,  105   U. 
S.  527,  536,  per  Mr.  Justice  Bradley. 

500  Bound  v.  South  Carolina  R.  Co. 
43  Fed.  404. 

501  In  Central  Trust  Co.  v.  Wabash, 
&c.  R.  Co.  23  Fed.  675,  it  was  held 
that  a  partial  allowance  would  be 
made  for  the  fees  of  complainant's 
counsel    upon    application,    leaving 
the  balance  to  stand  until  the  litiga- 


tion should  be  disposed  of,  and  it 
should  become  apparent  whether  the 
property  in  the  receiver's  hands 
were  sufficient  to  pay  all  expenses. 
Though  a  receiver  may,  under  cer- 
tain circumstances,  employ  counsel 
to  advise  him  with  regard  to  the 
property  in  his  charge,  the  necessity 
must  be  apparent,  or  a  claim  for 
attorney's  fees  will  be  disallowed. 
Terry  v.  Martin,  7  N.  M.  54,  32  Pac. 
157. 

,  6M  In  a  dissenting  opinion  deliv- 
ered in  the  case  of  Trustees  v.  Green- 
ough, 105  U.  S.  527,  538,  Mr.  Justice 
Miller  said:  "While  I  agree  to  the 
decree  of  the  court  in  this  case,  I  do 
not  agree  to  the  opinion,  so  far  as  it 
is  an  argument  in  favor  of  a  prin- 


586] 


RECEIVERS, 


858 


If  an  opposite  course  is  pursued,  it  may  be  found  that  the  entire  fund 
in  the  possession  of  the  court  has  been  consumed  by  expenses,  and  that 
nothing  remains  for  the  creditors  in  whose  interest  the  litigation  pur- 
ported to  have  begun.503 

§586.  Removal  and  discharge. — The  court  appointing  a  re- 
ceiver504 has  power  to  remove  him  at  any  time  upon  cause  shown, 
and  fill  his  place  with  some  one  who  will  discharge  its  duties  in  a 
satisfactory  manner.  This  power  of  removal  is  held  to  be  a  necessary 


ciple  on  which  is  founded  the  gross- 
est judicial  abuse  of  the  present  day, 
namely,  the  absorption  of  a  prop- 
erty or  a  fund  which  comes  into 
control  of  a  court,  by  making  allow- 
ances for  attorney's  fees  and  other 
expenses,  pending  the  litigation, 
payable  out  of  the  common  funds, 
when  it  may  be  finally  decided  that 
the  party  who  employed  the  attor- 
ney, or  incurred  the  cost,  never  had 
any  interest  in  the  property  or  fund 
in  litigation.  This  system  of  paying 
out  of  a  man's  property  some  one 
else  engaged  in  the  effort  to  wrest 
that  property  from  him,  can  never 
receive  my  approval." 

sos  jn  Trustees  v.  Greenough,  105 
U.  S.  527,  536,  Mr.  Justice  Bradley, 
speaking  for  the  court,  said:  "Some- 
times, no  doubt,  these  allowances 
have  been  excessive  and  perhaps  il- 
legal; and  we  would  be  very  far 
from  expressing  our  approval  of 
such  large  allowances  to  trustees,  re- 
ceivers, and  counsel,  as  have  some- 
times been  made,  and  which  have 
justly  excited  severe  criticism."  In 
Cowdrey  v.  Galveston,  &c.  R.  Co.  93 
U.  S.  352,  the  supreme  court  upheld 
an  allowance  of  five  thousand  dol- 
lars in  favor  of  counsel  employed 
by  certain  bondholders  to  foreclose 
a  mortgage,  after  the  civil  war  had 
caused  the  discontinuance  of  a  for- 
mer suit  in  which  the  trustees 
agreed  with  their  solicitor  to  pay 


him  that  sum  for  procuring  a  fore- 
closure. See  as  to  distinction  be- 
tween allowing  fees  to  the  receiv- 
er's counsel  and  refusing  to  allow 
them  to  counsel  for  the  trustees  or 
for  the  corporation  for  former  serv- 
ices, Pennsylvania  Ins.  &c.  Co.  v. 
Jacksonville,  &c.  R.  Co.  93  Fed.  60; 
Petersburg,  &c.  Ins.  Co.  v.  Dellatorre, 
70  Fed.  643;  Finance,  &c.  Co.  v. 
Charleston,  &c.  R.  Co.  52  Fed.  526; 
Grigg  v.  Mercantile  Trust  Co.  109 
Fed.  220;  Central  Trust  Co.  v.  Thur- 
man,  94  Ga.  735,  20  S.  E.  141; 
Chesapeake,  &c.  R.  Co.  v.  Atlantic, 
&c.  Co.  62  N.  J.  Eq.  751,  48  Atl.  997; 
Mauran  v.  Crown,  &c.  Co.  23  R.  I. 
324,  50  Atl.  331.  See,  also,  Baxter 
v.  Lowe,  93  Fed.  358. 

504  Another  court  to  which  the 
cause  has  been  removed  by  due 
process  of  law  has  the  same  power 
in  this  respect  as  the  court  by  which 
the  receiver  was  appointed,  and  re- 
ceivers appointed  by  a  state  court 
are  as  completely  under  the  control 
of  a  federal  court,  to  which  the 
cause  is  afterward  removed,  as  if 
originally  appointed  by  the  federal 
court.  Texas,  &c.  R.  Co.  v.  Rust, 
17  Fed.  275;  Hinckley  v.  Gilman,  &c. 
R.  Co.  100  U.  S.  153;  Dillon  Re- 
moval of  Causes,  §  80,  p.  99.  See 
Atkins  v.  Wabash,  &c.  R.  Co.  29 
Fed.  161.  But  see  Young  v.  Mont- 
gomery, &c.  R.  Co.  2  Woods  (U.  S.) 
606. 


859 


EEilOVAL  AND  DISCHARGE. 


[§    586 


incident  of  the  power  to  appoint  a  receiver  and  to  control  his  actions,505 
and  its  exercise  rests  in  the  sound  discretion  of  the  court.506  A  re- 
ceiver may  be  removed  and  superseded  for  a  failure  to  give  bond  with 
sufficient  sureties,507  if  he  becomes  insolvent,508  for  physical  or  men- 
tal disability  by  which  he  is  rendered  incapable  of  discharging  the 
duties  of  his  office,509  or  for  any  misconduct510  or  negligence  by  which 
the  interests  of  the  trust  estate  are  menaced  or  endangered.511  Such 
a  personal  interest  in  the  conduct  of  the  business  as  might  lead  the 
receiver  to  sacrifice  the  interests  of  other  claimants  may  also  be  cause 
for  his  removal.512  And  where  it  is  shown  that  the  receiver  was  ap- 
pointed at  the  instance  of  the  principal  stockholder  who  has  con- 
trolled the  corporation,  and  who  procured  his  appointment  for  a  fraud- 
ulent purpose,  the  receiver  will  be  removed  and  a  new  receiver  ap- 
pointed.513 But  a  receiver  whose  management  has  been  efficient  and 
impartial  will  not  be  removed  at  the  request  of  a  controlling  stock- 


503  Crawford  v.  Ross,  39  Ga.  44; 
Walters  v.  Anglo-American,  &c.  Co. 
50  Fed.  316;  Colvin,  In  re,  3  Md. 
Ch.  278,  300;  McCullough  v.  Mer- 
chants', &c.  Co.  29  N.  J.  Eq.  217; 
Gluck  &  Becker  Rec.  of  Corp.  §  114; 
2  Beach  Mod.  Eq.  Pr.  §  749. 

608 High  Receivers  (3d  ed.),  §  824. 
See,  also,  Milwaukee,  &c.  R.  Co.  v. 
Souter,  2  Wall.  (U.  S.)  510;  Cin- 
cinnati, &c.  R.  Co.  v.  Sloan,  31  Ohio 
St.  1;  Young  v.  Rollins,  90  N.  Car. 
125. 

607  Where  the  bond  becomes  insuf- 
ficient a  receiver  may  be  required 
to  find  additional  sureties,  and, 
upon  his  failure  to  do  so,  may  be 
removed.  Schakelford  v.  Schakel- 
ford,  32  Gratt.  (Va.)  481. 

503  Crawford  v.  Ross,  39  Ga.  44; 
Monroe  v.  Schermerhorn,  1  Clarke 
Ch.  (N.  Y.)  366. 

509  Richardson    v.    Ward,    6    Mad. 
266. 

510  An    unlawful    and    unjust    dis- 
crimination   by   the   receiver   of   a 
railroad  in  favor  of  one  shipper  and 
against   rival   shippers   is   sufficient 
ground   for  his  removal.     Beers  v. 


Wabash,  &c.  R.  Co.  29  Fed.  161; 
Handy  v.  Cleveland,  &c.  R.  Co.  31 
Fed.  689.  See  Keeler  v.  Brooklyn 
El.  R.  Co.  9  Abb.  N.  Gas.  (N.  Y.) 
166.  See,  generally,  Fowler  v.  Jar- 
vis,  &c.  Co.  63  Fed.  888,  66  Fed.  14; 
Clarke  v.  Central  R.  &c.  Co.  66  Fed. 
16;  St.  George's  Estate,  In  re,  19  L. 
R.  Ir.  566. 

BU  St.  George's  Estate,  In  re,  19  L. 
R.  Ir.  566. 

512  Williamson  v.  Wilson,  1  Bland 
(Md.1  418;  Etowah,  &c.  Co.  v.  Wills, 
&c.  Co.  106  Ala.  492,  17  So.  522; 
Keeler  v.  Brooklyn  El.  R.  Co.  9  Abb. 
N.  Gas.  (N.  Y.)  166;  Beers  v.  Wa- 
bash, &c.  R.  Co.  29  Fed.  161;  Fripp 
v.  Chard  R.  Co.  22  L.  J.  Ch.  1084, 
11  Hare  241.  Where  two  receivers, 
appointed  to  represent  rival  inter- 
ests, are  unable  to  agree  as  to  the 
conduct  of  the  business,  the  court 
should  remove  them  and  appoint  a 
/single  disinterested  person  to  act  in 
their  stead.  Meier  v.  Kansas  Pac. 
R.  Co.  5  Dill.  (U.  S.)  476. 

513Phinizy  v.  Augusta,  &c.  R.  Co. 
56  Fed.  273. 


586] 


RECEIVERS. 


860 


holder  and  his  associates,  when  the  litigation  is  not  for  the  purpose 
of  foreclosing  a  mortgage,  but  is  instituted  by  a  minority  stockholder 
on  the  ground  that  the  indebtedness  of  the  corporation  was  being 
wrongfully  increased  for  the  benefit  of  the  controlling  stockholders.514 
When  the  object  for  which  the  receiver  was  appointed  has  been  at- 
tained515 or  the  litigation  in  aid  of  which  he  was  appointed  has 
terminated  by  abatement  or  otherwise,516  the  receivership  should  be 
terminated  and  the  receiver  finally  discharged.517  And  where  it  ap- 
pears that  the  appointment  of  a  receiver  for  the  property  of  a  railroad 
corporation  was  procured  by  collusion  between  the  corporation  and  a 
creditor,  for  the  purpose  of  putting  the  property  beyond  the  reach 
of  judicial  process  and  without  any  intention  of  applying  it  in  satis- 
faction of  the  petitioning  creditor's  claim,  the  court  will  discharge 
the  receiver  of  its  own  motion.518  A  court  of  equity  will  not  conduct 
the  business  of  the  corporation  through  a  receiver  unless  the  interests 
of  the  parties  unmistakably  require  it.519  It  has  been  held  that  a  re- 
ceiver continues  to  be  subject  to  the  duties  and  possessed  of  the  privi- 
leges annexed  to  his  office  until  discharged  by  a  formal  order  of  court, 
notwithstanding  the  litigation  has  ended,  or  other  conditions  have 
arisen  which  make  it  the  duty  of  the  court  to  discharge  him.520 


514  Street  v.  Maryland  Cent.  R.  Co. 
58  Fed.  47. 

515Sewell  v.  Cape  May,  &c.  R.  Co. 
(N.  J.)  30  Am.  &  Eng.  R.  Gas.  155. 
Upon  payment  of  the  plaintiff's 
claim,  and  the  receiver's  lawful 
charges,  the  court  is  bound  to  dis- 
charge the  receiver,  even  though 
some  of  the  defendants  desire  that 
he  be  retained.  Milwaukee,  &c.  R. 
Co.  v.  Soutter,  2  Wall.  (U.  S.)  510; 
Davis  v.  Duke  of  Marlborough,  2 
Swanst.  *  p.  167,  per  Lord  Eldon. 

510  National,  &c.  Assn.  v.  Mariposa 
Co.  60  Barb.  (N.  Y.)  423;  Whiteside 
v.  Prendergast,  2  Barb.  Ch.  (N.  Y.) 
472;  Milwaukee,  &c.  R.  Co.  v.  Sout- 
ter, 2  Wall.  (U.  S.)  510;  Field  v. 
Jones,  11  Ga.  413. 

517  But  the  discontinuance  or  abate- 
ment of  the  action  does  not  of  it- 
self terminate  the  receivership. 
State  v.  Gibson,  21  Ark.  140;  New- 
man v.  Mills,  I  Hog.  (Irish  Rolls) 


291;  McCosker  v.  Brady,  1  Barb.  Ch. 
(N.  Y.)  329. 

518  Sage  v.  Memphis,  &c.  R.  Co.  18 
Fed.  571;  Wood  v.  Oregon,  &c.  Co. 
55  Fed.  901;  Wilson  v.  Barney,  5 
Hun  (N.  Y.)  257.  The  receiver  will 
be  discharged  in  any  case  where  it 
is  shown  to  the  court  that  the  order 
appointing  a  receiver  was  improvi- 
dently  or  wrongfully  made.  Mc- 
Henry  v.  New  York,  &c.  R.  Co.  25 
Fed.  114;  Milwaukee,  &c.  R.  Co.  v. 
Soutter,  2  Wall.  (U.  S.)  510,  523; 
Copper  Hill,  &c.  Co.  v.  Spencer,  25 
Gal.  11,  16. 

518  Sage  .v.  Memphis,  &c.  R.  Co.  18 
Fed.  571;  Overton  v.  Memphis,  &c. 
R.  Co.  10  Fed.  866;  Ferry  v.  Bank, 
15  How.  Pr.  (N.  Y.)  445. 

""State  v.  Gibson,  21  Ark.  140. 
See,  also,  Fountain  v.  Mills,  111  Ga. 
122,  36  S.  E.  428;  Baker  v.  Baker,  36 
App.  Div.  (N.  Y.)  485,  55  N.  Y.  St. 
824. 


861 


EFFECT    OF   REMOVAL   OR    DISCHARGE. 


[§    587 


§  587.  Effect  of  removal  or  discharge. — The  removal  of  a  receiver 
does  not  necessarily  terminate  the  receivership.  Since  the  receiver  is  a 
mere  officer  of  the  court,  he  may  be  superseded  without  affecting  the 
trust  which  he  is  called  upon  to  administer.  The  removal  of  a  re- 
ceiver to  make  way  for  a  successor  appointed  by  the  court  does  not 
affect  claims  against  the  property  arising  from  the  operation  of  the 
railroad  by  the  first  receiver.  The  management  of  the  court  is  one 
even  if  it  becomes  necessary  to  change  the  receiver  more  than  once.521 
After  the  receiver  has  been  discharged  by  the  court  he  is  no  longer 
liable  to  an  action  either  for  the  debts  of  the  corporation  or  for  any 
debts  or  liabilities  incurred  during  his  receivership.522  Nor  is  the 
corporation,  as  a  general  rule,  personally  liable  for  the  latter.523  The 
corporation  may,  however,  be  held  liable  for  the  acts  and  defaults  of 
the  receiver's  servants  to  the  extent  that  earnings  of  the  road  have 
been  used  in  the  purchase  of  property  surrendered  to  the  corpora- 
tion by  the  receiver  upon  his  final  discharge.524  But  after  the  dis- 
charge of  the  receiver  and  the  restoration  of  the  property  to  the  cor- 
poration, the  jurisdiction  of  the  court  over  the  receivership  is  ended, 
and  it  has  even  been  held  that  a  provision  in  the  decree  relieving  the 
property  from  liability  for  claims  not  filed  within  a  specified  time,  in 
the  suit  in  which  the  receiver  was  appointed,  is  void.525 


B21Gibbes  v.  Greenville,  &c.  R.  Co. 
15  S.  Car.  304;  Bond  v.  State,  68 
Miss.  648,  9  So.  353. 

522  Lehman   v.   McQuown,   31   Fed. 
138;  Farmers'  Loan,  &c.  Co.  v.  Cen- 
tral R.  Co.  7  Fed.  537;   New  York, 
&c.  Tel.  Co.  v.  Jewett,  115  N.  Y.  166, 
21  N.   E.   1036;    Ryan   v.   Hays,   62 
Tex.  42 ;  Texas,  &c.  R.  Co.  v.  Adams, 
78  Tex.  372,  14  S.  W.  666,  22  Am.  St. 
56;    Bond  v.  State,  68  Miss.  648,  9 
So.    353.     A    judgment    against   an 
ancillary     receiver     after    his     dis- 
charge is  not  binding,  even  though 
the  court  did  not  know  of  his  dis-. 
charge.     Reynolds  v.   Stockton,  140  . 
U.  S.  254,  11  Sup.  Ct.  773. 

523  Godfrey  v.  Ohio,  &c.  R.  Co.  116 
Ind.  30,  18  N.  E.  61;  Davis  v.  Dun- 
can, 19  Fed.  477,  17  Am.  &  Eng.  R. 
Cas.  295;  Texas,  &c.  R.  Co.  v.  Wat- 


son (Tex.),  24  S.  W.  952.  But  it  has 
been  held  that  the  company  is  liable 
for  injuries  caused  by  the  negli- 
gence of  a  receiver  appointed 
through  collusion,  whether  the 
court  had  jurisdiction  to  appoint 
or  not.  Texas,  &c.  R.  Co.  v.  Gay, 
86  Tex.  571,  26  S.  W.  599,  25  L.  R. 
A.  52.  The  court  regarded  the  re- 
ceiver as  the  agent  of  the  company. 

624  Mobile,  &c.  R.  Co.  v.  Davis,  62 
Miss.  271;  Texas,  &c.  R.  Co.  v.  John- 
son, 76  Tex.  421,   13  S.  W.  463,  18 
Am.  St.  60.     See  Texas,  &c.  R.  Co. 
v.  Griffin,  76  Tex.  441,  13  S.  W.  471. 

625  Missouri,  &c.  R.  Co.  v.  Chilton 
(Tex.),  27  S.  W.  272;  Texas,  &c.  R. 
Co.  v.  Watts   (Tex.),  18  S.  W.  312, 
following  Texas,  &c.  R.  Co.  v.  John- 
son, 76  Tex.  421,  13  S.  W.  463,  18 
Am.  St.  60. 


CHAPTER  XXIII. 


RECEIVER  S    CERTIFICATES. 


Sec. 
588. 

589. 
590. 


591. 


592. 


Definition  and  nature  of  re- 
ceiver's certificates. 

Power  of  courts  to  authorize. 

Purposes  for  which  receiver's 
certificates  may  be  issued — 
extent  of  power. 

Order  giving  authority  to  is- 
sue. 

Lien  created  by  receiver's  cer- 
tificates. 


Sec. 
593. 

594. 
595. 
596. 
597. 


Statutory  provisions  as  to 
lien. 

Negotiability  of  receiver's  cer- 
tificates. 

Rights  of  holders  of  receiver's 
certificates. 

Who  may  question  validity  of 
receiver's  certificates. 

Payment  and  redemption  of 
certificates. 


§  588.  Definition  and  nature  of  receiver's  certificates. — A  re- 
ceiver's certificate  has  been  defined  as  "a  non-negotiable  evidence  of 
debt,  or  debenture,  issued  by  authority  of  a  court  of  chancery  as  a 
first  lien  upon  the  property  of  a  debtor  corporation  in  the  hands  of 
a  receiver/'1  It  frequently  becomes  necessary  that  a  receiver  of  a 
railroad  should  borrow  money  in  order  to  keep  the  road  in  repair 
and  operate  it  for  the  good  of  the  public,  to  prevent  the  loss  of  busi- 
ness and  good  will,  and  to  preserve  it  as  a  "going  concern"  for  the  ben- 
efit of  all  parties  interested.  Unless  good  security  can  be  given  it 
would  be  impossible  to  borrow  the  money,  and  it  is  to  the  interest,  both 
of  the  public  and  of  the  parties,  that  some  just  means  of  obtaining  the 
money  and  giving  security  should  be  devised.  This  is  accomplished 
by  the  issue  of  certificates  of  indebtedness,  negotiable  in  form,  for  the 
payment  of  which,  out  of  the  proceeds  of  the  property  in  its  hands,  the 
faith  of  the  court  is  pledged.2 


1  Beach    Receivers,    §    379.      See, 
also,  Turner  v.  Peoria,  &c.  R.  Co.  95 
111.  134,  35  Am.  R.  144;  notes  in  54 
Am.   St.   431,  .71  Am.   St.   377,   379, 
381,  83  Am.  St.  72  et  seq. 

2  Taylor    v.    Philadelphia,    &c.    R. 
Co.  14  Phila.   (Pa.)   451,  461.     "The 
certificates  are  not  debts  of  the  com- 


pany, but  of  the  receivers,  backed 
by  the  pledged  faith  of  the  court, 
that  the  property,  on  the  proceeds 
of  which  they  are  charged,  is  in 
its  possession,  subject  to  be,  and 
that  it  will  be,  disposed  of  by  it  for 
the  payment  of  them.  This  results 
from  the  fact  that  they  are  but  a 


862 


863 


POWER  OF   COURTS   TO   AUTHORIZE. 


[§'   589 


§  589.  Power  of  courts  to  authorize. — Since  the  best  and  cheap- 
est mode  of  conserving  a  railroad  is  by  operating  trains  thereon,  and 
keeping  it  in  repair  for  their  use,  and  since  this  is  the  only  way  in 
which  the  public  duties  and  obligations  of  the  railroad  can  be  dis- 
charged and  a  forfeiture  of  its  charter  prevented,  power  to  raise 
money  for  the  repair  and  operation  of  the  road  necessarily  accompa- 
nies the  power  to  assume  control  of  it  for  the  benefit  of  the  corporate 
creditors.3  This  power  is  a  part  of  the  jurisdiction,  exercised  by  a 
court  of  equity,  by  which  it  undertakes  to  protect  and  preserve  the 
trust  funds  in  its  hands.4  It  may  be  stated  as  a  general  rule,  there- 
fore, that  where  it  is  necessary  that  a  receiver  should  expend  money 


substitute  for  common  methods  by 
which,  money  is  raised  for  the  use 
of  a  receiver  in  a  particular  case, 
a  mode  of  appropriating,  in  advance, 
a  portion  of  the  value  of  the  prop- 
erty, in  order  to  enable  the  court 
to  save  a  greater  value  thereof  from 
destruction."  Meyer  v.  Johnston,  53 
Ala.  237. 

3  Meyer  v.  Johnston,  53  Ala.  237. 

4  Wallace  v.  Loomis,  97  U.  S.  146. 
In  some  states  the  issue  of  receiver's 
certificates   in   certain   cases   is   au- 
thorized by  statute.     In  announcing 
the  opinion  of  the  court  in  the  case 
of  Meyer  v.  Johnston,  53  Ala,  237, 
Judge  Manning  said:     "It  was  not 
necessary  that  the  question  of  the 
power  of  a  court  to  authorize  the 
issue  of  first  lien  certificates  of  in- 
debtedness to  enable  a  receiver  to 
raise  money  he  might  need,  should 
be   decided  before  the  introduction 
of  railroads.     But  these  properties, 
with  their  appurtenances,  vast  in  ex- 
tent and  value,  yet  very  perishable 
if  unused  and  neglected,  existing  as 
the   estates   of    private    individuals 
associated  into  corporations,  but  es- 
sentially public  works,  in  whose  op- 
erations the  public  at  large  and  the 
state   are   concerned,    when    drawn 
into  litigation,  must  be  dealt  with 
by  the  courts  according  to  the  na- 
ture and  circumstances  of  the  sub- 


ject. And  any  one  can  understand 
that  the  best  and  cheapest  mode  of 
conserving  a  railroad  may  be  by  op- 
erating, trains  thereon  and  keeping 
it  in  repair  for  their  use.  To  pre- 
serve its  value,  it  must  generally  be 
continued  in  operation,  and  be  sold 
as  a  going  concern."  The  court  also 
said  that  if  the  road  were  permitted 
to  become  a  useless  wreck,  "the  in- 
convenience and  loss  which  this 
would  inflict  on  the  population  of 
large  districts,  coupled  with  the 
benefit  to  parties  who  are  power- 
less to  take  care  of  themselves,  of 
preventing  the  rapid  diminution  of 
value,  and  derangement  and  disor- 
ganization that  would  otherwise  re- 
sult, seem  to  require — not  for  the 
completion  of  an  unfinished  work,  or 
the  improvement,  beyond  what  is 
necessary  for  its  preservation,  of  an 
existing  one — but  to  keep  it  up,  to 
conserve  it  as  a  railroad  property, 
if  the  court  has  been  obliged  to  take 
possession  of  it,  that  the  court 
should  borrow  money  for  that  pur- 
pose, if  it  can  not  otherwise  do  so 
in  sufficiently  large  sums,  by  caus- 
ing negotiable  certificates  of  indebt- 
edness to  be  issued,  constituting  a 
first  lien  on  the  proceeds  of  the 
property,  and  redeemable  when  it  is 
sold  or  disposed  of  by  the  court." 


§  590]  RECEIVER'S  CERTIFICATES.  864 

for  the  repair  of  a  railroad  in  his  hands,  in  order  to  keep  it  in 
operation,  the  court  by  which  he  was  appointed  has  power  to  authorize 
him  to  borrow  money  necessary  to  make  such  repairs,  and  to  make  the 
indebtedness  so  incurred  a  first  lien  upon  the  property  in  its  hands. 
And  it  is  equally  well  settled  that  the  court  may  authorize  the  re- 
ceiver to  issue  receiver's  certificates  as  evidence  of  such  indebtedness.5 
But,  as  will  be  further  shown  in  the  next  section,  the  power  is  one 
that  is  to  be  cautiously  and  somewhat  sparingly  exercised.6 

§  590.  Purposes  for  which  receiver's  certificates  may  be  issued — 
Extent  of  power. — Where  a  portion  of  the  road  has  been  built  in  a 
hasty  manner  with  materials  which  answer  only  a  temporary  use,7 
or  where  valuable  property  rights  will  be  lost  by  a  failure  to  complete 
unfinished  portions  of  the  road  within  a  limited  time,8  it  may  be  neces- 
sary for  the  receiver  to  borrow  money  with  which  to  build  such  parts 
of  the  road,  and  the  court  may  authorize  him  to  issue  certificates 
therefor.9  But  this  jurisdiction  must  not  be  exercised  to  the  extent 
of  improving  the  owners  and  lienholders  out  of  their  property.  The 
whole  power  of  the  court,  when  exercised  to  its  fullest  extent,  without 
the  consent  of  the  lienholders  express  or  implied,  is  usually  confined 
to  making  necessary  repairs  and  protecting  the  property  as  it  is.10 

8  Meyer  v.  Johnston,  53  Ala.  237;  Martin  v.  New  York,  &c.  R.  Co.  36 

Turner  v.  Peoria,  &c.  R.  Co.  95  111.  N.  J.  Eq.  109,  12  Am.  &  Eng.  R.  Cas. 

134,    35    Am.    R.    144;     Wallace    v.  448. 

Loomis,  97  U.  S.  146;   Miltenberger        "Jerome   v.    McCarter,    94    U.    S. 

v.  Logansport,  &c.  R.  Co.  106  U.  S.  734.     In  this  case  the  United  States 

286,  1  Sup.  Ct.  140;  Union  Trust  Co.  had  made  a  large  grant  of  land  to 

v.  Illinois  Midland  R.  Co.  117  U.  S.  a   company    engaged   in    digging   a 

434,  6  Sup.  Ct.  809.  canal,  conditioned  upon  the  comple- 

8  See  Shaw  v.  Little  Rock,  &c.  R.  tion  of  the  canal  within  a  certain 

Co.  100  U.  S.  605;  Newbold  v.  Peoria,  time.     The  receiver  was  authorized 

&c.  R.  Co.  5  111.  App.  367;   State  v.  to  borrow  the  money  necessary  for 

Edgefleld,  &c.  R.  Co.  6  Lea  (Tenn.)  its  completion  by  the   issue   of  re- 

353.  ceiver's   certificates,   and,    upon   ap- 

7  Stanton  v.  Alabama,  &c.  R.  Co.  peal,    the    supreme   court   approved 
2  Woods  (U.  S.)  506.  their  issue.     See,  also,  Kennedy  v. 

8  Kennedy  v.  St.  Paul,  &c.  R.  Co.  St.  Paul,  &c.  R.  Co.  2  Dill.   (U.  S.) 
2  Dill.   (U.  S.)   448,  5  Dill.    (U.  S.)  448;   Bank  of  Montreal  v.  Chicago, 
519.     The  receiver  cannot  bind  the  &c.   R.   Co.   48    Iowa  518;    Houston 
company  by  an  oral  contract  to  give  First  Nat.  Bank  v.  Ewing,  103  Fed. 
a   landowner   an   annual   pass   dur-  168. 

ing  life  in  consideration  of  a  grant        "Jones    Corporation    Bonds    and 
of  necessary  land  for  a  right  of  way.     Mortgages,    §    543,    citing    Snow    v. 


865  PURPOSES  FOR  WHICH  THESE  CERTIFICATES  MAY  BE  ISSUED.    [§    590 


The  propriety  of  every  expenditure  is  to  be  judged  by  the  necessity 
of  making  it  in  order  to  preserve  the  value  of  the  trust  estate.11 
This  power  extends,  as  a  general  rule,  only  to  such  expenditures  as  are 
necessary  for  the  protection  of  the  property.12  And  the  court  will  not, 
ordinarily,  authorize  expenditures  for  the  completion  of  a  road  unless 
it  is  morally  certain  that  the  property  in  consequence  will  sell  for  a 
higher  price.13  A  receiver  should  not  be  permitted  to  expend  money 


Winslow,  54  Iowa  200;  Taylor  v. 
Philadelphia,  &c.  R.  Co.  9  Fed.  1; 
Credit  Co.  v.  Arkansas  Cent.  R.  Co. 
5  McCrary  (U.  S.)  23;  Metropolitan 
Trust  Co.  v.  Tonawanda  Valley,  &c. 
R.  Co.  103  N.  Y.  245,  8  N.  E.  488, 
per  Danforth,  J.  • 

"Shaw  v.  Railroad  Co.  100  U.  S. 
605.  "Aside  from  any  consideration 
of  the  mortgagor  and  others  having 
the  right  to  redeem,  against  whom 
a  court  of  equity  has  power  analo- 
gous to  that  of  a  mortgagee  in  pos- 
session to  incur  charges  for  the 
preservation  and  repair  of  the  prop- 
erty it  has  taken  possession  of 
through  its  receiver,  a  court  of 
equity  has  no  power  to  impair  the 
obligation  of  a  mortgage  contract, 
by  creating  a  superior  lien  without 
the  mortgagee's  consent,  unless  it 
be  in  the  exercise  of  a  like  equitable 
power  of  preserving  and  protecting 
the  property.  The  law  does  not  per- 
mit the  obligation  of  contracts  to 
be  impaired.  The  constitution  of 
the  United  States  inhibits  even  a 
state  from  doing  an  act  which  shall 
have  that  effect.  And,  certainly,  a 
court,  which  is  a  portion  of  the  gov- 
ernment of  the  state,  cannot  have  a 
power  which  is  denied  to  the  state 
in  convention  assembled.  If,  there- 
fore, the  action  of  a  chancellor  in 
this  cause  goes  to  the  extent  of  tak- 
ing the  property  of  the  defendant 
corporation  into  its  hands  for  the 
purpose,  through  his  appointees,  of 
completing  an  unfinished  work,  or 
ELL.  RAILROADS — 55 


of  enlarging  or  improving  a  finished 
one,  beyond  what  is  necessary  for 
its  preservation,  and  to  that  end 
raising  money,  by  charging  the  rail- 
road and  its  appurtenances  witn 
liens  which  are  to  supersede  older 
ones,  without  the  consent  of  the 
holders  of  these,  he  has  inadvertent- 
ly passed  beyond  the  boundaries  of 
a  chancellor's  jurisdiction.  In  our 
opinion  no  such  power  is  vested  or 
resides  in  any  judicial  tribunal." 
Jones  Corporate  Bonds  and  Mort- 
gages, §  551,  quoting  from  the  opin- 
ion of  Manning,  J.,  in  Meyer  v. 
Johnston,  53  Ala.  237,  345. 

12  Jones     Corporate      Bonds     and 
Mortgages,  §  559,  citing  Hand  v.  Sa- 
vannah, &c.  R.  Co.  17   S.  Car.  219, 
270,     per     McGowan;     Metropolitan 
Trust  Co.  v.  Tonawanda  Valley,  &c. 
R.  Co.  103  N.  Y.  245,  249,  8  N.  E. 
488,   per   Danforth,   J.     The  certifi- 
cates of  a  receiver  of  an  insolvent 
railroad  company,  issued  under  an 
order  of  court  to  obtain  money  to 
operate    the    road,    are    paramount 
liens.    Central  Trust  Co.  v.  Tappan, 
53  Hun   (N.  Y.)  638,  6  N.  Y.  S.  918. 
But  see  as  to  mechanic's  lien,  Stew- 
art, &c.  Co.  v.  Missouri  Pac.  R.  Co. 
28  Neb.  39,  44  N.  W.  47. 

13  Jones     Corporate     Bonds     and 
Mortgages,  §  545,  citing  Investment 
Co.  v.  Ohio,  &c.  R.  Co.  36  Fed.  48. 
In  this  case  the  circumstances  were 
as   follows:     The  petition   of  a   re- 
ceiver of  an  insolvent  railroad  for 
authority  to  borrow  a  large  sum  of 


590] 


RECEIVER'S  CERTIFICATES. 


866 


or  incur  obligations  to  secure  mere  speculative  advantages.  A  greater 
latitude  is  permitted  to  receivers  of  railroads  than  to  receivers  of  other 
corporations  in  the  matter  of  incurring  debts  for  management  and 
operation,  because  of  the  public  rights  which  are  involved  and  of  the 
consequences  of  a  failure  on  the  part  of  the  railroad  to  discharge 
its  public  duties.14  Accordingly  the  courts  have  authorized  the  issue 
of  certificates  to  construct  the  unfinished  portions  of  an  incomplete 
railroad,  and  to  purchase  the  necessary  rolling  stock,  machinery  and 
supplies  for  its  operation,15  and  even  to  pay  debts  of  the  company  for 


money  and  issue  his  certificates 
therefor,  showed  that  part  of  the 
amount  was  to  be  used  in  complet- 
ing a  portion  of  the  road  and  widen- 
ing its  gauge;  $35,000  for  purchas- 
ing and  laying  track  over  another 
portion  already  graded  and  bridged 
at  an  expense  of  $49,000;  $47,243.18 
to  pay  claims  for  material  fur- 
nished, which  were  not  a  lien  on 
the  road;  $20,000  to  reimburse  bond- 
holders for  advances  to  meet  ar- 
rearages of  wages  and  avert  a 
strike;  $100,000  to  purchase  leased 
rolling  stock  for  which  the  com- 
pany paid  an  annual  rental  of 
$28,000,  the  lessors  cancelling  a 
claim  for  $7,000  unpaid  rent,  if  the 
purchase  was  made;  $4,000  to  re- 
lay a  line  of  track  on  a  connecting 
road,  and  thus  cancel  a  debt  of 
$8,000  due  that  road,  and  secure 
enough  additional  business  to  pay 
the  cost  in  three  months,  and 
$29,430  to  make  final  payment  on 
valuable  real  estate.  A  majority  of 
the  holders  of  both  the  first  and 
second  mortgage  bonds  consented  to 
the  certificates  being  issued;  the  re- 
maining holders  of  first  and  second 
mortgage  bonds  not  consenting,  and 
a  number  of  them,  together  with 
other  lienholders,  objecting.  The 
court  held  that,  as  it  was  doubtful 
whether  the  improvements  would 
add  to  the  selling  price  of  the  road, 
the  petition  should  be  denied  abso- 


lutely as  to  the  items  of  $35,000 
and  $20,000,  and  as  to  the  item  of 
$47,243.18,  unless  all  lienholders  con- 
sented; but  that  certificates  should 
be  issued  for  the  other  items,  if  de- 
sired by  the  consenting  bondholders, 
with  leave  thereafter  to  petition  to 
have  them  made  a  charge  on  the 
non-consenting  bondholders.  Invest- 
ment Co.  v.  Ohio,  &c.  R.  Co.  36 
Fed.  48.  See,  also,  Hand  v.  Sa- 
vannah, &c.  R.  Co.  10  S.  Car.  406; 
Street  v.  Maryland  Cent.  R.  Co.  59 
Fed.  25;  Rochester,  &c.  Co.  v.  Roch- 
ester, &c.  R.  Co.  29  Misc.  (N.  Y.) 
222,  60  N.  Y.  S.  409;  Rutherford  v. 
Pennsylvania  R.  Co.  178  Pa.  St.  38, 
35  All.  926. 

14  Jones  Corporate  Bonds  and 
Mortgages,  §  555.  See,  also,  Farm- 
ers' Loan,  &c.  Co.  v.  Grape  Creek, 
'&c.  Co.  50  Fed.  481,  16  L.  R.  A.  603, 
and  note;  Wood  v.  Guarantee  Trust 
Co.  128  U.  S.  416,  9  Sup.  Ct.  131; 
Morgan's  &c.  Co.  v.  Texas,  &c.  R. 
Co.  137  U.  S.  171,  11  Sup.  Ct.  61; 
Fidelity,  &c.  Co.  v.  Roanoke,  &c.  Co. 
68  Fed.  623;  Snively  v.  Loomis  Coal 
Co.  11  Nat.  Corp.  Rep.  207. 

"Wallace  v.  Loomis,  97  U.  S.  146; 
Smith  v.  McCullough,  104  U.  S.  25; 
Miltenberger  v.  Logansport  R.  Co. 
106  U.  S.  286;  Swann  v.  Clark,  110 
U.  S.  602,  4  Sup.  Ct.  241;  Bank  of 
Montreal  v.  Thayer,  7  Fed.  622; 
Meyer  v.  Johnston,  53  Ala.  237; 
Bank  of  Montreal  v.  Chicago,  &c.  R. 


867  PURPOSES  FOE  WHICH  THESE  CERTIFICATES  MAY  BE  ISSUED.  [§    590 


taxes,  labor,  and  materials  due  prior  to  the  appointment  of  the  re- 
ceiver.16 But  it  was  held  in  a  comparatively  recent  case  that  where  a 
receiver  is  appointed  at  the  suit  of  a  stockholder  and  not  upon  the 
application  of  a  bondholder,  and  no  earnings  have  been  diverted  to 
pay  interest  on  the  bonds,  there  is  no  lien  or  equity  requiring  the 
issuance  of  receiver's  certificates  for  money  to  pay  labor  or  material 
claims,  existing  before  the  appointment  of  the  receiver,  out  of  the 
corpus  of  the  property.17  The  power  to  issue  receiver's  certificates, 
however,  is  one  which  should  be  sparingly  exercised.18  It  is  liable  to 
great  abuse ;  and  while  it  is  usually  resorted  to  under  the  pretext  that 
it  will  enhance  the  security  of  the  bondholders,  it  not  infrequently  re- 
sults in  taking  from  them  the  security  they  already  have,  and  appro- 
priating it  to  pay  debts  contracted  by  the  court.19 


Co.  48  Iowa  518;  Turner  v.  Peoria, 
&c.  R.  Co.  95  111.  134,  35  Am.  R.  144; 
Gibert  v.  Washington  City,  &c.  R. 
Co.  33  Gratt.  (Va.)  586;  Mercantile 
Trust  Co.  v.  Kanawha,  &c.  R.  Co. 
50  Fed.  874. 

16  Union  Trust  Co.  v.  Illinois  Mid- 
land R.  Co.  117  U.  S.  434,  6  Sup.  Ct. 
809;  Taylor  v.  Philadelphia,  &c.  R. 
Co.  7  Fed.  377 ;  Langdon  v.  Vermont, 
&c.  R.  Co.  53  Vt.  228;  Humphreys 
v.  Allen,  101  111.  490.  See,  also,  Mer- 
cantile Trust  Co.  v.  Baltimore,  &c. 
R.  Co.  82  Fed.  360;  McKittrick  v. 
Arkansas  Cent.  R.  Co.  152  U.  S.  573, 
14  Sup.  Ct.  661. 

"Street  v.  Maryland,  &c.  R.  Co. 
59  Fed.  25.  See,  also,  Cutting  v. 
Tavares,  &c.  R.  Co.  61  Fed.  150; 
Farmers'  Loan,  &c.  Co.  v.  Northern 
Pac.  R.  Co.  68  Fed.  36.  But  com- 
pare Farmers'  Loan,  &c.  Co.  v.  Kan- 
sas City,  &c.  R.  Co.  53  Fed.  182,  and 
note.  See,  generally,  §  528,  ante. 

"Credit  Co.  v.  Arkansas  Cent.  R. 
Co.  5  McCrary  (U.  S.)  23,  15  Fed. 
46;  Investment  Co.  v.  Ohio,  &c.  R. 
Co.  36  Fed.  48;  Kneeland  v.  Amer- 
ican, &c.  Co.  136  U.  S.  89,  10  Sup. 
Ct.  950. 

19  Caldwell,  J.,  in  Credit  Co.  v.  Ar- 
kansas Cent.  R.  Co.  5  McCrary  (U. 


S.)  23,  15  Fed.  46.  He  adds:  "The 
history  of  Wallace  v.  Loomis,  97  U. 
S.  146,  162,  2  Woods  506,  under  the 
title  of  Stanton  v.  Alabama,  &c.  R. 
Co.,  furnishes  an  instructive  lesson 
on  this  subject."  Mr.  Beach,  in  his 
work  on  receivers,  §  379,  says :  "With- 
in the  past  twelve  or  fifteen  years 
these  certificates,  to  the  amount  of 
many  millions  of  dollars,  have  been 
issued,  and  the  courts  are  constant- 
ly authorizing  the  further  issue  of 
them,  ostensibly  for  the  preserva- 
tion of  the  property  and  in  the  in- 
terest of  the  bondholders,  but,  it  is 
believed,  in  a  majority  of  cases  in 
which  they  are  issued,  to  the  hin- 
drance and  delay  of  a  prompt  fore- 
closure, to  the  impairment  of  the 
bondholder's  security  and  to  the 
scandal  of  the  courts  of  equity." 
Mr.  Jones,  in  his  work  on  Corporate 
Bonds  and  Mortgages,  §  541,  says: 
"Complaint  as  to  the  management 
of  railroad  receivers  has  generally 
come,  not  from  the  stockholders,  be- 
cause it  is  seldom  they  care  to  re- 
deem, but  from  mortgage  bondhold- 
ers; and  as  often,  perhaps,  from 
those  at  whose  solicitation  the  re- 
ceiver was  appointed  as  from  others 
who  may  hold  under  junior  mort- 


591] 


RECEIVER'S  CERTIFICATES. 


868 


§  591.  Order  giving  authority  to  issue. — Certificates  can  only  be 
issued  in  strict  conformity  to  the  order  of  court  authorizing  them,20 
and  may  be  issued  only  for  the  purposes  mentioned  in  such  order,21 
and  upon  a  valid  consideration.22  Notice  should  usually  be  required 


gages,  and  who,  therefore,  have  a 
right  to  redeem.  The  history  of 
such  management  in  this  country 
shows  that  the  bondholders  chiefly 
interested  have  sometimes  found 
themselves  improved  out  of  their 
interest  in  the  property."  And,  in 
a  note  which  he  appends,  he  adds: 
"Judge  Baxter  is  reported  to  have 
expressed  himself  strongly,  in  a  re- 
cent case  before  the  Circuit  Court 
of  the  United  States,  against  the 
practice  of  placing  railroads  in  the 
hands  of  receivers.  He  cited  the 
case  of  a  railroad  in  Georgia  which 
cost  $15,000,000.  The  receiver,  who 
was  in  charge  for  three  years,  is- 
sued certificates  to  the  value  of 
$1,500,000,  and  when  the  road  was 
sold  the  proceeds  were  not  sufficient 
to  pay  the  certificates.  In  another 
case,  in  Detroit,  a  road  cost  over 
$8,000,000.  When  the  road  came  to 
be  sold  eminent  counsel  requested 
the  judge  to  fix  the  minimum  price 
for  the  sale,  suggesting  that  such 
price  should  be  a  sum  sufficient  to 
cover  the  charges  of  the  receiver 
and  his  counsel.  11  Chicago  Legal 
News  8." 

20  State  v.  Edgefield,  &c.  R.  Co.  6 
Lea  (Tenn.)  353;  Newbold  v.  Peoria, 
&c.  R.  Co.  5  111.  App.  367. 

21  Newbold  v.  Peoria,  &c.  R.  Co.  5 
111.  App.    367;    Fidelity   Ins.   Co.   v. 
Shenandoah,  &c.  Co.  42  Fed.  372. 

22  Certificates   issued  without  con- 
sideration are  held  absolutely  void. 
Union  Trust  Co.  v.  Chicago,  &c.  R. 
Co.   7   Fed.    513;    Turner  v.  Peoria, 
&c.  R.  Co.  95  111.  134.     In  Bank  of 
Montreal  v.  Chicago,  &c.  R.  Co.  48 
Iowa  518,  the  court  says:    "The  re- 


ceiver, being  an  officer  of  the  court, 
has  no  implied  powers  other  than 
those  derived  from  the  order  of  the 
court.  Such  being  true,  we  think 
it  clear  he  .ould  not  issue  certifi- 
cates which  would  constitute  a  first 
lien  on  the  road  except  for  money 
borrowed,  material  furnished,  or  la- 
bor performed.  When  the  material 
was  furnished  or  labor  performed, 
he  was  authorized  to  issue  the  cer- 
tificates therefor,  and  not  until  then. 
And  if  he  made  a  contract  for  the 
construction  of  the  road,  he  might 
issue  certificates  as  the  material  was 
furnished  or  the  labor  performed, 
and  on  the  completion  of  the  road 
he  could  issue  his  certificates  in  final 
payment.  But  the  power  is  not  con- 
ferred to  issue  certificates  in  pay- 
ment for  material  not  furnished  or 
labor  not  performed.  On  the  con- 
trary, we  are  of  the  opinion,  it  fair- 
ly appears  he  was  prohibited  from 
so  doing.  If  the  necessity  existed 
for  enlarged  powers,  they  should 
have  been  applied  for.  *  *  *  As 
the  certificates  on  their  face  state 
they  were  'issued  under  and  by  vir- 
tue of  certain  provisions  of  an  or- 
der duly  entered  by  the  district 
court  of  Clinton  county,  Iowa,  on 
July  27,  1876,'  the  plaintiff  is  charge- 
able with  notice  of  all  such  order 
contains.  Whether  under  the  order 
the  receiver  had  the  power  to  is- 
sue negotiable  securities,  or  for 
property  agreed  to  be  delivered  at 
a  future  day,  were  legal  questions 
which  the  plaintiff  was  bound  to  de- 
termine at  his  peril.  The  receiver's 
authority  was  bounded  and  limited 
by  the  order.  He  had  no  general 


869  ORDER  GIVING   AUTHORITY   TO   ISSUE.  [§    591 

to  be  given  to  the  parties  in  interest  before  an  order  should  be  made 
authorizing  the  receiver  to  issue  certificates.23  But  a  full  opportunity 
to  be  heard  as  to  the  propriety  of  the  expenditures  and  the  right  to 
make  them  a  first  lien  has  been  held  equivalent  to  prior  notice,24  and, 
as  a  matter  of  fact,  such  orders  are  frequently  made  without  prior 
notice.  When  it  is  desirable  to  incur  expenses  in  building  or  repair- 
ing the  railroad,  beyond  what  is  essential  for  its  preservation,  the 
consent,  express  or  implied,  of  those  whose  rights  of  property  will  be 
affected,  should  be  had.25  It  has  been  held  that  when  a  receiver  con- 
tracts debts  under  a  consent  order,  such  debts  are  not  binding  upon 
bondholders  who  refused  their  consent,  but  they  may  insist  upon  the 
enforcement  against  the  property  of  such  liens  as  they  held  prior  to 
the  granting  of  the  order.26  Cases  in  which  the  right  of  the  court  to 
authorize  the  issue  of  certificates  constituting  a  lien  upon  the  property 
superior  to  that  of  mortgage  bondholders  has  been  called  in  question, 
have  not  often  arisen,  since  the  consent,  express  or  implied,  of  those 
interested  in  the  fund  has  usually  been  obtained.27  Prior  lien- 
holders  who  have  not  consented  and  who  were  not  parties  to  the  suit 
in  which  the  issue  of  receiver's  certificates  was  authorized  are  entitled 
to  come  into  court  to  dispute  the  necessity  of  the  expenditures  which 
the  certificates  were  issued  to  meet,  and  to  assert  the  superiority  of 
their  liens.28  Joining  with  the  receiver  in  a  petition  for  authority  to 

powers,  except  such  as  could  be  de-  proper  case,  authorize  the  issue  of 
rived  therefrom.  It  is  true  he  had  certificates  constituting  a  lien  upon 
power  to  issue  certificates,  but  this  the  interest  of  such  of  the  bond- 
was  not  unlimited.  It  was  only  in  holders  as  have  asked  for  them, 
certain  cases  he  could  do  so.  And  leaving  the  interests  of  the  non- 
being  an  officer  of  the  court  and  consenting  bondholders  unaffected 
vested  with  the  care  of  property  in  by  the  order.  Investment  Co.  v. 
his  charge  as  such  officer,  we  think  Ohio,  &c.  R.  Co.  36  Fed.  48. 
the  plaintiff  was  bound  to  know  *  Jones  Corporate  Bonds  and 
whether  these  certificates  were  is-  Mortgages,  §  551,  citing  Central 
sued  in  accordance  with  the  terms  Trust  Co.  v.  Seasongood,  130  U.  S. 
and  contingencies  contemplated  by  482,  9  Sup.  Ct.  575;  Kennedy  v.  St. 
the  order."  Paul,  &c.  R.  Co.  2  Dill.  (U.  S.)  448, 
28  Mitchell,  Ex  parte,  12  S.  Car.  83.  5  Dill.  (U.  S.)  519;  Stanton  v.  Ala- 
24 Union  Trust  Co.  v.  Illinois,  &c.  bama,  &c.  R.  Co.  2  Woods  (U.  S.) 
R.  Co.  117  U.  S.  434,  6  Sup.  Ct.  809,  506;  Hoover  v.  Montclair,  &c.  R.  Co. 
25  Am.  &  Eng.  R.  Gas.  560.  29  N.  J.  Eq.  4;  Vermont,  &c.  R.  Co. 

25  Jones     Corporate     Bonds     and  v.   Vermont  Central   R.   Co.   50   Vt. 
Mortgages,  §  559.  500. 

26  Hand  v.  Savannah,  &c.  R.  Co.  17  K  While  the  court,  under  some  cir- 
S.  Car.  219.     The  court  may,  in  a  cumstances,  and  for  some  purposes, 


592] 


RECEIVER'S  CERTIFICATES. 


870 


borrow  money  on  the  credit  of  the  property,  or  acquiescing  without  op- 
position in  an  order  conferring  such  authority,  is  sufficient  consent  to 
bind  a  party  to  the  suit  in  which  the  order  was  made.29 

§592.  Lien  created  by  receiver's  certificates. — Keceiver's  certifi- 
cates are  usually  made  a  first  lien  upon  the  income  and  entire  property 
in  the  hands  of  the  receiver.  The  nature  or  extent  of  the  lien,  in  the 
absence  of  any  statute  upon  the  subject,  depends  upon  the  terms  of 
the  order  of  the  court  authorizing  the  certificates  to  be  issued.  It  is 
not  to  be  understood  by  this,  however,  that  the  lien  will  hold  good  if 


and  in  advance  of  the  prior  lien- 
holders  being  made  parties,  may 
have  jurisdiction  to  charge  the 
property  with  the  amount  of  receiv- 
er's certificates  issued  by  its  author- 
ity, it  cannot,  it  is  said,  without 
giving  such  parties  their  day  in 
court,  deprive  them  of  their  priority 
of  lien.  When  such  prior  lienhold- 
ers  are  brought  before  the  court 
they  become  entitled,  upon  the 
plainest  principles  of  justice  and 
equity,  to  contest  the  necessity,  va- 
lidity, effect  and  amount  of  all  such 
certificates,  as  fully  as  if  such 
questions  were  then  for  the  first 
time  presented  for  determination. 
If  it  appears  that  they  ought  not  to 
have  been  made  a  charge  upon  the 
property  superior  to  the  lien  cre- 
ated by  the  mortgages,  then  the 
contract  rights  of  the  prior  lien- 
holders  must  be  protected.  On  the 
other  hand,  if  it  appears  that  the 
court  did  what  ought  to  have  been 
done,  even  had  the  trustees  and  the 
bondholders  been  before  it  at  the 
time  the  certificates  were  author- 
ized to  be  issued,  the  property 
should  not  be  relieved  from  the 
charge  made  upon  it  for  its  protec- 
tion and  preservation.  Hervey  v. 
Illinois  Midland  R.  Co.  28  Fed.  169, 
176,  affirmed  in  Union  Trust  Co.  v. 
Illinois,  &c.  R.  Co.  117  U.  S.  434,  6 
Sup.  Ct.  809.  An  appeal  lies  from 


an  order  authorizing  receiver's  cer- 
tificates. Farmers'  Loan,  &c.  Co.  v. 
Petitioner,  129  U.  S.  206,  9  Sup.  Ct. 
265.  "The  lien  of  receiver's  certi- 
ficates continues  as  long  as  the  or- 
der authorizing  their  issuance  re- 
mains in  force,  though  such  order 
was  made  without  notice  to  parties 
interested;  and  the  fact  that  a  ref- 
erence is  had  to  determine  all 
claims  against  the  receiver,  and  a 
report  is  confirmed  which  makes  no 
allusion  to  the  certificates,  is  not  an 
adjudication  against  them,  when  it 
appears  that  they  were  not  present- 
ed or  considered,  and  that  their 
holder  had  no  notice  of  the  refer- 
ence." Mercantile  Trust  Co.  v.  Ka- 
nawha,  &c.  R.  Co.  50  Fed.  874. 

29  Jones  Corporate  Bonds  and 
Mortgages,  §  552,  citing  Humphreys 
v.  Allen,  101  111.  490;  Metropolitan 
Trust  Co.  v.  Tonawanda  Valley,  &c. 
R.  Co.  103  N.  Y.  245,  8  N.  E.  488, 
reversing  40  Hun  (N.  Y.)  80.  See, 
also,  Central  Trust  Co.  v.  Marietta, 
&c.  R.  Co.  75  Fed,  193,  209.  Re- 
ceiver's certificates  issued  under  an 
order  made  after  a  decree  of  fore- 
closure and  sale  of  property,  con- 
taining a  provision  authorized  by 
the  order  making  them  a  lien  on  the 
property,  will  constitute  a  first  lien 
thereon,  if  the  order  is  not  appealed 
from.  Farmers'  Loan,  &c.  Co.,  In  re, 
129  U.  S.  206,  9  Sup.  Ct.  265. 


871 


LIEN    CREATED   BY   RECEIVER'S    CERTIFICATES.          [§'   592 


the  order  is  improperly  made  and  unauthorized,  nor  that  the  lien 
can  be  made  superior  to  that  of  the  state  for  taxes  or  the  like.  But 
certificates  issued  to  raise  money  for  the  repair  and  preservation  of  the 
road  may  be  made  a  superior  lien  upon  the  property  in  the  hands 
of  the  court  to  that  of  the  first  mortgage,  although  issued  at  the  suit 
of  junior  mortgagees  and  without  the  consent  of  the  holders  of  a  senior 
mortgage.30  Parties  who  have  acquiesced  with  knowledge  that  the 
receivers  have  obtained  loans  upon  the  credit  of  the  property  are  es- 
topped to  deny  that  such  loans  constitute  a  prior  and  first  lien  upon 
such- property.31  The  court  may  order  the  property  in  its  hands  to  be 
sold  subject  to  the  lien  of  the  certificates  which  have  been  issued  by 
its  receiver,32  or  the  lien  may  be  transferred  to  the  proceeds  of  the 
sale.33  If  the  property  is  sold  subject  to  the  lien  of  the  certificates,  it 
seems  that  such  lien  may  be  enforced  by  the  holder  in  an  independent 
suit.34  It  has  also  been  held  that  one  class  of  receiver's  certificates 
may  have  priority  over  another  according  to  their  terms,35  and  that 
where  the  mortgage  has  been  foreclosed  and  the  time  for  redemption 
has  expired,  receiver's  certificates  issued  thereafter  on  a  creditors'  bill 
filed  by  stockholders  could  not  be  given  a  preference  over  the  mort- 
gage where  the  corporation  was  a  mining  company  and  the  court  had 
power  merely  to  wind  up  the  corporation.36 


30  Meyer  v.  Johnston,  53  Ala.  237, 
348;  Union  Trust  Co.  v.  Illinois,  &c. 
R.  Co.  117  U.  S.  434,  6  Sup.  Ct.  809; 
Wallace   v.    Loomis,    97    U.    S.    146. 
See,  also,  Central  Trust  Co.  v.  Ma- 
rietta, &c.  B.  Co.  75  Fed.  193.     It 
has  even  happened  that  the  entire 
estate    has    been    consumed    in    the 
payment  of  debts  and  receiver's  cer- 
tificates.     See    Royal   Trust   Co.   v. 
Washburn,  &c.  R.  120  Fed.  11;  Kent 
v.  Lake  Superior,  &c.  Co.  144  U.  S. 
75,  12  Sup.  Ct  650. 

31  Jones   Corp.   Bonds   and   Mortg. 
§  553. 

*2  Mercantile  Trust  Co.  v.  Kana- 
wha,  &c.  R.  Co.  50  Fed.  874. 

33  Mercantile  Trust  Co.  v.  Kana- 
wha,  &c.  R.  Co.  58  Fed.  6,  60  Am.  & 
Eng.  R.  Cas.  513.  See,  also,  Illinois 
Trust,  &c.  Bank  v.  Pacific  R.  Co.  115 
Cal.  285,  47  Pac.  60. 


"Swann  v.  Clark,  110  U.  S.  602, 
4  Sup.  Ct.  241;  Mercantile  Trust  Co. 
v.  Kanawha,  &c.  R.  Co.  58  Fed.  6, 
60  Am.  &  Eng.  R.  Cas.  513,  526.  But 
see  Turner  v.  Peoria,  &c.  R.  Co.  95 
111.  134,  35  Am.  R.  144. 

35  Bibber- White  Co.  v.  White  River, 
&c.  R.  Co.  115  Fed.  786;  Bank  of 
Commerce  v.  Central,  &c.  Co.  115 
Fed.  878. 

36Standley  v.  Henrie,  &c.  Co.  27 
Colo.  331,  61  Pac.  600.  So  it  has 
been  held  that  certificates  issued  by 
a  state  court  to  a  judgment  creditor 
in  a  suit  in  which  the  mortgagee 
was  not  made  a  party  will  not  bind 
a.  federal  court  on  decree  for  fore- 
closure. Metropolitan  Trust  Co.  v. 
Lake  Cities,  &c.  R.  Co.  101  Fed.  897. 
See,  also,  Pool  v.  Farmers'  &c.  Co. 
7  Tex.  Civ.  App.  334,  27  S.  W.  744. 


§  593]  DECEIVER'S  CERTIFICATES.  872 

§  593.  Statutory  provisions  as  to  lien. — In  some  of  the  states  statu- 
tory provisions  are  found  which  authorize  receivers  to  borrow  money 
and  create  liens  upon  the  mortgaged  property  in  certain  cases.37  Such 
statutes,  in  the  main,  simply  declare  the  rule  followed  by  chancery 
courts,  and  especially  by.  the  federal  courts,  which  we  have  already 
stated.  Sometimes,  however,  they  extend  that  rule  to  private  business 
corporations  and  authorize  liens  to  be  created  for  money  borrowed  for 
some  purposes  other  than  those  generally  authorized  by  the  courts  in 
the  absence  of  such  a  statute.  It  may  be  that  the  legislature  has  no 
power  to  impair  the  obligation  of  existing  contracts  in  this  way,  but, 
as  the  public  statutory  law  enters  into  every  contract,  such  legislation 
is  doubtless  constitutional  as  to  future  contracts.  The  authority  of 
the  court  to  create  superior  liens  by  receiver's  certificates  may,  doubt- 
less, be  limited  as  well  as  extended  by  such  statutes,  but  whether  this 
is  the  effect  in  any  particular  instance  must  depend  largely  upon  the 
particular  statute  in  question.  It  may  also  be  a  matter  of  doubt  as 
to  how  far,  if  at  all,  such  statutes  can  bind  the  federal  courts. 

§  594.  Negotiability  of  receiver's  certificates. — It  is  sometimes 
said  that  receiver's  certificates  are  negotiable,  and  it  is  true  that  they 
are  usually  negotiable  in  form,  that  is,  they  are  made  payable  to  order 
or  bearer,  and  may  be  transferred  .from  hand  to  hand  by  assignment 
or  delivery.  But  they  are  not  negotiable,  in  the  strict  sense  of  that 
term,  like  bills  of  exchange  or  promissory  notes.  In  other  words,  re- 
ceiver's certificates  are  not  commercial  paper,  whatever  the  form  that 
may  be  given  to  them,  and  a  second  or  subsequent  holder  can  assert 
no  greater  rights  than  were  acquired  by  the  first  taker.38  An  assignee, 

37  See    19    Am.    &   Eng.    Ency.    of  judged  cases.     All  agree  in  holding 
Law,  752;  Beach  Receivers,  §  395.  that  such  certificates  are  not  promis- 

38  Union  Trust  Co.  v.  Chicago,  &c.  sory  notes  or  bills  of  exchange.   Mc- 
R.    Co.    7    Fed.    513;    Central    Nat.  Curdy  v.  Bowes,  88  Ind.  583,  citing 
Bank  v.  Hazard,  30  Fed.  484;   Stan-  above   cases,   and    Baird   v.   Under- 
ton  v.  Alabama,  &c.  R.  Co.  31  Fed.  wood,  74  111.  176;  Newbold  v.  Peoria, 
585;  Turner  v.  Peoria,  &c.  R.  Co.  95  &c.    R.   Co.   5   Brad  well    (111.)    367; 
I'll.  134,  35  Am.  R.  144;   Tiedeman  Dawkes  v.  Lord  De  Lorane,  3  Wils. 
Commerc.  Paper,  §  498.    A  receiver's  207;  Mechanics'  Bank  v.  New  York, 
certificate  has  none  of  the  elements  &c.  R.  Co.  13  N.  Y.  599,  623.    "A  re- 
of  a  negotiable  instrument;  it  is  the  ceiver's   certificates,    which   are   or- 
mere  acknowledgment  that  a   debt  dered  to  be  paid  out  of  the  income 
is  due  the  payee,  payable  out  of  a  of  the  road  from  time  to  time,  are 
specific  fund.     There  is  entire  bar-  in  the  nature  of  a  call  loan,  and  the 
mony   upon   this   point   in   the  ad-  holder  has  a  right  to  presume  that 


873  RIGHTS   OF   HOLDERS   OF  RECEIVER'S   CERTIFICATES.       [§    595 

therefore,  can  only  recover  to  the  extent  that  the  original  payee  or 
holder  could  have  recovered.39  The  transfer  of  such  a  certificate  by 
written  indorsement  does  not  render  the  transferer  liable  as  an  in- 
dorser  of  commercial  paper,  or  as  a  guarantor,  nor  does  such  an  in- 
dorsement imply  a  warranty  that  the  certificate  is  collectible  and  will 
be  paid.40 

§  595.  Rights  of  holders  of  receiver's  certificates. — Beceiver's  cer- 
tificates are  usually  drawn  upon  an  uncertain  fund  and  do  not  create 
against  any  one  an  absolute  and  unconditional  liability.41  As  a  gen- 
eral rule,  the  fund  alone  is  liable  for  their  payment,  and  their  va- 
lidity depends  upon  the  order  of  court,  and  such  order  can  be  sustained 
only  when  the  certificates  are  issued  for  certain  limited  purposes  and 
may  sometimes  be  modified,  in  effect  at  least,  by  further  action  ad- 
justing the  rights  of  parties  who  have  not  had  their  day  in  court.  It 
may  readily  be  seen,  therefore,  that  the  rights  of  the  holders  of  such 
certificates  are  somewhat  precarious,  and  that  even  a  bona  fide  pur- 
chaser from  the  original  holder  occupies  a  very  different  position  from 
the  bona  fide  holder  of  commercial  paper  under  the  law  merchant. 
Holders  of  such  certificates  must  take  notice  of  the  terms  of  the  order 
under  which  they  were  issued  and  are  bound  to  know  whether  they 
were  issued  in  accordance  with  such  terms  and  for  an  authorized  pur- 
pose.42 Certificates  issued  in  excess  of  the  receiver's  authority  are 
void  even  in  the  hands  of  a  bona  fide  holder  for  value,43  and,  where 
the  certificates  were  disposed  of  by  the  receivers  at  much  less  than 
their  face  value,  the  holders  have  been  permitted  to  claim  only  the  sum 
actually  advanced  with  interest  upon  surrendering  the  certificates.44 

the  receiver  will  notify  him  when  43Newbold  v.  Peoria,  &c.  R.  Co.  5 

the  loan  is  to  be  called  or  the  money  111.  App.  367.    But  the  fact  that  the 

paid."     Mercantile  Trust  Co.  v.  Ka-  court  erred  in  some  ruling  or  that 

nawha  &  O.  Ry.  Co.  50  Fed.  874.  the  bill  on  which  the  receiver  was 

39  Turner  v.  Peoria,  &c.  R.  Co.  95  appointed  was  subject  to  demurrer 

111.  134,  35  Am.  R.  144.  does  not  necessarily  make  the  cer- 

*°  McCurdy  v.'  Bowes,  88  Ind.  583.  tificates  void.     Farmers'   Loan,  &c. 

"Credit  Co.   v.  Arkansas,   &c.  R.  Co.  v.  Centralia,  &c.  R.  Co.  96  Fed. 

Co.  15  Fed.  46;  Tiedeman  Commerc.  636. 

Paper,     §     498;     Beach     Receivers,  **  Stanton  v.  Alabama,  &c.  R.  Co. 

§  396.  2   Woods    (U.    S.)    506.     See,    also, 

4-  Bank  of  Montreal  v.  Chicago,  &c.  Union  Trust  Co.  v.  Illinois,  &c.  R. 

R.    Co.    48    Iowa    518;     Mercantile  Co.  117  U.  S.  434,  6  Sup.  Ct.  809; 

Trust  Co.  v.  Kanawha,  &c.  R.  Co.  58  Central   Nat.    Bank   v.   Hazard,    30 

Fed.  6,  60  Am.  &  Eng.  R.  Gas.  513.  Fed.  484.    But  the  purchaser  of  re- 


§  596]  EECEIVEE'S  CERTIFICATES.  874 

Where,  however,  the  court  authorizes  them  to  be  sold  at  a  certain  dis- 
count, and  they  are  sold  within  the  limit  fixed  by  the  court,  it  has 
been  held  that  the  purchasers  thereof  are  entitled  to  their  face  value, 
as  established  by  the  order  of  the  court.45  If  the  certificates  are  is- 
sued without  consideration  they  are  invalid,  even  in  the  hands  of  an 
innocent  holder  for  value.46  Certificates  may  be  exchanged  directly 
for  material  furnished  or  labor  performed  if  the  exchange  is  made 
for  an  adequate  consideration.4'  But  they  are  valid  only  to  the  ex- 
tent of  the  consideration  actually  received.48 

§  596.  Who  may  question  validity  of  receiver's  certificates. — Al- 
though receiver's  certificates  are  not  negotiable  instruments  under 
the  law  merchant,  yet,  when  they  are  regularly  issued  under  the  order 
of  court,  bondholders  and  purchasers  of  the  property  at  foreclosure 
sale  may  be  estopped  from  questioning  their  validity  and  priority  of 
lien  after  they  have  been  sold  to  good  faith  purchasers.  As  we  have 
already  seen,  prior  lienholders  and  bondholders,  where  no  notice  has 
been  given  to  them  or  their  trustees  and  no  hearing  has  been  afforded 
them  as  to  the  propriety  of  the  expenditures  and  the  right  to  make 
the  certificates  a  prior  lien,  will  generally  be  allowed  to  question  their 
validity  or  right  to  priority,  at  least  before  they  are  issued  to  bona  fide 
purchasers.49  But  those  who  consent  or  are  given  due  notice  and  an 

ceiver's  certificates  is  not  bound  to  inadequate  consideration,  a  subse- 
oversee  the  application  of  the  quent  bona  fide  holder  for  value  will 
money  which  he  advances.  Where  be  protected  only  to  the  amount  ac- 
a  purchaser  of  receiver's  certificates  tually  advanced  by  the  first  pur- 
has  paid  their  par  value  to  the  re-  chaser.  Central  Nat.  Bank  v.  Haz- 
ceiver,  without  notice  of  any  facts  ard,  30  Fed.  484. 
to  put  him  upon  inquiry,  his  lien  is  "  Jones  Corporate  Bonds  and 
not  affected  by  the  fact  that  the  re-  Mortgages,  §  550,  citing  Taylor  v. 
ceiver  appropriates  the  money  to  Philadelphia,  &c.  R.  Co.  14  Phila. 
his  own  use.  Mercantile  Trust  Co.  (Pa.)  451,  461;  People  v.  Erie  R. 
v.  Kanawha,  &c.  R.  Co.  50  Fed.  874.  Co.  54  How.  Pr.  (N.  Y.)  59.  See 

45  Union  Trust  Co.  v.  Illinois,  &c.  Coe  v.   New  Jersey,  &c.  R.  Co.,  27 
R.  Co.  117  U.  S.  434,  6  Sup.  Ct.  809.  N.  J.  Eq.  37. 

46  Jones  Corp.   Bonds  and   Mortg.  *8  Bank  of  Montreal  v.  Chicago,  &c. 
§  566,  citing  Turner  v.  Peoria,  &c.  R.  Co.  48  Iowa  518. 

R.  Co.  95   111.  134,  35  Am.  R.  144;         49  See    Mitchell,    Ex   parte,    12    S. 

Bank  of  Montreal  v.  Chicago,  &c.  R.  Car.  83;   Hand  v.  Savannah,  &c.  R. 

Co.  48   Iowa  518;    Union  Trust  Co.  Co.   17   S.   Car.   219;    Hervey  v.   II- 

v.  Chicago,  &c.  R.  Co.   7  Fed.  513.  linois  Midland  R.  Co.  28  Fed.  169; 

See,  also,  Beach  on  Receivers,  §  397.  Coe  v.  New  Jersey,  &c.  R.  Co.  27  N. 

If  the  certificates  are  issued  for  an  J.    Eq.    37;    United    States   Rolling 


875 


WHO    MAY    QUESTION   VALIDITY. 


[§'  596 


opportunity  to  be  heard  cannot  afterwards  question  their  validity  or 
priority.50  Nor  can  bondholders  who,  with  knowledge  of  the  facts, 
permit  certificates  to  be  issued  without  objection  under  the  order  of 
the  court,  question  their  validity  or  priority  of  lien  after  they  have 
been  issued  and  sold  to  bona  fide  purchasers.51  Especially  is  this  true 
where  the  bondholders  appoint  a  committee  of  their  own  number  to 
represent  them  all  and  such  committee  consents  to  the  issuance  of 
the  certificates.52  So,  where  the  road  is  sold  under  a  decree  of  fore- 
closure which  makes  it  subject  to  the  lien  of  the  receiver's  certificates, 
the  purchaser  at  the  foreclosure  sale  is  estopped  from  questioning  the 
validity  of  the  lien.53  The  receiver  who  obtained  the  order  and  issued 


Stock  Co.,  In  re,  55  How.  Pr.  (N. 
Y.)  286;  article  in  12  Am.  L.  Rev. 
660,  and  13  Am.  L.  Rev.  40.  In 
Snow  v.  Winslow,  54  Iowa  200,  it 
was  held  that  where  the  road  was 
sold  to  satisfy  the  certificates  it 
must  be  regarded  as  sold  subject  to 
a  mechanic's  lien,  to  enforce  which 
suit  had  been  instituted  before  the 
receiver  was  appointed,  and  that 
such  lien  was  not  divested  or  af- 
fected as  the  holder  thereof  was  not 
made  a  party  and  did  not  consent 
to  the  appointment  of  the  receiver 
or  the  order  or  decree  of  the  court. 

50  Ante,  §  591. 

81  Humphreys  v.  Allen,  101  111.  490, 
4  Am.  &  Eng.  R.  Gas.  14;  Langdon 
v.  Vermont,  &c.  R.  Co.  53  Vt.  228, 
4  Am.  &  Eng.  R.  Cas.  33.  See,  also, 
Union  Gold  Mining  Co.  v.  Rocky 
Mountain  Nat.  Bank,  96  U.  S.  640; 
Lovett  v.  German  Reformed  Church, 
12  Barb.  (N.  Y.)  67.  In  the  Ver- 
mont case  cited  in  this  note  it  was 
held  that  although  the  purpose  for 
which  the  receiver  was  appointed 
had  been  accomplished  so  that  he 
might  have  been  discharged,  yet  if 
he  continued  to  act  as  receiver  and 
issued  obligations  as  such,  with  the 
knowledge  and  assent  of  all  parties 
interested,  they  were  estopped  to 
deny,  as  against  bona  fide  holders, 
that  the  obligations  were  what  they 


purported  to  be,  namely,  receiver's 
obligations  entitled  to  priority  of 
payment  out  of  the  assets  of  the 
trust. 

52  Langdon  v.  Vermont,  &c.  R.  Co. 
53  Vt  228,  4  Am.  &  Eng.  R.  Cas. 
33. 

^Swann  v.  Clark,  110  U.  S.  602, 
4  Sup.  Ct.  241;  Mercantile  Trust  Co. 
v.  Kanawha,  &c.  R.  Co.  58  Fed.  6, 
60  Am.  &  Eng.  R.  Cas.  513,  526. 
See,  also,  Central  Trust  Co.  v.  Shef- 
field, &c.  R.  Co.  44  Fed.  526.  In  this 
last  case  it  appeared  that,  by  con- 
sent of  a!!  parties,  the  receiver  of 
a  railroad  company,  though  not  en- 
gaged in  operating  the  road,  was 
authorized  by  order  of  court  to  is- 
sue certificates  which  should  con- 
stitute a  lien  on  the  company's  prop- 
erty superior  to  certain  prior  mort- 
gages, and  that  the  money  obtained 
on  such  certificates  was  used  in  pre- 
serving and  improving  the  property. 
It  was  held  that  the  purchasers  of 
the  property,  who  purchased  with 
the  understanding  that  the  receiv- 
er's certificates,  under  the  order  of 
the  court,  constituted  a  prior  lien 
on  the  property,  which  they  were 
to  pay,  at  a  subsequent  sale  to  fore- 
close such  mortgages,  were  estopped 
from  denying  the  validity  of  the  cer- 
tificates. 


§  597]  RECEIVER'S  CERTIFICATES.  876 

the  certificates  thereunder  cannot,  it  is  obvious,  object  to  their  priority 
of  lien  nor  can  the  mortgagor  nor  his  assignees.54  And  a  property 
owner  along  the  line  of  the  road  cannot  restrain  the  completion  of  the 
road  by  questioning  the  validity  of  the  receiver's  certificates.65 

§  597.  Payment  and  redemption  of  certificates. — As  we  have  seen, 
receiver's  certificates  are  not  promises  to  pay  money  absolutely,  creat- 
ing a  personal  liability,  but  are  rather  to  be  considered  as  acknowledg- 
ments of  indebtedness  for  the  payment  of  which  out  of  some  specific 
fund  usually  to  be  ascertained  thereafter  the  faith  of  the  court  is  said 
to  be  pledged.  As  a  general  rule,  therefore,  an  independent  action  will 
not  lie  to  enforce  them,  but  the  application  for  their  payment  or  re- 
demption should  be  made  to  the  court  which  authorized  them  to  be 
issued.56  The  court  may,  doubtless,  in  a  proper  case,  order  them  to  be 
paid  out  of  the  fund  in  the  hands  of  the  receiver,  but  as  the  income  or 
assets  in  the  hands  of  the  receiver  will  seldom  be  found  sufficient  to 
redeem  the  certificates  and  pay  necessary  expenses,  and  as  the  courts 
cannot  often  tell  in  advance  just  what  will  be  the  condition  of  the 
trust  or  what  questions  may  arise,  certificates  are  seldom  redeemed  in 
advance  of  the  foreclosure  sale,  and  it  is  customary,  therefore,  to  pro- 
vide in  the  order  authorizing  their  issue  that  they  shall  be  a  lien  on 
the  proceeds  of  the  sale  and  payable  out  of  the  purchase-money.57  In- 
stead of  this,  however,  the  court  may  order  that  the  lien  shall  remain 
upon  the  property  which  the  purchaser  shall  take  subject  to  such 
lien.58  In  such  a  case,  as  elsewhere  stated,  it  has  been  held  that  the 
lien  may  be  enforced  against  the  property  in  the  hands  of  the  pur- 
chaser or  his  grantees  in  an  independent  action.59  It  has  also  been  held 
that,  although  the  order  authorizing  the  certificates  provided  that  they 
should  be  a  first  and  paramount  lien  upon  the  property,  a  final  decree 
vesting  in  the  purchaser  of  the  property  a  title  free  from  all  liens 
operated  pro  tanto  to  set  the  order  aside  and  transferred  the  lien,  if 
any,  to  the  proceeds  of  the  sale.60  It  was  further  held,  in  the  same  case, 

°*  Jerome   v.    McCarter,   94    U.    S.  in  which  an  independent  suit  may 

734.     See,  also,  Central  Trust  Co.  v.  be  brought,  see  ante,  §  592. 

Seasongood,   130  U.   S.   482,   9   Sup.  "Beach  Receivers,  §  401. 

Ct.  575;  Vilas  v.  Page,  106  N.  Y.  439,  58  Mercantile   Trust   Co.   v.    Kana- 

452,  13  N.  E.  743.  wha,  &c.  R.  Co.  58  Fed.  6. 

55Moran  v.  Lydecker,  11  Abb.  N.  B9Ante,  §  592. 

Gas.  (N.  Y.)  298.  «° Mercantile   Trust   Co.   v.   Kana- 

56  Turner  v.  Peoria,  &c.  R.  Co.  95  wha,  &c.  R.   Co.   58  Fed.   6,  distin- 

111.  134,  35  Am.  R.  144.     For  cases  guishing  Vilas   v.   Page,  106   N.   Y. 

439,  13  N.  E.  743. 


877  PAYMENT  AND  REDEMPTION   OF   CERTIFICATES.  [§    597 

that  the  holder  of  the  receiver's  certificates  who  was  guilty  of  laches 
in  not  acting  before  the  final  decree,  could  not  follow  the  proceeds  of 
the  sale  into  the  hands  of  bondholders  who  received  the  same  on  dis- 
tribution by  final  decree,  notwithstanding  the  fact  that  the  court  had 
failed  to  redeem  its  pledge  to  make  the  certificates  a  paramount  lien 
by  providing  on  distribution  for  their  payment.  If  the  fund  or  prop- 
erty is  insufficient  to  redeem  or  pay  all  the  certificates  in  full,  the 
holders  must  usually  share  pro  rata  in  the  proceeds.61  But  the  rights 
of  the  holders  of  a  portion  of  the  certificates  may,  of  course,  be  waived 
or  made  subordinate  to  those  of  others  by  agreement,  and  if  the  pro- 
ceeds are  insufficient  to  pay  the  latter,  the  former  may  get  nothing.62 

81  Turner  v.  Peoria,  &c.  R.  Co.  95  was  made  and  whose  certificates 

111.  134,  35  Am.  R.  144.  were  not  paid  in  full,  might  even 

62  Fletcher  v.  Waring,  137  Ind.  159,  recover  from  the  other  party  the 

36  N.  E.  896.  Under  the  agreement  amount  paid  for  a  right  Of  way  for 

in  this  case  it  was  held  that  the  which  the  certificates  were  issued 

party  in  whose  favor  the  waiver  to  the  latter. 


CHAPTEE  XXIV. 

INSOLVENCY   AND  DISSOLUTION. 

Sec.  Sec. 

598.  Scope  of  the  chapter.  607.    Judicial  determination  of  dis- 

599.  Railroad   company   is   subject  solution. 

to  state  insolvency  law.  608.    Voluntary     dissolution  —  Sur- 

600.  Trust  fund  doctrine.  render  of  charter. 

601.  When  a  corporation  is  deemed     609.     Proceedings  to  dissolve. 

insolvent — Effect    of    insolv-  610.     Dissolution  in  case  of  consoli- 
ency.  dated  company. 

602.  Assignments   by   corporations.  611.     Effect  of  dissolution. 

603.  Preferences  by  corporations.  612.     Corporation  may  have  a  quali- 

604.  Preference      of      stockholders  fied  existence  after  dissolu- 

and  officers.  tion. 

605.  Statutory    preference    of    em-    613.     Disposition  of  property  on  dis- 

ployes.  solution. 

606.  What    constitutes    a    dissolu-    614.     Rights  of  creditors  upon  disso- 

tion.  lution. 

§598.  Scope  of  the  chapter. — We  have  already  considered  in  a 
general  way  the  subject  of  the  dissolution  of  a  corporation  by  forfeiture 
or  repeal  of  its  charter  and  by  expiration  of  the  time  to  which  its 
charter  life  is  limited.  But  we  have  not  considered  what  becomes  of 
the  property  after  dissolution,  nor  have  we  treated  specifically  of  in- 
solvency and  the  relations  and  rights  of  the  various  parties  when  a 
corporation  becomes  insolvent,  except  as  incidentally  connected  with 
the  subjects  of  foreclosure  sales  and  receivers.  In  this  chapter  we  shall 
treat  briefly  of  these  matters,  including  assignments  and  preferences, 
although  some  of  the  questions  considered  can  seldom  arise  in  railroad 
cases  and  the  general  rules  upon  the  subject  may  not  be  applicable,  in 
some  instances,  to  such  cases. 

§  599.  Railroad  company  is  subject  to  state  insolvency  law. — Do- 
mestic railroad  corporations,  like  all  other  corporations,  are  usually 
subject,  to  a  certain  extent  at  least,  to  the  insolvency  laws  of  the  states 
wherein  they  are  respectively  incorporated  and  may  be  proceeded 

878 


879 


TRUST  FUND  DOCTRINE. 


[§  600 


against  under  those  laws.1  But  such  laws,  as  a  general  rule  at  least, 
have  no  extra  territorial  effect.2  A  voluntary  assignment  of  personal 
property,  however,  if  valid  where  it  is  made,  will  usually  be  treated  as 
valid  everywhere  and  may  operate  to  transfer  personal  property  of  the 
assignor  wherever  it  is  found,3  unless,  perhaps,  where  it  is  contrary 
to  good  morals  or  repugnant  to  the  policy  or  positive  institutions  of 
the  state  in  which  it  is  found.4  But  this  rule  does  not  apply  to  the 
same  extent  to  assignments  of  real  estate.5  The  effect  of  state  in- 
solvency laws  upon  consolidated  corporations  will  be  discussed  else- 
where. 

§  600.  Trust  fund  doctrine. — When  a  company  becomes  insolvent 
its  capital  stock  with  all  its  other  property  is  said  to  become  assets  or 
to  constitute  a  trust  fund  for  the  payment  of  its  debts.6  This  is  the 
well-known  "trust  fund"  doctrine  to  which  we  have  elsewhere  referred. 
It  is  usually  stated  substantially  as  we  have  stated  it,  but  the  state- 
ment, perhaps,  needs  explanation.  It  does  not  mean  that  there  is  any 
direct  trust  lien  upon  the  property  of  the  corporation  in  favor  of 
creditors,  nor  that  the  corporation  may  not  manage  or  dispose  of  it  in 
the  usual  course  of  business  while  the  corporation  is  "a  going  con- 


Central  Nat.  Bank  v.  Worcester 
Horse  R.  Co.  13  Allen  (Mass.)  105; 
Platt  v.  New  York,  &c.  R.  Co.  26 
Conn.  544.  The  .  Maryland  Act  of 
1888  providing  for  the  payment  of 
wages  and  salaries  due  employes  of 
insolvent  employers  does  not  sub- 
ject corporations  to  the  insolvent 
laws  of  the  state.  Ellicott  Machine 
Co.  v.  Speed  &  Co.  72  Md.  72,  18  AtL 
863. 

2  Glenn  v.  Clabaugh,  65  Md.  65,  3 
Atl.  902 ;  Warren  v.  First  Nat.  Bank, 
149  111.  9,  38  N.  E.  122,  25  L.  R.  A. 
746;  Franzen  v.  Hutchinson,  94  Iowa 
95,  62  N.  W.  698.  But  see  as  to  the 
effect  of  insolvent  laws  on  non-resi- 
dents: Brown  v.  Smart,  145  U.  S.' 
454,  12  Sup.  Ct.  958;  Macdonald  v. 
First  Nat.  Bank,  47  Minn.  67,  49  N. 
W.  395,  13  L.  R.  A.  462,  28  Am.  St. 
328. 

'Baltimore,  &c.  R.  Co.  v.  Glenn, 
28  Md.  287,  92  Am.  Dec.  688;  Caskie 


v.  Webster,  2  Wall.  Jr.  (U.  S.)  131; 

Burrill  Assignments,  §  275;  Story 
Confl.  L.  §  423a.  Many  courts  re- 
fuse to  enforce  foreign  assignments 
to  the  prejudice  of  the  citizens  of 
their  own  state,  holding  that  the 
rule  of  comity  does  not  require  them 
to  do  so  in  such  a  case. 

*  Burrill  on  Assignments,  §§  275, 
279;  Weider  v.  Maddox,  66  Tex.  372, 
1  S.  W.  168,  59  Am.  R.  617;  Blake 
v.  Williams,  23  Mass.  286,  17  Am. 
Dec.  372;  Herver  v.  Rhode  Island, 
&c.  Works,  93  U.  S.  664;  Dickinson, 
Ex  parte,  29  S.  Car.  453,  7  S.  E.  593, 
1  L.  R.  A.  685,  13  Am.  St.  749. 

5  Burrill  on  Assignments,  §  277; 
Osborn  v.  Adams,  18  Pick.  (Mass.) 
245. 

•Wabash,  &c.  R.  Co.  v.  Ham,  114 
U.  S.  587,  594,  5  Sup.  Ct.  1081; 
Graham  v.  LaCrosse,  &c.  R.  Co.  102 
U.  S.  148,  161. 


§    600]  INSOLVENCY   AND  DISSOLUTION.  880 

cern"  with  a  reasonable  prospect  of  continuing  and  there  is  no  in- 
tention of  suspending,  although  it  may  be  insolvent  in  the  sense  that 
its  liabilities  are  greater  than  its  assets,  or  in  the  sense  that  it  may 
not  be  able  to  fully  meet  its  obligations  as  they  become  due.  It  simply 
means,  according  to  recent  decisions,  that  when  the  corporation  is 
insolvent  and  a  court  of  equity  has  possession  of  its  assets  for  ad- 
ministration, they  must  be  appropriated  to  the  payment  of  its  debts 
before  any  distribution  to  the  stockholders.7  In  such  a  case  equity  will 
compel  the  payment  of  a  balance  due  on  unpaid  stock.8  The  history 
of  the  evolution  of  the  "trust  fund"  doctrine  is  an  interesting  one,  but 
it  would  not  be  profitable  to  pursue  it  here.  Some  of  the  courts  have 
undoubtedly  misapplied  and  unduly  extended  it,  but  it  may  well  be 
questioned  if  others,  in  the  present  reaction,  are  not  inclined  to  un- 
duly limit  it.  We  have  stated  the  doctrine  as  explained  in  the  latest 
decisions  of  the  Supreme  Court  of  the  United  States,  but  it  may  be 
somewhat  difficult  to  reconcile  the  rule  thus  stated  with  other  state- 
ments of  the  rule  made  by  the  federal,  as  well  as  the  state,  courts, 
although  we  are  inclined  to  think  there  is  no  real  conflict.  Thus,  it 
is  said  that  "when  a  corporation  is  dissolved  or  becomes  insolvent  and 
determines  to  discontinue  the  prosecution  of  business  its  property 
is  thereafter  affected  by  an  equitable  lien  or  trust  for  the  benefit  of 
creditors,"  and  that  the  directors  then  hold  a  fiduciary  relation  to 
creditors  and  cannot  prefer  themselves  in  view  of  expected  suspension 
on  account  of  insolvency,  although  the  corporation  might,  while  still 
"a  going  concern,"  secure  them  for  advancements  made  to  carry  on- 
the  business  with  the  reasonable  expectation  of  successfully  overcom- 
ing financial  embarrassment.9  This  is  a  much  more  reasonable  doc- 

7  Hollins  v.  Brierfield,  &c.  Co.  150  Fed.  809,  14  C.  C.  A.  116.    See,  also, 

U.   S.    371,   14   Sup.   Ct.   127;    Fogg  American   Exchange   Nat.   Bank   v. 

v.  Blair,  133  U.  S.  534,  541,  10  Sup.  Ward,  111  Fed.  782,  49  C.  C.  A.  611, 

Ct.  338;  Henderson  v.  Indiana  Trust  52  L.  R.  A.  356;  Sabin  v.  Columbia, 

Co.  143  Ind.  561,  40  N.  E.  516;  First  &c.  Co.  25  Oreg.  15,  34  Pac.  692,  42 

Nat.  Bank  v.  Dovetail,  &c.  Co.  143  Am.  St.  756,  and  note. 

Ind.  550,  40  N.  E.  810,  52  Am.  St.  8  Richardson  v.   Green,  133  U.  S. 

435;    Worthen   v.    Griffith,    59   Ark.  30,  10  Sup.  Ct  280;  Morgan  v.  New 

562,  28   S.  W.   286,   43  Am.   St.   50;  York,  &c.  R.  Co.  10  Paige  Ch.  (N.  Y.) 

O'Bear,  &c.  Co.  v.  Volfer   (Ala.),  17  290,  40  Am.  Dec.  244;   Barcalow  v. 

So.  525;    Thomson-Houston,  &c.  Co.  Totten  (N.  J.),  32  Atl.  2. 

v.   Henderson,   &c.   Co.   116  N.   Car.  •  Sutton   Mfg.  Co.  v.   Hutchinson, 

112,  21  S.  E.  951;   Alberger  v.  Nat.  63  Fed.  496;  Sabin  v.  Columbia  Fuel 

Bank,   123   Mo.   313,   27   S.  W.   657;  Co.  25  Oreg.  15,  34  Pac.  692,  42  Am. 

Chattanooga,  &c.  R.  Co.  v.  Evans,  66  St.     756.     But     compare     Sanford 


881 


WHEN   A   CORPORATION   IS  DEEMED  INSOLVENT. 


[§    601 


trine  than  that  which  forbids  any  preference  after  the  company  has 
become  insolvent  even  though  it  is  "a  going  concern"  and  has  reason- 
able expectation  of  overcoming  its  financial  embarrassment,  and  the 
only  question  is  as  to  whether  the  "trust  fund"  doctrine  should  have 
been  applied  at  all  so  long  as  the  corporation  had  not  quit  business 
and  its  property  had  not  been  taken  charge  of  by  the  court.  The 
capital  stock  and  properties  of  a  corporation,  however,  constitute  a 
trust  fund  for  the  payment  of  its  debts  in  such  a  sense  that  when  there 
is  a  misappropriation  of  the  funds  of  a  corporation,  equity,  on  behalf 
of  the  creditors  of  such  corporation,  will  follow  the  fund  so  diverted,10 
unless  it  has  passed  into  the  hands  of  a  bona  fide  purchaser.11 

§  601.  When  a  corporation  is  deemed  insolvent — Effect  of  insolv- 
ency.— It  is  extremely  difficult  to  formulate  any  general  rule  for  de- 
termining just  when  a  corporation  is  to  be  deemed  insolvent.  It  has 
been  said  that  a  corporation  is  insolvent  when  it  is  not  able  to  pay 
its  debts,  as  they  become  due  in  the  usual  course  of  business,12  or  when 
it  has  not  property  or  assets  sufficient  to  pay  its  debts.13  But  it  fre- 


Fork,  &c.  Co.  v.  Howe,  &c.  Co.  157 
U.  S.  312,  15  Sup.  Ct.  621.  See  fur- 
ther on  this  subject,  §§  603,  604. 

"Chicago,  &c.  R.  Co.  v.  Chicago 
&c.  Third  Nat.  Bank,  134  U.  S.  276, 
10  Sup.  Ct.  550;  Wabash,  &c.  R.  Co. 
v.  Ham,  114  U.  S.  587,  5  Sup.  Ct. 
1081;  Railroad  Co.  v.  Howard,  7 
Wall.  (U.  S.)  392,  409;  Bish  v.  Brad- 
ford, 17  Ind.  490;  Rorke  v.  Thomas, 
56  N.  Y.  559;  Chattanooga,  &c.  R. 
Co.  v.  Evans,  66  Fed.  809,  14  C.  C. 
A.  116;  Chicago,  &c.  Bridge  Co.  v. 
Fowler,  55  Kans.  17,  39  Pac.  727; 
Hastings  v.  Drew,  76  N.  Y.  9;  Wait 
Insolv.  Corp.  §§  150,  156;  Taylor 
Priv.  Corp.  §  656.  See,  also,  Moffat 
v.  Smith,  101  Fed.  771,  41  C.  C.  A. 
671.  When  one  corporation  trans- 
fers all  its  assets  to  another  corpo- 
ration without  having  paid  its  debts, 
the  latter  takes  the  property  as  a 
trustee  subject  to  a  lien  in  favor  of 
the  creditors  of  the  old  company. 
National  Bank  of  Jefferson  v.  Texas 
Invest.  Co.  74  Tex.  421,  12  S.  W.  101; 
ELL.  RAILROADS — 56 


Montgomery,  &c.  Co.  v.  Dienelt,  133 
Pa.  St.  585,  19  Atl.  428,  19  Am.  St. 
663.  It  has  also  been  held  that  when 
a  corporation  has  sold  all  its  prop- 
erty, franchises,  etc.,  and  thus  in 
effect  has  been  dissolved,  its  cred- 
itors may  enforce  their  demands  in 
a  court  of  equity  against  the  former 
stockholders,  the  proceeds  of  the 
property  being  considered  assets  in 
the  hands  of  stockholders  for  the 
payment  of  debts.  But  no  action 
can  be  maintained  against  the  pur- 
chasing company  if  the  purchase 
was  made  in  good  faith.  Chesa- 
peake, &c.  R.  Co.  v.  Griest,  85  Ky. 
619,  4  S.  W.  323. 

"Fisk  v.  Union  Pac.  R.  Co.  10 
Blatchf.  (U.  S.)  518;  Sanger  v.  Up- 
ton, 91  U.  S.  56,  60. 

"Atwater  v.  American,  &c.  Bank, 
152  111.  605,  38  N.  E.  1017;  Mish  v. 
Main,  81  Md.  36,  31  Atl.  799;  People 
v.  Excelsior,  &c.  Co.  3  How.  Pr.  N.  S. 
(N.  Y.)  137. 

"Wait    Insolv.    Corp.    §§  28,    29. 


§    602]  INSOLVENCY   AND   DISSOLUTION.  882 

quently  happens  that  a  corporation  or  an  individual  may  not  be  able 
to  pay  all  debts  as  they  mature,  and  may  yet  have  assets  far  in  excess 
of  the  liabilities.  So,  a  corporation  or  an  individual  may  not  at  some 
particular  time  have  assets  equal  to  the  liabilities  and  yet  may  be 
able  to  meet  all  debts  as  they  fall  due  or  make  such  arrangements  as 
will  prevent  financial  embarrassment.  It  seems  to  us,  therefore,  that 
a  corporation  should  not  be  deemed  insolvent  merely  because  its  as- 
sets are  insufficient  to  meet  all  its  liabilities  at  any  particular  time, 
if  it  is  still  prosecuting  business  with  the  prospect  and  expectation 
of  continuing  to  do  so  successfully.  It  is  certainly  not  insolvent  in 
such  a  sense  as  to  justify  the  application  of  the  "trust  fund"  doctrine, 
even  if  that  can  be  applied  in  any  case  of  mere  insolvency,  although 
it  may,  perhaps,  be  insolvent  within  the  meaning  of  some  statute.  The 
mere  insolvency  of  a  corporation,  however,  does  not  per  se  work  its 
dissolution,  although  it  may  be  cause  for  a  judgment  dissolving  it.14 
A  corporation  may  exist  without  property,15  and  mere  insolvency  or 
impairment  of  capital,  without  surrender  or  forfeiture  of  the  charter, 
does  not  prevent  the  members  of  the  corporation  from  furnishing  "re- 
newed capital,  and  then  poceeding  to  use  the  corporate  powers."16 
So  long,  at  least,  as  the  corporation  proceeds  in  good  faith,  with  the 
reasonable  expectation  of  paying  its  debts  and  successfully  carrying  on 
its  business,  it  would  seem  that  it  is  not  insolvent  in  such  a  sense 
as  to  prevent  the  corporation  from  continuing  the  management  of  its 
assets  in  the  regular  course  of  business  or  to  authorize  creditors  to 
interfere.17 

§  602.     Assignments  by  corporations. — At  common  law,  and  under 
the  statutes  of  most  of  the  states,  an  insolvent  corporation  may  make 

See,  also,  Chicago  Life  Ins.  Co.  v.  L.  R.  A.  897;  Fields  v.  United  States, 

Auditor,  101  111.  82;  Toof  v.  Martin,  27  App.  (D.  C.)  433. 
13  Wall.  (U.  S.)  40;   European,  &c.        "Coburn    v.    Boston,    &c.    Co.    10 

Society,  In  re,  L.  R.  9  Eq.  122.  Gray  (Mass.)  243. 

"Angell    &    Ames    Corp.    §  775;         1T2   Morawetz   Priv.   Corp.   §  786; 

Shenandoah  Valley  R.   Co.  v.  Grif-  Wait  Insolv.   Corp.   §  34;    Paulding 

fith,  76  Va.  913;  Moseby  v.  Burrow,  v.   Chrome  Steel  Co.  94   N.  Y.  334, 

52   Tex.    396.      See,   also,   Fields   v.  338;    Pond  v.   Framingham,  &c.   R. 

United  States,  27  App.  (D.  C.)  433.  Co.  130  Mass.  194;  Baker  v.  Louisi- 

16  Bruffett  v.  Great  Western  R.  Co.  ana,   &c.   R.   Co.   34   La.  Ann.   754; 

25  111.  353;  Boston  Glass  Mfg.  Co.  v.  Warren  v.  First  Nat.  Bank,  149  111. 

Langdon,    24    Pick.    (Mass.)    49,    35  9,  38  N.  E.  122,  25  L.  R.  A.  746.    See, 

Am.    Dec.   292;    Wait   Insolv.   Corp.  also,  Sabin  v.  Columbia,  &c.  Co.  25 

§  356.     See,  also,  State  v.  Superior  Oreg.  15,  34  Pac.  692,  42  Am.  St  756, 

Court,  31  Wash.  445,  72  Pac.  89,  66  and  note. 


883 


ASSIGNMENTS  BY   CORPORATIONS. 


[§  602 


a  general  assignment  in  trust  for  the  benefit  of  its  creditors.18  In  the 
absence  of  any  provision  to  the  contrary,  the  assignment  may  be  made 
by  the  directors  without  any  action  upon  the  part  of  the  stockholders,19 
and  it  has  also  been  held  that  this  power  may  be  exercised  by  a 
quorum  of  the  board  of  directors  at  a  regularly  called  meeting  at  which 
a  bare  quorum  is  present.20  The  president  of  the  corporation,  however, 
has  no  implied  authority  to  do  so  by  virtue  of  his  office.21  Such  an 
assignment  does  not  carry  with  it  the  prerogative  franchises,  such  as 
that  of  being  a  corporation,  and  does  not  operate  as  a  dissolution.22 
Owing  to  the  peculiar  nature  of  a  railroad  company  it  may  be  that 
the  rules  applicable  to  assignments  and  preferences  by  ordinary  busi- 
ness corporations  do  not  all  apply  with  full  force  to  railroad  companies. 


18  Vanderpoel  v.  Gorman,  140  N.  Y. 
563,  35  N.  E.  932,  24  L.  R.  A.  548,  37 
Am.  St.  601 ;  De  Ruyter  v.  Trustees, 
3  Barb.  Ch.  (N.  Y.)   119,  citing  au-. 
thorities  from  many  states;   Shock- 
ley  v.  Fisher,  75  Mo.  498;  Wilkinson 
v.  Bauerle,  41  N.  J.  Eq.  635,  7  Atl. 
514;  Lamb  v.  Cecil,  25  W.  Va,  288; 
Tripp   v.   Northwestern   Nat.   Bank, 
41  Minn.  400,  43  N.  W.  60;  Warner 
v.    Mower,   11   Vt.   385;    McCallie  & 
Jones  v.  Walton,  37  Ga.  611,  95  Am. 
Dec.  369;  State  v.  Bank,  6  Gill  &  J. 
(Md.)  205,  26  Am.  Dec.  561;  Burrill 
Assignments    (6th   ed.),    §  45,    and 
numerous    authorities    there    cited. 
See,  also,  United  States,  &c.  Co.  v. 
American,  &c.  Co.  181  U.  S.  434,  21 
Sup.  Ct.   670;    Smith  v.  Wells,  &c. 
Co.    148    Ind.    333,    46   N.    E.    1000; 
Grand,  &c.  Co.  v.  Rude,  &c.  Co.  60 
Kans.  196,  55   Pac.  848;   Louisville, 
&c.  Co.  v.  Etheridge,  &c.  Co.   (Ky.), 
43  S.  W.  169;   Birmingham,  &c.  Co. 
v.  Freeman,  15  Tex.  Civ.  App.  451, 
39  S.  W.  626.    But  see  Meloy  v.  Cen- 
tral Nat.  Bank,  17  Wash.  L.  R.  68. 

19  De  Camp  v.  Alward,  52  Ind.  468;' 
Ardesco  Oil  Co.  v.  North  American, 
&c.  Co.  66  Pa,  St.  375,  382;   Hutch- 
inson  v.  Green,  91  Mo.  367,  1  S.  W. 
853;   Wright  v.  Lee,  2  S.  Dak.  596, 
51  N.  W.  706,  4  S.  Dak.  237,  55  N. 


W.  931;  Descombes  v.  Wood,  91  Mo. 
196,  4  N.  W.  82,  60  Am.  R.  239 ;  Cal- 
umet Paper  Co.  v.  Haskell,  &c.  Co. 
144  Mo.  331,  45  S.  W.  1115,  66  Am. 
St.  425.  Compare  Chew  v.  Elling- 
wood,  86  Mo.  260,  273,  56  Am.  R. 
429,  and  Eppright  v.  Nickerson,  78 
Mo.  482. 

^Buell  v.  Buckingham,  16  Iowa 
284,  85  Am.  Dec.  516;  Chase  v.  Tut- 
tle,  55  Conn.  455,  12  Atl.  874,  3  Am. 
St.  64;  Simon  v.  Sevier  Assn.  54 
Ark.  58,  14  S.  W.  1101. 

21  Richardson  v.  Rogers,  45  Mich. 
591,  8  N.  W.  526.  See,  also,  Cham- 
berlain v.  Bromberg,  83  Ala.  576,  3 
So.  434.  And  an  assignment  to  him- 
self is  void.  Rogers  v.  Pell,  89  Hun 
(N.  Y.)  159,  35  N.  Y.  17. 

^Germantown  Pass.  R.  Co.  v.  Fit- 
ler,  60  Pa.  St.  124,  100  Am.  Dec.  546, 
and  note;  Town  v.  Bank,  2  Doug. 
(Mich.)  530;  Arthur  v.  Commercial, 
&c.  Bank,  9  Sm.  &  M.  (Miss.)  394,  48 
Am.  Dec.  719;  Parsons  v.  Eureka 
Powder  Works,  48  N.  H.  66;  Hurlbut 
v.  Carter,  21  Barb.  (N.  Y.)  221; 
State  v.  Bank,  6  Gill.  &  J.  (Md.) 
205,  26  Am.  Dec.  561;  Shryock  v. 
Bashore,  82  Pa.  St.  159;  Ohio  L.  &c. 
Co.  v.  Merchants',  &c.  Co.  30  Tenn. 
1,  53  Am.  Dec.  742.  But  see  State 
v.  Real  Estate  Bank,  5  Ark  595,  41 


§  603] 


INSOLVENCY  AND   DISSOLUTION. 


884 


§  603.  Preferences  by  corporations. — As  a  general  rule,  in  the  ab- 
sence of  any  charter  or  statutory  provision  to  the  contrary,  a  corpora- 
tion may  exercise  the  right  to  make  an  assignment  to  the  same  extent 
and  in  the  same  manner  as  a  natural  person.  Preferences  in  general 
assignments  are  prohibited  in  many  of  the  states,  but  where  they  are 
permitted  they  may  be  made,  in  the  absence  of  any  provision  to  the 
contrary,  by  corporations  as  well  as  by  individuals.23  And  even  where 
preferences  in  general  assignments  are  forbidden,  they  may  usually 
be  made  by  mortgage,  securing  particular  creditors,  or  by  transfer 
of  property  to  them  in  good  faith  before  a  general  assignment  i^ 
made.24 

§  604.  Preference  of  stockholders  and  officers. — It  is  generally 
held  that  stockholders,  who  are  also  creditors,  may  be  preferred  in 
good  faith  as  such  creditors.25  It  is  also  held,  in  some  jurisdictions, 
that  directors  and  officers  may  likewise  be  preferred;26  but  there  are 


Am.  Dec.  109;  Smith  v.  New  York, 
&c.  Co.  18  Abb.  Pr.  (N.  Y.)  419,  and 
dissenting  opinion  of  Story,  J.,  in 
Beaston  v.  Farmers'  Bank,  12  Pet. 
(U.  S.)  102,  138. 

23  Gould  v.  Little  Rock,  &c.  R.  Co. 
52  Fed.  680;  Bier  v.  Gorrell,  30  W. 
Va.  95,  3  S.  E.  30,  8  Am.  St.  17; 
Coats  v.  Donnell,  94  N.  Y.  168;  Bis- 
sell  v.  Besson,  47  N.  J.  Eq.  580,  22 
Atl.  1077;  Ringo  v.  Biscoe  et  al.,  13 
Ark.  563;  Rollins  v.  Shaver,  &c.  Co. 
80  Iowa  380,  45  N.  W.  1037,  20  Am. 
St.  427;  Catlin  v.  Eagle  Bank,  6 
Conn.  233;  Knoxville  Iron  Co.  v. 
Wilkins,  &c.  Co.  74  Ga.  493;  note  to 
Lyons-Thomas  Hardware  Co.  v. 
Perry  Stove  Co.  86  Tex.  143,  24  S. 
W.  16,  22  L.  R.  A.  802;  Burrill  As- 
signments, §  45.  Contra,  Rouse  v. 
Merchants'  Nat-  Bank,  46  Ohio  St. 
493,  22  N.  E.  293,  5  L.  R.  A.  378,  15 
Am.  St.  644,  followed,  as  the  law  of 
Ohio,  in  Smith,  &c.  Purifier  Co.  v. 
McGroarty,  136  U.  S.  237,  10  Sup.  Ct. 
1017;  Lyons-Thomas  Hardware  Co. 
v.  Perry  Stove  Co.  86  Tex.  143.  24 
S.  W.  16,  22  L.  R.  A.  802;  Kankakee 


Woolen  Mill  Co.  v.  Kampe,  38  Mo. 
App.  229. 

"Bank  of  Montreal  v.  Potts,  &c. 
Co.  90  Mich.  345,  51  N.  W.  890; 
Warner  v.  Littlefield,  89  Mich.  329, 
50  N.  W.  721;  Rollins  v.  Shaver, 
&c.  Co.  80  Iowa  380,  45  N.  W.  1037, 
20  Am.  St.  427;  Ragland  v.  McFall, 
137  111.  81,  27  N.  E.  75;  Henderson 
v.  Indiana  Trust  Co.  143  Ind.  561,  40 
N.  E.  516,  and  authorities  cited  in 
last  note,  supra. 

25  Burr  v.  McDonald,  3  Gratt.  (Va.) 
215;  Lexington,  &c.  Co.  v.  Page,  17 
B.  Mon.  (Ky.)  412,  66  Am.  Dec.  165; 
Reichwald  v.  Commercial  Hotel  Co. 
106    111.    439;    Warfield,   &c.    Co.    v. 
Marshall,  &c.  Co.  72  Iowa  666,  34  N. 
W.  467,  2  Am.  St.  263;   Garrett  v. 
Burlington,  &c.  Co.  70  Iowa  697,  29 
N.  W.  395,  59  Am.  R.  461.     Contra, 
Swepson  v.  Exchange,  &c.  Bank,  9 
Lea  (Tenn.)   713.     And  see  Howell 
v.  Crawford  (Ark.),  89  S.  W.  1046. 

26  Planters'    Bank    v.    Whittle,    78 
Va.  737;  Brown  v.  Grand  Rapids,  &c. 
Co.   58  Fed.   286,   22   L.  R.  A.  817; 
Gould  v.  Little  Rock,  &c.  R.  Co.  52 


885 


PREFERENCE   OF   STOCKHOLDERS   AND   OFFICERS. 


other  authorities  to  the  effect  that,  after  a  corporation  has  become 
clearly  insolvent,  directors  and  officers  cannot  take  advantage  of  their 
position  to  obtain  a  preference  for  unsecured  debts  which  there  was 
no  agreement  to  secure  while  the  corporation  was  solvent  or  at  the 
time  the  debts  were  created.27  A  corporation  may,  however,  in  good 
faith,  and  while  solvent,  borrow  money  from  a  director,  or  officer, 
for  use  in  its  business,  and  give  a  mortgage  to  him  to  secure  its  pay- 
ment, and  the  fact  that  the  corporation  afterwards  becomes  insolvent 
does  not  impair  the  validity  of  his  security.28  Indeed,  according  to 


Fed.  680;  Bank  of  Montreal  v.  Potts, 
&c.  Co.  90  Mich.  345,  51  N.  W.  512; 
Buell  v.  Buckingham,  16  Iowa  284, 
85  Am.  Dec.  516;  Garrett  v.  Burling- 
ton, &c.  Co.  70  Iowa  697,  29  N.  W. 
395;  59  Am.  R.  461;  Smith  v.  Skeary, 
47  Conn.  47;  Duncomb  v.  New  York, 
&c.  R.  Co.  84  N.  Y.  190;  Hospes 
v.  Car  Co.  48  Minn.  174,  50  N.  W. 
1117,  15  L.  R.  A.  470,  31  Am.  St. 
637;  Schufeldt  v.  Smith,  131  Mo. 
280,  31  S.  W.  1039,  29  L.  R.  A. 
830,  52  Am.  St.  628;  Blaloch  v. 
Kernersville,  &c.  Co.  110  N.  Car. 
99,  14  S.  B.  501;  Nappanee  Canning 
Co.  v.  Reid,  Murdock,  &c.  Co.  159 
Ind.  614,  64  N.  E.  870,  1115,  59  L.  R. 
A.  199,  citing,  in  the  majority  and 
dissenting  opinions,  most  of  the  au- 
thorities on  both  sides.  In  a  later 
case  the  Appellate  Court  of  Indiana 
recommended  to  the  Supreme  Court 
that  the  Indiana  case  above  cited  be 
overruled,  but  the  supreme  court  re- 
affirmed the  doctrine.  City  Nat. 
Bank  v.  Goshen,  &c.  Co.  163  Ind.  214, 
71  N.  E.  652. 

27  Corey  v.  Wadsworth,  99  Ala.  68, 
11  So.  350,  23  L.  R.  A.  618,  42  Am. 
St.  29  (overruled  in  O'Bear,  &c.  Co. 
v.  Volfer,  106  Ala.  205,  17  So.  525,  54 
Am.  St.  31) ;  Olney  v.  Conanicut,  &c. 
Co.  16  R.  I.  597,  18  Atl.  181,  5  L.  R, 
A.  361,  27  Am.  St.  767,  and  note; 
Haywood  v.  Lincoln  Lumber  Co.  64 
Wis.  639,  26  N.  W.  184;  Sicardi  v. 
Keystone  Oil  Co.  149  Pa.  St.  148,  24 


Atl.  163;  Consolidated  Tank  Line  Co. 
v.  Kansas  City,  &c.  Co.  45  Fed.  7; 
Beach  v.  Miller,  130  111.  162,  22  N.  E. 
464,  17  Am.  St.  291,  and  note;  Rose- 
boom  v.  Whittaker,  132  111.  81,  23  N. 
E.  339;  Smith  v.  Putnam,  61  N.  H. 
632;  Adams  v.  Kehlor,  &c.  Co.  35 
Fed.  433;  Sweeney  v.  Grape  Sugar 
Co.  30  W.  Va.  443,  4  S.  E.  431,  8 
Am.  St.  88;  Howe,  &c.  Co.  v.  San- 
ford,  &c.  Co.  44  Fed.  231  (reversed 
in  Sanford  Fork,  &c.  Co.  v.  Howe, 
&c.  Co.  157  U.  S.  312,  15  Sup.  Ct. 
621);  Farmers'  Loan,  &c.  Co.  v.  San 
Diego,  &c.  R.  Co.  45  Fed.  518;  Strat- 
ton  v.  Allen,  16  N.  J.  Eq.  229;  Brad- 
ley v.  Farwell,  1  Holmes  (U.  S.) 
433;  Hill  v.  Pioneer  Lumber  Co.  113 
N.  Car.  173,  18  S.  E.  107,  21  L.  R.  A. 
560,  37  Am.  St.  621;  Gaslight,  &c. 
Co.  v.  Terrell,  L.  R.  10  Eq.  168; 
Montgomery  v.  Phillips,  53  N.  J.  Eq. 
203,  31  Atl.  622;  Bosworth  v.  Jack- 
sonville, &c.  Bank,  64  Fed.  615;  Ing- 
wersen  v.  Edgecombe,  42  Neb.  740, 
60  N.  W.  1032;  Portland,  &c.  Co.  v. 
Rossiter,  16  S.  Dak.  633,  94  N.  W. 
702,  102  Am.  St.  726,  and  note.  See, 
also,  Sawyer  v.  Hoag,  17  Wall.  (U. 
S.)  610. 

^O'Conner,  &c.-  Co.  v.  Coosa,  &c. 
Co.  95  Ala.  614,  10  So.  290,  36  Am. 
St.  251;  Twin  Lick  Oil  Co.  v.  Mar- 
bury,  91  U.  S.  587;  Hotel  Co.  v. 
Wade,  97  U.  S.  13;  American  Ex- 
change Nat.  Bank  v.  Ward,  111  Fed. 
782,  49  C.  C.  A.  611,  52  L.  R.  A.  356; 


604] 


INSOLVENCY  AND  DISSOLUTION. 


886 


what  seems  to  be  the  better  reason  and  the  later  authorities  a  corpora- 
tion may,  in  good  faith,  secure  its  directors  who  have  lent  their  credit 
to  it,  "to  induce  a  continuance  of  the  loan  of  that  credit,  and  obtain 
renewals  of  maturing  paper  at  a  time  when  the  corporation,  though 
not  in  fact  possessed  of  assets  equal  to  its  indebtedness,  is  a  going 
concern,  and  is  intending  and  expecting  to  continue  its  business."29 
And  where  advancements  are  made  by  directors  under  an  agreement, 
made  at  the  time,  that  they  are  to  have  securities,  it  has  been  held  that 
the  mere  fact  that  such  securities  are  not  given  to  them  until  after 
the  corporation  becomes  insolvent  will  not  affect  their  validity  where 
the  entire  transaction  is  in  good  faith.30  Such  transactions  will,  how- 
ever, be  closely  scrutinized,31  and  the  rule  announced  in  the  later  de- 


Paulding  v.  Chrome  Steel  Co.  94  N. 
Y.  334;  Mullanphy  Bank  v.  Schott, 
135  111.  655,  26  N.  E.  640,  25  Am.  St. 
401;  Neal's  Appeal,  129  Pa.  St.  64, 
18  Atl.  564;  Pyle  Works,  Re,  63  L. 
T.  R.  628;  Saltmarsh  v.  Spaulding, 
147  Mass.  224,  17  N.  E.  316. 

29  Per  Brewer,  J.,  in  Sanford  Fork, 
&c.  Co.  v.  Howe,  Browne  &  Co.  157 
U.  S.  312,  15  Sup.  Ct.  620.  See,  also, 
Sabin  v.  Columbia  Fuel  Co.  25  Oreg. 
15,  35  Pac.  692,  42  Am.  St.  756;  Holt 
v.  Bennett,  146  Mass.  437,  16  N.  E. 
5;  Gould  v.  Little  Rock,  &c.  R.  Co. 
52  Fed.  680;  Henderson  v.  Indiana 
Trust  Co.  143  Ind.  561,  40  N.  E.  516; 
County  Court  v.  Baltimore,  &c.  R. 
Co.  35  Fed.  161;  Hopson  v.  ^Btna, 
&c.  Co.  50  Conn.  597;  Illinois  Steel 
Co.  v.  O'Donnell,  156  111.  624,  41  N. 
E.  185,  31  L.  R.  A.  265,  47  Am.  St. 
245.  See,  also,  Hill  v.  Standard, 
&c.  Co.  198  Pa.  St.  446,  48  Atl. 
432.  "So  a  mortgage  executed  by  a 
corporation  whose  debts  exceed  its 
assets,  to  secure  a  liability  incurred 
by  it  or  on  its  behalf,  will  be  sus- 
tained, if  it  appears  to  have  been 
given  in  good  faith  to  keep  the  cor- 
poration upon  its  feet  and  enable 
it  to  continue  the  prosecution  of  its 
business.  A  corporation  is  not  re- 
quired by  any  duty  it  owes  to  cred- 


itors to  suspend  operations  the  mo- 
ment it  becomes  financially  embar- 
rassed, or  because  it  may  be  doubtful 
whether  the  objects  of  its  creation 
can  be  attained  by  further  effort  up- 
on its  part.  It  is  in  the  line  of  right 
and  of  duty,  when  attempting,  in 
good  faith,  by  the  exercise  of  its  law- 
ful powers  and  by  the  use  of  all 
legitimate  means,  to  preserve  its  ac- 
tive existence,  and  thereby  accom- 
plish the  objects  for  which  it  was 
created.  In  such  a  crisis  in  its  af- 
fairs, and  to  those  ends,  it  may  ac- 
cept financial  assistance  from  one  of 
its  directors,  and  by  a  mortgage 
upon  its  property  secure  the  pay- 
ment of  money  then  loaned  or  ad- 
vanced by  him,  or  in  that  mode  pro- 
tect him  against  liability  then  in- 
curred in  its  behalf  by  him."  Per 
Harlan,  J.,  in  Sutton  Mfg.  Co.  v. 
Hutchinson,  63  Fed.  496,  501.  Com- 
pare Wyman  v.  Bowman,  127  Fed. 
257. 

30  See  Stout  v.  Yaeger  Mill  Co.  13 
Fed.    802;    Baker   v.    Harpster,    42 
Kans.  511,  22  Pac.  415.     See,  also, 
Skinner  v.  Smith,  134  N.  Y.  240,  31 
N.  E.  911. 

31  Richardson's  Exr.  v.  Green,  133 
U.  S.  30,  43,  10  Sup.  Ct.  280;   Twin 
Lick  Oil  Co.  v.  Marbury,  91  U.  S. 


887 


STATUTORY    PREFERENCE   OP   EMPLOYES. 


[§    605 


cisions  of  the  federal  courts  would  not,  perhaps,  be  extended  by  them 
to  cases  in  which  a  general  assignment  is  made  or  a  mortgage  exe- 
cuted to  secure  a  director  after  the  corporation  has  become  hopelessly 
insolvent  and  has  no  intention  of  continuing  business.  Under  such 
circumstances  "entirely  different  considerations  come  into  view,"  says 
Justice  Harlan  in  a  recent  case,32  from  which  we  have  already  quoted. 
"In  our  judgment,  when  a  corporation  becomes  insolvent  and  intends 
not  to  prosecute  its  business,  or  does  not  expect  to  make  further  effort 
to  accomplish  the  objects  of  its  creation,  its  managing  officers  or 
directors  come  under  a  duty  to  distribute  its  property  or  its  proceeds 
ratably  among  all  creditors,  having  regard,  of  course,  to  valid  liens 
or  charges  previously  placed  upon  it.  Their  duty  is  'to  act  up  to  the 
end  or  design'  for  which  the  corporation  was  created,33  and  when  they 
can  no  longer  do  so  their  function  is  to  hold  or  distribute  the  property 
in  their  hands  for  the  equal  benefit  of  those  entitled  to  it.  Because  of 
the  existence  of  this  duty  in  respect  to  a  common  fund  in  -their  hands 
to  be  administered,  the  law  will  not  permit  them,  although  creditors, 
to  obtain  any  peculiar  advantage  for  themselves  to  the  prejudice  of 
other  creditors."34  It  is  not,  however,  altogether  safe  to  predict  that 
this  decision  will  be  followed  in  every  jurisdiction  without  question.35 

§  605.     Statutory  preference  of  employes. — Statutes  exist  in  many 
of  the  states  giving  laborers  and  employes  a  lien  or  preference  upon 


587,  588.  See,  also,  Rickerson,  &c. 
Co.  v.  Farrell,  &c.  Co.  75  Fed.  554; 
James  Clark  Co.  v.  Colton,  91  Md. 
195,  46  Atl.  386,  49  L.  R.  A.  698. 

32  Button  Mfg.  Co.  v.  Hutchinson, 
63  Fed.  496,  502.  See,  also,  Bosworth 
v.  Jacksonville  Nat.  Bank,  64  Fed. 
615. 

83 1  Bl.  Comm.  480. 

34  Button  Mfg.  Co.  v.  Hutchinson, 
63  Fed.  496,  502.  The  court  cites 
Lippincott  v.  Shaw  Carriage  Co.  25 
Fed.  577,  and  cases  following  it.  The 
authority  of  that  case  and  of  some 
of  the  others  cited  is  weakened,  if 
not  destroyed,  by  the  decision  in 
Sanford  Fork,  &c.  Co.  v.  Howe, 
Browne  &  Co.  157  U.  S.  312,  15  Sup. 
Ct.  621,  but  this  does  not  necessarily 
impair  the  force  of  Judge  Harlan's 


decision,  for  the  Lippincott  case  was 
an  extreme  case  and  went  much  fur- 
ther than  Judge  Harlan  did. 

35  The  opinion  of  Justice  Harlan, 
so  far  as  it  states  that  the  corpora- 
tion is  not  required  by  any  duty  to 
creditor  to  suspend  operations  the 
moment  it  becomes  embarrassed  and 
that  it  may  accept  financial  aid  from 
the  directors  in  good  faith  to  keep 
it  going  and  secure  them,  is  quoted 
with  approval  in  Wyman  v.  Bow- 
man, 127  Fed.  257,  275,  276,  and  cited 
and  distinguished  in  Chick  v.  Fuller, 
114  Fed.  22,  29.  See,  also,  Moffat  v. 
Smith,  101  Fed.  771;  Northwestern, 
&c.  Co.  v.  Cotton,  &c.  Co.  70  Fed. 
155,  160;  Easton  v.  Iowa,  188  U.  S. 
220,  23  Sup.  Ct.  288,  292. 


GOG] 


INSOLVENCY   AND   DISSOLUTION. 


888 


the  insolvency  or  dissolution  of  a  corporation.  It  is  generally  held  that 
such  statutes  are  to  be  liberally  construed  ;86  but  different  courts  have 
not  always  reached  the  same  conclusion  as  to  what  persons  are  entitled 
to  the  benefit  of  the  statute,  although  the  provisions  of  many  of  the 
statutes  are  very  similar.  An  independent  contractor  is  clearly  not  a 
laborer  or  an  employe  within  the  meaning  of  such  a  statute.87  Nor 
are  the  regular  officers  of  a  corporation  ordinarily  included,88  although 
it  has  been  held  that  a  head  miller,39  the  superintendent  of  a  gas  com- 
pany,40 and  the  foreman  or  "boss"  of  a  mine41  are  entitled  to  the  bene- 
fit of  the  statute.42  An  attorney,  employed  for  a  special  purpose,  is 
not  entitled  to  a  preference  under  a  statute  preferring  "wages  or 
salaries  to  clerks,  servants  or  employes/'43 

§  606.    What  constitutes  a  dissolution. — As  elsewhere  stated,  a  dis- 
solution may  result  from  the  expiration  of  the  time  to  which  the  cor- 


S6  Pendergast  v.  Yandes,  124  Ind. 
159,  24  N.  B.  724,  8  L.  R.  A.  849,  3 
Lewis  Am.  R.  &  Corp.  645;  Min- 
ing Co.  v.  Cullins,  104  U.  S.  176; 
Bass  v.  Doerman,  112  Ind.  390,  14 
N.  E.  377. 

37  Vane  v.  Newcombe,  132  U.  S.  220, 
10   Sup.    Ct.   60;    Tod   v.   Kentucky 
Union  R.  Co.  52  Fed.  241,  18  L.  R. 
A.  305;  Delaware,  &c.  R.  Co.  v.  Ox- 
ford Iron  Co.  33  N.  J.  Eq.  192.    Nor 
a  sub-contractor,   although   he   per- 
sonally   works    with    the   men    em- 
ployed by  him  to  work  on  part  of  a 
railroad,   which   he   has   contracted 
to  construct  at  a  fixed  price.  Rogers 
v.  Dexter,  &c.  R.  Co.  85  Me.  372,  27 
Atl.  257,  21  L.  R.  A.  528.     See,  also, 
Lehigh  Coal,  &c.  Co.  v.  Central  R. 
Co.  29  N.  J.  Eq.  252. 

38  Black,  Appeal  of,  83  Mich.  513, 
47  N.  W.  342. 

39  England  v.  Beatty  Organ,  &c.  Co. 
41  N.  J.  Eq.  470,  4  Atl.  307;  Wells  v. 
Southern,  &c.  R.  Co.  1  Fed.  270. 

40  Pendergast  v.  Yandes,  124  Ind. 
159,  24  N.  E.  724,  8  L.  R.  A.  849,  3 
Lewis  Am.  R.  &  Corp.  645.     It  ap- 
peared, however,  that  he  was  not  an 


officer  or  general  manager,  but  mere- 
ly superintended  the  digging  of 
trenches  and  laying  of  pipes. 

41Capron  v.  Strout,  11  Nev.  304; 
Mining  Co.  v.  Cullins,  104  U.  S.  176. 

42  But  compare  Seventh  Nat.  Bank 
v.  Shenandoah  Iron  Co.  35  Fed.  436; 
Missouri,   &c.   R.   Co.   v.   Baker,    14 
Kans.  563;  Pennsylvania,  &c.  R.  Co. 
v.  Leuffer,  84  Pa.  St.  168,  24  Am.  R. 
189;   People  v.  Remington,  45  Hun 
(N.  Y.)  329.    See,  also,  notes  to  Pen- 
dergast   v.    Yandes,    3    Lewis    Am. 
R.  &  Corp.  Cas.  645,  650,  and  Tod  v. 
Kentucky  Union  R.  Co.  52  Fed.  241, 
18  L.  R.  A.  305,  where  the  various 
statutes  are  referred  to  and  the  con- 
flicting authorities  collected.     Also 
ante,  §  186. 

43  Lewis  v.  Fisher,  80  Md.  139,  30 
Atl.  608,  26  L.  R.  A.  278,  45  Am.  St. 
327;  Louisville,  &c.  R.  Co.  v.  Wilson, 
138  U.  S.  501,  11  Sup.  Ct.  405.     See, 
also,  Manchester,  &c.  Co.,  In  re,  L. 
R.  (1893)  2  Ch.  Div.  638,  60  Am.  & 
Eng.  R.  Cas.  541.    But  compare  Gur- 
ney  v.  Atlantic,  &c.  R.  Co.  58  N.  Y. 
358. 


889 


WHAT   CONSTITUTES   A  DISSOLUTION. 


[§'   606 


porate  life  was  limited,  or  by  repeal  of  the  charter  under  the  reserved 
power  of  repeal ;  but,  with  these  and  one  or  two  other  exceptions,  the 
general  rule  is  that  a  corporation  remains  in  esse  until  dissolved  by 
judicial  decree.  Many  acts  and  omissions  may  be  cause  for  dissolution 
without  operating  of  themselves  to  dissolve  the  corporation.  Thus, 
as  we  have  seen,  insolvency  does  not  work  a  dissolution;44  nor  does 
suspension  of  business,45  omission  to  elect  officers,46  failure  to  exer- 
cise corporate  powers,47  lease  or  sale  of  all  the  corporate  property,48 
the  assignment  of  such  property  for  the  benefit  of  creditors,49  or  the 
appointment  of  a  receiver.50  The  acquisition  of  all  the  stock  by  a 
single  member  does  not  necessarily  work  a  dissolution;51  nor  does  a 


4*  Nor  does  a  judicial  decree  of  in- 
solvency, together  with  an  injunc- 
tion against  continuing  business, 
and  the  appointment  of  a  receiver. 
Second  Nat.  Bank  v.  New  York,  &c. 
Co.  11  Fed.  532;  Coburn  v.  Boston, 
&c.  Co.  10  Gray  (Mass.)  243.  See, 
also,  Hasselman  v.  Japanese,  &c.  Co. 
2  Ind.  App.  180,  27  N.  E.  318,  28  N. 
E.  207. 

45Nimmons  v.  Tappan,  2  Sweeny 
(32  N.  Y.  Super.)  652;  Mickles  v. 
Rochester  City  Bank,  11  Paige  (N. 
Y.)  118,  42  Am.  Dec.  103;  State  v. 
Barren,  58  N.  H.  370;  Kansas  City 
Hotel  Co.  v.  Sauer.  65  Mo.  278;  Val- 
ley Bank  v.  Ladies',  &c.  Sewing  So- 
ciety, 28  Kans.  423. 

"Allen  v.  New  Jersey  Southern 
R.  Co.  49  How.  Pr.  (N.  Y.)  14;  Bos- 
ton Glass  Manufactory  v.  Langdon, 
41  Mass.  49,  35  Am.  Dec.  292;  Pack- 
ard v.  Old  Colony  R.  Co.  168  Mass. 
92,  46  N.  E.  433;  Harris  v.  Missis- 
sippi Valley,  &c.  R.  Co.  51  Miss.  602 ; 
Wait  Insolv.  Corp.  §  372. 

"Rollins  v.  Clay,  33  Me.  132; 
Swan  Land,  &c.  Co.  v.  Frank,  39  Fed. 
456;  Russell  v.  McLellan,  14  Pick, 
(Mass.)  63;  Brandon  Iron  Co.  v. 
Gleason,  24  Vt.  228;  Slee  v.  Bloom, 
5  Johns.  Ch.  (N.  Y.)  366,  reversed 
in  Slee  v.  Bloom,  19  Johns.  (N.  Y.) 
456,  10  Am.  Dec.  273. 

"Hill  v.  Fogg,  41  Mo.  563;   Bruf- 


fett  v.  Great  Western,  &c.  R.  Co.  25 
111.  353;  Swan  Land,  &c.  Co.  v. 
Frank,  39  Fed.  456;  State  v.  West- 
ern, &c.  Co.  40  Kans.  96,  19  Pac. 
349,  10  Am.  St.  166;  Troy,  &c.  R. 
Co.  v.  Kerr,  17  Barb.  (N.  Y.)  581; 
Commonwealth  v.  Central  Pas.  R.  Co. 
52  Pa.  St.  506;  Sewell  v.  East  Cape, 
&c.  Co.  50  N.  J.  Eq.  717,  25  Atl.  929. 

49  Boston  Glass  Manufactory  v. 
Langdon,  24  Pick.  (Mass.)  49,  35 
Am.  Dec.  292;  DeCamp  v.  Alward, 
52  Ind.  468;  State  v.  Bank,  6  Gill  & 
J.  (Md.)  205,  26  Am.  Dec.  561.  Ante, 
§  602. 

"Moseby  v.  Burrow,  52  Tex.  396; 
Kincaid  v.  Dwindle,  59  N.  Y.  548; 
Heath  v.  Missouri,  &c.  R.  Co.  83  Mo. 
617;  State  v.  Railroad  Commission- 
ers, 41  N.  J.  L.  235;  National  Bank 
v.  Insurance  Co.  104  U.  S.  54; 
Dewey  v.  St.  Albans,  &c.  Co.  56  Vt. 
476,  48  Am.  R.  803;  Ohio,  &c.  R.  Co. 
v.  Russell,  115  111.  52,  3  N.  E.  561; 
Rosenblatt  v.  Johnston,  104  U.  S. 
462;  Jackson  v.  Mclnnis,  33  Oreg. 
529,  54  Pac.  884,  55  Pac.  535,  43  L. 
R.  A.  128,  72  Am.  St.  755;  Kirkpat- 
rick  v.  State  Board,  57  N.  J.  L.  53, 
29  Atl.  442. 

"Newton  Mfg.  Co.  v.  White,  42 
Ga.  148;  Louisville  Banking  Co.  v. 
Eisenman,  94  Ky.  83,  21  S.  W.  531 
and  1049,  19  L.  R.  A.  684;  Russell 
v.  McLellan,  14  Pick.  (Mass.)  63. 


§  607] 


INSOLVENCY  AND  DISSOLUTION. 


890 


consolidation  necessarily  operate  as  a  complete  dissolution  of  the  old 
companies  in  all  cases,52  although  it  may  do  so.58  The  question  is 
generally  one  of  intent  to  be  determined  from  the  statute  and  agree- 
ment of  consolidation.64  So,  where  the  statute  provides  for  a  dissolu- 
tion upon  the  failure  to  perform  certain  conditions  or  upon  the  hap- 
pening of  some  contingency,  it  is  largely  a  question  of  legislative 
intent  as  to  whether  the  corporation  is  dissolved  upon  such  failure  or 
the  happening  of  such  contingency.  As  a  general  rule  it  is  not  dis- 
solved by  the  mere  failure  to  perform  conditions  subsequent,55  nor  by 
the  happening  of  a  contingency  made  by  the  statute  a  ground  for 
forfeiture.56 

§  607.     Judicial  determination  of  dissolution. — A  judicial  determi-^ 
nation  of  the  existence  of  such  grounds  in  the  particular  instance  and 
decree  of  forfeiture  or  dissolution  is  usually  essential.   But  it  is  held 
that  the  legislature,  in  the  charter  or  governing  statute,  may  provide 
for  a  dissolution  in  certain  cases  of  the  kind  specified  without  judicial 


See,  also,  Hopkins  v.  Roseclare,  &c. 
Co.  72  111.  373;  Swift  v.  Smith,  65 
Md.  428,  5  Atl.  534,  57  Am.  R.  336; 
Button  v.  Hoffman,  61  Wis.  20,  20  N. 
W.  667,  50  Am.  R.  131;  Wilde  v. 
Jenkins,  4  Paige  (N.  Y.)  481; 
Sharpe  v.  Dawes,  46  L.  J.  Q.  B.  104; 
Parker  v.  Bethel  Hotel  Co.  96  Tenn. 
252,  34  S.  W.  209,  31  L.  R.  A.  706. 
But  see  contra,  Bellona  Company's 
Case,  3  Bland  (Md.)  442. 

62  Lightner  v.  Boston  &  Albany  R. 
Co.  1  Lowell  (U.  S.)  338,  340;  Cen- 
tral R.  &c.  Co.  v.  Georgia,  92  U.  S. 
665;  Boardman  v.  Lake  Shore,  &c. 
R.  Co.  84  N.  Y.  157,  181;  Meyer  v. 
Johnston,  64  Ala.  603;  Philadelphia, 
&c.  R.  Co.  v.  Maryland,  10  How.  (U. 
S.)  376. 

M  McMahan  v.  Morrison,  16  Ind. 
172,  79  Am.  Dec.  418;  Clearwater  v. 
Meredith,  1  Wall.  (U.  S.)  25,  40; 
Shields  v.  Ohio,  95  U.  S.  319;  Bishop 
v.  Brainerd,  28  Conn.  289;  Pullman 
Palace  Car  Co.  v.  Missouri  Pac.  R. 
Co.  115  U.  S.  587,  594,  6  Sup.  Ct.  194. 
See,  also,  Cheraw,  &c.  R.  Co.  v.  Com- 
missioners, 88  N.  Car.  519;  Kansas, 


&c.  R.  Co.  v.  Smith,  40  Kans.  192,  19 
Pac.  636;  Fee  v.  New  Orleans,  &c. 
Co.  35  La.  Ann.  413. 

MWabash,  &c.  R.  Co.  v.  Ham,  114 
U.  S.  587,  595,  5  Sup.  Ct.  1081;  Cen- 
tral R.  &c.  Co.  v.  Georgia,  92  U.  S. 
665,  670. 

65  Brooklyn  Cent.  R.  Co.  v.  Brook- 
lyn City  R.  Co.  32  Barb.  (N.  Y.) 
358;  New  York  Elevated  R.  Co.,  In 
re,  70  N.  Y.  327,  338;  State  v.  Fagan, 
22  La.  Ann.  545;  Chesapeake,  &c. 
Co.  v.  Baltimore,  &c.  R.  Co.  4  G.  & 
J.  (Md.)  1,  121,  127;  Briggs  v.  Cape 
Cod,  &c.  Canal  Co.  137  Mass.  71; 
Santa  Rosa,  &c.  R.  Co.  v.  Central  St. 
R.  Co.  (Cal.)  38  Pac.  R.  986. 

68  La  Grange,  &c.  R.  Co.  v.  Rainey, 
7  Coldw.  (Tenn.)  420;  Taylor  Priv. 
Corp.  §  432;  2  Morawetz  Priv.  Corp. 
§  1006.  So,  where  the  statute  pro- 
vides that  a  corporation  shall  be  dis- 
solved by  a  mortgage  sale  of  its 
franchise  and  property,  it  is  not  dis- 
solved by  an  illegal  and  fraudulent 
sale.  White  Mts.  R.  Co.  v.  White 
Mts.  R.  Co.  50  N.  H.  50. 


891        VOLUNTARY  DISSOLUTION — SUBBENDEB  OF   CHABTEB.         [§    608 

decree.57  .This  doctrine,  however,  should  not  be  unduly  extended,  and, 
in  order  to  justify  its  application  in  any  case,  it  should  clearly  appear 
that  the  legislature  intended  that  the  matters  specified  should  per  se 
work  a  dissolution,  and  not  merely  that  they  should  be  sufficient  cause 
for  dissolution.58 

§  608.  Voluntary  dissolution — Surrender  of  charter. — Ordinary 
business  corporations,  where  the  rights  of  the  state  or  the  public  do 
not  intervene,  may  cease  to  do  business  and  surrender  their  charters 
by  a  unanimous  vote  of  the  stockholders,69  although  some  authorities 
hold  that  the  surrender  of  a  charter  must  be  accepted  by  the  state.60 
But  most  of  the  cases  holding  that  an  acceptance  on  the  part  of  the 
state  is  necessary  were  decided  under  special  charters  or  under  the 
old  doctrine  that  the  dissolution  of  a  corporation  extinguished  all  its 
debts.  There  seems  to  be  no  valid  reason  why  a  purely  private  cor- 
poration, incorporated  under  general  laws  and  charged  with  no  pub- 
lic duties,  should  not  be  allowed  to  voluntarily  cease  business  and 
dissolve  or  surrender  its  charter  without  an  express  acceptance  on  the 
part  of  the  state.61  Nor  is  a  unanimous  vote  of  the  stockholders  always 
essential.  A  private  business  corporation  should  not  be  compelled 

"Brooklyn,  W.  &c.  R.  Co.,  Matter  son  College,  63  Pa.  St.  428;  Slee  v. 

of,  75  N.  Y.  335;    Brooklyn  Steam,  Bloom,   19   Johns.    (N.   Y.)    456,   10 

&c.  Co.  v.  Brooklyn,  78  N.  Y.  524;  Am.  Dec.  273;  Mobile,  &c.  R.  Co.  v. 

Oakland  R.  Co.  v.  Oakland,  &c.  R.  State,     29     Ala.     573;     Webster    v. 

Co.  45  Cal.  365,  13  Am.  R.  181.    See  Turner,  12  Hun  (N.  Y.)  264;  Bruce 

review  of  cases  in  Bybee  v.  Oregon,  v.   Platt,   80   N.   Y.   379;    3   Purdy's 

&c.  R.  Co.  139  U.  S.  663,  11  Sup.  Ct.  Beach  Priv.  Corp.  §  1310;   1  Beach 

641.  Priv.  Corp.  §  781;  1  Cook  Stock  and 

88  See  La   Grange,   &c.  R.   Co.  v.  Stockholders,  §  629. 
Rainey,  7  Coldw.  (Tenn.)  420;  Flint,        «°Kincaid   v.   Dwinelle,   59    N.    Y. 

&c.   Co.   v.   Woodhull,   25   Mich.   99,  448;  Moseby  v.  Burrow,  52  Tex.  396; 

12  Am.  R.  233;  Vermont,  &c.  R.  Co.  Boston  Glass  Manufactory  v.  Lang- 

v.  Vermont  Cent.  R.  Co.  34  Vt.  1;  don,   24   Pick.    (Mass.)    49,   35   Am. 

People  v.   Manhattan   Co.   9   Wend.  Dec.   292;    Town  T.  Bank,  2   Doug. 

(N.  Y.)   351,  382;  Galveston,  &c.  R.  (Mich.)  530,  and  2  Beach  Priv.  Corp. 

v.  State,  81  Tex.  572,  17  S.  W.  67;  §  781,  where  other  authorities  are 

Santa  Rosa,  &c.  R.  Co.  v.  Central  St.  cited  pro  and  con. 
R.    Co.    (Cal.)    38    Pac.    986;    New       ,w  Taylor    Priv.    Corp.    §    434;     2 

York,   &c.  Co.  v.  Smith,   148  N.  Y.  Beach  Priv.   Corp.   §   781;    Holmes, 

540,  42  N.  E.  1088;  3  Purdy's  Beach  &c.  Co.  v.  Holmes,  &c.  Co.  127  N.  Y. 

Priv.  Corp.  §  1314.  252,  27  N.  E.  831,  24  Am.  St.  448; 

69  Mumma  v.  Potomac  Co.  8  Peters  Merchants'    and    Planters'    Line   v. 

(U.    S.)    281;    Read    v.    Frankfort  Waganer,  71  Ala,  581. 
Bank,  23  Me.  318;  Houston  v.  Jeffer- 


608] 


INSOLVENCY   AND   DISSOLUTION. 


892 


to  continue  a  losing  business,  which  is  certain  to  result  in  financial 
catastrophe  or  the  failure  of  the  object  for  which  the  company  was 
incorporated,  and,  in  such  a  case,  a  majority  of  the  stockholders  may 
surrender  the  charter  and  take  steps  to  wind  up  the  business.02  And 
there  are  cases  of  this  kind  in  which  even  the  minority  may  compel 
the  corporation  to  wind  up  its  business.63  But  a  charter  cannot  be 
voluntarily  surrendered  and  the  corporation  dissolved  in  such  a  manner 
and  under  such  circumstances  as  to  escape  liability  for  debts  or  pre- 
clude suits  therefor.64  For  this  purpose  the  corporation  still  has  a 
qualified  existence,85  which  is  generally  provided  for  by  statute.  Kail- 
road  companies,  unlike  strictly  private  corporations,  owe  a  duty  to  the 
public,  and  they  cannot,  therefore,  voluntarily  cease  to  do  business 
and  dissolve  without  the  consent  of  the  state,  no  matter  what  may 
be  the  true  rule  in  regard  to  strictly  private  corporations.  No  matter 
whether  all  the  stockholders  consent  or  not,  the  corporation  cannot 
evade  its  duties  to  the  public  by  a  voluntary  dissolution  and  surrender 
or  transfer  of  its  charter  and  franchises  without  the  consent  of  the 
state,66  except,  perhaps,  where  it  is  clearly  insolvent  and  incapable  of 


62  Treadwell  v.  Salisbury  Mfg.  Co. 
7  Gray  (Mass.)  393,  66  Am.  Dec. 
490;  Black  v.  Delaware,  &c.  Co.  22 
N.  J.  Eq.  130;  Hancock  v.  Holbrook, 
9  Fed.  353;  Price  v.  Holcomb,  89 
Iowa  123,  56  N.  W.  407;  Lauman  v. 
Lebanon,  &c.  R.  Co.  30  Pa.  St.  42, 
72  Am.  Dec.  685;  McCurdy  v.  Myers, 
44  Pa.  St.  535;  Trisconi  v.  Winship, 
43  La.  Ann.  45,  9  So.  29,  26  Am.  St. 
175;  O'Connor  v.  Knoxville  Hotel 
Co.  93  Tenn.  708,  28  S.  W.  308;  1 
Morawetz  Priv.  Corp.  §  413;  3 
Purdy  Beach  Priv.  Corp.  §  1310; 
1  Beach  Priv.  Corp.  &  781;  Taylor 
Priv.  Corp.  &  610.  But  see  Polar 
Star  Lodge  v.  Polar  Star  Lodge,  16 
La.  Ann.  53;  Berry  v.  Broach,  65 
Miss.  450,  4  So.  117. 

raMarr  v.  Bank,  4  Coldw.  (Tenn.) 
471;  O'Connor  v.  Knoxville,  &c.  Co. 
93  Tenn.  708,  28  S.  W.  308;  Mas- 
ters v.  Electric,  &c.  Co.  6  Daly  (N. 
Y.)  455;  Bristol,  &c.  Bank,  In  re,  L. 
R.  44  Ch.  Div.  703;  Miner  v.  Belle 
Isle  Ice  Co.  93  Mich.  97,  53  N.  W. 


218,  17  L.  R.  A.  412.  But  not  ordi- 
narily, Denike  v.  New  York,  &c.  Co. 
80  N.  Y.  599;  Pyrolusite,  &c.  Co., 
Matter  of,  29  Hun  (N.  Y.)  429;  Har- 
don  v.  Newton,  14  Blatchf.  (U.  S.) 
376;  Suburban  Hotel  Co.,  In  re,  L. 
R.  2  Ch.  737;  Pratt  v.  Jewett,  9  Gray 
(Mass.)  34;  Curien  v.  Santini,  16 
La.  Ann.  27. 

64  Portland,  &c.  Co.  v.  Portland,  12 
B.  Mon.  (Ky.)  77;  Kincaid  v.  Dwin- 
elle,  59  N.  Y.  548,  552;  Baptist  Meet- 
ing House  v.  Webb,  66  Me.  398; 
Directors  of  Binghamton,  &c.  Co.,  In 
re,  143  N.  Y.  261,  38  N.  E.  297;  Tay- 
lor Priv.  Corp.  §  431. 

85 1  Morawetz  Priv.  Corp.  §  411. 

66  Lauman  v.  Lebanon  Valley  R. 
Co.  30  Pa.  St.  42,  72  Am.  Dec.  685; 
Central  R.  &c.  Co.  v.  Collins,  40 
Ga.  582;  Wilson  v.  Central  Bridge 
Co.  9  R.  I.  590;  Treadwell  v.  Salis- 
bury Mfg.  Co.  7  Gray  (Mass.)  393, 
66  Am.  Dec.  490.  See,  also,  State  v. 
Western,  &c.  R.  Co.  95  N.  Car.  602; 
New  Orleans,  &c.  R.  Co.  v.  State,  112 


893  PROCEEDINGS   TO   DISSOLVE.  [§    609 

performing  such  duties.67  But  it  has  been  held  that  where  a  railroad 
company  has  lost  all  its  property  by  judicial  sale,  has  done  no  business 
for  a  great  many  years,  and  has  neither  elected  new  officers  nor  had 
any  old  officers  within  the  state  during  such  period,  a  surrender  of  its 
charter  and  acceptance  of  such  surrender  by  the  state  will  be  pre- 
sumed.68 

§  609.  Proceedings  to  dissolve. — The  dissolution  of  a  corporation 
will  not  be  decreed  in  a  foreign  jurisdiction,69  but  a  valid  decree  of 
dissolution  in  the  state  in  which  the  charter  was  granted  is  generally 
binding  everywhere.70  Notwithstanding  such  a  decree,  however,  it  has 
been  held  that,  for  the  protection  of  home  creditors,  the  corporation 
may  be  treated  in  another  state  in  which  it  does  business  and  in  which 
such  creditors  reside,  as  still  in  existence  in  a  certain  sense  for  the 
purpose  of  enabling  them  to  reach  its  effects  in  that  state,71  at  least 
where  an  action  has  been  commenced  against  it  therein  before  the  de- 
cree of  dissolution  in  the  state  of  its  birth.72  Statutes  exist  in  most 
of  the  states  providing  more  or  less  specifically  the  mode  of  dissolv- 
ing and  winding  up  a  corporation,  and  keeping  it  alive  for  that  pur- 
pose after  it  has  surrendered  its  charter  or  is  so  far  dissolved  as  to  be 
unable  to  carry  on  its  regular  business.73  In  the  absence  of  a  statute 

U.  S.  12,  5   Sup.  Ct.  19;   Attorney-  wind  up  its  affairs.    Republican,  &c. 

General  v.  Superior,  &c.  R.  Co.  93  Mines  v.  Brown,  58  Fed.  644,  48  Am. 

Wis.  604,  67  N.  W.  1138.  &  Eng.  Corp.  Cas.  28. 

67  Boston,  &c.  R.  Co.  v.  New  York,  70  Remington  v.   Samana  Bay  Co. 

&c.  R.  Co.  13  R.  I.  260.     See,  also,  140  Mass.  494,  5  N.  E.  292. 

State  v.  Jack,  145  Fed.  281.  n  Life   Assn.   v.   Fassett,   102    111. 

88  Combes  v.  Keyes,  89  Wis.  297,  62  315. 

N.  W.  89,  27  L.  R.  A.  369,  46  Am.  St.  72  Hunt  v.  Columbian,  &c.  Co.   55 

839.  Me.  290,  92  Am.  Dec.  592;  Henry  v. 

""Wilkins  v.  Thorne,  60  Md.  253;  Stuart,  14  Phila.  (Pa.)  110;  2  Mora- 
Importing,  &c.  Co.  v.  Locke,  50  Ala.  wetz  Priv.  Corp.  §  988. 
332 ;  Society  v.  New  Haven,  8  Wheat.  73  See  St.  Louis,  &c.  Coal  Co.  v. 
(U.  S.)  464;  Merrick  v.  Van  Sant-  Sandoval  Coal  Co.  Ill  111.  32;  Mari- 
voord,  34  N.  Y.  208;  Folger  v.  Co-  ners'  Bank  v.  Sewall,  50  Me.  220; 
lumbian,  &c.  Co.  99  Mass.  267,  96  Herron  v.  Vance,  17  Ind.  595;  Stet- 
Am.  Dec.  747,  and  note;  North,  &c.  son  v.  City  Bank,  12  Ohio  St.  577; 
Co.  v.  People,  147  111.  234,  35  N.  E.  yon  Glahn  v.  De  Rosset,  81  N.  Car. 
608;  East  Line,  &c.  R.  Co.  v.  State,  467;  Folger  v.  Chase,  18  Pick. 
75  Tex.  434,  12  S.  W.  690.  A  fed-  (Mass.)  63;  Tuscaloosa,  &c.  Assn.  ^. 
eral  court,  sitting  as  a  court  of  Green,  48  Ala.  346.  For  New  York 
equity,  has  no  power,  in  the  absence  and  other  statutes,  see  3  Purdy's 
of  any  statute  conferring  it,  to  dis-  Beach  Priv.  Corp.  §  1304;  2  Beach 
solve  a  foreign  corporation  and  Priv.  Corp.  §§  779,  780;  2  Morawetz 


§  GOO] 


INSOLVENCY   AND   DISSOLUTION. 


894 


giving  courts  of  equity  jurisdiction  it  is  generally,  although  not  uni- 
formly, held  that  proceedings  for  the  forfeiture  of  a  charter  must  be 
had  in  a  court  of  law,  usually  by  quo  warranto,  at  the  suit  of  the  state 
or  its  proper  representatives.74  But  the  right  of  the  state  to  have  the 
charter  forfeited  and  the  right  of  creditors  and  stockholders  to  the 
protection  of  a  court  of  equity  are  two  different  things.  On  the  one 
hand,  it  is  true  that  there  are  many  grounds  or  circumstances  which 
would  be  cause  for  forfeiture  at  the  suit  of  the  state  without  giving 
the  stockholders  or  creditors  any  right  to  interfere,  no  matter  whether 
the  state  enforces  the  forfeiture  or  waives  it.  So,  on  the  other  hand, 
there  may  be  circumstances  under  which  creditors  or  stockholders 
may  obtain  relief  even  to  the  extent  of  winding  up  the  affairs  of  the 
corporation  and  virtually  dissolving  it,  although  there  might  not  be 
sufficient  ground  for  forfeiture  by  the  state ;  and  insolvency,  which  may 
be  cause  for  forfeiture,  may  also,  under  certain  circumstances,  as,  for 
instance,  where  it  is  impossible  to  accomplish  the  purpose  of  the  in- 
corporation, be  cause  for  winding  up  the  corporate  affairs  at  the  suit 
of  creditors  or  shareholders,  at  least  under  the  statutes  of  many  of  the 
states.75 


Priv.  Corp.  §§  1036,  1037;  Marstaller 
v.  Mills,  143  N.  Y.  398,  38  N.  E.  370. 

74  See  ante,   §§   53,  54;    Folger  v. 
Columbian,  &c.  Co.  99  Mass.  267,  96 
Am.   Dec.   747,   and   note   in   which, 
many  authorities  are  cited.    Repub- 
lican M.  S.  Mines  v.  Brown,  58  Fed. 
645,  24  L.  R.  A.  776;   Strong  v.  Mc- 
Cagg,   55  Wis.   624,  13   N.   W.   895; 
Wheeler  v.  Pullman,  &c.  Co.  143  111. 
197,  32  N.  E.  420,  17  L.  R.  A.  818; 
Decker  v.  Gardner,  124  N.  Y.   334, 
26  N.  E.  814,  11  "L.  R.  A.  480;  Hinck- 
ley  v.  Pfister,  83  Wis.  64,  53  N.  W. 
21;   People  v.  Weigley,  155  111.  491, 
40  N.  E.  300.     In  Conklin  v.  United 
States,  140  Fed.  219,  it  is  held  that 
a  court  of  equity,  without  statutory 
authority,  can  not  decree  the  disso- 
lution of  a  corporation. 

75  See    Mickles    v.    Rochester,    &c. 
Bank,  11  Paige  (N.  Y.)  118,  126,  42 
Am.  Dec.  103;  Ward  v.  Sea  Ins.  Co. 
7  Paige  (N.  Y.)  294;  Hitch  v.  Haw- 


ley,  132  N.  Y.  212,  30  N.  E.  401; 
Hurst  v.  Coe,  30  W.  Va.  158,  3  S.  E. 
564;  Merchants'  &  Planters'  Line  v. 
Waganer,  71  Ala.  581;  O'Connor  v. 
Knoxville,  &c.  Co.  93  Tenn.  708,  28 
S.  W.  308;  Baker  v.  Backus,  32  111. 
79;  Hunt  v.  Le  Grand,  &c.  Co.  143 
111.  118,  32  N.  E.  525;  Newfoundland 
R.  Co.  v.  Schack,  40  N.  J.  Eq.  222, 
1  Atl.  23;  Miner  v.  Belle  Isle  Ice 
Co.  93  Mich.  97,  53  N.  W.  218,  17  L. 
R.  A.  412,  6  Lewis'  Am.  R.  &  Corp. 
660;  2  Beach  Priv.  Corp.  §§  782, 
783;  1  Pom.  Eq.  Jur.  §  171;  1  Mora- 
wetz  Priv.  Corp.  §  284.  In  New 
York  it  seems  that  creditors  must  be 
judgment  creditors  before  they  can 
maintain  such  a  suit.  Cole  v.  Knick- 
erbocker, &c.  Co.  23  Hun  255.  But 
see  Ailing  v.  Wenzel,  133  111.  264,  24 
N.  E.  551;  2  Lewis'  Am.  R.  &  Corp. 
727  (see  Ailing  v.  Wenzel,  133  111. 
264,  24  N.  E.  551;  White  v.  Univer- 
sity Land  Co.  49  Mo.  App.  450. 


895  DISSOLUTION   IN   CASE   OF   CONSOLIDATED    COMPANY.       [§    610 

§  610.  Dissolution  in  case  of  consolidated  company.— Where  by 
the  consolidation  of  corporations  of  several  states  a  new  corporation  is 
formed,  which  exists  under  the  laws  of  two  or  more  states  it  has  been 
held  that  each  of  the  original  companies  remains  liable  to  be  pro- 
ceeded against  under  the  insolvent  laws  of  the  state  by  which  it  was 
created  on  account  of  its  separate  indebtedness.76  In  case  it  has  main- 
tained no  distinct  place  of  business  and  has  chosen  no  new  officers 
in  the  state,  the  original  place  of  business  of  the  defendant  corpora- 
tion will  be  regarded  as  continuing  to  be  such  for  the  purposes  of  the 
suit ;  and  its  former  officers,  for  purposes  of  service  and  place  of  suit, 
will  be  regarded  as  the  officers  of  the  company.77  It  has  also  been 
held  that  the  new  corporation  formed  by  such  consolidation  is  liable 
to  be  proceeded  against  in  bankruptcy  in  either  of  the  states  under 
whose  laws  it  was  formed,78  and  it  may  be  wound  up  and  dissolved 
in  one  state  without  its  franchise  in  the  other  states  being  affected.79 
Each  state  usually  retains  jurisdiction  over  the  portion  of  the  road 
within  its  borders,80  but  the  effect  of  the  consolidation  upon  the  old 
companies  depends,  as  we  have  elsewhere  stated,  very  largely  upon  the 
statute  and  agreement  of  consolidation  in  the  particular  case. 

§  611.  Effect  of  dissolution. — It  was  formerly  held  that,  upon  the 
dissolution  of  a  corporation,  its  real  estate  reverted  to  the  grantor 
and  its  personal  property  to  the  state  or  sovereign,  and  that  the  debts 
due  to  it  and  from  it  were  forgiven  and  extinguished,  but  this  is  no 
longer  the  rule.81  The  modern  doctrine  is  well  stated  by  Justice  Miller 

78  Platt  v.  New  York,  &c.  R.  Co.  26  lerbach,   37    Cal.   543,   99   Am.   Dec. 

Conn.  544.  300,  336;   People  v.  O'Brien,  111  N. 

77  Platt  v.  New  York,  &c.  R.  Co.  26  Y.  1, 18  N.  E.  692,  7  Am.  St.  684,  717. 
Conn.  544.  That  it  is  not  the  rule  at  least  as  to 

78  Boston,    &c.    R.    Co.,    In    re,    9  other  than  public  corporations,  see 
Blatch.  (U.  S.)  101.  Huber  v.  Martin   (Wis.),  105  N.  W. 

79  Hart  v.   Boston,   &c.  R.   Co.   40  1031;     Mormon    Church    v.    United 
Conn.  524.    See,  also,  East  Line,  &c.  States,  136  U.  S.  1,  17,  10  Sup.  Ct. 
R.  Co.  v.  State,  75  Tex.  434,  12  S.  W.  792;  Higginson,  In  re  (1899),  79  L. 
690.     Compare   Graham   v.    Boston,  T.  Rep.  673.     Debts  are  not  extin- 
&c.  R.  Co.  118  U.  S.  161,  6  Sup.  Ct.  guished.     Blake  v.  Portsmouth,  &c. 
1009;    Covington,  &c.  Bridge  Co.  v.  (R.  Co.  39  N.  H.  435;   Howe  v.  Rob- 
Mayer,  31  Ohio  St.  317.  'inson,  20  Pla.  352;  McCoy  v.  Farmer, 

80  Wait  Insolv.  Corp.  §  445.  65  Mo.  244.    Nor  are  contract  obliga- 

81  Taylor  Priv.  Corp.  §  437 ;  1  Cook  tions  generally.    Mumma  v.  Potomac 
Stock  and  Stockholders,  §  641;  notes  Co.  8  Peters   (U.  S.)   281;   Wait  In- 
to State  Bank  v.  State,  12  Am.  Dec.  solv.  Corp.  §  382.     Nor  a  covenant 
234,  239;   Miners'  Ditch  Co.  v.  Zel-  in  a  lease  to  pay  rent.    People  v.  Na- 


§    612]  INSOLVENCY   AND   DISSOLUTION.  896 

in  a  recent  case.82  Speaking  of  the  effect  of  the  repeal  of  a  charter, 
he  says:  "In  short,  Vhatever  power  is  dependent  solely  upon  the 
grant  of  the  charter,  and  which  could  not  be  exercised  by  unincorpo- 
rated private  persons  under  the  general  laws  of  the  state,  is  abrogated 
by  repeal  of  the  law  which  granted  these  special  rights.  Personal  and 
real  property  acquired  by  the  corporation  during  its  lawful  existence, 
rights  of  contract  or  choses  in  action  so  acquired,  and  which  do  not, 
in  their  nature,  depend  upon  the  general  powers  conferred  by  the 
charter,  are  not  destroyed  by  such  repeal;  and  the  courts  may,  if  the 
legislature  does  not  provide  some  special  remedy,  enforce  such  rights 
by  the  means  within  their  power.  The  rights  of  the  shareholders  of 
such  a  corporation  to  their  interest  in  its  property  are  not  annihilated 
by  such  a  repeal,  and  there  must  remain  in  the  courts  the  power  to 
protect  those  rights."88 

§  612.  Corporation  may  have  a  qualified  existence  after  dissolu- 
tion.— The  corporation  may  be,  and  is,  by  statute  in  many  of  the  states, 
kept  alive  in  a  qualified  sense  for  a  certain  period  in  order  to  wind 
up  its  affairs,  but  it  cannot  carry  on  new  business  under  its  charter. 
Thus,  where  such  a  statute  provided  that  it  should  continue  to  be  a 
body  corporate  for  three  years  for  the  purpose  of  closing  up  its  business 
and  disposing  of  its  property,  it  was  held  that  the  minority  stock- 
holders were  entitled  to  have  the  property  sold  and  the  proceeds,  after 
paying  debts,  distributed  as  in  case  of  the  termination  of  a  partner- 
ship; that  the  majority  had  no  right  to  transfer  the  assets  to  a  new 
corporation  designed  to  continue  the  business  of  the  old,  at  a  valuation 
fixed  by  themselves,  and  to  compel  the  minority  to  accept  a  pro  rata 
amount  of  stock  in  the  new  company  or  a  pro  rata  amount  in  cash  at 
such  valuation,  and  that  the  directors  could  be  compelled  to  account 
to  the  stockholders  for  their  acts  and  doings  where  they  continued  the 
business  of  the  corporation  for  a  year  after  its  dissolution.84  As  a 

tional  Trust  Co.  82  N.  Y.  283.     But  St.  684;  Miner  v.  New  York,  &c.  R. 

it  is  held  that  stock  cannot  be  trans-  Co.   123   N.   Y.   242,   25   N.   E.   339; 

ferred  after  dissolution  so  as  to  pass  People  v.  De  Graw,  133  N.  Y.  254, 

the  legal  title.     James  v.  Woodruff,  30   N.  E.   1006;   Brown  v.  Schicier, 

2  Denio  (N.  Y.)  574.  118  Fed.  981;  ante,  §§  328,  335,  525. 

82  Greenwood  v.  Freight  Co.  105  U.  8*  Mason    v.    Pewabic    Mining   Co. 
S.  13,  18.  133  U.  S.  50,  10  Sup.  Ct.  224,  1  Lewis 

83  See,  also,   International,  &c.   R.  Am.  R.  &  Corp.  227.     See,  also,  to 
Co.  v.  State,  75  Tex.  356,  378,  12  S.  same    effect,    Frothingham    v.    Bar- 
W.  685;  People  v.  O'Brien,  111  N.  Y.  ney,  6  Hun    (N.  Y.)    366.     But  the 
1,  18  N.  E.  692,  2  L.  R.  A.  255,  7  Am.  court  will  not  always  appoint  a  re- 


897 


QUALIFIED  EXISTENCE  AFTER  DISSOLUTION. 


[§    612 


general  rule,  in  the  absence  of  any  provision  to  the  contrary,  a  cor- 
poration can  neither  sue  nor  be  sued  after  its  dissolution,85  and  suits 
already  commenced  against  it  are  abated.86  In  many  of  the  states, 
however,  the  statutes  to  which  we  have  already  referred  keep  the  cor- 
poration alive  for  the  purpose  of  suing  and  being  sued  in  winding 
up  its  affairs.87  In  other  states  receivers  or  trustees  are  appointed  for 
this  purpose.88  It  has  also  been  held,  in  a  state  in  which  corporations 
are  kept  alive  by  statute  for  the  purpose  of  suing  and  being  sued,  that 
a  corporation  which  continued  to  do  business,  without  winding  up, 
after  its  charter  had  expired,  could  be  sued  in  the  corporate  name  for 
a  tort  committed  by  it  while  carrying  on  such  business;89  but  it  has 
been  held  in  Indiana  that  stockholders  are  not  bound  by  a  contract 
made  by  the  officers  of  a  corporation  after  the  repeal  or  forfeiture  of 
its  charter.90 


ceiver  and  order  a  sale,  for,  where 
the  valuation  is  just,  a  company 
may,  prior  to  its  dissolution,  trans- 
fer its  assets  to  a  new  company  to 
discharge  its  liabilities  and  carry  on 
the  business  and  give  the  stockhold- 
ers the  option  of  taking  cash  or 
stock  in  such  new  company,  where 
there  is  no  question  of  its  ability 
to  carry  out  the  arrangement  Bal- 
timore, &c.  R.  Co.  v.  Cannon,  72  Md. 
493,  20  Atl.  123,  3  Lewis  Am.  R. 
&  Corp.  Cas.  202;  Sawyer  v.  Du- 
buque,  &c.  Co.  77  Iowa  242,  42  N. 
W.  300;  Treadwell  v.  Salisbury,  &c. 
Co.  7  Gray  (Mass.)  393,  66  Am.  De/:. 
490;  Buford  v.  Keokuk  Northern 
Line,  &c.  Co.  3  Mo.  App.  159. 

8CDobson  v.  Simonton,  86  N.  Car. 
492 ;  Merrill  v.  Suffolk  Bank,  31  Me. 
57,  50  Am.  Dec.  649;  Miami,  &c.  Co. 
v.  Gano,  13  Ohio  269;  Gold  v.  Clyne, 
58  Hun  (N.  Y.)  419,  12  N.  Y.  S.  531; 
Logan  v.  Western,  &c.  R.  Co.  87  Ga. 
533,  13  S.  E.  516;  City  Ins.  Co.  v. 
Commercial  Bank,  68  111.  348;  Bank 
of  Louisiana  v.  Wilson,  19  La.  Ann. 
1;- Nelson  v.  Hubbard,  96  Ala.  238, 
11  So.  428,  17  L.  R.  A.  375. 
ELL.  RAILROADS — 57 


86  National  Bank  v.  Colby,  21  Wall. 
(U.  S.)  609;  Saltmarsh  v.  Planters', 
&c.  Bank,  17  Ala.  761;  Thornton  v. 
Marginal  Freight  R.  Co.  123  Mass. 
32;  New  York,  &c.  Co.,  In  re,  67 
N.  Y.  St.  549,  33  N.  Y.  S.  726;  Mc- 
Culloch  v.  Norwood,  58  N.  Y.  562; 
Ingraham  v.  Terry,  11  Humph. 
(Tenn.)  572;  Terry  v.  Merchants' 
&c.  Bank,  66  Ga.  177;  note  to  May 
v.  State  Bank,  40  Am.  Dec.  726,  737. 
But  compare  Giles  v.  Stanton,  86 
Tex.  620,  26  S.  W.  615;  Lindell  v. 
Benton,  6  Mo.  361;  Platt  v.  Archer, 
9  Blatchf.  (U.  S.)  559. 

8T  Stetson  v.  City  Bank,  2  Ohio  St. 
167;  Foster  v.  Essex  Bank,  16  Mass. 
245,  8  Am.  Dec.  135;  Greenbrier 
Lumber  Co.  v.  Ward,  30  W.  Va.  43, 
3  S.  E.  227;  Herron  v.  Vance,  17 
Ind.  595;  Kansas  City  Hotel  Co.  v. 
Sauer,  65  Mo.  279;  and  authorities 
cited  in  1  Beach  Priv.  Corp.  §  785; 
Angell  &  Ames  Corp.  §  779a, 

*•!  Beach  Priv.  Corp.  §§  785,  786; 
Taylor  Priv.  Corp.  §  436. 

89  Miller  v.  Newberg,  &c.  Co.  31  W. 
Va.  836,  8  S.  E.  600,  13  Am.  St.  903. 

80  Wilson  v.  Tesson,  12  Ind.  285. 


§  613] 


INSOLVENCY  AND  DISSOLUTION. 


898 


§  613.  Disposition  of  property  on  dissolution. — Creditors  do  not 
lose  their  rights  nor  do  stockholders  lose  their  interest  in  the  property 
upon  the  dissolution  of  a  corporation.  The  assets  of  the  corporation 
become  a  trust  fund  for  the  payment  of  corporate  creditors,  and  the 
surplus  belongs  to  the  stockholders.91  Debts  due  the  corporation,, 
choses  in  action,92  and  certain  so-called  franchises  or  rights  and  pow- 
ers,93 which  may  be  regarded  as  property,  survive  the  dissolution,  and 
may  be  treated  and  disposed  of  as  other  property  for  the  benefit  of 
creditors  and  shareholders.  But  the  franchise  to  be  a  corporation  does 
not  survive,94  and  it  would  seem  that  all  such  franchises  or  powers  as- 
are  "dependent  solely  upon  the  grant  of  the  charter,  and  which  could 
not  be  exercised  by  unincorporated  private  persons  under  the  general 
laws  of  the  state,"  are  abrogated  by  the  repeal  of  the  law  which  granted 
them,  under  the  reserved  power  of  repeal.95  So,  it  has  been  held  that 
the  special  privilege  of  immunity  from  taxation  does  not  ordinarily 


91  Commercial  Fire  Ins.  Co.  v. 
Board,  99  Ala.  1,  14  So.  490,  42  Am. 
St.  1;  People  v.  National  Trust  Co. 
82  N.  Y.  283;  Heman  v.  Britton,  88 
Mo.  549;  Bacon  v.  Robertson,  18 
How.  (U.  S.)  480,  486;  Lum  v.  Rob- 
ertson, 6  Wall.  (U.  S,  277;  Lothrop 
v.  Stedman,  42  Conn.  583, 13  Blatchf. 
(U.  S.)  134;  Montgomery,  &c.  R.  Co. 
v.  Branch,  59  Ala.  139;  Western,  &c. 
R.  Co.  v.  Rollins,  82  N.  Car.  523; 
Shamokin  Valley,  &c.  R.  Co.  v.  Ma- 
lone,  85  Pa.  St.  25.  See  ante,  §  600. 
The  authorities  above  cited  show 
that  it  is  virtually  a  trust  fund  for 
shareholders,  after  creditors  are 
paid,  as  well  as  for  the  creditors 
themselves.  But  see  Knott  v.  Even- 
ing Post,  124  Fed.  342. 

82  Mumma  v.  Potomac  Co.  8  Pet. 
(U.  S.)  281;  New  Jersey  v.  Yard, 
95  U.  S.  104;  Read  v.  Frankfort 
Bank,  23  Me.  318;  Thornton  v.  Mar- 
ginal Freight  R.  Co.  123  Mass.  32. 

93  International,  &c.  R.  Co.  v.  State, 
75  Tex.  356,  378,  12  S.  W.  685;  Hall 
v.  Sullivan  R.  Co.  1  Brunner's  C.  C. 
613;  New  Orleans,  &c.  R.  Co.  v.  Dela- 
more,  114  U.  S.  501,  5  Sup.  Ct.  1009; 
People  v.  O'Brien,  111  N.  Y.  1,  18  N. 


E.  692,  2  L.  R.  A.  255,  7  Am.  St.  684, 
and  note.  See,  also,  Scotland  v. 
Thomas,  94  U.  S.  682;  Hannibal,  &c. 
R.  Co.  v.  Marion  County,  36  Mo.  294; 
Greenwood  v.  Union  Freight  Co.  105 
U.  S.  13. 

94  See  Memphis,  &c.  R.  Co.  v.  Rail- 
road Com'rs,  112  U.  S.  609,  5  Sup. 
Ct.  299;   Willamette  Mfg.  Co.  v.  Bankr 
119  U.  S.  191,  7  Sup.  Ct.  187;  South- 
ern, &c.  Co.  v.  Orton,  32  Fed.  457; 
Coe  v.  Columbus,  &c.  R.  Co.  10  Ohio 
St.  372,  75  Am.  Dec.  518,  and  note. 

95  Greenwood  v.  Freight  Co.  105  U. 
S.  13 ;  Tomlinson  v.  Jessup,  15  Wall, 
(tf.  S.)  454;  Railroad  Co.  v.  Maine, 
96  U.  S.  499;   Sinking  Fund  Cases, 
99   U.   S.   700;    Erie,  &c.   R.    Co.  v. 
Casey,  26  Pa.  St.  287;  International, 
&c.  R.  Co.  v.  State,  75  Tex.  356,  378, 
12  S.  W.  685;  Shields  v.  Ohio,  95  U. 
S.    319.      See,    also,    Grand    Rapids 
Bridge  Co.  v.  Prange,  35  Mich.  400, 
24  Am.  R.   585;    Commonwealth   v. 
Smith,  10  Allen  (Mass.)  448,  87  Am. 
Dec.  672;   Snell  v.  Chicago,  133  111. 
413,  24  N.  E.  532,  8  L.  R.  A.  858;  St. 
Louis  R.  Co.  v.  Gill,  156  U.  S.  649, 
15  Sup.  Ct.  484,  11  Lewis  Am.  R.  & 
Corp.  709. 


899  EIGHTS   OF   CREDITORS   UPON  DISSOLUTION.  [§'  614 

survive  the  dissolution  of  the  corporation.96  If  the  legislature  has 
failed  to  make  provision  for  the  collection  of  debts,  the  distribution 
of  the  assets  and  the  protection  of  creditors  and  shareholders,  equity 
will  provide  the  means.97  After  the  claims  of  creditors  are  satisfied 
the  stockholders  are  entitled  to  share  in  the  surplus  in  proportion  to 
the  amount  of  their  respective  interests.98  Common  and  preferred 
stockholders  share  alike,99  unless  otherwise  provided  by  statute  or 
contract.  If,  however,  a  dividend  has  been  properly  declared  out  of 
surplus  profits,  leaving  the  capital  of  the  company  unimpaired,  a 
shareholder  entitled  thereto  may  have  it  preferred  to  the  claims  of 
creditors,  even  though  he  may  not  have  demanded  it  until  after  the 
company  has  become  insolvent.100 

§  614.  Rights  of  creditors  upon  dissolution. — As  we  have  already 
seen,  the  law  protects,  as  far  as  possible,  the  interests  of  creditors 
upon  the  dissolution  of  a  corporation.  As  a  general  rule  the  rights  of 
creditors  are  such  as  they  have  at  the  time  of  the  dissolution,  and 
cannot  be  enlarged  by  subsequent  proceedings  after  the  corporate  as- 
sets have  passed  into  the  hands  of  an  assignee  or  receiver.101  And 
shareholders  or  directors  who  are  also  lawful  creditors  are  generally 
entitled,  as  such  creditors,  to  share  pro  rata  with  the  other  creditors.102 

88  Morgan  v.  Louisiana,  93  U.   S.  446;  Wood  v.  Dummer,  3  Mason  (U. 

217;  Railroad  Co.  v.  Georgia,  98  U.  S.)  308;  Dudley  v.  Price,  10  B.  Mon. 

S.   359;    Railroad    Co.   v.   Hamblen,  (Ky.)  84;  Bridgewater  Nav.  Co.,  In 

102    U.    S.    273.     See,   also,    Minne-  re,  3  R.   &  Corp.  L.  J.  591;    Hart- 

apolis,  &c.  R.  Co.  v.  Gardner,  177  U.  man  v.  Ins.  Co.  32  Gratt.  (Va.)  242 

S.  332,  20  Sup.  Ct.  656;  Norfolk,  &c.  (in   proportion   to  their  "in-put"); 

R.  Co.  v.  Pendleton,  156  U.  S.  667,  2  Beach  Priv.  Corp.  §  789. 

15  Sup.  Ct.  413.     But  see  Tomlin-  "  McGregor  v.  Home  Ins.  Co.  33  N. 

son  v.  Branch,  15  Wall.  (U.  S.)  460;  J.  Eq.  181;  London,  &c.  Co.,  In  re, 

Humphrey  v.  Pegues,  16  Wall.   (U.  L.  R.  5  Eq.  519. 

S.)  244.    See  ante,  §§  330-331.  100Le  Roy  v.  Globe  Ins.  Co.  2  Edw. 

97  Greenwood  v.  Freight  Co.  105  U.  Ch.    (N.    Y.)    657.     See,   also,   Van 

S.   13;    Howe  v.  Robinson,   20   Fla.  Dyck  v.  McQuade,  86  N.  Y.  38;  Peti- 

352;  McCoy  v.  Farmer,  65  Mo.  244;  tion  of  «Le  Blanc,  In  re,  14  Hun  (N. 

Van  Glahn  v.  De  Rosset,  81  N.  Car.  Y.)  8. 

467;   Curran  v.  Arkansas,  15  How.,  1W  Marr  v.  Bank,  4  Coldw.  (Tenn.) 

(U.  S.)  304;  Moore  v.  Schoppert,  22  471;  Dean  &  Son's  Appeal,  98  Pa.  St. 

W.  Va.  282;  Hightower  v.  Thornton,  101;    Rosebloom  v.  Whittaker,   132 

8  Ga.  486,  52  Am.  Dec.  412.  111.  81,  23  N.  E.  339;   Clinksales  v. 

88  Krebs  v.  Carlisle  Bank,  2  Wall.  Pendleton,  &c.  Co.  9  S.  Car.  318. 

C.  C.  33;  Heath  v.  Barmore,  50  N.  102  Bristol  Milling,  &c.  Co.  v.  Pro- 

Y.  302;   Shorb  v.  Beaudry,  56  Cal.  basco,  64  Ind.  406. 


§    614]  INSOLVENCY  AND  DISSOLUTION.  900 

Unsecured  creditors  usually  share  pro  rata,  as  do  creditors  of  the  same 
class  with  each  other,  but  those  who  have  taken  a  valid  mortgage  or 
similar  security,  or  have  otherwise  obtained  a  lawful  priority,  will 
usually  have  the  preference.108  It  is  held,  however,  in  a  comparatively 
recent  case,  that  the  holders  of  railroad  bonds  guaranteed  by  another 
corporation  are  not  entitled,  upon  the  insolvency  of  such  corporation, 
to  have  a  dividend  declared  in  their  favor,  or  to  have  money  retained 
in  court  to  meet  a  possible  future  liability  on  the  guaranty,  as  against 
other  creditors  whose  claims  are  past  due,  where  the  railroad  company 
is  solvent  and  the  bonds  are  not  due.104 

103  See    Taylor    Priv.    Corp.,    Ch.  court;   that  their  claim  was  not  a 
XVII;  Florsheim,  &c.  Co.  v.  Wetter-  provable  claim  as  it  was  not  yet  due 
mark,  10  Tex.  Civ.  App.  102,  30  S.  and  the  liability  was  not  fixed;  and 
W.  505.  that  they  had  no  right  to  share  as 

104  Gay    Mfg.    Co.    v.    Gittings,    53  creditors  in  the  present  distribution 
Fed.  45.     The  court  held  that  the  of  assets. 

bondholders    had    no    standing    in 


CHAPTER  XXV. 


ACTIONS  BY  AND  AGAINST  COEPOEATIONS. 


Sec.  Sec. 

615.  Generally — Suits    by    corpora-    630. 

tions. 

616.  When   incorporation  must  be    631. 

alleged.  632. 

617.  Actions  and  suits  against  cor- 

porations. 633. 

618.  Power  of  corporation  over  liti-     634. 

gation — Power    to    compro- 
mise and  arbitrate.  635. 

619.  Estoppel  to  deny  corporate  ex- 

istence. 636. 

620.  When  stockholders  may  sue. 

621.  Service  of  process.  637. 
621a.  Resident  agent — Rule  in  fed-     638. 

eral  courts. 

621b.  Agent  need  not  reside  in  state    639. 
— Agent  casually  in  state. 

622.  Return  of  service. 

623.  Venue  of  actions  against  cor- 

porations. 640. 

624.  Attachment  and  garnishment. 

625.  Duty   and   liability   of   garni-    641. 

shee. 

626.  What  may  be  reached  in  gar- 

nishment. 

627.  Garnishment      o  f      employes'     642. 
wages.  643. 

628.  Injunction — Generally.  644. 

629.  Injunction  where  the  company 

seeks  to   take   or   condemn 
lands. 


Injunction  where  railroad  is 
laid  in  a  street. 

Enjoining  a  nuisance. 

Injunction  at  suit  of  the  com- 
pany. 

Enjoining  "strikers." 

Injunction  at  suit  of  stock- 
holder. 

Mandatory  injunction  —  Eng- 
lish cases. 

Rule  in  the  United  States— Il- 
lustrative cases. 

Mandamus — Generally. 

Mandamus  to  compel  comple- 
tion and  operation  of  road. 

Mandamus  to  compel  restora- 
tion of  highway  and  con- 
struction of  crossings  or 
viaducts. 

Mandamus  to  compel  carriage 
of  freight. 

Mandamus  to  compel  the  com- 
pany to  maintain  stations 
and  furnish  increased  facili- 
ties. 

When  mandamus  will  not  lie. 

Who  may  be  relator. 

Quo  warranto. 


§  615.  Generally — Suits  by  corporations. — The  power  to  sue  and 
be  sued  is  one  of  the  necessary  incidents  of  a  corporation,1  since  to  be 

1  In  several  of  the  states  it  is  pro-  sued  in  the  courts  like  natural  per- 
vided  by  the  state  constitutions  that  sons.  Stimson  Am.  Stat.,  citing  con- 
all  corporations  may  sue  and  be  stitutions  of  New  York,  Michigan, 

901 


616] 


ACTIONS  BY   AND  AGAINST  CORPORATIONS. 


902 


recognized  by  law  as  a  collective  body  with  enforceable  rights  is  es- 
sential to  its  legal  existence.2  It  has  been  held  that  the  consent  of  a 
majority  of  the  directors  or  trustees  of  a  corporation  is  necessary  to 
entitle  it  to  sue,3  but  it  is  certainly  not  the  general  rule  that  the 
directors  must  take  action  before  a  suit  can  be  instituted,  and,  in  any 
event,  in  the  absence  of  proof  to  the  contrary,  the  court  will  presume 
that  the  suit  was  properly  authorized.4  A  corporation  may,  in  general, 
avail  itself  of  any  legal  remedies  which  would  be  available  to  an  indi- 
vidual under  similar  circumstances.  It  may  bring  an  action  at  law 
upon  a  contract,5  and  may  by  the  usual  remedies  recover  damages  for 
any  kind  of  wrong  which  it  suffers.6  It  may  sue  in  trespass  for  an  in- 
jury to  its  business,7  and  in  equity,  in  a  proper  case,  for  an  injunction 
to  prevent  injuries  to  its  property.8  It  may  have  a  writ  of  mandamus 
to  compel  the  performance  by  others  of  legal  duties  owed  to  it.9  In  a 
proper  case  it  may  also  maintain  a  bill  of  interpleader.10 

§  616.     When  incorporation  must  be  alleged. — It  is  frequently  re- 
quired by  statute  that  a  plaintiff  corporation  shall  allege  the  fact  of 


Minnesota,  Kansas,  Nebraska,  North 
Carolina,  California,  Nevada,  Ala- 
bama; 4  A.  &  E.  Enc.  of  Law,  189. 
In  Colorado  a  corporation  may  sue 
and  be  sued  as  an  individual,  and  its 
insolvency  does  not  change  the  rule. 
Breene  v.  Merchants',  &c.  Bank,  11 
Colo.  97,  17  Pac.  280. 

21  Morawetz  Priv.  Corp.  (2d  ed.) 
356.  This  power  existed  at  com- 
mon law.  1  Blackstone  Com.  475. 
See,  also,  Bangor,  &c.  R.  Co.  v. 
Smith,  47  Me.  34;  Baltimore,  &c.  R. 
Co.  v.  Gallahue,  12  Gratt.  (Va.)  655, 
65  Am.  Dec.  254;  Heaston  v.  Cincin- 
nati, &c.  R.  Co.  16  Ind.  275,  79  Am. 
Dec.  430;  Wilder  v.  Chicago,  &c.  R. 
Co.  70  Mich.  382,  38  N.  W.  289,  35 
Am.  &  Eng.  R.  Gas.  162;  New  Or- 
Jeans  Terminal  Co.  v.  Teller,  113  La. 
Ann.  733,  37  So.  624. 

3  Dart  v.  Huston,  22  Ga.  506.  But 
see  American  Ins.  Co.  v.  Oakley,  9 
Paige  (N.  Y.)  496,  38  Am.  Dec.  561; 
Colman  v.  West  Virginia,  &c.  Co.  25 
W.  Va.  148;  Trustees  v.  Connolly, 
157  Mass.  272,  31  N.  E.  1058;  Davis 
v.  Memphis,  &c.  R.  Co.  22  Fed.  883. 


*  Bangor  R.  Co.  v.  Smith,  47  Me. 
34;  Angell  &  Ames  Corp.  §  370.  The 
affidavit  in  support  of  an  applica- 
tion by  a  corporation  for  change  of 
venue  on  account  of  local  prejudice 
may  be  made  by  the  secretary  of 
the  corporation.  St.  Louis,  &c.  R. 
Co.  v.  Fowler,  113  Mo.  458,  20  S.  W. 
1069. 

"Eakright  v.  Logansport,  &c.  R. 
Co.  13  Ind.  404. 

8  Morawetz  Priv.  Corp.  §  358. 

7  A  corporation  may  sue  to  recover 
damages   for  a  libel   against  it  in 
its  business.     Metropolitan,  &c.  Co. 
v.  Hawkins,  4  H.  &  N.  87;   Hahne- 
mannian  Life  Ins.  Co.  v.  Beebe,  48 
111.  87,  95  Am.  Dec.  519;   Knicker- 
bocker Life  Ins.  Co.  v.  Ecclesine,  42 
How.  Pr.  (N.  Y.)  201;  Trenton  Mut. 
Life  Ins.  Co.  v.  Perrine,  23  N.  J.  L. 
402. 

8  See  post,  628. 

9  See  post,  637. 

10  Salisbury  Mills  v.  Townsend,  109 
Mass.  115. 


903 


WHEN   INCORPORATION    MUST  BE   ALLEGED. 


[§    616 


its  incorporation,11  and  to  do  so  is  always  the  better  practice.  A  failure 
to  aver  corporate  existence  in  an  action  by  or  against  a  corporation 
cannot,  however,  be  taken  advantage  of  by  a  demurrer  for  want  of 
facts.12  Pleading  the  general  issue,13  or  going  to  trial  on  the  merits14 
generally  amounts  to  an  admission  of  the  plaintiff's  corporate  exist- 
ence and  capacity  to  sue.  In  some  states,  as  apparently  at  common 
law,  it  is  not  necessary  to  allege  the  incorporation  of  a  plaintiff  cor- 
poration.15 The  theory  of  the  cases  so  holding  is  that  the  "name  carries 


11  Texas,  &c.  R.  Co.  v.  Virginia,  &c. 
Co.    (Tex.)   7  S.  W.  341;   Adams  v. 
Lamson,   &c.   Co.    59    Hun    (N.   Y.) 
127,  13  N.  Y.  S.  118;  Miller  v.  Pine 
Min.  Co.  2  Idaho  1206,  31  Pac.  803. 
See,  also,  Bliss  Code  PI.    (3d  ed.) 
|  246  et  seq. 

12  John  T.  Noye  Mfg.  Co.  v.  Ray- 
mond   (Super.    Ct.    Buff.),    8    Misc. 
353,  28  N.  Y.   S.   693;    Fulton  Fire 
Ins.  Co.  v.  Baldwin,  37  N.  Y.  648; 
Bliss  Code  PI.  (3d  ed.)  §  408a.   See, 
also,  Stanly  v.  Richmond,  &c.  R.  Co. 
89  N.  Car.  331;  Cone  Export,  &c.  Co. 
v.  Poole,  41  S.  Car.  70,  19  S.  E.  203, 
24  L.  R.  A.  289;   Wiles  v.  Trustees 
of    Phillip!    Church,    63    Ind.    206; 
Nolte  v.  Lebbert,  34  Ind.  163;    Sey- 
mour v.  Thomas  Harrow  Co.  81  Ala. 
250,  1  So.  45;  Bliss  Code  PI.  §  408. 

13  Mississippi,  &c.  R.  Co.  v.  Cross, 
20  Ark.  443;    Cicero,  &c.  D.  Co.  v. 
Craighead,  28  Ind.  274;   Heaston  v. 
Cincinnati,  &c.  R.  Co.  16   Ind.  275, 
79  Am.  Dec.  430;  Rockland,  &c.  Co. 
v.    Sewall,    78    Me.    167;    Beatty   v. 
Bartholomew,   &c.    Society,   76    Ind. 
91;    Litchfield   Bank  v.   Church,   29 
Conn.    137;     Bailey    v.    Valley,    &c. 
Bank,   127    111.   332,   19   N.   E.   695; 
Rembert  v.   South  Carolina  R.   Co. 
31   S.   Car.  309,  9   S.   E.   968.     See, 
also,  3  Elliott  Ev.  §  1930.    The  rule 
is  different  in  England  and  some  of 
the    states.      Henriquez    v.    Dutch 
West  Indies  Co.  2  Ld.  Raym.  1532; 
Holloway  v.  Memphis  R.  Co.  23  Tex. 
465,   76   Am.   Dec.   68;    Jackson   v. 


Bank,  9  Leigh  (Va.)  240;  Williams 
v.  Bank  of  Michigan,  7  Wend.  (N. 
Y.)  540;  Oregonian  R.  Co.  v.  Oregon, 
&c.  Co.  23  Fed.  232;  Bank  of  Ja- 
maica v.  Jefferson,  92  Tenn.  537,  22 
S.  W.  211,  36  Am.  St.  100.  As  to 
plea  of  nul  tiel  corporation,  see 
Johnson  v.  Hanover,  &c.  Bank,  88 
Ala.  271,  6  So.  909;  Michigan  Ins. 
Bank  v.  Eldred,  143  U.  S.  293,  12 
Sup.  Ct.  450;  Excelsior  Draining  Co. 
v.  Brown,  47  Ind.  19;  Schloss  v. 
Montgomery  Trade  Co.  87  Ala.  411, 
13  Am.  St.  51. 

"United  States  v.  Insurance  Com- 
panies, 22  Wall.  (U.  S.)  99;  Lehigh 
Bridge  Co.  v.  Lehigh  Coal  Co.  4 
Rawle  (Pa.)  9.  See  St.  Cecilia 
Academy  v.  Hardin,  78  Ga.  39,  3  S. 
E.  305;  Sengf elder  v.  Mut.  L.  Ins. 
Co.  5  Wash.  St.  121,  31  Pac.  428; 
Wright  v.  Fire  Ins.  Co.  12  Mont. 
474,  31  Pac.  87,  19  L.  R.  A.  211.  Cor- 
porate capacity  need  not  be  proved 
unless  it  be  challenged  by  an  affirm- 
ative allegation  of  no  corporation. 
Dry  Dock,  &c.  R.  Co.  v.  North,  &c. 
R.  Co.  3  Misc.  (N.  Y.)  61,  22  N.  Y.  S. 
556. 

"German  Reformed  Church  v. 
Von  Puechelstein,  27  N.  J.  Eq.  30; 
Union  Cement  Co.  v.  Noble,  15  Fed. 
'502.  See  Baltimore,  &c.  R.  Co.  v. 
Sherman,  30  Gratt.  (Va.)  602;  Max- 
well Code  PI.  161;  Bliss  Code  PI. 
§  247.  Many  of  the  states  provide 
by  statute  that  in  suits  where  a  cor- 
poration is  a  party,  no  evidence  of 


617] 


ACTIONS  BY  AND  AGAINST  CORPORATIONS. 


904 


with  it  the  assertion  of  a  fact,"  and  it  is  sufficient  if  the  name  of  the 
plaintiff  imports  a  corporation.18 

§  617.  Actions  and  suits  against  corporations. — Suits  may,  in  gen- 
eral, be  brought  against  a  corporation  upon  any  cause  of  action  on 
which  an  individual  would  be  liable  under  similar  circumstances,17 
and  two  or  more  corporations  may  become  jointly  liable  in  the  same 
manner  as  individuals.18  It  is  sufficient  at  common  law  to  sue  a  cor- 
poration by  its  corporate  name,  without  an  averment  of  the  act  of 
incorporation.19  But  in  several  of  the  states  an  allegation  of  the  de- 


its  corporate  existence  need  be  of- 
fered unless  the  same  is  denied  by 
verified  plea.  Rosenberg  v.  Claflin 
Co.  95  Ala.  249,  10  So.  521;  Michigan 
Ins.  Bank  v.  Eldred,  143  U.  S.  293, 
12  Sup.  Ct.  450,  construing  Code  Wis. 
§  4199;  Jones  v.  Ross,  48  Kans.  474, 
29  Pac.  680;  Swift  &  Co.  v.  Craw- 
ford, 34  Neb.  450,  51  N.  W.  1034; 
Vulcan  v.  Myers,  58  Hun  (N.  Y.) 
161,  11  N.  Y.  S.  663;  Canal  St. 
Gravel  R.  Co.  v.  Paas,  95  Mich.  372, 
54  N.  W.  907;  McElwee  Mfg.  Co.  v. 
Trowbridge,  68  Hun  (N.  Y.)  28,  22 
N.  Y.  S.  674.  But  it  has  been  held 
that  this  does  not  dispense  with  an 
allegation  that  the  defendant  is  a 
corporation.  State  v.  Chicago,  &c. 
Co.  4  S.  D.  261,  56  N.  W.  894,  46  Am. 
St.  783. 

16Smythe  v.  Scott,  124  Ind.  183, 
24  N.  E.  685.  See  Cincinnati,  &c. 
R.  Co.  v.  McDougall,  108  Ind.  179; 
Shearer  v.  R.  S.  Peele  &  Co.  9  Ind. 
App.  282,  36  N.  E.  455;  Bliss  Code 
PI.  (3d  ed.)  §  251.  As  to  judicial 
notice,  see  3  Elliott  Ev.  §  1929. 

17  A  corporation  is  liable  for  the 
torts  of  its  servants  committed  in 
the  course  of  their  employment. 
Chestnut  Hill  T.  Co.  v.  Rutter,  4 
Serg.  &  R.  (Pa.)  6,  8  Am.  Dec.  675. 
See  ante,  §§  213,  214.  The  corpora- 
tion is  liable,  generally,  to  the  same 
extent  and  in  the  same  manner  that 
a  natural  individual  would  be  lia- 


ble under  like  circumstances.  First 
Baptist  Church  v.  Schenectady  R. 
Co.  5  Barb.  (N.  Y.)  79.  A  corpora- 
tion may  be  liable  for  malicious 
prosecution.  Springfield  Engine  & 
T.  Co.  v.  Green,  25  111.  App.  106; 
Gulf,  &c.  R.  Co.  v.  James,  73  Tex. 
12,  10  S.  W.  744,  15  Am.  St.  743.  A 
corporation  may  become  civilly  re- 
sponsible for  libel.  Missouri  Pac. 
R.  Co.  v.  Richmond,  73  Tex.  568,  11 
S.  W.  555,  4  L.  R.  A.  280,  15  Am. 
St.  794,  29  Cent.  L.  J.  69;  Fogg  v. 
Boston,  &c.  R.  Co.  148  Mass.  513,  20 
N.  E.  109,  12  Am.  St.  583. 

"An  action  may  be  maintained 
jointly  against  two  railroad  com- 
panies for  injuries  received  in  a  col- 
lision caused  by  the  concurrent 
wrongful  acts  or  negligence  of  both 
defendants.  Flaherty  v.  Minneap- 
olis, &c.  R.  Co.  39  Minn.  328,  40  N. 
W.  160,  1  L.  R.  A.  680,  12  Am.  St. 
654.  One  of  them,  however,  in  a 
proper  case,  may  ask  judgment  over 
against  its  codefendant,  if  judgment 
is  rendered  against  it.  Gulf,  &c.  R. 
Co.  v.  Hathaway,  75  Tex.  557,  12  S. 
W.  999,  41  Am.  &  Eng.  R.  Gas.  219. 

19  Exchange  Nat.  Bank  v.  Capps, 
32  Neb.  242,  49  N.  W.  223,  29  Am. 
St.  433;  Maxwell  Code  PI.  161.  Des- 
ignating the  defendant  by  a  name 
which  imports  a  corporation  is  a 
sufficient  allegation  of  its  corporate 
existence.  Cincinnati,  &c.  R.  Co.  v. 


905 


POWER  OF   CORPORATION  OVER  LITIGATION. 


[§    618 


fendant's  corporate  existence  must  be  contained  in  the  complaint  in 
such  a  suit.20  Proof  of  the  facts  so  averred,  however,  in  most  states, 
is  not  required  unless  they  are  denied  under  oath.21  Where  a  corpora- 
tion formed  by  the  consolidation  of  several  corporations  is  sued  for 
the  debt  of  one  of  the  constituent  companies,  it  has  been  held  that  the 
declaration  should  show  against  which  company  it  arose,  and  the  facts 
necessary  to  fix  liability  upon  the  new  corporation.22 

§  618.  Power  of  corporation  over  litigation — Power  to  compromise 
and  arbitrate. — The  expediency  or  inexpediency  of  litigation  is  a  mat- 
ter for  the  corporation,  or  the  directors,  acting  in  good  faith  within 
the  scope  of  their  powers,  to  determine,  and  their  action  in  bringing 
and  defending  suits  affecting  the  rights  and  obligations  of  the  cor- 
poration is  usually  binding  upon  the  stockholders.23  A  corporation 
may,  therefore,  compromise  a  pending  lawsuit  when  the  directors  be- 
lieve it  to  be  to  the  best  interests  of  the  corporation  to  do  so.24  It  may 


McDougall,  108  Ind.  179,  8  N.  E.  571; 
Adams  Express  Co.  v.  Harris,  120 
Ind.  73,  21  N.  E.  340,  7  L.  R.  A.  217, 
16  Am.  St.  315.  In  an  action  on  a 
note  signed  by  a  company  in  its 
corporate  name,  it  is  not  necessary 
to  aver  its  corporate  existence,  as 
it  is  estopped  by  such  signature  to 
deny  it.  Griffin  v.  Asheville  Light, 
&c.  Co.  Ill  N.  Car.  434,  16  S.  E.  423. 
It  has  been  held  that  the  corpora- 
tion is  the  only  proper  party  to  de- 
fend and  that  a  director  cannot  in- 
tervene as  defendant  even  though 
the  corporation  has  failed  to  pay  its 
franchise  tax.  Rippstein  v.  Haynes, 
&c.  R.  Co.  (Tex.  Civ.  App.)  85  S.  W. 
314. 

20  Rothschild  v.  Grand  Trunk  R. 
Co.  14  N.  Y.  S.  807;  Saunders  v. 
Sioux  City,  &c.  Co.  6  Utah  431,  24 
Pac.  532;  People  v.  Central  Pac.  R. 
Co.  83  Cal.  393,  23  Pac.  303;  Miller- 
v.  Pin  Mining  Co.  2  Idaho  1206,  31 
Pac.  803;  State  v.  Chicago,  &c.  R. 
Co.  4  S.  Dak.  261,  56  N.  W.  894,  46 
Am.  St.  783.  See  Bliss  Code  PI.  (3d 
ed.)  §  260. 


21  Calumet  Paper  Co.  v.  Knight, 
&c.  Co.  43  111.  App.  566;  Hummel  v. 
First  Nat.  Bank,  2  Colo.  App.  571, 
32  Pac.  72;  Dry  Dock,  &c.  Co.  v. 
North,  &c.  R.  Co.  3  Misc.  (N.  Y.)  61, 
22  N.  Y.  S.  556.  But  proof  is  required 
in  some  states  of  the  due  incorpora- 
tion of  a  foreign  corporation.  Bank 
of  Jamaica  v.  Jefferson,  92  Tenn. 
537,  22  S.  W.  211,  36  Am.  St.  100.  See 
Hummel  v.  First  Nat.  Bank,  2  Colo. 
App.  571,  32  Pac.  72. 

^Langhorne  v.  Richmond  City  R. 
Co.  (Va.)  19  S.  E.  122. 

"Farnum  v.  Ballard,  &c.  Shop,  12 
Gush.  (Mass.)  507;  Graham  v.  Bos- 
ton, &c.  R.  Co.  14  Fed.  753,  affirmed 
in  118  U.  S.  161,  6  Sup.  Ct.  1009; 
MacDougall  v.  Gardiner,  L.  R.  1  Ch. 
D.  13;  note  to  Bissit  v.  Kentucky, 
&c.  Co.  15  Fed.  353,  361. 

24  Donohoe  v.  Mariposa,  &c.  Co.  66 
Cal.    317,    5    Pac.    495;    Stewart    v. 
Hoyt,  111  U.  S.  373,  4  Sup.  Ct.  519; 
New  Albany  v.  Burke,  11  Wall.  (U.- 
S.)  96. 


§  619] 


ACTIONS   BY   AND   AGAINST    CORPORATIONS. 


906 


also  refer  matters  to  arbitration,25  and  has  implied  power  to  execute 
a  bond  in  a.  judicial  proceeding  in  which  it  is  interested.26  So,  it 
may  appeal  or  refuse  to  appeal  a  case,  and  not  even  a  majority  of  the 
stockholders  can  have  an  appeal  dismissed  which  the  directors,  acting 
in  good  faith,  have  ordered  to  be  taken  and  prosecuted  to  final  determi- 
nation in  the  appellate  court.27 

§619.  Estoppel  to  deny  corporate  existence. — In  suits  against  a 
body  of  persons  as  a  corporation  where  they  assume  to  act  as  a  cor- 
poration under  color  of  an  apparent  organization,  in  pursuance  of 
a  law  authorizing  it,  they  are  generally  estopped  to  set  up  the  irregu- 
larity of  the  corporate  organization  as  a  defense  to  the  corporate  lia- 
bility which  would  otherwise  have  attended  their  actions.28  And  a 
person  who  enters  into  a  contract  with  such  a  de  facto  corporation  is 
usually  estopped  to  deny  its  corporate  existence  in  a  suit  upon  that 
contract.29  Thus,  while  it  is  true  that  persons  cannot  dispute  the  cor- 
porate liability  on  such  a  contract  because  of  the  unauthorized  or 
irregular  organization  of  the  company,  on  the  other  hand,  those  who 
deal  with  them  as  a  corporation  may  be  estopped  from  treating  them 
as  partners.  If  the  corporation  was  organized  under  authority  of  law, 
persons  seeking  to  enforce  contracts  into  which  they  have  entered  with 


23  Boston,  &c.  R.  Co.  v.  Nashua,  &c. 
R.  Co.  139  Mass.  463,  31  N.  E.  751; 
Alexandria  Canal  Co.  v.  Swann,  5 
How.  (U.  S.)  83. 

26  Collins  v.  Hammock,  59  Ala.  448. 

27  Railway  Co.  v.  Ailing,  99  U.  S. 
463.      See,    also,    Silk    Mfg.    Co.    v. 
Campbell,  27  N.  J.  L.  539.     Under 
the  Ohio   statute  stockholders  may 
appeal  in  certain  cases.     Henry  v. 
Jennes,   47   Ohio  St.   116,  24  N.  E. 
1077. 

28  Kelley  v.  Newburyport  Horse  R. 
Co.    141    Mass.    496,    6    N.    E.    745; 
Blackburn   v.    Selma,   &c.   R.   Co.   2 
Flippin  (U.  S.)  525;  Georgia  Ice  Co. 
v.  Porter,  70  Ga.  637;  Empire  Mfg. 
Co.  v.  Stuart,  46  Mich.  482,  9  N.  W. 
527;  Griffin  v.  Asheville,  &c.  Co.  Ill 
N.  Car.  434,  16  S.  E.  423.    See  ante, 
§   190;    also   3   Elliott  Ev.    §§   1932, 
1940. 

""Swartout    v.    Michigan,   &c.   R. 


Co.  24  Mich.  389;  Imboden  v.  Eto- 
wah,  &c.  Mfg.  Co.  70  Ga.  86;  Smel- 
ser  v.  Wayne,  &c.  Turnpike  Co.  82 
Ind.  417;  Cravens  v.  Eagle,  &c.  Co. 
120  Ind.  6,  21  N.  E.  891,  16  Am.  St. 
298;  Keene  v.  Van  Reuth,  48  Md. 
184;  McCord,  &c.  Co.  v.  Glenn,  6 
Utah  139,  21  Pac.  500;  French  v. 
Donohue,  29  Minn.  Ill;  Beekman  v. 
Hudson  River,  &c.  Co.  35  Fed.  3; 
Butchers',  &c.  Bank  v.  MacDonald, 
130  Mass.  264;  Cahall  v.  Citizens', 
&c.  Assn.  61  Ala.  232;  Griffin  v. 
Asheville,  &c.  Co.  Ill  N.  Car.  434,  16 
S.  E.  423.  One  who  deals  with  a 
corporation  as  existing  in  fact,  is 
estopped  to  deny  as  against  the  cor- 
poration that  it  has  been  legally  or- 
ganized. Close  v.  Glenwood  Ceme- 
tery, 107  U.  S.  466,  2  Sup.  Ct.  267, 
per  Mr.  Justice  Gray;  Bliss  Code 
PI.  (3d  ed.),  §  252  et  seq.  Ante, 
§  190;  also  3  Elliott  Ev.  §  1940. 


907 


WHEN   STOCKHOLDERS   MAY  SUE. 


[§    620 


it  cannot,  as  a  rule,  take  advantage  of  any  failure  to  observe  the  legal 
formalities  necessary  to  a  valid  organization,  in  order  to  charge  the 
shareholders  as  partners.30  But  where  the  organization  was  without 
any  authority  of  law  for  its  existence,  the  fact  that  the  persons  called 
themselves  a  corporation  will  not  enable  them  to  escape  from  personal 
liability  for  their  acts.31 

§  620.  When  stockholders  may  sue. — As  already  intimated,  suits 
to  enforce  corporate  rights  or  to  avert  threatened  wrongs  to  the  cor- 
porate interests  should  be  brought  by  the  officers  of  the  corporation  in 
its  name,  and  a  stockholder,  as  such,  has  generally  no  right  to  sue.32 
But  where  the  directors  refuse  to  enforce  the  corporate  rights,33  and 
are  proceeding  ultra  vires,  or  are  fraudulently  combining  with  others 
to  despoil  the  corporation,34  a  stockholder  may  maintain  a  suit  in  his 


30  Stout  v.  Zulick,  48  N.  J.  L.  599; 
Humphreys  v.  Mooney,  5  Colo.  282; 
First  Nat.  Bank  v.  Almy,  117  Mass. 
476;  Planters',  &c.  Bank  v.  Padgett, 
69  Ga.  159;  Second  Nat  Bank  v. 
Hall,  35  Ohio  St.  158,  Ante,  §  190. 
See  note  in  29  Am.  St.  601. 

81  Hill  v.  Beach,  12  N.  J.  Eq.  31; 
Lewis  v.  Tilton,  64  Iowa  220,  19  N. 
W.  911,  52  Am.  R.  436;  Methodist 
Episcopal  Church  v.  Pickett,  19  N. 
Y.  482.  See,  also,  notes  in  29  Am. 
St.  602  and  17  L.  R.  A.  550.  But 
see  Winget  v.  Quincy,  &c.  Assn.  128 
111.  67,  21  N.  E.  12. 

32  Waterman  Corp.  §  138;  2  Beach 
Priv.  Corp.  §  878.     See,  also,  Wolf 
v.  Pennsylvania  R.  Co.  195  Pa.  St. 
91,  45  Atl.  936;  McCloskey  v.  Snow- 
den,  212  Pa.  St  249,  61  Atl.  796,  108 
Am.  St.  867;  Johns  v.  McLester,  137 
Ala.  283,  34  So.  174,  97  Am.  St.  29 
and  elaborate  note. 

33  Morgan  v.  Railroad  Co.  1  Woods 
(U.'S.)   15;  Detroit  v.  Dean,  106  U. 
S.  537,  1  Sup.  Ct.  560;   Shawhan  v. 
Zinn,  79  Ky.  300;    Dodge  v.  Wool- 
sey,  18  How.   (U.  S.)   331.     It  must 
appear  that  their  refusal  is  a  breach 
of  trust  on  their  part  and   not  a 
mere  error  of  judgment  in  a  matter 


properly  within  their  discretion. 
Pacific  R.  Co.  v.  Missouri  Pac.  R. 
Co.  2  McCrary  (U.  S.)  227;  Dimp- 
fell  v.  Ohio,  &c.  R.  Co.  110  U.  S.  209, 
3  Sup.  Ct.  573. 

34  Where  such  a  state  of  facts  is 
shown  as  to  clearly  indicate  that 
the  corporate  management  is  ad- 
verse or  indifferent  to  the  interests 
of  the  corporation  and  that  it  would 
be  useless  to  request  the  corporation 
to  sue,  a  stockholder  may  sue  in  the 
first  instance.  Ban*  v.  New  York, 
&c.  R.  Co.  96  N.  Y.  444;  Crumlish 
v.  Shenandoah  Valley  Railroad  Co. 
28  W.  Va.  623;  Wilcox  v.  Bickel,  11 
Neb.  154,  8  N.  W.  436;  Doud  v.  Wis- 
consin, &c.  R.  Co.  65  Wis.  108,  56 
Am.  R.  620;  Davis  v.  Gemmel,  70 
Md.  356,  17  Atl.  259;  Barr  v.  Pitts- 
burgh, &c.  Co.  40  Fed.  412.  But, 
unless  this  is  true,  a  request  should 
precede  suit  and  an  earnest  effort 
should  first  be  made  to  have  the 
,  corporation  sue.  Taylor  v.  Holmes, 
127  U.  S.  489,  8  Sup.  Ct.  1192;  Dimp- 
fell  v.  Ohio,  &c.  R.  Co.  110  U.  S.  209, 
3  Sup.  Ct.  573 ;  Foote  v.  Cunard,  &c. 
Co.  17  Fed.  46;  Chicago  v.  Cameron, 
120  111.  447.  See  ante,  §§  165,  167. 


§  621] 


ACTIONS  BY  AND  AGAINST   CORPORATIONS. 


908 


own  name  to  enforce  those  rights,85  especially  if  he  can  show  that  ir- 
remediable loss  will  accrue  if  he  is  not  allowed  to  bring  suit.86  But 
it  has  been  held  that  the  corporation  should,  in  such  a  case,  be  made  a 
party  defendant,87  although  the  relief  prayed  is  really  in  its  favor.88 

§  621.  Service  of  process. — Process  cannot,  of  course,  be  served 
upon  a  corporation  aggregate  directly.  At  common  law  service  was 
required  to  be  made  upon  some  agent  bearing  the  relation  to  the  cor- 
poration of  a  head  officer,  whose  knowledge  would  be  that  of  the  cor- 
poration.38 The  statutes  of  the  various  states  prescribe  the  agents  of 
the  company  upon  whom  service  of  process  shall  be  made  in  order  to 
be  valid  as  service  upon  the  company  itself.  These  statutes  resemble 
each  other  though  they  vary  much  in  detail.40  Where  the  method  of 
serving  process  upon  a  corporation  is  prescribed  by  statute  that  method 


35  Hawes  v.  Oakland,  104  U.  S.  450, 
where  the  court  states  in  the  form 
of  distinct  propositions  what  must 
be  shown  in  order  to  enable  a  stock- 
holder to  sue. 

36  Detroit  v.  Dean,  106  U.  S.  537, 
542,  1  Sup.  Ct.  650.     It  is  suggested 
that  each  probable  loss  from  a  fail- 
ure  to    permit   the    bringing   of   a 
suit  against  an  outsider,  to  recover 
damages  for  past  injuries,  would  be 
very  difficult  to  show  in  almost  all 
cases.    Waterman  Corp.  §  142.    But 
see  Chicago  v.  Cameron,  120  111.  447, 
458,  11  N.  E.  899,  where  the  stock- 
holders  were   permitted    to   sue   to 
cancel     bonds     wrongfully     issued 
twelve  years  before.    See,  generally, 
upon  the  subject,  the  elaborate  note 
in  97  Am.  St.  29  et  seq.     See  as  to 
right  of  transferee  to  have  transfer 
of  stocks  and  enforce  the  right  in 
the  courts  of  another  state  than  that 
creating  the   corporation,  Westmin- 
ster Nat.  Bank  v.  New  England,  &c. 
Works,  73  N.  H.  465,  62  Atl.  971,  111 
Am.  St.  637. 

"Shawhan  v.  Zinn,  79  Ky.  300; 
Hawes  v.  Oakland,  104  U.  S.  450; 
Slattery  v.  St.  Louis,  &c.  Co.  91  Mo. 
217,  4  S.  W.  79,  60  Am.  R.  245; 


Byers  v.  Rollins,  13  Colo.  22;  Ken- 
nebec,  &c.  R.  Co.  v.  Portland,  &c.  R. 
Co.  54  Me.  173;  Mount  v.  Radford 
Trust  Co.  93  Va.  427,  25  S.  E.  244; 
Morshead  v.  Southern  Pac.  R.  Co. 
123  Fed.  350;  Holton  v.  Wallace,  77 
Fed.  61;  note  in  97  Am.  St.  45. 

38  Jones  v.  Bolles,  9  Wall.  (U.  S.) 
364.  See,  also,  Flynn  v.  Brooklyn 
City  R.  Co.  158  N.  Y.  493,  53  N.  E. 
520.  Relief  cannot  be  granted  un- 
less the  corporation  is  brought  be- 
fore the  court  so  that  the  decree 
may  conclude  it.  Shawhan  v.  Zinn, 
79  Ky.  300. 

""Heltzell  v.  Chicago,  &c.  R.  Co. 
77  Mo.  315;  Newell  v.  Great  Western 
R.  Co.  19  Mich.  336;  Glaize  v.  South 
Carolina  R.  Co.  1  Strobh.  Law  (S. 
Car.)  70;  Boyd  v.  Chesapeake,  &c. 
Canal  Co.  17  Md.  195,  75  Am.  Dec. 
646;  Newby  v.  Van  Oppen,  L.  R. 
7  Q.  B.  293.  Service  on  the  officers 
of  a  domestic  corporation  was  held 
to  be  service  upon  the  corporation, 
but  it  seems  that  jurisdiction  over 
a  foreign  corporation  could  not  be 
thus  acquired  under  the  early  com- 
mon law.  1  Elliott  Gen.  Pr.  §  359. 

40  Stimson  Am.  Stat,  Vol.  3. 


909 


SERVICE   OF   PROCESS. 


is  generally,  but  not  always,  held  to  be  exclusive  of  any  other.41  The 
statute  of  Indiana  provides  that  service  may  be  made  upon  the  presi- 
dent or  other  chief  officer,  or  if  its  chief  officer  is  not  found  in  the 
county,  then  upon  its  cashier,  treasurer,  director,  secretary,  clerk,  gen- 
eral or  special  agent.  If  none  of  these  officers  is  to  be  found  in  the 
county,  process  may  be  served  upon  any  person  authorized  to  transact 
business  in  the  name  of  such  corporation.*2  Under  this  statute  it  is 
held  that  service  upon  the  conductor  of  a  passenger  train,43  or  a  freight 
train,44  or  upon  a  local  freight  agent,45  is  valid  and  effective  as  service 
upon  the  railroad  company  by  which  he  is  employed  ;46  since  the  term 
"special  agent"  must  be  held  to  include  persons  holding  such  a  special 
authority.47  But  it  has  been  held  by  the  Supreme  Court  of  Michigan 
that  the  "general  or  special  agent"  of  a  corporation  upon  whom  a 
summons  in  garnishment  may  be  served  under  a  similar  statute,  is  an 
agent  having  a  general  or  special  controlling  authority,  either  gener- 
ally or  in  respect  to  some  department  of  corporate  business,  and  that 
a  ticket  agent  is  not  such  an  agent.48  So,  it  has  been  held  that  where 


"Cosgrove  v.  Tebo,  &c.  R.  Co.  54 
Mo.  495;  Union  Pac.  R.  Co.  v.  Pills- 
bury,  29  Kans.  652;  North  v.  Cleve- 
land, &c.  R.  Co.  10  Ohio  St.  548; 
Congar  v.  Galena,  &c.  R.  Co.  17  Wis. 
477;  Hartford  Fire  Ins.  Co.  v.  Owen, 
30  Mich.  441.  And  the  method  pre- 
scribed in  a  special  statute  is  held 
to  be  exclusive  of  the  methods  pre- 
scribed in  a  prior  general  statute. 
St.  Paul,  &c.  R.  Co.,  In  re,  36  Minn. 
85,  30  N.  W.  432.  Contra,  State  v. 
Hannibal,  &c.  R.  Co.  51  Mo.  532; 
Jeffersonville,  &c.  R.  Co.  v.  Dunlap, 
29  Ind.  426;  Fowler  v.  Detroit,  &c. 
R.  Co.  7  Mich.  79. 

42  R.  S.  Ind.  1894,  §  318. 

"New  Albany,  &c.  R.  Co.  v. 
Grooms,  9  Ind.  243;  New  Albany, 
&c.  R.  Co.  v.  Tilton,  12  Ind.  3,  74 
Am.  Dec.  195. 

44  Ohio,  &c.  R.  Co.  v.  Quier,  16  Ind. 
440. 

45  And   this   is   true   even   though 
there  be  a   superintendent  and   di- 
rector of  the  company  residing  in 
the  same  county.    Toledo,  &c.  R.  Co. 
v.   Owen,   43    Ind.    405.     For   other 
cases    holding    service    of    process 


upon  a  local  depot  or  station  agent 
valid,  see  St.  Louis,  &c.  R.  Co.,  Ex 
parte,  40  Ark.  141;  Hudson  v.  St. 
Louis,  &c.  R.  Co.  53  Mo.  525;  Ruthe 
v.  Green  Bay,  &c.  R.  Co.  37  Wis. 
344;  Smith  v.  Chicago,  &c.  R.  Co.  60 
Iowa  512,  15  N.  W.  303;  Missouri 
Pac.  R.  Co.  v.  Collier,  62  Tex.  318. 
In  St.  Louis,  &c.  R.  Co.  v.  De  Ford, 

38  Kans.  299,  16  Pac.  442,  it  was  held 
that  service  of  a  summons  upon  a 
section  foreman,  as  "a  local  super- 
intendent of  repairs"  of  a  railroad 
company,  was  a  valid  service  upon 
the   company.     Contra,    Richardson 
v.  Burlington,  &c.  R.  Co.  8  Iowa  260. 

"The  return  must  state  the 
agency  held  by  the  person  upon 
whom  service  was  made  or  it  will 
be  held  insufficient.  Dickerson  v. 
Burlington,  &c.  R.  Oo.  43  Kans.  702, 
123  Pac.  936. 

"  New  Albany,  &c.  R.  Co.  v. 
Grooms,  9  Ind.  243. 

48  Lake  Shore,  &c.  R.  Co.  v.  Hunt, 

39  Mich.   469.     See,  also,  Abraham 
Bros.  v.  Southern  R.  Co.  (Ala.),  42 
So.  837. 


§    G21a]  ACTIONS   BY   AND   AGAINST    CORPORATIONS.  910 

the  statute  provides  for  service  upon  a  "passenger  or  freight  agent" 
of  the  company  it  refers  to  such  a  person  in  the  service  of  the  com- 
pany and  that  in  an  action  against  the  last  of  several  connecting 
carriers  service  upon  the  agent  of  the  first  carrier  is  insufficient.4* 
Service  must  usually  be  made  upon  the  de  facto  officers,  or  agents,  or 
persons  in  possession  of  the  offices  under  claim  of  rights,  who,  having 
control  of  the  business  and  property  of  the  company,  are  in  a  position 
to  care  for  and  protect  its  rights.  Service  upon  persons  claiming  to  be 
officers  de  jure,  but  not  having  possession  of  the  offices  they  claim,  is 
not  sufficient.50  In  the  case  of  foreign  corporations  conducting  busi- 
ness within  the  jurisdiction,  the  head  officer  or  managing  agent  in 
charge  of  such  business  is  the  proper  person  upon  whom  to  serve 
process,  in  the  absence  of  any  statutory  provision  designating  the 
officer  or  agent  upon  whom  service  may  be  made.51  But  where  there 
is  a  general  statute  providing  for  the  service  of  process  upon  corporate 
agents,  and  there  are  no  special  provisions  relative  to  service  upon 
foreign  corporations,  such  corporations  are  within  the  operation  of 
the  general  statute.52 

§  621a.  Resident  agent — Rule  in  federal  courts.523 — Most  of  the 
states  have  statutes  regulating  the  method  of  serving  foreign  corpora- 
tions with  process.  These  statutes  usually  require  that  foreign  railroad 
or  other  corporations  acting  within  their  jurisdiction  shall  keep 
specified  agents  therein  who  are  fully  authorized  to  accept  service  of 

48  Louisville,  &c.  R.  Co.  v.  Chest-  its   general   counsel   had    stated   ta 

nut  &  Bro.  115  Ky.  43,  72  S.  W.  351.  plaintiff's   counsel   that  such  agent 

But,    under   the   particular   circum-  was    authorized    to    accept    service, 

stances  of  the  case,  a  construction  Taylor,  &c.   Co.  v.   Adams   Express 

company  was  held  the  agent  of  the  Co.  71  N.  J.  L.  523,  59  Atl.  10. 

railroad  company  so  as  to  make  the  B1  St.  Clair  v.  Cox,  106  U.  S.  350, 

latter   subject   to   suit   and    service  355,  1  Sup.  Ct.  354;  Newby  v.  Van 

upon  the  officers  of  the  former  good  Oppen,  L.  R.  7  Q.  B.  293;  Weight  v. 

in  a  suit  against  the  latter  in  Buie  Liverpool,  &c.  Ins.  Co.  30  La~  Ann. 

v.  Chicago,  &c.  R.  Co.  95  Tex.  51,  65  1186;  New  York,  &c.  R.  Co.  v.  Purdy, 

S.  W.  27,  55  L.  R.  A.  861.    See,  also,  18  Barb.  (N.  Y.)  574. 

Lehigh  Min.  &c.  Co.  v.  Kelly,  160  U.  B2  Hannibal,   &c.   R.  Co.  v.  Crane, 

S.  327,  16  Sup.  Ct.  307.  102  111.  249;  Midland  Pac.  R.  Co.  v. 

°°Berrian    v.    Methodist    Soc.    in  McDermid,  91  111.  170;  Chicago,  &c. 

New  York,  4  Abb.  Pr.   (N.  Y.)   424.  R.  Co.  v.  Manning,  23  Neb.  552,  37 

But  it  has  been  held  that  the  cor-  N.  W.  462. 

poration    cannot   question   that   the  B2a  Part  of  this  section  was  part  of 

service  was  on  a  proper  agent  where  §  621  fn  the  original  edition. 


911 


RESIDENT  AGENT RULE  IN  FEDERAL  COURTS.     [§  621a 


process.53  Where  such  is  the  case  service  upon  such  agent  is  sufficient 
to  support  jurisdiction  in  an  action  against  a  foreign  corporation 
either  in  the  state  courts  or,54  when  not  inconsistent  with  the  acts  of 
congress,  in  the  federal  court  sitting  in  such  state.55  If  no  agent  is 
designated  to  receive  service  of  process,  as  required  by  law,  service 
may  be  made  upon  a  managing  agent  as  at  common  law.56  Where 


53  Such  a  regulation  is  within  the 
constitutional  power  of  a  state.  La- 
fayette Ins.  Co.  v.  French,  18  How. 
(U.  S.)  404;  Hannibal,  &c.  R.  Co. 
v.  Crane,  102  111.  249,  40  Am.  R. 
581;  Gibson  v.  Manufacturers',  &c. 
Co.  144  Mass.  81,  10  N.  E.  729;  1 
Elliott  Gen.  Pr.  §  359,  and  numerous 
authorities  there  cited.  See,  also, 
ante,  §  24.  But  it  is  held  that  the 
Idaho  statute  does  not  apply  to  rail- 
road companies.  Boyer  v.  Northern 
Pac.  R.  Co.  8  Idaho  74,  66  Pac.  826, 
70  L.  R.  A.  691,  and  note  on  the  gen- 
eral subject.  A  corporation  which 
does  business  in  a  state  whose  gen- 
eral laws  prescribe  a  certain  method 
of  serving  process  upon  foreign  cor- 
porations will  be  held  to  have  sub- 
mitted to  the  provisions  of  the  law. 
Weymouth  v.  Washington,  &c.  R. 
Co.  1  McArthur  (D.  C.)  19;  Mora- 
wetz  Priv.  Corp.  (2d  ed.)  §  982. 

84  Reyer  v.  Odd  Fellows,  &c.  Assn, 
157  Mass.  367,  32  N.  E.  469,  34  Am. 
St.  288;  Chicago,  &c.  R.  Co.  v. 
Walker,  9  Lea  (Tenn.)  475;  Shane 
v.  Mexican  Internat.  R.  Co.  8  Tex. 
Civ.  App.  441,  28  S.  W.  456,  13  Am. 
&  Eng.  Ency.  of  Law  2d  ed.),  894, 
and  other  authorities  there  cited. 
See,  also,  as  to  the  effect  that  the 
company  is  estopped  from  setting 
up  its  failure  to  comply  with  the 
law,  Fisk  v.  Chicago,  &c.  R.  Co.  55 
Barb.  (N.  Y.)  513;  Ehrman  v.  Teu- 
tonic, &c.  Co.  1  Fed.  471;  American, 
&c.  Co.  v.  Lea,  56  Ark.  539,  20  S.  W. 
416.  As  to  effect  of  failure  of  state 
agent  to  receive  service,  see  Na- 
tional Surety  Co.  v.  State,  120  Fed. 
593,  61  L.  R.  A.  394. 


"Barrow  S.  S.  Co.  v.  Kane,  170 
U.  S.  100,  18  Sup.  Ct.  526;  Van  Dres- 
ser v.  Oregon  R.  &c.  Co.  48  Fed.  205 ; 
Schollenberger,  Ex  parte,  96  U.  S. 
369. 

58  State  v.  Pennsylvania  R.  Co.  42 
N.  J.  L.  490;  New  York,  &c.  R.  Co. 
v.  Purdy,  18  Barb.  (N.  Y.)  574; 
Thomas  v.  Placerville,  &c.  Mining 
Co.  65  Cal.  600.  The  statutes  of 
some  of  the  states  require  service 
upon  a  "managing  agent"  within  the 
jurisdiction.  There  is  considerable 
conflict  in  the  cases  as  to  what  con- 
stitutes a  managing  agent.  The  su- 
perintendent and  general  manager 
of  a  foreign  corporation  owning  a 
road  within  the  state  are  held  to 
be  such  agents.  Bank  of  Commerce 
v.  Rutland,  &c.  R.  Co.  10  How.  Pr. 
(N.  Y.)  1.  So  of  the  vice-president 
and  general  superintendent.  Nor- 
folk, &c.  R.  Co.  v.  Cottrell,  83  Va. 
512,  3  S.  E.  123.  Or,  a  general  pas- 
senger agent  or  other  person  hav- 
ing general  control  of  a  particular 
department  or  branch  of  the  busi- 
ness. Tuchband  v.  Chicago,  &c.  R. 
Co.  115  N.  Y.  437,  22  N.  E.  360.  But 
see  Maxwell  v.  Atchison,  &c.  R.  Co. 
34  Fed.  286.  In  Ohio  it  seems  that 
a  suit  in  personam  cannot  be  main- 
tained against  a  foreign  corporation 
unless  it  has  a  managing  agent  with- 
in the  state.  Barney  v.  New  Albany, 
&c.  R.  Co.  1  Handy  (Ohio)  571. 
Ticket  sellers  have  been  held  not  to 
be  managing  agents.  Doty  v.  Michi- 
gan Cent.  R.  Co.  8  Abb.  Pr.  (N.  Y.) 
427;  Mackereth  v.  Glasgow,  &c.  R. 
Co.  L.  R.  8  Exch.  149.  But  see 
Smith  v.  Chicago,  &c.  R.  Co.  60  Iowa 


§    62 la]  ACTIONS   BY   AND  AGAINST    CORPORATIONS. 


912 


foreign  corporations  engaged  in  business  in  a  state  whose  law  pro- 
vides that  they  may  be  summoned  by  process  served  upon  an  agent 
in  charge  of  their  business,  it  was  held  that  they  were  "found"  in  the 
district  in  which  such  agent  is  doing  business  within  the  meaning  of 
a  former  act  of  congress,  and  that  service  of  process  upon  such  an 
agent  would  confer  jurisdiction  upon  the  United  States  courts,  to  the 
same  extent  that  the  state  courts  would  acquire  jurisdiction  by  a 
similar  service  of  process.57  But  the  act  of  August  13,  1888,  has 
changed  this  rule  by  providing  that  "where  the  jurisdiction  is  founded 
only  on  the  fact  that  the  action  is  between  citizens  of  different  states, 
suit  shall  be  brought  only  in  the  district  of  the  residence  of  either  the 
plaintiff  or  defendant."58 


512,  15  N.  W.  303;  Brown  v.  Chi- 
cago, &c.  R.  Co.  12  N.  Dak.  61,  95  N. 
W.  153,  102  Am.  St.  364  (station 
agent  is) ;  Tuchband  v.  Chicago,  &c. 
R.  Co.  115  N.  Y.  440,  22  N.  E.  360; 
Missouri  Pac.  R.  Co.  v.  Collier,  62 
Tex.  318,  and  a  baggage  master  is 
not.  Flynn  v.  Hudson  River  R.  Co. 
6  How.  Pr.  (N.  Y.)  308.  See  fur- 
ther on  this  subject,  1  Elliott  Gen. 
Pr.  §  359,  and  note  to  Hampson  v. 
Weare,  66  Am.  Dec.  116,  120.  See, 
also,  New  York,  &c.  R.  Co.  v.  Fre- 
mont, &c.  R.  Co.  66  Neb.  159,  92  N. 
W.  131,  59  L.  R.  A.  939,  and  note; 
Brown  v.  Chicago,  &c.  R.  Co.  12  N. 
Dak.  61,  95  N.  W.  153,  102  Am.  St. 
561,  and  note  to  Abbeville,  &c.  R. 
Co.  v.  Western,  &c.  Co.  85  Am.  St. 
930-935. 

"Block  v.  Atchison,  &c.  R.  Co.  21 
Fed.  529;  McCoy  v.  Cincinnati,  &c. 
R.  Co.  13  Fed.  3;  Lung  Chung  v. 
Northern  Pac.  R.  Co.  19  Fed.  254; 
Schollenberger,  Ex  parte,  96  U.  S. 
369;  Morawetz  Priv.  Corp.  (2d  ed.) 
§  982;  Van  Dresser  v.  Oregon  R.  &c. 
Co.  48  Fed.  202.  In  this  latter  case 
it  was  held  that  a  foreign  railroad 
company  which  had  formed  a  com- 
bination with  other  lines  extending 
into  the  state  of  Oregon,  and  which, 
through  its  agents,  was  engaged  in 
making  contracts  in  that  state  for 


the  carriage  of  passengers  and 
freight  over  such  connecting  lines 
and  its  own  road  was  bound  by  a 
service  of  summons  upon  the  agent 
through  whom  such  contracts  were 
made.  But  see  St.  Clair  v.  Cox,  106 
U.  S.  350,  1  Sup.  Ct  354.  In  Globe 
Accident  Ins.  Co.  v.  Reid,  19  Ind. 
App.  203,  49  N.  E.  291,  292  (citing 
text)  it  is  held  that  the  corporation 
is  "found"  in  the  state  where  it  has 
an  agent  and  is  doing  business  and 
is  sued.  See  Eel  River  R.  Co.  v. 
State,  143  Ind.  231,  42  N.  E.  617. 
See,  also,  Buie  v.  Chicago,  &c.  R. 
Co.  95  Tex.  51,  65  S.  W.  27,  55  L. 
R.  A.  861. 

68  Construed  in  Southern  Pac.  R. 
Co.  v.  Denton,  146  U.  S.  202,  13  Sup. 
Ct.  44;  Shaw  v.  Quincy  Mining  Co. 
145  U.  S.  444,  12  Sup.  Ct.  935;  Mc- 
Cormick,  &c.  Co.  v.  Walthers,  134 
U.  S.  41,  10  Sup.  Ct.  485.  See  post, 
§  623.  Also  Green  v.  Chicago,  &c.  R. 
Co.  (U.  S.),  27  Sup.  Ct.  595.  See, 
also,  Great  Southern,  &c.  Co.  v. 
Jones,  177  U.  S.  449,  20  Sup.  Ct.  690; 
Wells  Co.  v.  Gastonia,  &c.  Co.  198 
U.  S.  177,  25  Sup.  Ct.  640;  Rush 
v.  Foos  Mfg.  Co.  20  Ind.  App.  515, 
51  N.  E.  143,  147.  Privilege  may 
be  waived.  Horn  v.  Pere  Marquette 
R.  Co.,  151  Fed.  627. 


913 


AGENT  NEED  NOT  RESIDE  IN  STATE. 


[§  621b 


§  621b.59  Agent  need  not  reside  in  state — Agent  casually  in  state. 
— It  is  not  necessary  that  the  officer  or  agent  upon  whom  process  is 
served  shall  reside  within  the  jurisdiction,  if  he  has  the  control  of  the 
business  of  the  corporation  at  a  particular  place  therein,  at  which  his 
official  residence  as  an  officer  of  the  corporation  is  established.60  On 
the  other  hand,  service  upon  an  officer  or  agent  casually  within  the 
state,  when  he  is  not  there  in  the  performance  of  the  duties  of  his 
office,  and  is  not  authorized  in  any  way  to  submit  the  corporation  to 
the  jurisdiction  of  the  courts,  is  not  such  service  as  will  bind  a  for- 
eign corporation,  which  has  no  office  and  transacts  no  business  within 
the  state.61  Thus,  in  a  recent  case,  where  a  director  was  casually 


68  Part  of  this  section  was  part  of 
§  621  in  the  first  edition. 

"Porter  v.  Chicago,  &c.  R.  Co.  1 
Neb.  14;  Governor  v.  Raleigh,  &c. 
R.  Co.  3  Ired.  Eq.  (N.  Car.)  471. 

«  Latimer  v.  Union  Pac.  R.  Co.  43 
Mo.  105,  97  Am.  Dec.  378;  Fitzger- 
ald, &c.  Construction  Co.  v.  Fitzger- 
ald, 137  U.  S.  98,  11  Sup.  Ct.  36,  39; 
Newell  v.  Great  Western  R.  Co.  19 
Mich.  336;  Goldey  v.  Morning  News, 
42  Fed.  112,  156  U.  S.  518,  15  Sup. 
Ct.  559  (on  appeal) ;  Midland  Pac. 
R.  Co.  v.  McDermid,  91  111.  170; 
Dallas  v.  Atlantic,  &c.  R.  Co.  2  Mc- 
Arthur  (D.  C.)  146;  Phillips  v.  Bur- 
lington Library  Co.  141  Pa.  St.  462, 
21  Ati.  640;  Barnes  v.  Mobile,  &c. 
R.  Co.  12  Hun  (N.  Y.)  126.  But  see 
Shickle,  &c.  Co.  v.  Wiley,  &c.  Co.  61 
Mich.  226,  1  Am.  St.  571;  Klopp  v. 
Creston,  &c.  Co.  34  Neb.  808,  52  N. 
W.  819,  33  Am.  St.  666;  Pope  v. 
Terre  Haute,  &c.  Co.  87  N.  Y.  137. 
See  note  in  70  L.  R.  A.  513,  532.  In 
Chicago,  &c.  R.  Co.  v.  Walker,  9  Lea 
(Tenn.)  475,  it  was  held  that  serv- 
ice upon  the  "Southern  passenger 
agent"  of  defendant  company,  in  an 
action  for  breach  of  a  contract  en- 
tered into  with  him,  was  invalid 
because  of  his  lack  of  authority  to 
receive  service  of  process.  The 
agent  had  no  authority  to  sell  tick- 
ets for  his  principal,  and  had  no 
ELL.  RAILROADS — 58 


regular  place  of  business.  His  busi- 
ness was  to  travel  over  the  territory 
south  of  the  Ohio  river,  and  over 
Virginia,  Arkansas  and  Texas,  and 
induce  travelers  to  take  a  route 
which  led  over  his  road,  to  assist 
them  in  checking  their  baggage  and 
to  conduct  them  to  the  nearest  tick- 
et office  where  a  ticket  over  his  road 
could  be  purchased.  But  see  Van 
Dresser  v.  Oregon  R.  &c.  Co.  48  Fed. 
202.  In  United  States  Graphite  Co. 
v.  Pacific,  &c.  Co.  68  Fed.  442,  the 
rule  stated  in  the  text  was  held  ap- 
plicable although  the  officer  served 
was  in  the  state  on  business  of  the 
corporation,  which,  however,  had  no 
office  or  agency  there.  See,  also, 
Goldey  v.  Morning  News,  156  U.  S. 
518,  15  Sup.  Ct.  559;  Eirich  v.  Don- 
nelly, &c.  Co.  104  Fed.  1;  Clews  v. 
Woodstock,  &c.  Co.  44  Fed.  31;  Fi- 
delity Trust,  &c.  Co.  v.  Mobile  St.  R. 
Co.  53  Fed.  850.  Contra,  Gravely  v. 
Southern,  &c.  Co.  47  La.  Ann.  389, 
16  So.  866;  Shickle,  &c.  Co.  v.  Wiley 
Const.  Co.  61  Mich.  226,  28  N.  W.  77, 
1  Am.  St.  571 ;  Pope  v.  Terre  Haute, 
&c.  Co.  87  N.  Y.  137.  And  see  Hous- 
ton v.  Filer,  &c.  Co.  85  Fed.  757,  and 
Brush  Creek  Coal,  &c.  Co.  v.  Morgan, 
&c.  Co.  136  Fed.  505.  A  thorough 
review  of  the  authorities  will  be 
found  in  2  Am.  L.  Reg.  &  Rev.  (N. 
S.)  680. 


G22] 


ACTIONS  BY  AND  AGAINST  CORPORATIONS. 


914 


within  the  state  for  a  few  days,  but  the  corporation  did  no  business 
there  and  had  no  property  within  the  state,  service  on  such  director 
was  held  insufficient  by  the  supreme  court  of  the  United  States.62 

§  622.  Return  of  service. — The  return  of  service  upon  an  officer 
of  a  corporation  should  show  his  official  position  in  such  a  manner  as 
to  make  it  clear  that  the  service  was  upon  the  officer  or  agent  desig- 
nated by  the  statute,  and  that  he  was  served  in  his  official  or  repre- 
sentative character.63  So,  where  the  statute  permits  service  upon  a 
subordinate  officer  only  when  the  president  or  highest  officer  is  absent 
or  a  non-resident,  the  return  of  service  upon  the  subordinate  should 
show  the  absence  or  non-residence  of  the  president  or  chief  officer.64 
A  return  that  the  summons  was  served  on  the  "general  manager"  of 
the  defendant  corporation,  naming  him,  was  held  insufficient  where 
the  statute  required  that  the  service  should  be  upon  its  "president  or 
other  principal  officer."65  And  a  return  of  service  "personally  on  S.  C. 
Hoge,  agent  in  charge  of  the  Central  of  Georgia  Eailway  Company" 
has  been  held  not  sufficient  to  show  service  upon  the  company.66  But 
a  service  may  be  good  when  the  return  shows  that  the  proper  officer 


62  Remington  v.  Central  Pac.  R.  Co. 
198  U.  S.  95,  25  Sup.  Ct.  577.  Citing 
Conley  v.  Mathieson  Alkali  Works, 
190  U.  S.  406,  23  Sup.  Ct.  728;  Geer 
v.  Mathieson  Alkali  Works,  190  U.  S. 
428,  23  Sup.  Ct.  807.  But  in  another 
recent  case  it  is  held  that  service  on 
a  general  officer  who  voluntarily 
comes  into  the  state  to  adjust  a  dif- 
ference between  the  corporation  and 
the  plaintiff  with  reference  to  the 
subject-matter  of  the  suit,  is  suffi- 
cient. Brush  Creek  Coal,  &c.  Co. 
v.  Morgan,  &c.  Co.  136  Fed.  505.  But 
see  Buffalo,  &c.  Brick  Co.  v.  Ameri- 
can, &c.  Co.  141  Fed.  211. 

83  Jones  v.  Hartford  Ins.  Co.  88  N. 
Car.  499;  Oxford  Iron  Co.  v.  Sprad- 
ley,  42  Ala.  24;  O'Brien  v.  Shaw's 
Flat,  &c.  Co.  10  Cal.  343;  Powder  Co. 
v.  Oakdale,  &c.  Co.  14  Phila.  (Pa.) 
166;  1  Elliott  Gen.  Pr.  §  359. 

64  St.  Louis,  &c.  R.  Co.  v.  Dorsey, 
47  111.  288;  Miller  v.  Norfolk,  &c.  R. 
Co.  41  Fed.  431;  Toledo,  &c.  R.  Co. 


v.  Owen,  43  Ind.  405;  Hoen  v.  At- 
lantic, &c.  R.  Co.  64  Mo.  561.  But 
see  Kansas  City,  &c.  R.  Co.  v.  Daugh- 
try,  138  U.  S.  298,  11  Sup.  Ct.  306. 
As  to  what  is  sufficient  in  this  re- 
gard, see  Colorado,  &c.  Co.  v.  Lom- 
bard Investment  Co.  66  Kans.  251, 
71  Pac.  584,  97  Am.  St.  373;  Western 
Un.  Tel.  Co.  v.  Lindley,  62  Ind.  371; 
Chicago,  &c.  Elec.  Co.  v.  Congdon, 
&c.  Co.  Ill  111.  309;  Cincinnati  Hotel 
Co.  v.  Central  Trust,  &c.  Co.  11  Ohio 
Dec.  (reprint)  255.  See,  generally, 
El  Paso,  &c.  R.  Co.  v.  Kelly  (Tex.), 
87  S.  W.  660. 

85  Dale  v.  Blue  Mountain,  &c.  Co. 
15  Pa.  Co.  Ct.  513,  affirmed  in  167 
Pa.  St.  402,  31  Atl.  633. 

66  Burnett  v.  Central,  &c.  R.  Co. 
117  Ga.  521,  43  S.  E.  854,  97  Am.  St. 
175.  The  court  regarded  it  as  serv- 
ice upon  Hoge  in  his  individual  ca- 
pacity rather  than  upon  the  corpora- 
tion. But  see  Keener  v.  Eagle  Lake, 
&c.  Co.  110  Cal.  627,  43  Pac.  14. 


915 


VENUE  OF  ACTIONS  AGAINST  CORPORATIONS. 


[§  623 


was  served,  although  the  writ  merely  names  the  defendant  company 
without  designating  the  officer  upon  whom  it  should  be  served.67 

§  623.  Venue  of  actions  against  corporations. — An  action  against 
a  corporation  for  personal  injuries  or  other  trespass  of  a  personal  na- 
ture,68 heing  of  a  transitory  character,  may  usually  be  brought  in  any 
county  in  which  service  upon  the  corporation  can  be  obtained.69  But 
a  statute  which  provides  that  an  action  shall  be  brought  and  tried  in 
the  county  in  which  the  defendant  resides  or  is  found  applies  to  cor- 
porations as  well  as  to  natural  persons.70  As  elsewhere  shown,  rail- 
road companies  are  usually  required  to  have  an  agent  upon  whom 
process  can  be  served  in  each  state,  and  are  sometimes  made,  in  effect, 
residents  of  each  county  through  which  their  line  runs  and  in  which 
they  have  an  agent  for  the  purpose  of  suing  or  being  sued,71  although, 


*7  Illinois  Steel  Co.  v.  San  Antonio, 
&c.  R.  Co.  67  Fed.  561. 

63  South  Florida  R.  Co.  v.  Weese, 
32  Fla.  212;  Dave  v.  Morgan's  Lou- 
isiana, &c.  R.  Co.  46  La.  Ann.  273,.  14 
So.  911 ;  Atchison,  &c.  R.  Co.  v.  Wor- 
ley  (Tex.  Civ.  A'pp.),  25  S.  W.  478; 
Heiter  v.  East  St.  Louis  Connecting 
R.  Co.  53  Mo.  App.  331;  Williams  v. 
East  Tennessee,  &c.  R.  Co.  90  Ga. 
519. 

69  The  statutes  of  several  of  the 
states  expressly  provide  that  rail- 
roads may  be  sued  in  ordinary  ac- 
tions in  any  county  of  the  state 
through  which  the  road  runs.  Wil- 
liams v.  East  Tennessee,  &c.  R.  Co. 
90  Ga.  519,  16  S.  E.  303;  South  Flor- 
ida R.  Co.  v.  Weese,  32  Fla.  212,  13 
So.  436.  Wherever  the  company  has 
an  agent.  Schoch  v.  Winona,  &c.  R. 
Co.  55  Minn.  479,  57  N.  W.  208;  Atch- 
ison, &c.  R.  Co.  v.  Worley  (Tex.),  25 
S.  W.  478;  Red  River,  &c.  R.  Co.  v. 
Blount,  3  Tex.  Civ.  App.  282,  22  S., 
W.  930.  See,  also,  note  in  70  L.  R. 
A.  691  et  seq.  A  declaration  against 
a  railroad  company  which  alleges 
that  the  defendant  damaged  plain- 
tiffs by  constructing  a  railroad  upon 
their  land  in  the  county  in  which 


suit  is  brought,  sufficiently  shows 
that  the  railroad  lies  wholly  or  part- 
ly in  that  county  to  withstand  a  gen- 
eral demurrer  for  want  of  facts  to 
constitute  a  cause  of  action.  East 
Georgia,  &c.  R.  Co.  v.  King,  91  Ga. 
519,  17  S.  E.  939.  As  to  what  actions 
are  transitory,  see,  also,  Hanna  v. 
Grand  Trunk  R.  Co.  41  111.  App.  116; 
Nonce  v.  Richmond,  &c.  R.  Co.  33 
Fed.  429;  Heiter  v.  East  St.  Louis, 
&c.  R.  Co.  53  Mo.  App.  331;  1  Elliott 
Gen.  Pr.  §  253.  As  to  mandamus, 
see  Loraine  v.  Pittsburg,  &c.  R.  Co. 
205  Pa.  St.  132,  54  Atl.  580,  61  L.  R. 
A.  502  (holding  that  it  will  be  in 
the  county  where  the  track  in  ques- 
tion is). 

70Holgate  v.  Oregon  Pac.  R.  Co. 
16  Ore.  123,  17  Pac.  859.  See,  also, 
Sherrill  v.  Chesapeake,  &c.  R.  Co. 
89  Ky.  302,  12  S.  W.  465;  Boyer  v. 
Northern  Pac.  R.  Co.  8  Idaho  74,  166 
Pac.  826,  70  L.  R.  A.  691,  and  note. 

71  See  ante,  §  24;  St.  Louis,  &c.  R. 
Co.  v.  Traweek,  84  Tex.  65,  19  S.  W. 
370;  Bristol  v.  Chicago,  &c.  R.  Co. 
15  111.  436;  Slavens  v.  South.  Pac.  R. 
Co.  51  Mo.  308,  310;  Schoch  v.  Wi- 
nona, &c.  R.  Co.  55  Minn.  479,  57  N. 
W.  208;  Newberry  v.  Arkansas,  &c. 


§  623] 


ACTIONS  BY  AND  AGAINST  CORPORATIONS. 


91G 


when  citizens  of  a  foreign  state  and  not  of  that  where  sued  they  cannot 
be  prohibited  from  removing  a  cause  to  the  federal  courts  under 
proper  circumstances.  But  it  has  been  held  that  such  a  company,  in- 
corporated in  one  state  only,  although  it  has  a  place  of  business  in 
another  state,  cannot  be  sued  in  a  United  States  circuit  court  of  the 
latter  state,  which  is  in  a  different  district  from  that  in  which  the 
company  is  incorporated,  by  a  citizen  of  a  third  state,72  although  a  suit 
between  corporations  organized  in  different  states  may  be  brought  in 
the  district  in  which  the  plaintiff  is  incorporated  as  well  as  that  in 
which  the  defendant  is  incorporated,  when  the  jurisdiction  is  founded 
solely  on  diverse  citizenship  under  the  act  of  congress  of  August  13, 
1888.73  A  state  statute  which  provides  that  suits  against  a  railroad 
company  may  be  brought  in  any  county  into  which  its  line  extends  is 
subordinate,  in  so  far  as  the  federal  courts  are  concerned,  to  the  act 
of  congress  above  referred  to,  and  where  another  statute  of  the  state 
declares  that  "the  public  office  of  a  railroad  corporation  shall  be  con- 
sidered the  domicile  of  such  corporation/'  a  domestic  railroad  com- 
pany of  such  state  is  an  "inhabitant"  of  the  district  in  which  such 
public  office  is  located,  and  cannot  be  sued  in  a  circuit  court  of  the 
United  States  in  another  district  through  which  its  road  extends.7* 


R.  Co.  52  Kan.  613,  35  Pac.  210; 
Louisville,  &c.  R.  Co.  v.  Saucier 
(Miss.),  1  So.  511.  See,  also,  Ala- 
bama, &c.  R.  Co.  v.  Fulghum,  87  Ga. 
263,  13  S.  E.  649. 

72  Shaw  v.  Quincy  Mining  Co.  145 
U.  S.  444,  12  Sup.  Ct.  935,  6  Lewis 
Am.  R.  &  Corp.  357;  Campbell  v.  Du- 
luth,  &c.  R.  Co.  50  Fed.  241;  South- 
ern Pac.  Co.  v.  Denton,  146  U.  S. 
202,  13  Sup.  Ct  44.  There  are  cases 
in  the  federal  circuit  courts  to  the 
contrary,  but  the  first  decision  of  the 
supreme  court,  supra,  has  settled 
the  law  upon  the  subject.  But  see 
Hohorst,  In  re,  150  U.  S.  653, 14  Sup. 
Ct.  221,  holding  that  a  foreign  cor- 
poration might  be  sued  by  a  citizen 
of  a  state  in  any  district  thereof  in 
which  valid  service  could  be  had. 
See,  also,  Barrow,  &c.  Co.  v.  Kane, 
170  U.  S.  100,  18  Sup.  Ct.  526.  And 
see  as  to  waiver,  Interior,  &c. 


Constr.  Co.  v.  Gibney,  160  U.  S.  217, 
16  Sup.  Ct.  272;  Citizens',  &c,  Co.  v. 
Union,  &c.  Co.  106  Fed.  97.  As  to 
right  of  non-resident  to  sue  non-res- 
ident corporation  in  state  court, 
where  cause  of  action  is  transitory, 
see  Reeves  v.  Southern  R.  Co.  121 
Ga.  561,  49  S.  E.  674,  70  L.  R.  A.  513, 
and  note. 

73  N.  K.  Fairbank  &  Co.  v.  Cincin- 
nati,  &c.    R.    Co.    54   Fed.    420;    St. 
Louis,  &c.  R.  Co.  v.  McBride,  141  U. 
S.  127,  11  Sup.  Ct.  982,  holding  also 
that  the  objection  to  jurisdiction  on 
this  ground  may  be  waived.    See  as 
to  right  of  non-resident  stockholder 
to  sue  in  district  where  corporation 
was  created,  Jellenik  v.  Huron,  &c. 
Co.  177  U.  S.  1,  20  Sup.  Ct.  559. 

74  Galveston,  &c.  R.  Co.  v.  Gonzales, 
151  U.  S.  496,  14  Sup.  Ct.  401,  57  Am. 
&  Eng.  R.  Gas.  71. 


917 


VENUE  OF  ACTIONS  AGAINST  CORPORATIONS. 


[§  623 


In  some  jurisdictions,  where  the  statute  does  not,  in  effect,  make 
railroad  companies  residents  of  the  different  counties  through  which 
their  lines  run  and  in  which  they  have  agents,  it  is  held  that  the  resi- 
dence of  a  railroad  company  will  be  presumed  to  be  in  the  county  in 
which  its  principal  office  is  located,  and  that  the  venue  should  be  laid 
in  that  county.75  It  was  also  held,  in  a  recent  case,  that  an  action 
for  personal  injuries  might  be  brought  in  the  county  in  which  the 
company  had  its  principal  office,  although  the  injury  was  inflicted 
in  another  county  in  the  same  state,  and  although  the  statute  provided 
that  the  company  might  be  sued  in  the  county  in  which  the  injury 
was  inflicted.76  And  it  has  been  held  in  Texas  that  a  railroad  com- 
pany whose  road  extends  into  and  is  operated  by  it  in  Texas,  may  be 
there  sued  and  served  with  process  notwithstanding  the  cause  of  action 
arose  in  another  state  of  which  the  plaintiff  is  a  citizen.77  Local  ac- 
tions, such  as  those  involving  the  title  or  possession  of  land,  or  for 
injuries  thereto,  must  generally  be  brought  in  the  county  or  district 
in  which  the  land  is  situated,78  but  this  subject  is  largely  regulated  by 


"Thorn  v.  Railroad  Co.  26  N.  J. 
L.  121;  Transportation  Co.  v.  Scheu, 
19  N.  Y.  408 ;  Railroad  Co.  v.  Cooper, 
30  Vt.  476,  73  Am.  Dec.  319;  Pelton 
v.  Transportation  Co.  37  Ohio  St. 
450;  Jenkins  v.  Stage  Co.  22  Cal. 
537.  But,  as  a  general  rule,  a  transi- 
tory action  against  a  non-resident 
may  be  brought  in  any  county  in 
which  process  can  be  served  upon 
him.  1  Elliott  Gen.  Pr.,  §  254,  and 
authorities  there  cited,  in  note  3,  p. 
313. 

76  The  court  regarded  the  statute 
as  permissive  and  cumulative  and 
not  exclusive.  Williams  v.  East  Ten- 
nessee, &c.  R.  Co.  90  Ga.  519, 16  S.  E. 
303. 

"Missouri,  &c.  R.  Co.  v.  Keller- 
man  (Tex.  Civ.  App.),  87  S.  W.  401. 

78  See  1  Elliott  Gen.  Pr.  §  252,  and, 
authorities  there  cited.  Unless  oth- 
erwise provided  by  statute,  the  gen- 
eral rule  is  that  an  action  is  transi- 
tory "when  the  transaction  out  of 
which  it  grows,  or  the  occurrence 
upon  which  it  is  founded,  is  one  that 


might  have  taken  place  anywhere." 
1  Elliott  Gen.  Pr.  §  253,  citing  Mos- 
tyn  v.  Fabrigas,  1  Cowp.  161,  1 
Smith  Lead.  Cases  652.  "Actions  are 
deemed  transitory  when  the  trans- 
actions on  which  they  are  founded 
might  have  taken  place  anywhere, 
but  are  local  where  their  cause  is  in 
its  nature  necessarily  local."  Nonce 
v.  Richmond,  &c.  R.  Co.  33  Fed.  429, 
433,  434.  For  actions  held  local,  see 
East  Tennessee,  &c.  R.  Co.  v.  Atlan- 
ta, &c.  R.  Co.  49  Fed.  608  (bill  for 
appointment  of  receiver  held  of  a 
"local  nature"  within  meaning  of  U. 
S.  Rev.  Stat.  §§  740,  742);  Cox  v. 
St.  Louis,  &c.  R.  Co.  55  Ark  454,  18 
S.  W.  630  (suit  to  restrain  company 
from  removing  earth  from  plaintiff's 
land ) ;  Morris  v.  Missouri  Pac.  R. 
Co.  78  Tex.  17,  14  S.  W.  228,  9  L.  R. 
A.  349,  22  Am.  St.  17  (action  for 
flooding  lands,  but  the  contrary  is 
held  in  Archibald  v.  Mississippi,  &c. 
R.  Co.  66  Miss.  424,  6  So.  238) ;  Indi- 
ana, &c.  R.  Co.  v.  Foster,  107  Ind. 
430,  8  N.  E.  264  (action  for  damages 


§    624]  ACTIONS   BY  AND  AGAINST   CORPORATIONS.  918 

legislative  enactments.  Other  questions  as  to  the  venue  in  actions 
against  consolidated  corporations  and  in  different  kinds  of  suits  and 
actions  are  discussed  elsewhere,  in  connection  with  the  particular 
cases  in  which  they  arise.79  It  may  be  well,  however,  in  this  connection, 
to  call  attention  to  a  recent  case  decided  by  the  supreme  court  of 
Indiana.  A  domestic  railroad  company  had  surrendered  its  property 
and  franchises  and  ceased  to  do  business,  but,  on  quo  warranto  pro- 
ceedings, the  court  held  that  its  legal  residence  was  in  the  county 
where  its  principal  office  was  located  when  it  ceased  to  do  business; 
that  the  suit  was  properly  instituted  in  that  county  but  service  might 
be  had,  under  the  statute,  upon  its  agent  in  another  county  appointed 
to  receive  service,  it  having  no  office  and  no  agent  in  the  state  except 
such  agent  who  had  been  appointed  by  it  for  the  purpose  of  receiving 
and  accepting  service.80 

§  624.  Attachment  and  garnishment. — Jurisdiction  over  a  cor- 
poration, to  a  limited  extent  at  least,  may  sometimes  be  obtained  by 
attachment  or  garnishment.  These  remedies  or  proceedings,  however, 
are  creatures  of  statute,  and,  as  the  statutory  provisions  vary  in  differ- 
ent states,  we  shall  not  attempt  to  treat  the  subject  in  detail,  but  it 
may  be  well  to  call  attention  to  some  rules  of  a  general  nature  that 
are  peculiarly  applicable  to  railroad  companies.  Attachment  and  gar- 
nishment are  usually  auxiliary  or  provisional  remedies  and  can  only  be 
pursued  when  authorized  by  statute  and  in  conformity  with  the  statu- 
tory provisions  as  to  the  procedure.81  If  personal  service  upon  the 

to  land  by  fire   from   locomotive) ;  in  19  L.  R.  A.  577,  67  L.  R.  A.  209, 

Atkins  v.  Wabash,  &c.  R.  Co.  29  Fed.  and  94  Am.  St.  552.     For  instances 

161    (suit  to   foreclose   mortgage);  in  which  attachment  was  held  to  lie 

Postal,  &c.  Co.  v.  Norfolk,  &c.  Co.  88  against  railroad  companies,  see  See- 

Va.  920,  14  S.  E.  803;  Drinkhouse  v.  ley  v.  Missouri,  &c.  R.  Co.  39  Fed. 

Spring  Valley,  &c.  Co.  80  Cal.  308,  252;    Curtis   v.    Bradford,    33    Wis. 

22  Pac.  252;   Mississippi,  &c.  R.  Co.  190;   South  Carolina  R.  Co.  v.  Peo- 

v.  Ward,  2  Black   (U.  S.)   485;   Du  pie's  Sav.  Inst.  64  Ga.  18,  12  Am.  & 

Breuil  v.  Pennsylvania  Co.  130  Ind.  Eng.  R.  Gas.  432;   Kitchen  v.  Chat- 

137,  29  N.  E.  909.  ham,  &c.  R.  Co.  17  New  Bruns.  215; 

70  See,  generally,  Chapter  III,  Le-  Breed  v.  Mitchell,  48  Ga.  533;  Fith- 

gal  Status.  ian  v.  New  York,  &c.  R.  Co.  31  Pa. 

80  Eel  River  R.  Co.  v.  State,  155  St.  114.    For  instances  in  which  it 
Ind.  433,  58  N.  E.  388.  was  held  that  attachment  would  not 

81  See,  generally,  Pennsylvania  R.  lie,  see  Central  R.  &c.  Co.  v.  Georgia, 
Co.  v.  Rogers,  52  W.  Va.  450,  44  S.  E.  &c.  Co.  32  S.  Car.  319,  11  S.  E.  192; 
300,  62  L.  R.  A.  178,  and  authorities  Phillipsburgh  Bank  v.  Lackawanna 
cited  in  notes  and  briefs;  also  notes  R.  Co.  27  N.  J.  L.  206;  Farnsworth 


919 


ATTACHMENT  AND  GARNISHMENT. 


t§ 


company  is  properly  obtained  in  the  main  action  a  personal  judgment 
may  be  rendered  against  it  in  a  proper  case,82  but  if  it  is  a  non-resi- 
dent and  does  not  appear  or  otherwise  waive  service,  no  personal 
judgment  can  be  rendered  against  it.83  So  far  as  the  property  itself 
is  concerned,  however,  jurisdiction  is  generally  obtained,  in  case  of  a 
non-resident,  by  its  seizure  and  by  giving  notice  by  publication  in 
compliance  with  the  statute.84  But  if  no  property  is  found  and  no 
personal  service  is  had,  no  judgment  can  be  rendered  against  a  non- 
resident defendant  who  does  not  appear  or  waive  service.85  As  a  gen- 
eral rule  any  property  subject  to  execution  may  be  attached,  and  en- 
gines and  cars  not  in  actual  use  are  usually  regarded  as  personal 
property  liable  to  attachment.86  But  it  is  held  that  a  railroad  car  of 
a  foreign  company  sent  into  a  state  with  freight  to  be  delivered  in 
such  state  and  reloaded  and  sent  back  to  the  foreign  state  from  which 
it  came  in  the  customary  and  usual  manner  of  transacting  interstate 
commerce  cannot  be  attached  in  the  state  to  which  it  so  came  to  be 
unloaded  and  reloaded.87  A  railroad  company  may  be  subject  to  gar- 


v.  Terre  Haute,  &c.  R.  Co.  29  Mo.  75 ; 
Martin  v.  Mobile,  &c.  R.  Co.  7  Bush 
(Ky.)  116. 

^Mahany  v.  Kephart,  15  W.  Va. 
609;  Drake  Attachment,  §  5. 

83 1  Elliott  Gen.  Pr.  §§  243,  378; 
Eastman  v.  Wadleigh,  65  Me.  251, 
20  Am.  R.  695;  Eliot  v.  McCormick, 
144  Mass.  10,  10  N.  E.  705;  Cooper 
v.  Reynolds,  10  Wall.  (U.  S.)  308; 
Wade  Attachment,  §  267. 

84  Neufelder  v.  German  American 
Ins.  Co.  6  Wash.  336,  33  Pac.  870,  22 
L.  R.  A.  287,  290,  36  Am.  St.  166; 
Cooper  v.  Reynolds,  10  Wall.  (U.  S.) 
308;  King  v.  Vance,  46  Ind.  246;  1 
Elliott  Gen.  Pr.  §§  243,  378. 

""Pennoyer  v.  Neff,  95  U.  S.  714; 
Cooper  v.  Smith,  25  Iowa  269;  Bruce 
y.  Cloutman,  45  N.  H.  37,  84  Am. 
Dec.  Ill;  Clymore  v.  Williams,  77 
111.  618.  See,  also,  Kirk  v.  United 
States,  137  Fed.  753,  755;  Mexican 
C.  R.  Co.  v.  Pinkney,  149  U.  S.  194, 
209,  13  Sup.  Ct.  859;  New  Mexico  v. 
Baker,  196  U.  S.  432,  25  Sup.  Ct.  375. 
See,  generally,  note  in  67  L.  R.  A. 


209,  and  note  in  69  Am.  St.  115  et 
seq.  A  debt,  at  least  when  payable 
in  such  state,  may  be  considered 
property  or  its  equivalent. 

88  Hall  v.  Carney,  140  Mass.  131,  3 
N.  E.  14;  Boston,  &c.  R.  Co.  v.  Gil- 
more  R.  Co.  37  N.  H.  410,  72  Am. 
Dec.  336;  Dinsmore  v.  Racine,  &c. 
R.  Co.  12  Wis.  725.  See,  also,  brief 
in  Wall  v.  Norfolk,  &c.  R.  Co.  52  W. 
Va.  485,  44  S.  E.  294,  64  L.  R.  A.  501, 
504,  94  Am.  St.  948. 

87  Connery  v.  Quincy,  &c.  R.  Co.  92 
Minn.  20,  99  N.  W.  365,  64  L.  R.  A. 
624,  104  Am.  St.  659;  Wall  v.  Nor- 
folk, &c.  R.  Co.  52  W.  Va.  485,  44  S. 
E.  294,  64  L.  R.  A.  501,  94  Am.  St. 
948.  The  latter  case  also  holds  that 
another  company  having  such  car  in 
its  possession  and  so  carrying  on 
interstate  commerce  is  not  liable  to 
garnishment  by  reason  of  its  pos- 
session received  against  the  com- 
pany against  which  an  attachment 
was  issued.  See,  also,  Michigan 
Cent.  R.  Co.  v.  Chicago,  &c.  R.  Co. 
1  111.  App.  399.  These  are  important 


ACTIONS  BY  AND  AGAINST   CORPORATIONS. 


920 


nishment  the  same  as  a  natural  person,  although  not  specially  men- 
tioned in  the  statute,88  but  it  has  been  held  in  Michigan  that  a  statu- 
tory provision  for  the  service  of  process  in  suits  against  foreign  cor- 
porations does  not  apply  to  the  service  of  a  writ  of  garnishment.89 
One  or  two  courts  have  held  that  the  same  considerations  of  public 
policy  which  exempt  public  officers  in  the  discharge  of  their  duties 
from  garnishment  apply  to  common  carriers,90  and  there  may  be  cases 
in  which  the  garnishment  would  so  interfere  with  the  duties  of  the 
company  to  the  public  that  the  courts  should  refuse  to  permit  the 
garnishment  to  be  enforced,  as  in  the  cases  cited,  but  ordinarily,  if 
the  statute  authorizing  the  garnishment  applies  to  the  case,  it  would 
seem  to  be  the  duty  of  the  courts  to  enforce  it.  Many  authorities  hold, 
however,  that  a  non-resident  corporation  cannot,  ordinarily,  be  held 
accountable  as  garnishee  unless  it  has  property  of  the  defendant  within 
the  state  in  which  the  proceedings  are  had,  or  is  bound  to  pay  him 
money  or  deliver  him  goods  in  that  state.91  Thus,  it  has  been  held 


decisions  and  are  based  largely  upon 
public  policy  and  the  commerce 
clause  in  the  federal  constitution  in 
connection  with  the  interstate  com- 
merce law.  But  compare  Hum- 
phreys v.  Hopkins,  81  Cal.  551,  22 
Pac.  892,  6  L.  R.  A.  792,  15  Am.  St. 
76. 

88  Pennsylvania  R.  Co.  v.  Peoples, 
31  Ohio  St.  537;  Baltimore,  &c.  R. 
Co.  v.  Gallahue,  12  Gratt.  (Va.)  655, 
65  Am.  Dec.  254;  Taylor  v.  Burling- 
ton, &c.  R.  Co.  5  Iowa  114;  Hannibal, 
&c.  R.  Co.  v.  Crane,  102  111.  249,  40 
Am.  R.  581;  Hughes  v.  Oregonian 
R.  Co.  11  Ore.  158,  2  Pac.  94.  A  for- 
eign corporation  doing  business  in 
the  state  was  held  subject  to  gar- 
nishment in  the  first  case  above 
cited.  So,  in  Weed  Sewing  Machine 
Co.  v.  Boutelle,  56  Vt.  570,  48  Am.  R. 
821;  Barr  v.  King,  96  Pa.  St  485; 
Burlington,  &c.  R.  Co.  v.  Thompson, 
31  Kans.  180,  1  Pac.  622,  47  Am.  R. 
497,  16  Am.  &  Eng.  R.  Gas.  480;  Car- 
son v.  Memphis,  &c.  R.  Co.  88  Tenn. 
646,  13  S.  W.  588,  17  Am.  St.  921; 
Fairbank  v.  Cincinnati,  &c.  R.  Co. 
54  Fed.  420. 


89  Milwaukee,   &c.   R.   Co.  v.   Bre- 
voort,  73  Mich.  155,  41  N.  W.  215; 
First  Nat.  Bank  v.  Burch,  76  Mich. 
608,  43  N.  W.  453. 

90  Michigan  Cent.  R.  Co.  v.  Chicago, 
&c.  R.  Co.  1  111.  App.  399.   See,  also, 
Holland   v.   Leslie,    2   Harr.    (Del.) 
306,  and  authorities  cited  in  note  87, 
supra. 

91  Wright  v.  Chicago,  &c.  R.  Co.  19 
Neb.  175,  27  N.  W.  90,  56  Am.  R.  747; 
Missouri  Pac.  R.  Co.  v.  Sharitt,  43 
Kans.  375,  23  Pac.  430,  8  L.  R.  A. 
385,  19  Am.  St.  143,  44  Am.  &  Eng. 
R.  Cas.  657,  and  authorities  cited  by 
Valentine,  J.;    Cronin  v.  Foster,  13 
R.  I.  196;    Louisville,  &c.  R.  Co.  v. 
Dooley,  78  Ala.  524;  Young  v.  Ross, 
31  N.  H.  201;  Todd  v.  Missouri  Pac. 
R.  Co.  33  Mo.  App.  110;   Buchanan 
v.  Hunt,  98  N.  Y.  560;   Schmidlapp 
v.  LaConfiance  Ins.  Co.  71  Ga.  246; 
Wade  Attachment,  §  344.     See,  gen- 
erally, to  the  effect  that  the  court 
must  have  jurisdiction  both  of  the 
garnishee  and  the  property  as  well, 
8  Am.  &  Eng.  Ency.  Law  1129,  1150, 
and  authorities  there  cited;  Bates  v. 
Chicago,  &c.  R.  Co.  60  Wis.  296,  19 


921 


ATTACHMENT   AND   GARNISHMENT. 


[ 


that  a  company  of  one  state  operating  a  road  running  into  another 
state  as  lessee  cannot  be  charged  as  garnishee  in  the  latter  state  in 
an  action  for  a  debt  payable  in  the  former  state,  in  which  the  plain- 
tiff and  defendant  both  reside.92  But  there  is  sharp  conflict  among 
the  authorities  and  we  shall  not  attempt  to  reconcile  or  review  the 
conflicting  authorities  upon  this  general  subject  as  to  the  situs  of 
the  debt  or  the  jurisdiction  of  the  court.93  It  is  held  in  Illinois  that  a 
railroad  company  doing  business  in  that  and  another  state  may  be 
garnished  in  Illinois  by  a  resident  in  the  other  state  for  a  debt  owing 
by  the  company  to  another  resident  of  that  state,  and  that  the  motives 
of  the  plaintiff  are  immaterial.94  In  Tennessee  it  has  been  held  that 
a  company  which  owns  and  operates  a  continuoiis  line  through  that 


N.  W.  72,  50  Am.  R.  369;  Pennsyl- 
vania R.  Co.  v.  Pennock,  51  Pa.  St. 
244;  Douglass  v.  Phenix  Ins.  Co.  138 
N.  Y.  209,  33  N.  E.  938,  20  L.  R.  A. 
118,  34  Am.  St.  448.  See,  also,  note 
to  Illinois  Cent.  R.  Co.  v.  Smith,  19 
L.  R.  A.  577;  Central  Trust  Co.  v. 
Chattanooga,  &c.  R.  Co.  68  Fed.  685. 

MTowle  v.  Wilder,  57  Vt  622; 
Gold  v.  Housatonic  R.  Co.  1  Gray 
(Mass.)  424.  But  see  supra,  note  1; 
and  see  Georgia,  &c.  R.  Co.  v.  Stol- 
lenwerck,  122  Ala.  539,  25  So.  258. 

93  To  the  effect  that  it  is  upon  the 
control  and  jurisdiction  of  the  debt- 
or rather  than  the  situs  of  the  debt, 
see  Chicago,  &c.  R.  Co.  v.  Sturm,  174 
U.  S.  710,  19  Sup.  Ct.  797;  King  v. 
Cross,  175  U.  S.  396,  20  Sup.  Ct.  131; 
Mooney  v.  Buford,  &c.  Co.  72  Fed. 
32;  Rothschild  v.  Knight,  176  Mass. 
48,  57  N.  E.  337;  Wyeth  v.  Hard- 
ware, &c.  Co.  127  Mo.  242,  29  S.  W. 
1010,  27  L.  R.  A.  651,  48  Am.  St.  626; 
Tootle  v.  Coleman,  107  Fed.  41,  57 
L.  R.  A.  120.  But  compare  Louis- 
ville, &c.  R.  Co.  v.  Nash,  118  Ala. 
477,  23  So.  825,  41  L.  R.  A.  331,  72 
Am.  St.  181;  Central  R.  Co.  v.  Brin- 
son,  109  Ga.  354,  34  S.  E.  597,  77 
Am.  St  382;  Bullard  v.  Chaffee,  61 
Neb.  83,  84  N.  W.  604,  51  L.  R.  A. 
715,  holding  otherwise  if  the  debt  is 


not  payable  in  such  jurisdiction. 
The  court  also  seems  to  have  laid 
some  stress  upon  this  alleged  dis- 
tinction in  the  case  first  cited  from 
the  reports  of  the  supreme  court  of 
the  United  States.  But  the  later 
cases  of  Harris  v.  Balk,  198  U.  S. 
215,  25  Sup.  Ct.  625,  and  Louisville, 
&c.  R.  Co.  v.  Deer,  200  U.  S.  176,  26 
Sup.  Ct.  207,  seem  to  settle  the  rule 
that  this  makes  no  difference.  See, 
generally,  Goodwin  v.  Clayter,  137 
N.  C.  224,  49  S.  E.  173,  67  L.  R.  A. 
209  and  note,  107  Am.  St.  479,  and 
National  Bank  v.  Furtick,  2  Marv. 
(Del.)  35,  42  Atl.  479,  44  L.  R.  A. 
115,  69  Am.  St.  and  note.  The  au- 
thorities are  so  fully  reviewed  and 
the  question  is  so  carefully  consid- 
ered in  the  notes  referred  to  that  it 
is  unnecessary  to  discuss  it  at 
length  here. 

"Wabash  R.  Co.  v.  Dougan,  142 
111.  248,  31  N.  E.  594,  34  Am.  St.  74. 
See,  also,  Drake  v.  Lake  Shore,  &c. 
R.  Co.  69  Mich.  168,  37  N.  W.  70,  13 
(Am.  St.  382;  Stevens  v.  Brown,  20 
W.  Va.  450;  Lancashire  Ins.  Co.  v. 
Corbett,  165  111.  592,  46  N.  E.  631,  36 
L.  R.  A.  640,  56  Am.  St.  275;  Pome- 
roy  v.  Rand,  &c.  Co.  157  111.  176,  41 
N.  E.  636.  But  see  post,  §  627,  notes 
2,  3,  on  p.  895. 


625] 


ACTIONS  BY  AND  AGAINST  CORPORATIONS. 


922 


and  several  other  states,  having  a  separate  charter  from  each  of  them, 
is  a  resident  and  domestic  corporation  of  Tennessee,  and  subject  as 
such  to  garnishment  therein,  by  a  citizen  thereof,  although  the  claim 
sought  to  be  reached  was  contracted  in  one  of  the  other  states  and  is 
due  to  a  non-resident.95 

§  625.  Duty  and  liability  of  garnishee. — If  the  corporation  is 
properly  served  as  garnishee  it  must  appear  and  answer,  disclosing  the 
facts.  It  answers,  ordinarily,  under  its  corporate  seal,  by  its  proper 
officer  or  agent.96  If  the  principal  defendant  has  not  been  personally 
served  and  does  not  appear  it  is  generally  the  duty  of  the  garnishee, 
which  it  owes  to  the  defendant,  to  question  the  jurisdiction  of  the 
court,  if  it  has  none,  and  this  it  should  always  do  in  case  of  doubt, 
for  its  own  protection.97  It  has  also  been  held  that  the  garnishee 
must  present  the  question  of  the  defendant's  right  to  exemption,98 
and  this,  we  think,  is  the  true  rule  where  wages  are  garnished,  which 
are  expressly  exempted  therefrom  by  statute,  and,  possibly,  in  all  cases 
where  the  garnishee  has  knowledge  of  the  right  of  the  defendant  to 
exemption,  but,  in  the  absence  of  knowledge,  where  such  a  statute  does 
not  exist  or  does  not  apply,  we  think  the  garnishee  is  not  necessarily 
bound  to  raise  the  question.  Indeed,  as  the  right  to  exemption  is  gen- 


95  Mobile,  &c.  R.  Co.  v.  Barnhill,  91 
Tenn.  395,  19  S.  W.  21,  50  Am.  & 
Eng.  R.  Gas.  646.  But  see  Wells  v. 
East  Tenn.  &c.  R.  Co.  74  Ga.  548. 

98  Oliver  v.  Chicago,  &c.  R.  Co.  17 
111.  587;  Baltimore,  &c.  R.  Co.  v. 
Gallahue,  12  Gratt.  (Va.)  655,  65 
Am.  Dec.  254.  The  answer  must 
usually  be  verified  by  the  proper  of- 
ficer. Chicago,  R.  I.  &c.  R.  Co.  v. 
Mason,  11  111.  App.  525;  Memphis, 
&c.  R.  Co.  v.  Whorley,  74  Ala.  264. 
But  the  affidavit  need  not  be  made 
by  the  same  officer  upon  whom  the 
writ  was  served,  and  it  has  been 
held  that  it  may  be  made  by  any 
officer  having  knowledge  of  the 
facts.  Duke  v.  Rhode  Island,  &c. 
Works,  11  R.  I.  599;  Whitworth  v. 
Pelton,  81  Mich.  98,  45  N.  W.  500 
(affidavit  by  assistant  treasurer). 
It  has  also  been  held  that  the  court 


may  permit  the  garnishee  to  file  an 
amended  answer  in  furtherance  of 
justice.  Crerar  v.  Milwaukee,  &c. 
R.  Co.  35  Wis.  67. 

87  Debs  v.  Dalton,  7  Ind.  App.  84, 
34  N.  E.  236;  Emery  v.  Royal,  117 
Ind.  299,  20  N.  E.  150;  Pierce  v. 
Carleton,  12  111.  358,  54  Am.  Dec. 
405;  Laidlaw  v.  Morrow,  44  Mich. 
547;  Kellogg  v.  Freeman,  50  Miss. 
127;  Thayer  v.  Tyler,  10  Gray 
(Mass.)  164;  Drake  Attachment, 
§  965. 

1)8  Mineral  Point  R.  Co.  v.  Barren, 
83  111.  365;  Terre  Haute,  &c.  R.  Co. 
v.  Baker,  122  Ind.  433,  24  N.  E.  83; 
Clark  v.  Averill,  31  Vt.  512,  76  Am. 
Dec.  131;  Davis  v.  Meredith,  48  Mo. 
263;  Mull  v.  Jones,  33  Kans.  112,  5 
Pac.  388;  Smith  v.  Dickson,  58  Iowa 
444,  10  N.  W.  850. 


923 


WHAT   MAY   BE   REACHED   IX   GARNISHMENT. 


[§  626 


erally  considered  a  mere  personal  privilege,  it  would  seem  that,  upon 
principle,  the  garnishee  can  neither  insist  upon  such  a  defense,  where 
the  principal  defendant  waives  it,  nor  be  held  liable  for  not  making  it, 
in  the  absence  of  a  special  statute."  The  garnishment  usually  binds 
the  garnishee,  as  to  the  debt  or  property  in  his  hands,  from  the  date 
of  the  service  of  the  writ,100  and  his  liability  is  ordinarily  determined 
by  his  accountability  to  the  defendant  at  that  time.101  But  where  the 
writ  is  served  on  one  agent  of  a  corporation  while  the  property  is  in 
the  actual  possession  of  another  agent,  and  the  latter  delivers  it  to 
the  owner  before  the  first  agent  can,  in  the  exercise  of  reasonable  dili- 
gence, notify  the  other,  it  has  been  held  that  the  corporation  is  not 
liable.102  The  garnishee  may,  in  general,  set  up  any  defense  that  he 
would  have  had  if  sued  by  the  defendant,103  and  if  he  has  been  gar- 
nished in  a  prior  proceeding  for  the  same  matter  he  may  set  up  that 
fact.104 

§  626.     What  may  be  reached  in  garnishment. — Eeal  estate  is  not 
subject  to  garnishment  unless  the  statute  so  provides  ;105  nor,  it  seems, 


99  See  1  Elliott  Gen.  Pr.  §  388,  and 
notes,  where  the  subject  is  fully  con- 
sidered. 

100  First  Nat.  Bank  v.  Armstrong, 
101  Ind.  244;    Brashear  v.  West,  7 
Pet.     (U.     S.)     608;     Emanuel     v. 
Bridger,  L.  R.  9  Q.  B.  286;  Holmes 
v.   Tutton,   5   El.   &  B.   65.     But  in 
Smith  v.  Boston,  &c.  R.  Co.  33  N.  H. 
337,   it  is  said  that  his  liability  is 
determined  by  the  state  of  facts  ex- 
isting at  the  time  of  his  disclosure 
and  set  forth  therein. 

101  Baltimore,  &c.  R.  Co.  v.  Wheel- 
er, 18  Md.  372;    Huntington  v.  Ris- 
don,  43  Iowa  517;  Getchell  v.  Chase, 
124  Mass.  366;    Lieberman  v.  Hoff- 
man,   102   Pa.   St.   590;    Cleanay  v. 
Junction  R.  Co.  26  Ind.  375;  Reagan 
v.  Pacific  R.  Co.  21  Mo.  30. 

102  Bates  v.  Chicago,  &c.  R.  Co.  60 
Wis.  296,  19  N.  W.  72,  50  Am.  R.  369. 
This  seems  to  us  a  just  decision. 

103 1  Elliott  Gen.  Pr.  §  388;  Drake 
Attachment,  §  458;  Hazen  v.  Emer- 
son, 9  Pick.  (Mass.)  144  (statute  of 
limitations);  Benton  v.  Lindell,  10 


Mo.  557 ;  Pennell  v.  Grubb,  13  Pa.  St. 
552  (set-off) ;  Cox  v.  Russell,  44 
Iowa  556,  562;  Wheeler  v.  Emerson, 
45  N.  H.  526.  See,  generally,  Center 
v.  McQueston,  24  Kan.  480;  Schuler 
v.  Israel,  120  U.  S.  506,  7  Sup.  Ct. 
648;  Sauer  v.  Nevadaville,  14  Colo. 
54,  23  Pac.  87;  North  Chicago,  &c. 
Co.  v.  St.  Louis,  &c.  Co.  152  U.  S. 
596,  14  Sup.  Ct.  710.  But  see,  as  to 
property  fraudulently  transferred, 
Lamb  v.  Stone,  11  Pick.  (Mass.) 
527;  Cummings  v.  Fearey,  44  Mich. 
39,  6  N.  W.  98.  See,  generally,  as  to 
garnishee's  defenses,  notes  in  13 
Am.  Dec.  341  and  100  Am.  Dec.  511. 

1M  Wade  Attachment,  §  382 ;  Hous- 
ton v.  Walcott,  7  Iowa  173 ;  Royer  v. 
Fleming,  58  Mo.  438;  Everdell  v. 
Sheboygan,  &c.  Co.  41  Wis.  395; 
Dealing  v.  New  York,  &c.  R.  Co.  8 
N.  Y.  St.  386;  Robarge  v.  Central  Vt. 
R.  Co.  18  Abb.  N.  Gas.  (N.  Y.)  363. 
But  see  Alabama,  &c.  R.  Co.  v. 
Chumley,  92  Ala.  317,  9  So.  286. 

106  How  v.  Field,  5  Mass.  390;  Sted- 
man  v.  Vickery,  42  Me.  132;  Hunter 


626] 


ACTIONS  BY  AND  AGAINST  COEPORATIONS. 


924 


is  money  set  apart  for  the  payment  of  interest  on  railroad  mortgage 
bonds,106  nor  are  funds  in  the  hands  of  an  officer  or  agent  of  the  com- 
pany garnishable  in  an  ordinary  action  against  the  company  itself,107 
for  the  possession  by  an  agent  of  money  collected  for  his  principal  is 
usually  deemed  to  be  the  possession  of  the  principal.108  It  is  said, 
with  what  appears  to  be  good  reason,  that  stock  cannot  be  garnished 
in  the  hands  of  a  railroad  company  for  the  debts  of  the  stockholders, 
as  the  corporation,  while  a  "going  concern,"  is  not  required  to  pay 
the  stockholders  anything  but  proper  dividends  and  they  are  not  its 
creditors.109  But  provision  is  usually  made  for  reaching  shares  of 
stock,  or  the  stockholder's  interest,  by  attachment,110  and  an  unpaid 
subscription  for  which  a  call  has  been  made  is  subject  to  garnishment 
at  the  instance  of  the  corporate  creditors,111  although  it  is  held  other- 
wise where  no  call  has  been  made.112  It  has  been  held  that  property 
in  transit,  in  another  county,  in  the  hands  of  a  railroad  company,  can- 
not be  garnished,113  but  that  property  may  be  garnished,  after  it  has 


v.  Case,  20  Vt.  195;  Risley  v.  Welles, 
5  Conn.  431;  National,  &c.  Bank  v. 
Brainerd,  65  Vt.  291,  26  Atl.  723. 

106  Galena,  &c.  R.  Co.  v.  Menzies,  26 
111.  122.     But  see  Smith  v.  Eastern 
R.   Co.   124   Mass.   154;    Mississippi, 
&c.  R.  Co.  v.  United  States  Exp.  Co. 
81  111.  534. 

107  Wilder  v.  Shea,  13  Bush   (Ky.) 
128;  Fowler  v.  Pittsburgh,  &c.  R.  Co. 
35  Pa.   St.  22;    First  Nat.  Bank  v. 
Davenport,  &c.  R.  Co.  45  Iowa  120; 
Pettingill  v.  Androscoggin  R.  Co.  51 
Me.   370;    McGraw  v.  Memphis,  &c. 
R.  Co.  5  Coldw.  (Tenn.)  434.  Contra, 
Littleton  Nat.  Bank  v.  Portland,  &c. 
Co.  58  N.  H.  104;   Everdell  v.  She- 
boygan,  &c.  R.  Co.  41  Wis.  395. 

108  Flanagan  v.  Wood,  33  Vt.  332; 
Hall   v.    Filter   Mfg.   Co.    10   Phila. 
(Pa.)    370;    Neuer   v.    O'Fallon,    18 
Mo.  277,  59  Am.  Dec.  313. 

196  Ross  v.  Ross,  25  Ga.  297;  Plant- 
ers', &c.  Bank  v.  Leavens,  4  Ala. 
753;  Mooar  v.  Walker,  46  Iowa  164; 
Younkin  v.  Collier,  47  Fed.  571.  See, 
also,  Smith  v.  Downey,  8  Ind.  App. 
175,  34  N.  E.  823;  Ashley  v.  Quin- 
tard,  90  Fed.  84.  But  see  Harrell  v. 


Mexico,  &c.  Co.  73  Tex.  612,  11  S.  W. 
863;  Baker  v.  Wasson,  53  Tex.  150. 
See,  generally,  Simpson  v.  Jersey 
City,  &c.  Co.  165  N.  Y.  193,  58  N.  E. 
896,  55  L.  R.  A.  796,  and  note. 

110  Chesapeake,  &c.  R.  Co.  v.  Paine, 
29    Gratt.    (Va.)    502;    Shenandoah 
Valley  R.  Co.  v.  Griffith,  76  Va.  913, 
13  Am.  &  Eng.  R.  Gas.  120,  and  note; 
1    Cook    Stock    and     Stockholders, 
§  404.     But  only,  as  a  rule,  in  the 
state  in  which  the  company  is  in- 
corporated.   Winslow  v.  Fletcher,  53 
Conn.  390,  55  Am.  R.  122,  13  Am.  & 
Eng.   Corp.   Gas.   39;    1  Cook  Stock 
and  Stockholders,  §  485. 

111  Kern  v.  Chicago,  &c.  Assn.  140 
111.    371,   29   N.   E.   1035;    Joseph   v. 
Davis  (Ala.),  10  So.  830;  Hannah  v. 
Moberly  Bank,  67  Mo.  678. 

112Teague  v.  Le  Grand,  85  Ala. 
493,  5  So.  287,  7  Am.  St.  64;  Bunn 
Appeal,  105  Pa.  St.  49,  51  Am.  R. 
166;  Brown  v.  Union  Ins.  Co.  3  La. 
Ann.  177;  McKelvey  v.  Crockett,  18 
Nev.  238,  2  Pac.  386. 

113  Bates  v.  Chicago,  &c.  R.  Co.  60 
Wis.  296,  19  N.  W.  72,  50  Am.  R. 
369;  Illinois  C.  R.  Co.  v.  Cobb,  48 


925 


WHAT  MAY  BE   REACHED  IN  GARNISHMENT. 


[§    626 


reached  its  destination,  while  held  by  the  company  as  a  warehouse- 
man.114 And  so  property  in  possession  of  the  carrier  awaiting  ship- 
ment has  been  held  subject  to  garnishment  at  any  time  before  its 
transit  has  commenced.115  Property  in  custodia  legis  is,  as  a  general 
rule,  exempt  from  attachment  or  garnishment  in  the  hands  of  the 
officer,116  but  there  are  some  cases  in  which  the  earnings  or  other 
property  of  a  railroad  company  have  been  permitted  by  the  courts  to 
be  attached  or  garnished  in  the  hands  of  a  receiver,117  and  such  earn- 
ings, although  subject  to  a  mortgage,  are  generally  liable  to  garnish- 
ment until  a  foreclosure  is  had  or  possession  is  taken  by  the  trustee.118 


111.  402;  Bingham  v.  Lamping,  26 
Pa.  St.  240;  Pennsylvania  R.  Co.  v. 
Pennock,  51  Pa.  St.  244,  254;  West- 
ern R.  Co.  v.  Thornton,  60  Ga.  300. 
See,  also,  Chicago,  &c.  R.  Co.  v. 
Painter,  15  Neb.  394;  Montrose 
Pickle  Co.  v.  Dodsen,  &c.  Co.  76  Iowa 
172,  40  N.  W.  705,  14  Am.  St.  213; 
Stevenot  v.  Eastern  R.  Co.  61  Minn. 
104,  63  N.  W.  256,  28  L.  R.  A.  600. 
Contra,  Adams  v.  Scott,  104  Mass. 
164,  and  compare  Walker  v.  Detroit, 
&c.  R.  Co.  49  Mich.  446.  In  several 
of  the  cases  first  cited  there  were 
peculiar  circumstances,  and  in  none 
of  them,  perhaps,  was  it  necessary 
to  decide  that  this  is  an  invariable 
rule.  There  are  forcible  reasons, 
however,  for  affirming  that  this  is 
the  general  rule  where  the  property 
is  actually  in  transit  at  a  distant 
point.  As  to  when  goods  in  transitu 
may  be  attached,  see  note  in  14  Am. 
&  Eng.  R.  Gas.  700,  709;  Locke  For- 
eign Attachment  32. 

n*Cooley  v.  Minnesota,  &c.  Co.  53 
Minn.  327,  55  N.  W.  141,  39  Am.  St. 
609,  55  Am.  &  Eng.  R.  Gas.  616. 

115  Landa  v.  Hoick,  129  Mo.  663,  31 
S.  W.  500,  50  Am.  St.  459,  and  note.( 
But  see  post,  §§  1538,  1673. 

118  Drake  Attachment,  §  281;  Hill 
v.  La  Crosse,  &c.  Railroad  Co.  14 
Wis.  291,  80  Am.  Dec.  783;  Taylor 
v.  Carryl,  24  Pa.  St.  259;  Averill  v. 
Tucker,  2  Cranch.  (U.  S.)  544;  Peo- 


ple v.  Brooks,  40  Mich.  333,  29  Am. 
R.  534;  Field  v.  Jones,  11  Ga.  413; 
Beach  Receivers,  §  228;  High  Re- 
ceivers, §  151.  See,  also,  as  to  judg- 
ment of  foreign  court,  Wabash  R. 
Co.  v.  Tourville,  179  U.  S.  322,  21 
Sup.  Ct.  113;  Boyle  v.  Musser,  &o. 
Co.  88  Minn.  456,  93  N.  W.  520,  97 
Am.  St.  538. 

117Phelan  v.  Ganebin,  5  Colo.  14; 
First  Nat.  Bank  v.  Portland,  &c.  R. 
Co.  2  Fed.  831;  Humphreys  v.  Hop- 
kins, 81  Cal.  551,  22  Pac.  892,  6  L.  R. 
A.  792,  51  Am.  St.  76.  And  see  Con- 
over  v.  Ruckman,  33  N.  J.  Eq.  303; 
Gaither  v.  Ballew,  4  Jones  L.  (N. 
Car.)  488,  69  Am.  Dec.  763;  Hurl- 
burt  v.  Hicks,  17  Vt.  193,  44  Am. 
Dec.  329 ;  Wehle  v.  Conner,  83  N.  Y. 
231;  Warren  v.  Booth,  51  Iowa  215, 
1  N.  W.  502. 

118  Smith  v.  Eastern,  &c.  R.  Co. 
124  Mass.  154;  Mississippi,  &c.  R. 
Co.  v.  United  States  Express  Co.  81 
111.  534;  De  Graff  v.  Thompson,  24 
Minn.  452;  Galveston,  &c.  R.  Co.  v. 
Cowdrey,  11  Wall.  (U.  S.)  459;  Gil- 
man  v.  Illinois,  &c.  Co.  91  U.  S.  603; 
Noyes  v.  Rich,  52  Me.  115.  But  see 
Dunham  v.  Isett,  15  Iowa  284.  In 
Milwaukee,  &c.  R.  Co.  v.  Brooks,  &c. 
Works,  121  U.  S.  430,  7  Sup.  Ct.  1094, 
30  Am.  &  Eng.  R.  Gas.  499,  it  was 
held  that  funds  belonging  to  a 
leased  road  operated  temporarily  by 
the  mortgage  trustee  of  the  lessor 


§  627] 


ACTIONS  BY  AND  AGAINST   CORPORATIONS. 


926 


Bonds  of  a  foreign  corporation  in  the  hands  of  an  agent  for  sale  have 
been  held  in  New  York  not  to  be  liable  to  attachment  against  the 
company.11®  And  it  has  been  held  in  Massachusetts  that  a  railroad 
company,  which  has  an  arrangement  with  other  companies  having 
lines  that  form  a  continuous  connection,  to  make  monthly  settlements 
with  the  company  whose  road  joins  its  own,  including  therein  amounts 
due  the  other  connecting  roads  beyond,  is  not  liable,  as  trustee  in  for- 
eign attachment,  to  the  first  connecting  carrier  for  money  due  the 
other  companies  under  the  agreement.120 

§  627.  Garnishment  of  employes'  wages. — Eailroad  companies  are 
frequently  garnished  in  actions  against  their  employes,  but  in  most 
of  the  states  there  are  statutes  providing  that  the  wages  of  employes 
for  a  specified  period,  or  to  a  specified  amount,  shall  be  exempt.  It 
has  been  held  that  a  foreign  railroad  company,  doing  business  in  an- 
other state,  may  be  garnished  in  the  latter  state  for  the  debt  of  a  non- 
resident employe  contracted  out  of  such  state,121  and  that  a  corpora- 
tion organized  under  the  laws  of  the  United  States,  where  the  wages 
are  earned  in  a  state  in  which  both  the  employe  and  the  creditor  re- 
side, may  be  garnished  in  another  state  in  which  the  company  is  per- 
sonally served.122  But,  on  the  other  hand,  it  has  been  held  by  another 


road  could  be  garnished  in  his 
hands  by  a  creditor  of  the  lessee 
company.  See,  also,  Root,  &c.  v. 
Davis,  51  Ohio  St.  29,  36  N.  E.  669, 
23  L.  R.  A.  445. 

119  Coddington  v.  Gilbert,  17  N.  Y. 
489.  See,  also,  as  to  bonds  pledged 
as  collateral  or  in  the  hands  of  third 
persons.  Tweedy  v.  Bogart,  56  Conn. 
419,  15  Atl.  374;  Galena,  &c.  R.  Co. 
v.  Stahl,  103  111.  67,  with  which  com- 
pare Warren,  v.  Booth,  53  Iowa  742, 
5  N.  W.  598. 

120Chapin  v.  Connecticut,  &c.  R. 
Co.  16  Gray  (Mass.)  69.  So,  where 
goods  are  shipped  over  several  roads 
it  is  held  that  the  consignee  is 
not  liable  as  garni shee  to  the  road 
delivering  the  goods  for  freight 
due  the  others.  Gould  v.  Newbury- 
port  R.  Co.  14  Gray  (Mass.)  472. 
See,  however,  as  to  consolidated 
company,  Wabash,  &c.  R.  Co.  v.  Dou- 


gan,  142   111.  248,  31  N.  E.  594,   34 
Am.  St.  74. 

121  Burlington,  &c.  R.  Co.  v.  Thomp- 
son, 31  Kans.  180,  1  Pac.  622,  47  Am. 
R.  497;   Carson  v.  Memphis,  &c.  R. 
Co.  88  Tenn.  646,  13  S.  W.  588,  17 
Am.  St.  921.    See,  also,  Chicago,  &c. 
R.  Co.  v.  Sturm,  174  U.  S.  710,  19 
Sup.  Ct.  797;   King  v.  Cross,  175  U. 
S.  396,  20  Sup.  Ct.  131;  Rowland  v. 
Chicago,  &c.  R.  Co.  134  Mo.  474,  36 
S.  W.  29;  Harris  v.  Balk,  198  U.  S. 
215,  25  Sup.  625,  Bolton  v.  Pennsyl- 
vania R.  Co.   88   Pa.   St.  261;    Neu- 
felder  v.  German  American  Ins.  Co. 
6  Wash.  336,  33  Pac.  870,  22  L.  R.  A. 
287,  36  Am.  St.  166;   note  to  Good- 
win v.  Clayter,  67  L.  R.  A.  209,  ante, 
§  624.     But  compare  Central  Trust 
Co.   v.   Chattanooga,   &c.   R.   Co.    68 
Fed.  685,  and  numerous  authorities 
there  cited. 

122  Mooney  v.  Union  Pac.  R.  Co.  60 


927 


GARNISHMENT   OF   EMPLOYES'    WAGES. 


[§'   627 


court  that  wages  due  from  a  company  incorporated  in  one  state  to  an 
employe  in  that  state  cannot  be  reached  by  a  creditor  in  another  state 
by  attachment  against  the  debtor  and  garnishment  of  the  corpora- 
tion.123 In  any  event,  the  garnishee  proceedings  bind  only  the  amount 
due  at  the  date  of  the  service  of  the  writ,  and  do  not  reach  wages 
subsequently  earned.124  So,  under  statutes  providing  that  the  debt 
must  be  due  "absolutely  and  without  contingency,"  it  is  held  that 
where  the  contract  of  employment  provides  that  the  .amount  of  work 
done  during  one  month  and  the  wages  to  be  paid  therefor  shall  be 
estimated  and  determined  after  the  end  of  the  month,  such  earnings 
cannot  be  garnished  in  the  hands  of  the  company  before  the  end  of 
the  month.125  Exemption  laws  have  no  extraterritorial  effect,126  and, 
as  a  general  rule,  neither  a  debtor  nor  his  garnishee  can  obtain  the 
benefit  of  the  exemption  laws  of  the  state  in  which  they  reside  when 
sued  in  another  state;127  but,  where  wages  are  exempt  in  both  states, 


Iowa  346,  14  N.  W.  343.  Followed 
in  Oberfelder  v.  Union  Pac.  R.  Co. 
60  Iowa  755,  14  N.  W.  255,  and  ap- 
proved in  Carson  v.  Memphis,  &c. 
R.  Co.  88  Tenn.  646,  13  S.  W.  588,  17 
Am.  St.  921.  See,  also,  note  to 
Goodwin  v.  Claytor,  67  L.  R.  A.  209, 
and  ante,  §  624. 

123  Louisville,  &c.  R.  Co.  v.  Dooley, 
78    Ala.    524.     See,    also,    Drake    v. 
Lake    Shore,   &c.    R.    Co.    69    Mich. 
168,  37  N.  W.  70,  13  Am.   St.  382; 
Louisville,  &c.  R.  Co.  v.  Nash,  118 
Ala.  477,  23  So.  825,  41  L..R.  A.  331, 
72  Am.  St.  181;  Atchison,  &c.  R.  Co. 
v.  Maggard,  6  Colo.  App.  85,  39  Pac. 
985.    But  it  will  generally  be  found 
in   these   cases  that   the   garnishee 
had  no  property  of  the  defendant, 
or  did  not  owe  him  a  debt  in  the 
state  in  which  the  suit  was  -brought. 
The   general   subject   is   considered 
and  other  authorities  on  both  sides 
are  reviewed  in  the  note  to   Good- 
win v.  Claytor,  67  L.  R.  A.  209,  et 
seq;    and   in   the   note   to   National 
Bank  v.  Furtick,  69  Am.  St.  99,  112, 
115. 

124  Burlington,  &c.  R.  Co.  v.  Thomp- 


son,   31    Kan.    180,    1    Pac.    622,    47 
Am.  R.  497. 

125  Williams   v.   Androscoggin,   &c. 
R.  Co.  36  Me.  201,  58  Am.  Dec.  742; 
Fellows    v.    Smith,    131    Mass.    363. 
See,   also,   Dawson   v.    Iron   Range, 
&c.   R.    Co.   97   Mich.   33,   56   N.   W. 
106.    But  compare  Ware  v.  Gowen, 
65  Me.  534. 

126  Freeman  Executions,  §  209.  See, 
also,   Central   Trust  Co.   v.   Chatta- 
nooga, &c.  R.  Co.  68  Fed.  685;  Chi- 
cago,  &c.   R.  Co.   v.   Sturm,   174   U. 
S.    710,   19    Sup.   Ct.    797;    Pennsyl- 
vania R.  Co.  v.  Rogers,  52  W.  Va. 
450,  44  S.  E.  300,  62  L.  R.  A.  178. 
But  see  Drake  v.  Lake   Shore,  &c. 
R.   Co.   69   Mich.   168,  37  N.  W.   70, 
13   Am.   St.   382;    Missouri   Pac.   R. 
Co.  v.  Sharitt,  43  Kan.  375,  23  Pac. 
430,  8  L.  R.  A.  385,  19  Am.  St.  143, 
and  authorities  there  cited  in  opin- 
ion and  in  note. 

127  The    garnishee    is    not    bound, 
therefore,   to   claim   any   exemption 
for  the  debtor.    Burlington,  &c.  R. 
Co.    v.    Thompson,    31    Kan.    180,    1 
Pac.  622,  47  Am.  R.  497;  East  Ten- 
nessee, &c.  R.  Co.  v.  Kennedy,  83 


§  G27] 


ACTIONS  BY  AND  AGAINST  CORPORATIONS. 


928 


it  has  been  held  that  the  debtor  will  be  entitled  to  the  exemption,  and 
that  it  is  the  duty  of  the  garnishee  to  claim  it  for  him.128  The  law 
upon  this  subject,  however,  is  not  well  settled,  and  the  question  is  not 
entirely  free  from  doubt.129  Indeed,  it  has  been  held  that  a  resident 
of  a  state,  in  which  the  debt  is  contracted  and  payable,  is  not  subject 
to  attachment  or  garnishment  in  another  state.130  Thus,  where  the 
statute  made  it  a  criminal  offense  for  any  person  to  send  a  claim 
against  a  resident  debtor  out  of  the  state  for  collection,  in  order  to 
evade  the  exemption  laws,  it  was  held  that  injunction  would  lie  to 
restrain  a  resident  of  the  state  from  sending  the  claim  to  another  state 
and  there  prosecuting  attachment  proceedings  for  the  purpose  of 
evading  the  exemption  law.131  In  another  case  it  was  held  that  a 
railroad  company  was  liable  to  an  employe  for  wages  earned  and  due 


Ala.  462,  3  So.  852,  3  Am.  St.  755; 
Morgan  v.  Neville,  74  Pa.  St.  52; 
Carson  v.  Memphis,  &c.  R.  Co.  88 
Tenn.  646,  13  S.  W.  588,  17  Am.  St. 
921;  Mooney  v.  Union  Pac.  R.  Co. 
60  Iowa  346,  14  N.  W.  343,  9  Am. 
&  Eng.  R.  Gas.  131;  Eichelburger  v. 
Pittsburgh,  &c.  R.  Co.  (Ohio)  9  Am. 
&  Eng.  R.  Gas.  158;  Lieber  v.  Union 
Pac.  R.  Co.  49  Iowa  688,  22  N.  W. 
919;  Broadstreet  v.  Clark,  65  Iowa 
670.  But  see  Pierce  v.  Chicago,  &c. 
R.  Co.  36  Wis.  283. 

128  Mineral  Point  R.  Co.  v.  Barron, 
83  111.  365;  Chicago,  &c.  R.  Co.  v. 
Ragland,  84  111.  375;  Wabash  R. 
Co.  v.  Dougan,  142  111.  248,  31  N.  E. 
594,  34  Am.  St.  74;  Terre  Haute, 
&c.  R.  Co.  v.  Baker,  122  Ind.  433, 
24  N.  E.  83;  Wright  v.  Chicago,  &c. 
R.  Co.  19  Neb.  175,  27  N.  W.  90,  56 
Am.  R.  747;  Missouri  Pac.  R,  Co.  v. 
Maltby,  34  Kan.  125,  8  Pac.  235; 
Missouri  Pac.  R.  Co.  v.  Whipsker, 
77  Tex.  14,  13  S.  W.  639,  8  L.  R.  A. 
321,  19  Am.  St.  734;  Kansas  City, 
&c.  R.  Co.  v.  Gough,  35  Kan.  1,  10 
Pac.  89.  In  several  of  these  cases, 
however,  the  statute  of  the  state  in 
which  the  suit  was  brought  was 
construed  as  exempting  wages  at- 
tached or  garnished  in  the  state,  no 


matter  whether  the   employe   is   a 
resident  or  a  non-resident. 

129  See  Moore  v.  Chicago,  &c.  R.  Co. 
43   Iowa   385;    Carson   v.   Memphis, 
&c.  R.  Co.  88  Tenn.  646,  13  S.  W. 
588,  17  Am.  St.  921;  Chicago,  &c.  R. 
Co.  v.  Meyer,  117  Ind.  563,  19  N.  E. 
320;   Baltimore,  &c.  R.  Co.  v.  May, 
25  Ohio  St.  347;  note  in  67  L.  R.  A. 
222;  and  ante,  §  624. 

130  Bush   v.   Nance,   61   Miss.   237; 
Wilson   v.   Joseph,   107   Ind.   490,   8 
N.  E.  616;   Kestler  v.  Kern,  2  Ind. 
App.    488,    28    N.    E.    726;    Illinois 
Cent.  R.  Co.  v.  Smith,  70  Miss.  344, 
12  So.  461,  19  L.  R.  A.  577,  35  Am. 
St.  651. 

131  Wilson  v.  Joseph,  HF7  Ind.  490, 
8  N.  E.   616;    Cole  v.  Cunningham, 
133    U.    S.    107,    10    Sup.    Ct.    269; 
Keyser  v.  Rice,  47  Md.  203,  28  Am. 
R.   448;    Engel   v.    Scheuerman,   40 
Ga.   206,   2  Am.   R.   573;    Snook   v. 
Snetzer,  25  Ohio  St.  516;   Dehon  v. 
Foster,  4  Allen   (Mass.)   545;   Mum- 
per v.  Wilson,  72  Iowa  163,  33  N. 
W.  449,  2  Am.  St.  238;  Zimmerman 
v.  Franke,  34  Kan.  650,  9  Pac.  747; 
Missouri  Pac.  R.  Co.  v.  Maltby,  34 
Kan.    125,    8    Pac.    235;    Mason    v. 
Beebee,  44  Fed.  556. 


929 


INJUNCTION — GENEKALLY. 


[§  628 


in  the  state  in  which  suit  was  brought  and  in  which  all  parties 
resided,  notwithstanding  the  pendency  of  garnishment  proceedings 
against  the  company  in  another  state  to  reach  the  same  wages.132  The 
court  took  the  ground  that  it  had  sole  jurisdiction ;  that  it  would  not 
presume  that  the  foreign  court,  upon  being  duly  advised,  would  pro- 
ceed to  judgment  against  the  garnishee,  and  that,  in  any  event,  it 
would  protect  and  enforce  the  exemption  laws  of  its  own  state. 

§  628.  Injunction — Generally. — A  railroad  company  is  subject  in 
general  in  a  court  of  equity  to  the  same  remedies  as  an  individual.133 
In  other  words,  the  jurisdiction  of  equity  is  the  same  in  its  general 
nature  over  corporations  as  it  is  over  natural  persons.  As  a  general 
rule  any  wrongful  invasion  by  it  of  the  rights  of  others  may  be  pre- 
vented by  injunction,184  provided  a  complete  remedy  at  law  is  not 
available.135  Equity  will  usually  refuse  to  interfere,  however,  where 


"'Illinois  Cent.  R.  Co.  v.  Smith, 
70  Miss.  344,  12  So.  461,  19  L.  R.  A. 
577,  35  Am.  St.  651.  See,  also,  Mis- 
souri Pac.  R.  Co.  v.  Sharritt,  43 
Kan.  375,  23  Pac.  430,  8  L.  R.  A. 
385,  19  Am.  St.  143,  44  Am.  &  Eng. 
R.  Cas.  657.  For  a  review  of  the 
conflicting  decisions  upon  the  gen- 
eral subject,  see  note  to  the  first 
case  above  cited  in  19  L.  R.  A.  577; 
and  elaborate  note  in  67  L.  R.  A. 
209,  where  the  most  recent  authori- 
ties are  reviewed. 

133  In  Stockton  v.  Central  R.  Co. 
50  N.  J.  52,  24  Atl.  964,  17  L.  R.  A. 
97,  an  injunction  was  granted  at  the 
suit  of  the  attorney-general  to  re- 
strain a  railroad  company  from 
carrying  out  a  lease  in  excess  of 
corporate  power  which  tended  to  the 
public  injury  and  to  defeat  pubKc 
policy  by  creating  or  fostering  a 
monopoly. 

^Wrongs  of  a  repeated  and  con- 
tinuous character  which  occasion 
damages  estimable  only  by  conjec- 
ture and  not  by  any  accurate  stand- 
ard may  be  enjoined.  Such  dam- 
ages are  irreparable  within  the 
meaning  of  the  United  States  stat- 
ELL.  RAILROADS — 59 


ute  providing  for  an  injunction 
where  the  party  does  not  have  a 
plain,  adequate  and  complete  rem- 
edy at  law.  Payne  v.  Kansas,  &c.  R. 
Co.  46  Fed.  546.  The  prosecution 
of  an  action  at  law  may  be  enjoined 
in  a  proper  case.  Chicago,  &c.  R. 
Co.  v.  Pullman  Palace  Car  Co.  49 
Fed.  409. 

135  Planet,  &c.  Co.  v.  St.  Louis,  &c. 
R.  Co.  115  Mo.  613,  22  S.  W.  616. 
Condemnation  proceedings  will  not 
be  enjoined  on  the  ground  that  there 
has  been  a  previous  condemnation 
of  the  same  land  for  the  same  pur- 
pose, resulting  in  a  verdict  assess- 
ing compensation,  since  that  fact  is 
in  itself  an  adequate  legal  defense, 
which  can  be  pursued  by  motion  in 
the  second  condemnation  suit.  Chi- 
cago, &c.  R.  Co.  v.  Chicago,  143  111. 
641,  32  N.  E.  178;  Northern  Pac.  R. 
Co.  v.  Cannon,  49  Fed.  517.  Where 
the  plaintiffs  all  have  different  in- 
terests, the  fact  that  a  number  of 
actions  at  law  arise  out  of  the  same 
transaction  and  depend  upon  the 
same  matters  of  fact  and  law  is  not 
sufficient  warrant  for  enjoining  the 
prosecution  of  such  actions,  and  the 


628] 


ACTIONS  BY  AND  AGAINST  CORPORATIONS. 


930 


an  injunction  would  work  great  injury  to  the  defendant186  and  the 
plaintiff  will  suffer  but  a  slight  injury  for  which  he  can  readily  be 
compensated  by  damages.137  The  courts  may,  it  seems,  take  into  con- 
sideration the  fact  that  companies  are  common  carriers  and  quasi 
public  in  their  nature,  and  refuse  to  grant  an  injunction  for  slight 
cause  where  it  would  prevent  or  obstruct  the  operation  of  the  road  and 
not  only  cause  great  injury  to  it,  but  also  inconvenience  the  public.188 
This  is  particularly  true  in  regard  to  preliminary  injunctions  before 
the  case  can  be  heard  upon  its  merits.  With  this  possible  exception, 
however,  the  rules  governing  injunctions  generally  are  applicable,  in 


joinder  of  the  different  parties  in- 
terested in  a  single  suit  in  chancery 
as  defendants  to  prevent  a  multi- 
plicity of  suits.  Tribbette  v.  Illi- 
nois Central  R.  Co.  70  Miss.  182,  12 
So.  32,  19  L.  R.  A.  660,  35  Am.  St. 
642.  Where  proceedings  by  a  city 
to  open  a  boulevard  across  a  rail- 
way company's  tracks  are  pending 
on  appeal,  a  bill  to  enjoin  the  city 
from  such  proceedings,  on  the 
ground  that  irreparable  injury  will 
be  done  to  the  company,  will  not 
lie,  as  the  question  is  a  legal  one, 
which  will  be  disposed  of  in  the 
condemnation  proceedings.  Detroit, 
&c.  R.  Co.  v.  Detroit,  91  Mich.  444, 
52  N.  W.  52.  One  holding  land  un- 
der a  judgment  of  condemnation 
may  maintain  suit  to  restrain  eject- 
ment proceedings  and  to  quiet  title, 
although  such  judgment  is  a  perfect 
defense  to  the  action  of  ejectment. 
Foltz  v.  St.  Louis,  &c.  R.  Co.  60 
Fed.  316.  An  action  of  ejectment 
to  recover  land  upon  which  it  has, 
with  the  consent  of  plaintiff  and  his 
grantor,  built  its  tracks,  cattle  sheds, 
and  warehouse,  may  be  enjoined  at 
the  suit  of  a  railroad  company,  al- 
though it  has  no  title.  South,  &c.  R. 
Co.  v.  Alabama,  &c.  R.  Co.  102  Ala. 
236,  14  So.  747. 

134  Scranton  v.  Delaware,  &c.  Canal 
Co.  12  Pa.  Co.  Ct.  283.  See,  also, 
Levi  v.  Worcester,  &c.  St.  R.  Co. 


(Mass.)  78  N.  E.  853.  A  preliminary 
injunction  will  not  be  granted  to  re- 
strain a  company  "from  the  fur- 
ther operation  and  management"  of 
a  leased  railroad  on  the  allegation, 
among  others,  that  the  roads  are 
"parallel  and  competing,"  and  the 
lease  ultra  vires,  and  contrary  to 
the  provision  of  the  constitution 
where  all  the  grounds  for  equitable 
relief  are  denied;  since  it  would  in- 
volve difficult  questions  of  law  and 
fact,  and  would,  if  granted,  work 
incalculable  injury  to  defendant  and 
the  public.  Gummere  v.  Lehigh  Val. 
R.  Co.  12  Pa.  Co.  Ct.  106.  See  New 
York,  &c.  R.  Co.  v.  O'Brien,  100 
N.  Y.  S.  316. 

137  Savannah,  &c.  Canal  Co.  v.  Su- 
burban, &c.  R.  Co.  93  Ga.  240,  18 
S.  E.  824;  Abraham  v.  Meyers,  29 
Abb.  N.  C.  (N.  Y.)  384,  23  N.  Y. 
225,  228.  See,  also,  Chicago,  &c.  R. 
Co.  v.  McKeigue,  126  Wks.  574,  105 
N.  W.  1030. 

m  Torrey  v.  Oamden,  &c.  R.  Co.  3 
C.  E.  Green  Ch.  (N.  J.)  293;  Cook 
v.  North,  &c.  R.  Co.  46  Ga.  618; 
Gammage  v.  Georgia,  &c.  R.  Co. 
65  Ga.  614.  See,  also,  Indiana,  &c. 
R.  Co.  v.  Allen,  113  Ind.  581,  15 
N.  E.  446;  Gray  v.  Manhattan,  &c. 
R.  Co.  128  N.  Y.  499,  28  N.  E.  498. 
See,  also,  Montgomery,  &c.  Co.  v. 
Montgomery,  &c.  Co.  139  Fed.  353. 


931 


INJUNCTION   AGAINST   CONDEMNATION. 


[§'  629 


the  main,  at  least,  where  an  injunction  is  sought  against  a  railroad 
company.  We  need  not,  therefore,  further  consider  the  elementary 
rules,  but  will  refer  to  the  specific  classes  of  cases  in  which  injunc- 
tions are  usually  sought  against  railroad  companies. 

§629.  Injunction  where  the  company  seeks  to  take  or  condemn 
lands.— «Where  a  railroad  company  that  is  so  imperfectly  incorporated 
as  not  to  possess  the  power  of  eminent  domain,  is  seeking  to  condemn 
property  of  another  corporation  necessary  for  its  use  in  carrying  on 
its  business,  it  has  been  held  that  such  condemnation  proceedings  may 
be  enjoined.139  But  it  is  the  general  rule  that  the  existence  of  a  cor- 
poration, acting  as  such  under  a  law  authorizing  it  and  with  which  it 
has  attempted  to  comply,  cannot  be  collaterally  attacked,  and  the  fact 
that  there  may  be  cause  for  forfeiting  its  charter  will  not  support 
ejectment  or  an  injunction  at  the  suit  of  a  landowner  whose  property 
it  has  condemned  or  is  about  to  condemn.140  A  railroad  company  may 
be  enjoined  at  the  suit  of  a  party  injured  thereby  from  appropriating 
land  for  which  it  has  failed  to  make  compensation  as  required  by 
law,141  but  an  injunction  will  not  be  granted  against  the  use  of  land 


ner,  117  Ind.  465,  20  N.  E.  254;  Ray 
v.  Atchison,  &c.  R.  Co.  4  Neb.  439; 
Spencer  v.  Point  Pleasant,  &c.  R. 
Co.  23  W.  Va.  406,  20  Am.  &  Eng. 
R.  Cas.  125;  Kansas  City,  &c.  R. 
Co.  v.  St.  Joseph,  &c.  R.  Co.  97  Mo. 
457,  10  S.  W.  826,  3  L.  R.  A.  240; 
Chattanooga,  &c.  R.  Co.,  v.  Jones,  80 
Ga.  264,  9  S.  E.  1081;  Elliott  Roads 
and  Streets  (2d  Ed.)  §  242,10  Am.  & 
Eng.  Ency.  Law  969,  and  numerous 
authorities  there  cited.  See,  also, 
post,  §§  1049,  1096.  But  it  has  been 
held  that  an  injunction  will  not  be 
granted  where  the  land  has  been 
condemned  in  a  court  of  competent 
jurisdiction,  but  the  landowner  has 
appealed  therefrom,  and  the  case  is 
pending  on  appeal.  Traverse  City, 
&c.  R.  Co.  v.  Seymour,  81  Mich. 
378,  45  N.  W.  826.  See  Dillon  v. 
Kansas  City,  &c.  R.  Co.  43  Fed. 
109.  The  construction  of  a  rail- 
road over  condemned  land  will 
not  be  restrained  for  errors  of 


v.  Georgia  R.,  &c.  Co.  89 
Ga.  215,  15  S.  E.  124.  And  the  abuse 
of  its  eminent  domain  powers  by  a 
railroad  corporation  may  always  be 
enjoined,  in  a  proper  case,  without 
reference  to  insufficiency  of  legal 
remedies  or  irreparable  damages. 
Western  R.,  &c.  v.  Alabama,  &c.  R. 
Co.  96  Ala.  272,  11  So.  483,  17  L.  R. 
A.  474.  But  see  Maingault  v. 
Springs,  199  U.  S.  473,  26  Sup.  Ct. 
127. 

""Brooklyn,  &c.  R.  Co.  In  re,  125 
N.  Y.  434;  Cincinnati,  &c.  R.  Co. 
v.  Clifford,  113  Ind.  460;  Bravard 
v.  Cincinnati,  &c.  R.  Co.  115  Ind. 
1,  17  N.  E.  183;  New  York,  &c.  R. 
Co.  v.  New  York,  &c.  R.  Co.  52  Conn. 
274;  Briggs  v.  .Cape  Cod  Canal,  137 
Mass.  71.  See,  also,  Rafferty  v.  Cen- 
tral Traction  Co.  147  Pa.  St.  579, 
23  Atl.  884,  30  Am.  St.  763,  6  Lewis' 
Am.  R.  &  Corp.  287.  See  also  post, 
§  957. 

141  Lake  Erie,  &c.  R.  Co.  v.  Miche- 


§  629] 


ACTIONS  BY  AND  AGAINST  CORPORATIONS. 


932 


by  a  railroad  company  which  has  taken  without  right,  where  the 
owner  has  acquiesced  in  the  appropriation  until  the  company  has 
expended  money  thereon,  and  the  public  interest  has  become  in- 
volved.142 Where  the  corporation  is  given  power  to  take  lands  for  the 
use  of  its  road,  it  may,  within  the  statutory  limits,  exercise  its  discre- 
tion as  to  what  shall  be  taken ;  and  the  fact  that  it  owns148  or  could 
acquire  by  purchase144  adjoining  lands  which  would  answer  its  pur- 
pose will  not  entitle  the  landowners  to  an  injunction  where  the  com- 
pany acts  in  good  faith.  Where  the  company  is  acting  in  bad  faith 
with  the  purpose  of  securing  lands  which  it  is  not  empowered  to  hold, 
equity  may  interfere.145  In  the  case  of  a  suit  for  an  injunction  by 
one  having  only  a  remote  or  indirect  interest  in  lands,  which  are  sub- 
ject to  condemnation,  and  in  which  all  other  interests  have  been  se- 
cured by  the  company,  it  has  been  held  that  the  court  may  dissolve 
the  injunction  upon  a  bond  being  filed  by  the  company  to  pay  all 


law  in  the  condemnation  proceed- 
ings. Cooper  v.  Anniston,  &c.  R. 
Co.  85  Ala.  106,  4  So.  689.  The  fact 
that  the  right  to  immediate  posses- 
sion is  in  another  who  has  pur- 
chased the  right  to  use  and  occupy 
the  land  for  a  term  of  twenty  years 
at  a  sale  thereof  for  non-payment  of 
taxes,  does  not  deprive  the  land- 
owner of  the  right  to  an  injunction 
to  prevent  a  railroad  from  occupy- 
ing the  land  until  compensation  is 
made.  Pratt  v.  Roseland  R.  Co.  50 
N.  J.  Eq.  150,  24  Atl.  1027.  Even  in 
states  where  an  injunction  is  only 
granted  to  restrain  irreparable  in- 
juries, a  railroad  company  may  be 
enjoined  from  making  excavations 
upon  land  which  they  have  not  con- 
demned. Baltimore,  &c.  R.  Co.  v. 
Lee,  75  Md.  596,  23  Atl.  901. 

142  Roberts  v.  Northern  Pacific  R. 
Co.  158  U.  S.  1,  15  Sup.  Ct.  756; 
Organ  v.  Memphis,  &c.  R.  Co.  51 
Ark.  235,  11  S.  W.  96;  Osborne  v. 
Missouri  Pac.  R.  Co.  35  Fed.  84,  37 
Fed.  830;  Denver,  &c.  R.  Co.  v. 
Domke,  11  Colo.  247,  17  Pac.  777; 
Chambers  v.  Baltimore,  &c.  R.  Co. 


139  Pa.  St.  347,  21  Atl.  2;  Midland, 
&c.  R.  Co.  v.  Smith,  113  Ind.  233; 
Indiana,  &c.  R.  Co.  v.  Allen,  113 
Ind.  581,  15  N.  E.  446,  and  authori- 
ties there  cited;  Pettibone  v.  Rail- 
road Co.  14  Wis.  479;  Chicago,  &c. 
R.  Co.  v.  Goodwin,  111  111.  273;  53 
Am.  R.  622;  Lexington,  &c.  R.  Co. 
v.  Ormsby,  7  Dana  (Ky.)  276;  Har- 
low  v.  Marquette,  &c.  R.  Co.  41  Mich. 
336,  2  N.  W.  48;  Western,  &c.  R. 
Co.  v.  Johnston,  59  Pa.  St.  290. 
Contra,  Louisville,  &c.  R.  Co.  v. 
Liebfried,  92  Ky.  407,  17  S.  W.  870. 

143  Stark  v.  Sioux  City,  &c.  R.  Co. 
43  Iowa  501;  Dougherty  v.  Wabash, 
&c.  R.  Co.  19  Mo.  App.  419. 

144  Lodge   v.    Philadelphia,   &c.   R. 
Co.    8    Phila.     (Pa.)    345;    Ford    v. 
Chicago,  &c.  R.  Co.  14  Wis.  609,  80 
Am.  Dec.  791;  New  York,  &c.  R.  Co. 
v.  Kip,  46  N.  Y.  546,  7  Am.  R.  385; 
Eldridge  v.  Smith,  34  Vt.  484. 

145  Flower  v.  London,  &c.  R.  Co.  2 
Dr.  &  Sm.  330;   Great  Western  R. 
Co.  v.  May,  L.  R.  7  H.  L.  283;   Ev- 
ersfield  v.  Mid  Sussex  R.  Co.  3  De 
G.  &  J.  286. 


933       INJUNCTION   WHERE  BAILROAD  IS   LAID  IN  A  STREET.       [§    630 


damages  awarded  to  the  complainant  in  an  action  at  law.146  A  rail- 
road company  may  be  enjoined  from  shutting  up  a  private  right  of 
way  which  furnishes  the  only  convenient  egress  from  the  plaintiff's 
land  to  the  public  highway,  even  after  the  acts  complained  of  have 
actually  been  committed.147  Where  the  railroad  company  has  obtained 
possession  of  land  for  its  right  of  way  under  contract  to  construct  its 
road  in  a  particular  manner,  it  has  been  held  that  it  may  be  enjoined 
from  violating  the  contract.  Thus  a  contract  by  a  railroad  company 
to  maintain  and  keep  open  two  existing  passage  ways  for  stock  under 
its  road  through  a  certain  farm  is  sufficiently  certain  to  entitle  the 
owner  of  the  farm  to  an  injunction  against  its  violation,  although  the 
size,  nature,  and  location  of  the  ways  are  not  stated  in  the  contract.148 

§  630.  Injunction  where  railroad  is  laid  in  a  street. — An  abutting 
owner  may  enjoin  it  from  occupying  a  street  or  other  public  highway, 
and  operating  its  road  therein  without  authority,  upon  proof  of  special 
damage,149  at  least  where  he  owns  the  fee  of  the  land  to  the  center  of 


14«  Columbus,  &c.  R.  Co.  v.  Withe- 
row,  82  Ala.  190,  3  So.  23. 

147Lakeman  v.  Hannibal,  &c.  R. 
Co.  36  Mo.  App.  363.  And  an  in- 
junction will  be  granted  to  prevent 
the  closing  of  a  private  right  of 
way  under  the  railroad  track  re- 
served by  the  landowner  at  the 
time  of  the  conveyance  of  the  rail- 
road right  of  way,  by  which  com- 
munication between  two  parts  of 
the  same  farm  are  established. 
Rock  Island,  &c.  R.  Co.  v.  Dimick, 
55  Am.  &  Eng.  R.  Cas.  65.  See, 
also,  Lake  Erie,  &c.  R.  Co.  v.  Young, 
135  Ind.  426,  35  N.  E.  177,  41  Am. 
St.  430,  58  Am.  &  Eng.  R.  Cas.  665. 

148  Rock  Island,  &c.  R.  Co.  v.  Dim- 
ick, 144  111.  628,  32  N.  E.  291,  19  L. 
R.  A.  105. 

""Hart  v.  Buckner,  54  Fed.  925;, 
Ward  v.  Ohio  River  R.  Co.  35  W. 
Va.  481;  Georgia,  &c.  R.  Co.  v.  Ray, 
84  Ga.  376,  43  Am.  &  Eng.  R.  Cas. 
95;  Riedinger  v.  Marquette,  &c.  R. 
Co.  62  Mich.  29;  Kavanagh  v.  Mo- 
bile, &c.  R.  Co.  78  Ga.  271,  2  S.  E. 


636;  Metropolitan  City  R.  Co.  v. 
City  of  Chicago,  96  111.  620;  State 
v.  Dayton,  &c.  R.  Co.  36  Ohio  St. 
434;  Barker  v.  Hartman  Steel  Co. 
129  Pa.  St.  551,  18  Atl.  553;  Colum- 
bus, &c.  R.  Co.  v.  Witherow,  82  Ala. 
190,  3  So.  23;  Bell  v.  Edwards,  37 
La.  Ann.  475;  Cornwall  v.  Louis- 
ville, &c.  R.  Co.  87  Ky.  72,  7  S.  W. 
553;  Charles  H.  Heer,  &c.  Co. 
v.  Citizens'  R.  Co.  41  Mo.  App. 
63;  Story  v.  New  York  El.  R. 
Co.  90  N.  Y.  122,  48  Am.  R.  146; 
Conner  v.  Covington,  &c.  R.  Co.  14 
Ky.  L.  135,  19  S.  W.  597.  See,  also, 
post  §  1096.  Where  a  railroad  has 
been  laid  in  a  street  by  authority 
of  the  legislature,  an  injured  party 
who  has  a  complete  remedy  by  way 
of  damages  for  any  direct  injury 
will  not  be  granted  an  injunction. 
Hyland  v.  Short  Route  R.  Transfer 
Co.  10  Ky.  L.  900,  11  S.  W.  79.  But 
see  Georgia,  &c.  R.  Co.  v.  Ray,  84 
Ga.  376,  11  S.  E.  352,  43  Am.  &  Eng. 
R.  Cas.  95.  Where  a  company  Is 
authorized  to  construct  and  operate 


§  630] 


ACTIONS  BY  AND  AGAINST   CORPORATIONS. 


934 


the  street.180  Indeed,  where  his  easement  of  access  will  be  destroyed,  we 
think  he  is  entitled  to  pursue  this  remedy  whether  he  owns  the  fee  or 
not.161  The  fact  that  the  time  allowed  by  the  charter  in  which  to  build 
the  road  has  expired  has  been  held  sufficient  to  show  that  the  building 
of  the  road  is  illegal  and  unauthorized.162  It  is  held  in  some  states  that 
even  where  the  consent  of  the  legislature  and  of  the  municipal  authori- 


a  railroad  track  in  a  street,  a  court 
cannot  restrict  the  number  of  trains 
to  be  operated  as  a  condition  prece- 
dent to  the  construction  of  the  road. 
Kentucky,  &c.  Bridge  Co.  v.  Krie- 
ger,  93  Ky.  243,  19  S.  W.  738.  In 
Colorado,  an  abutter  whose  fee  is 
not  sought  to  be  taken  cannot  en- 
join the  construction  and  operation 
of  a  railroad  merely  because  he  does 
not  receive  in  advance  compensa- 
tion for  the  damage  suffered  or  to 
be  suffered  by  him.  Denver,  &c.  R. 
Co.  v.  Domke,  11  Colo.  247,  17  Pac. 
777.  In  West  Virginia  the  abutting 
owners  on  a  street,  part  of  which 
is  occupied  by  a  railroad,  whether 
they  own  the  fee  in  the  land  cov- 
ered by  the  street  or  not,  are  not 
entitled  to  enjoin  excavation  and 
construction  along  the  street  in  a 
careful  and  proper  manner,  unless 
the  consequent  injury  to  them  will 
be  such  as  will  destroy  the  value  of 
their  property,  and  therefore  be 
equivalent  to  a  virtual  taking  of  it 
by  the  railroad  company.  Arbenz 
v.  Wheeling,  &c.  R.  Co.  33  W.  Va. 
1,  10  S.  E.  14,  40  Am.  &  Eng.  R. 
Cas.  284.  See  Paquet  v.  Mt.  Tabor 
St.  R.  Co.  18  Ore.  233,  29  Pac.  906; 
Van  Horn  v.  Newark,  &c.  R.  Co.  48 
N.  J.  Eq.  332,  21  Atl.  1034. 

""Where  the  fee  is  in  the  munici- 
pality some  authorities  hold  that 
an  abutting  owner  has  only  an 
action  at  law  for  his  damages.  Mills 
v.  Parlin,  106  111.  60;  Osborne  v. 
Missouri  Pac.  R.  Co.  147  U.  S.  248, 
13  Sup.  Ct.  299.  See,  also,  Smith  v. 
Point  Pleasant,  &c.  R.  Co.  23  W.  Va. 


451;  Heath  v.  Des  Moines,  &c.  R.  Co. 
61  la.  11.  It  has  also  been  held  that 
the  fact  that  the  street  has  been 
declared  vacated  by  an  invalid  ordi- 
nance gives  an  abutting  owner  no 
right  to  an  injunction,  since  the  or- 
dinance, being  invalid,  does  not 
operate  to  revest  the  title  to  the 
street  in  the  abutting  owners.  Cor- 
coran v.  Chicago,  &c.  R.  Co.  149  111. 
291,  37  N.  E.  68. 

151  See  Elliott  Roads  and   Streets 
(2d  ed.)    §  665,  526-529,  536;   Rail- 
roads   as    Additional    Servitude    to 
Streets,  1  Am.  &  Eng.  R.  Cas.   (N. 
S.)   1;  Lockwood  v.  Wabash  R.  Co. 
122  Mo.  86,  26  S.  W.  698,, 24  L.  R.  A. 
516,  43  Am.  St.  547,  1  Am.  &  Eng. 
R.  Cas.  (N.  S.)  16,  and  note;  Dooly 
Block  v.  Salt  Lake,  &c.  Co.  9  Utah 
31,  33  Pac.  229,  24  L.  R.  A.  610,  8 
Lewis'  Am.  R.  &  Corp.   327;  Aben- 
droth    v.    Manhattan    R.    Co.    122 
N.  Y.  1,  25  N.  E.  496,  11  L.  R.  A.  634, 
19   Am.   St.   461;    Field   v.   Barling, 
149  111.  556,  37  N.  E.  850,  24  L.  R.  A. 
406,   41   Am.   St.   311,   and   note;    2 
Dillon   Munic.   Corp.    (4th   ed.),   §§ 
704,  704a,  726,  923c;   I  Hare  Const. 
L.  370,  375;  Theobold  v.  Louisville, 
&c.  R.  Co.  66  Miss.  279,  6  So.  230,  4 
L.  R.  A.  735,  14  Am.  St.  564;  Adams 
v.  Chicago,  &c.  R.  Co.  39  Minn.  286, 
39  N.  W.  629,  1  L.  R.  A.  493,  12  Am. 
St.  644;  White  v.  Northwestern,  &c. 
R.  Co.  113  N.  Car.  610,  18  S.  E.  330, 
22  L.  R.  A.  627. 

152  Bonaparte  v.  Baltimore,  &c.  R. 
Co.  75  Md.  340,  23  Atl.  784,  49  Am. 
&  Eng.  R.  Cas.  198. 


935        INJUNCTION   WHERE  RAILROAD  IS   LAID  IN  A  STREET.      [§    630 


ties  has  been  obtained  the  abutting  owner  may  enjoin  the  construction 
or  operation  of  the  railroad  until  his  damages  are  assessed  and  paid.153 
Where  the  right  to  lay  a  railroad  track  in  a  street  is  prohibited,  until 
the  damage  is  ascertained  and  paid  to  abutting  owners,  it  has  been 
held  that  the  company  may  be  enjoined  from  operation  of  the  road 
until  payment  of  the  damages,  although  a  prior  judgment  for  the  dam- 
ages has  been  obtained  in  an  action  at  law,  but  remains  unpaid.154 
But  the  right  to  an  injunction  for  this  cause  may  be  lost  by  the  abut- 
ting owner's  acquiescence  in  the  construction  of  the  road,155  or  in  its 
use  for  a  length  of  time  after  construction.158  The  public  may  enjoin 
an  unauthorized  use  of  a  public  street  or  other  highway  by  an  action 
on  behalf  of  the  state  in  the  name  of  the  attorney-general  or  other 
proper  officer,157  or  the  suit  for  an  injunction  may  be  maintained  in 
the  name  of  the  town  or  city,158  or  other  municipality  to  which  the 


153  Cox  v.  Louisville,  &c.  R.  Co.  48 
Ind.  178;  Georgia,  &c.  R.  Co.  v.  Ray, 
84  Ga.  376,  11  S.  E.  352;  Barber  v. 
Saginaw  Union  R.  Co.  83  Mich.  299, 
47  N.  W.  219;  Pennsylvania  R.  Co. 
v.  Angel,  41  N.  J.  Eq.  316,  4  Atl.  432, 
36  Am.  R.  1;  Imlay  v.  Union  Branch 
R.  Co.  26  Conn.  249,  68  Am.  Dec. 
392;  Wager  v.  Troy,  &c.  R.  Co.  25  N. 
Y.  526;  Stroub  v.  Manhattan  R.  Co. 
15  N.  Y.  S.  135,  39  N.  Y.  St.  378. 
See  Kemble,  Appeal  of,  140  Pa.  14, 

21  Atl.  225.     Contra,  Paquet  v.  Mt 
Tabor  St.  R.  Co.  18  Ore.  233,  22  Pac. 
906;   Ohio  River  R.  Co.  v.  Gibbens, 
35  W.  Va.  57,  12  S.  E.  1093;  O'Brien 
v.  Baltimore  Belt  R.  Co.  74  Md.  363, 

22  Atl.  141,  13  L.  R.  A.  126;  Randall 
v.   Jacksonville   St.   R.   Co.   19   Fla. 
409.      See   Western   R.    Co.   v.   Ala- 
bama, &c.  R.  Co.  96  Ala.  272,  11  So. 
483,  17  L.  R.  A.  474.    Abutting  own- 
ers will  not  be  granted  an  injunc- 
tion against  a  railroad  company  to 
prevent  its  entering  Into  a  contract 
with     the     county     commissioners 
whereby   it   is   permitted   to   main- 
tain its  tracks  in  a  street  at  a  grade 
alleged    to   be    illegal;    the    proper 
remedy  is  mandamus  requiring  the 
county    commissioners    to    perform 


their  duties  under  the  law.  Dyer  v. 
Cincinnati,  &c.  R.  Co.  7  Ohio  Cir. 
Ct.  255. 

1MHarbach  v.  Des  Moines,  &c.  R. 
Co.  80  Iowa  593,  44  N.  W.  348,  11  L. 
R.  A.  113. 

155  Merchants',  &c.  Co.  v.  Chicago, 
&c.  R.  Co.  79  Iowa  613,  44  N.  W. 
900;  Burkam  v.  Ohio,  &c.  R.  Co. 
122  Ind.  344,  23  N.  E.  799. 

"*  Merchants',  &c.  Co.  v.  Chicago, 
&c.  R.  Co.  79  Iowa  613,  44  N.  W. 
348.  See,  also,  Sunderland  v.  Mar- 
tin, 113  Ind.  411,  15  N.  E.  689. 

157  Attorney-General    v.    Delaware, 
&c.  R.  Co.  27  N.  J.  Eq.  631;  Attor- 
ney-General v.  Metropolitan  R.  Co. 
125  Mass.  515,  28  Am.  R.  264;  Com- 
monwealth v.  Pittsburgh,  &c.  R.  Co. 
24  Pa.  St.  159,  62  Am.  Dec.  372. 

158  Rio  Grande  R.  Co.  v.  Browns- 
ville,  45    Tex.    88;    Philadelphia    v. 
Friday,   6   Phila.   275;    Philadelphia 
y.  Railway  Co.  8  Phila.  648;  Green- 
wich v.  Easton,  &c.  R.  Co.  24  N.  J. 
Eq.  217;   Springfield  v.  Connecticut 
River  R.   Co.   4  Cush.    (Mass.)    63. 
And   a  removal   of   tracks   already 
laid  may  be  compelled  by  a  com- 
pany  which   afterward   obtains   au- 
thority   to    lay    its    tracks    in   the 


631] 


ACTIONS  BY  AND  AGAINST  CORPORATIONS. 


936 


state,  has  confided  the  care,  management  and  control  of  the  highway 
involved.18* 

§  631.  Enjoining  a  nuisance. — An  injunction  may  generally  be 
had  at  the  suit  of  the  state  to  restrain  unauthorized  acts  by  which 
the  public  has  been  or  will  be  injured.160  As  a  public  nuisance  is  a 
criminal  offense  which  may  be  reached  by  indictment  or  information 
in  the  ordinary  course  of  a  prosecution  for  crime,  it  has  been  doubted 
whether  an  injunction  will  lie  to  restrain  it  at  the  suit  of  the  state, 
or  its  proper  representative.  But  the  jurisdiction  of  equity  in  such 
cases  is  well  established  in  England,  as  is  shown  by  the  authorities 
already  cited,  and  we  think  the  authorities,  both  in  that  country  and 
in  this,  justify  us  in  stating  that  the  proper  public  officer  may,  in  a 
proper  case,  by  a  suit  in  the  name  of  the  state,  enjoin  a  railroad  com- 
pany from  maintaining  a  public  nuisance.161  This  is  certainly  true 


street,  although  the  first  company 
improved  and  reclaimed  the  street. 
Galveston  Wharf  Co.  v.  Gulf,  &c.  R. 
Co.  81  Tex.  494,  17  S.  W.  57.  Un- 
less expressly  authorized,  a  railroad 
company  is  not  presumed  to  have 
the  right  to  condemn  and  appropri- 
ate to  its  use  land  already  dedi- 
cated to  the  public  for  streets;  and 
either  the  municipal  corporation  or 
the  owner  of  the  fee  may  enjoin 
such  use.  Cornwall  v.  Louisville, 
&c.  R.  Co.  87  Ky.  72,  7  S.  W.  553. 

158  Commissioners  v.  Long,  1  Pars. 
Eq.  Cas.  (Pa.)  143;  Township  of 
North  Manheim,  Appeal  of  (Pa.), 
14  Atl.  137,  36  Am.  &  Eng.  R.  Cas. 
194. 

180  Attorney-General     v.     Chicago, 
&c.  R.  Co.  35  Wis.  425;   Stockton  v. 
Central,  &c.  Co.  50  N.  J.  Eq.  52,  24 
Atl.  964,  17  L.  R.  A.   97;   Ware  v. 
Regent's  Canal  Co.  3  De  Gex  &  J. 
212;      Attorney-General     v.      Great 
Northern  R.  Co.  4  De  Gex  &  S.  75; 
Taylor  v.  Salmon,  4  Mylne  &  C.  134, 
141;  Brice  Ultra  Vires,  506-509.   See 
United  States  v.  Union  Pac.  R.  Co. 
98  U.  S.  569. 

181  District  Attorney   v.    Lynn,    &c. 


R.  Co.  16  Gray  (Mass.)  242;  People 
v.  Sturtevant,  9  N.  Y.  263,  59  Am. 
Dec.  536;  Attorney-General  v.  Chi- 
cago, &c.  R.  Co.  35  Wis.  425; 
Georgetown  v.  Alexandria  Canal 
Co.  12  Pet.  (U.  S.)  91;  People's  Gas 
Co.  v.  Tyner,  131  Ind.  277,  283,  31  N. 
E.  59,  16  L.  R.  A.  443,  31  Am.  St. 
433;  State  v.  Saline  Co.  51  Mo.  350, 
11  Am.  R.  454;  Carleton  v.  Rugg, 
149  Mass.  550,  22  N.  E.  55,  5  L.  R.  A. 
193,  14  Am.  St.  446;  State  v.  Craw- 
ford, 28  Kan.  726,  42  Am.  R.  182; 
Mayor  v.  Jacques,  30  Ga.  506;  Peo- 
ple v.  St.  Louis,  10  111.  351,  357,  48 
Am.  Dec.  339;  Attorney-General  v. 
Hunter,  1  Dev.  Eq.  (N.  Car.)  12; 
State  v.  Saunders,  66  N.  H.  39,  25 
Atl.  588,  18  L.  R.  A.  646;  Littleton 
v.  Fritz,  65  Iowa  488,  22  N.  W.  641, 
54  Am.  R.  19;  Columbian  Athletic 
Club  v.  State,  143  Ind.  98,  40  N.  E. 
914,  28  L.  R.  A.  727,  52  Am.  St.  407. 
In  the  last  case  just  cited  it  was 
held,  after  a  careful  review  of  many 
of  the  authorities,  that  injunction 
would  lie  and  that  a  receiver  might 
also  be  appointed  in  aid  of  the  in- 
junction. 


937 


ENJOINING  A   NUISANCE. 


[§    631 


where  the  relief  sought  is  not  merely  to  prevent  the  commission  of  a 
crime,  but  to  prevent  the  abuse  of  corporate  powers  and  privileges  to 
the  injury  of  the  public.  A  prosecution  for  the  crime  or  a  suit  to  dis- 
solve the  corporation  or  forfeit  its  charter  will  not  afford  adequate 
relief  in  such  a  case,  because,  in  the  meantime,  the  corporation,  unless 
restrained  by  the  courts,  may  persist  in  its  course  of  crime  and  its 
abuse  of  corporate  privileges.  An  injunction  is,  therefore,  necessary 
to  accomplish  complete  justice  and  prevent  continued  injury  to  the 
public.  So,  of  course,  injunction  will  lie,  in  a  proper  case,  at  the  suit 
of  an  individual  who  is  specially  injured  by  a  public  nuisance.162  But 
where  no  nuisance  yet  exists  and  it  is  merely  claimed  that  injury  will 
arise  from  the  use  to  which  property  is  proposed  to  be  devoted,  and 
not  from  the  character  of  the  property  or  structure,  an  injunction  will 
not  be  awarded  if  the  structure  and  the  use  to  which  it  is  to  be  put 
are  authorized  and  lawful  in  themselves  and  the  apprehended  injury 
is  merely  contingent  or  uncertain.183  Indeed,  we  think  it  may  be 
safely  affirmed  that  where  a  structure,  such  as  a  coal  chute,  a  water- 
tank,  or  the  like,  essential  to  the  operation  of  the  railroad,  is  properly 
constructed,  the  remedy  of  an  individual  inconvenienced  by  its  use, 
if  any  he  has,  must,  ordinarily,  be  an  action  for  damages.164  And  even 


162  Elliott  Roads  and  Streets  496 
(2d  ed.)  §  665;  Pennsylvania  R.  Co. 
v.  Angel,  41  N.  J.  Eq.  316,  7  Atl.  432, 

56  Am.  R.  1;  Cogswell  v.  New  York, 
&c.  R.  Co.  103  N.  Y.  10,  8  N.  E.  537, 

57  Am.  R.  701;  note  to  South  Caro- 
lina, &c.   Co.  v.   South  Carolina  R. 
Co.   4   L.   R.   A.    209;    Wylie  v.   El- 
wood,  134  111.   281,  25  N.  E.  570,  9 
L.  R.  A.  726,   23  Am.  St.  673,  and 
note  Field  v.  Barling,  149  111.  556, 
37  N.  E.   850,   24  L.   R.  A.   406,  41 
Am.  St.  311;  Innis  v.  Cedar  Rapids, 
&c.  R.  Co.  76  Iowa  165,  40  N.  W.  701, 
2  L.  R.  A.  282;  Gold  v.  Philadelphia, 
115  Pa.  St.  184,  8  Atl.  386. 

183  Rouse  v.  Martin,  75  Ala.  510,  51 
Am.  R.  463;  Duncan  v.  Hayes,  22  N. 
J.  Eq.  25;  Rhodes  v.  Dunbar,  57  Pa. 
St.  274,  98  Am.  Dec.  221;  Powell  v. 
Macon,  &c.  R.  Co.  92  Ga.  209,  17  S. 
E.  .1027;  Keiser  v.  Lovett,  85  Ind. 
240,  44  Am.  R.  10;  Pfingst  v.  Senn, 
94  Ky.  556,  23  S.  W.  358,  21  L.  R.  A. 


569;  Dumesnil  v.  Dupont,  18  B. 
Mon.  (Ky.)  800,  68  Am.  Dec.  750; 
Earl  of  Ripon  v.  Hobart,  1  Cooper 
(Temp.  Brougham)  333;  1  High 
Inj.  §§  743,  788;  2  Wood  Nuisances 
(3d  ed.)  §§  796,  797.  See,  also,  Dai- 
ton  v.  Cleveland,  &c.  R.  Co.  144  Ind. 
121,  43  N.  E.  130. 

194  See  Gilbert  v.  Showerman,  23 
Mich.  448;  Owen  v.  Phillips,  73  Ind. 
284;  Barnard  v.  Sherley,  135  Ind. 
547,  558,  34  N.  E.  600,  35  N.  E.  117, 
24  L.  R.  A.  568,  41  Am.  St.  454,  and 
authorities  there  cited;  Robb  v. 
Carnegie  Bros.  &  Co.  145  Pa.  St. 
324,  22  Atl.  649,  14  L.  R.  A.  329,  27 
Am.  St.  694;  Huckenstine's  Appeal, 
70  Pa.  St.  102,  10  Am.  R.  669;  Good- 
all  v.  Crofton,  33  Ohio  St.  271,  31 
Am.  R.  535.  Of  course  we  do  not 
mean  to  say  that  an  individual  who 
is  specially  injured  may  not  have 
an  injunction,  in  a  proper  case, 
where  this  remedy  at  law  is  inade- 


§  G32] 


ACTIONS  BY  AND  AGAINST  CORPORATIONS. 


938 


this  remedy  is  not,  ordinarily,  open  to  him  where  the  structure  is 
properly  constructed  in  a  proper  place  and  the  inconvenience  is  such 
only  as  necessarily  results  from  its  authorized  use.165 

§  632.  Injunction  at  suit  of  the  company. — A  railroad  company 
may  have  an  injunction,  in  a  proper  case,  to  protect  its  rights  from  a 
threatened  invasion.  It  may  enjoin  an  interference  with  its  roadbed 
by  piling  obstructions  thereon,166  or  by  tearing  up  its  track  or  placing 
obstacles  in  the  way  of  constructing  its  road  upon  a  proposed  route 
which  it  has  located  according  to  law.107  So,  it  has  been  held  that  it 
may  enjoin  a  constant  or  continuous  use  of  its  track  by  a  trespasser.168 
If  the  former  owner  wrongfully  threatens  to  resist  the  occupancy  by 
the  railroad  company  of  lands  which  it  has  acquired  by  regular  con- 
demnation proceedings,  he  may  be  restrained  by  injunction.169  So, 
where  a  riparian  proprietor  had  conveyed  to  a  railroad  company  a 


quate,  against  a  nuisance  caused  by 
the  use  of  a  thing  as  well  as  against 
the  thing  itself.  See  note  1,  supra, 
p.  903. 

165  Dunsmore  v.  Central,  &c.  R.  Co. 
72   Iowa  182,  33  N.  W.  456;    Penn- 
sylvania Co.  v.  Lippincott,  116  Pa. 
St.  472,  9  Atl.  871,  2  Am.  St.  618; 
Pennsylvania  R.  Co.  v.  Marchant,  119 
Pa.   St.  541,  13  Atl.  690,  4  Am.   St. 
659;    Barnard  v.   Sherley,   135   Ind. 
547,  553,  34  N.  E.  600,  24  L.  R.  A. 
568,  41  Am.  St.  454;  Booth  v.  Rome, 
&c.  R.  Co.  140  N.  Y.  267,  35  N.  E.  592, 
24    L.    R.    A.    105,   37    Am.    St.    552 
(railroad   company   held  not  liable 
for     incidental     injury     caused    by 
blasting  on  its  own  land  a  place  to 
lay  its  tracks) ;    Randle  v.  Pacific, 
&c.  Co.  65  Mo.  325;   Parrott  v.  Cin- 
cinnati, &c.  R.  Co.  10  Ohio  St.  624; 
Cosby  v.  Owensboro,  &c.  R.  Co.  10 
Bush    (Ky.)    288. 

166  Henderson  v.  Ogden  City  R.  Co. 
7  Utah  199,  26  Pac.  286.     But  it  has 
been   held    that   a   preliminary    in- 
junction will  not  be  granted  to  re- 
strain the  erection  of  buildings  on 
land   claimed  by  the  railroad  com- 
pany as  its  right  of  way,  where  it 


appears  that  the  defendant  also 
claims  title  to  the  land.  Delaware, 
&c.  R.  Co.  v.  Newton,  &c.  Co.  137 
Pa.  St.  314,  21  Atl.  171. 

167  Rochester,  &c.  R.  Co.  v.  New 
York,  &c.  R.  Co.  110  N.  Y.  128,  17  N. 
E.  680;  Easton,  &c.  R.  Co.  v.  Easton, 
133  Pa.  St.  505,  19  Atl.  486,  19  Am. 
St.  658  (city  enjoined);  Asheville 
St.  R.  Co.  v.  Asheville,  109  N.  Car. 
688,  14  S.  E.  316  (chief  of  police  en- 
joined from  tearing  up  track).  See, 
also,  Millville,  &c.  Co.  v.  Goodwin 
(N.  J.),  32  Atl.  263;  Bellington,  &c. 
R.  Co.  v.  Alston,  54  W.  Va.  597,  46 
S.  E.  612,  613,  citing  text;  Seaboard 
Air  Line  R.  Co.  v.  Olive  (N.  Car.), 
55  S.  E.  263. 

168Atchison,  &c.  R.  Co.  v.  Spauld- 
ing,  69  Kan.  431,  77  Pac.  106,  66  L. 
R.  A.  587,  105  Am.  St.  175.  See, 
generally,  as  to  enjoining  tres- 
passes, note  in  99  Am.  St.  731-753. 

169  Montgomery  R.  Co.  v.  Walton, 
14  Ala.  207.  Any  interference  with 
the  easement  of  the  company  by 
the  owner  of  the  fee  may  be  en- 
joined. Chance  v.  East  Texas  R.  Co. 
63  Tex.  152. 


939 


INJUNCTION   AT    SUIT    OF   THE   COMPANY. 


[§    632 


right  of  way,  with  "such  exclusive  interest  and  estate  in  said  strip 
of  land"  as  the  company  could  have  acquired  by  condemnation  under 
the  statute,  it  was  held  that  a  subsequent  grantee  of  the  fee  from 
such  original  proprietor  had  no  right  to  construct  along  the  river 
bank,  and  upon  such  right  of  way,  a  levee  which  would  raise  the 
water  flowing  in  the  stream  at  times  of  ordinary  flood,  although  in 
some  places  beyond  the  low-water  banks,  so  as  to  endanger  the  bridge, 
trestlework  and  track  of  the  railroad,  and  that  the  company  was  en- 
titled to  have  the  same  enjoined.170  While  there  is  conflict  among  the 
decisions  upon  the  question  as  to  what  constitutes  surface  water,  the 
authorities  cited  by  the  court  fully  sustain  the  ruling  upon  that 
branch  of  the  case,  and,  as  the  railroad  company  had  not  only  a  domi- 
nant estate,  to  which  that  of  the  defendant  was  servient,171  but  also 
had  the  right,  at  least  as  against  the  defendant,  to  the  exclusive  pos- 
session and  control  of  the  land  within  its  right  of  way  or  location, 
for  railroad  purposes,172  it  seems  clear  that  the  construction  of  the 
levee,  as  proposed,  would  have  been  a  very  material  invasion  of  the 
plaintiff's  rights,  and  that  the  decision  of  the  court  was  undoubtedly 
sound.  The  grantees  of  land  who  purchased  it  with  knowledge  that  a 
railroad  company  had  laid  pipes  across  it  from  a  certain  spring  to  a 
tank,  under  a  contract  with  a  former  owner  of  the  land,  may  be  en- 
joined from  interfering  with  such  pipes;  and  the  fact  that  the  tank 
is  not  located  in  the  exact  place  specified  in  the  contract  is  immaterial, 
where  the  change  does  not  affect  the  position  of  the  pipes,  which, 
owing  to  the  topography  of  the  country,  are  necessarily  laid  just  where 


170  Cairo,  &c.  R.  Co.  v.  Brevoort,  62 
Fed.  129.     The  river  referred  to  in 
this  case  is  a  navigable  river  form- 
ing    the     boundary     between     two 
states,  and  the  court  also  held  that 
the     question     involved     was     not, 
therefore,  a  local  question,  but  was 
one  depending  on  the  general  prin- 
ciples of  law,  so  that  the  decisions 
of  the  courts  of  one  of  the  states 
were    not   binding   on   the   federal 
court. 

171  Davidson  v.  Nicholson,  59  Ind. 
411;  Robinsin  v.  Thrailkill,  110  Ind. 
117,  10  N.  E.  647;   Herman  v.  Rob- 
erts, 119  N.  Y.  37,  23  N.  E.  442,  7  L. 


R.  A.  226,  16  Am.  St.  801;  Hayden 
v.  Skillings,  78  Me.  413,  6  Atl.  830. 
172  Jackson  v.  Rutland,  &c.  R.  Co. 
25  Vt.  150,  60  Am.  Dec.  246;  Brain- 
ard  v.  Clapp,  64  Mass.  6,  57  Am. 
Dec.  74;  Proprietors,  &c.  v.  Nashua, 
&c.  R.  Co.  104  Mass.  1,  6  Am.  R.  181; 
Hayden  v.  Skillings,  78  Me.  413,  6 
Atl.  830;  St.  Louis,  &c.  R.  Co.  v. 
Clark,  119  Mo.  357,  25  S.  W.  192; 
Chicago,  &c.  R.  Co.  v.  McGrew,  104 
Mo.  282,  297,  15  S.  W.  931;  Shelby 
v.  Chicago,  &c.  R.  Co.  143  111.  385, 
32  N.  E.  438;  Atlantic,  &c.  Tel.  Co. 
v.  Chicago,  &c.  R.  Co.  6  Biss.  (U.  S.) 
158. 


§  632] 


ACTIONS  BY  AND  AGAINST  CORPORATIONS. 


940 


they  are.173  A  railroad  company  may  enjoin  another  company  hav- 
ing a  right  of  way  across  its  land  from  interfering  with  its  use  of  its 
own  property  as  a  freight  yard  as  permitted  by  the  contract  granting 
the  easement,  even  though  some  uncertain  damages  would  result  to 
the  grantee  company  from  such  use  because  of  its  interference  with 
the  grantee's  use  of  its  tracks.174  So,  a  street  railway  company  which 
has  laid  its  track  in  a  street  under  a  grant  from  a  city  may  enjoin 
another  company,  to  which  the  city  afterward  grants  similar  rights, 
from  tearing  up  the  plaintiff's  track  or  placing  its  own  track  over 
that  of  the  plaintiff  in  derogation  of  the  latter's  rights.175  A  threat- 
ened invasion  of  an  exclusive  right  granted  to  a  street  railway  com- 
pany to  build  a  road  over  the  lands  of  a  railroad  company  to  its  depot 
may  also  be  enjoined.176  Where  a  shipper  threatened  to  bring  a  great 
number  of  separate  actions  for  damages  against  a  railroad  company 
for  the  separate  cars  as  to  which  he  alleged  he  was  entitled  to  recover 
under  the  state  law  prohibiting  a  charge  for  carriage  above  a  cer- 
tain rate  it  was  held  that  he  could  be  enjoined  from  suing  separately 
for  the  overcharge  on  each  car.177  An  injunction  may  also  be  granted 


173Diffendal    v.    Virginia   Midland 
R.  Co.  86  Va.  459,  10  S.  E.  536. 

174  Chicago,    &c.    R.    Co.    v.    Lake 
Shore,  &c.  R.  Co.  30  111.  App.  129. 

175  See  Hamilton  St.  R.  &c.  Co.  v. 
Hamilton,  &c.   Co.   5   Ohio   Cir.   Ct. 
319;  Kansas  City,  &c.  R.  Co.  v.  Kan- 
sas City,  &c.  R.  Co.  129  Mo.  62,  31  S. 
W.   451;    Indianapolis  Cable   St.   R. 
Co.  v.  Citizens'  St.  R.  Co.  127  Ind. 
369,  24  N.  E.  1054,  and  26  N.  E.  893; 
Citizens'  Coach  Co.  v.  Camden,  &c. 
R.  Co.  33  N.  J.  Eq.  267,  36  Am.  R. 
542.     See,  also,  Donora  Southern  R. 
Co.  v.  Pennsylvania  R.  Co.  213  Pa. 
St.  119,  62  Atl.  367.    See,  generally, 
as  to  joint  use  of  streets  and  tracks, 
Booth   Street  Railways,  Ch.  V;   El- 
liott Roads  and  Streets  566  (2d  Ed., 
§  765 ) ,  et  seq.   Where  the  grant  to  use 
a  street   is  not  exclusive — and  the 
rule  against  monopolies  will  gener- 
ally prevent  an  exclusive  grant — the 
company     cannot     enjoin     another 
company   from   using   another   por- 
tion  of  the   street  under  a   subse- 


quent grant.  Pennsylvania,  &c.  R. 
Co.  v.  Philadelphia,  &c.  R.  Co.  157 
Pa.  St.  42,  27  Atl.  683,  56  Am.  & 
Eng.  R.  Cas.  610.  See,  also,  West 
Jersey  R.  Co.  v.  Camden,  &c.  R.  Co. 
52  N.  J.  Eq.  31,  29  Atl.  423,  2  Am. 
L.  Reg.  &  Rev.  (N.  S.)  38,  and  note; 
Chicago,  &c.  R.  Co.  v.  Whiting,  &c. 
R.  Co.  139  Ind.  297,  38  N.  E.  604,  26 
L.  R.  A.  337,  47  Am.  St.  264  (hold- 
ing that  injunction  would  not  lie 
to  restrain  a  street  railway  com- 
pany from  crossing  a  steam  railroad 
company's  tracks  in  a  street). 

178  Fort  Worth  St.  R.  Co.  v.  Queen 
City  R.  Co.  71  Tex.  165,  9  S.  W.  94. 

177  Texas,  &c.  R.  Co.  v.  Kuteman, 
54  Fed.  547.  As  to  when  an  injunc- 
tion may  be  granted  to  restrain  the 
bringing  of  a  multiplicity  of  suits, 
and  the  plaintiffs  compelled  to  sub- 
mit to  the  jurisdiction  of  a  court  of 
equity,  see  Tribette  v.  Illinois  Cen- 
tral R.  Co.  70  Miss.  182,  12  So.  32, 
19  L.  R.  A.  660,  35  Am.  St.  642; 
Western  Union  Tel.  Co.  v.  Poe,  61 


941 


INJUNCTION  AT  SUIT  OF  THE  COMPANY. 


[§   632 


to  prevent  a  railroad  company  from  violating  its  contract  by  which 
it  has  agreed  to  stop  trains  within  a  certain  distance  of  the  other 
company's  road,  and  not  to  cross  until  signaled  to  do  so  by  the  flag- 
man.178 Where  it  is  shown  that  the  extension  of  a  city  street  so  as  to 
cross  the  tracks  and  yards  or  depot  grounds  of  a  railroad  company 
would  render  them  useless  to  the  railroad  company,  or,  in  other 
words,  where  the  two  public  uses  cannot  co-exist,  the  city  may  be 
enjoined,  in  the  absence  of  an  express  statute  conferring  the  right, 
from  so  extending  the  street.179  Until  a  railroad  company  has  com- 
plied with  the  requirements  of  the  statute  giving  it  authority  to  cross 
another  railroad,  it  has  no  right  to  enter  upon  that  company's  prem- 
ises to  build  its  road,180  and  an  injunction  may  be  granted  to  restrain 
it  from  so  doing.181  An  injunction  will  not  lie,  however,  for  a  naked 


Fed.  449;  Lake  Erie,  &c.  R.  Co.  v. 
Young,  135  Ind.  426,  35  N.  E.  177,  41 
Am.  St.  430;  Carney  v.  Hadley,  32 
Fla.  344,  14  So.  4,  22  L.  R.  A.  233, 
37  Am.  St.  101.  But  compare  Chi- 
cago v.  Chicago  City  R.  Co.  222  111. 
560,  78  N.  E.  890.  It  has  been  held 
that  the  federal  courts  have  no  jur- 
isdiction to  restrain  by  injunction 
a  criminal  prosecution  by  a  state 
under  an  unconstitutional  law  of 
such  state.  Minneapolis,  &c.  R.  Co. 
v.  Milner,  57  Fed.  276. 

178  Cornwall,   &c.   R.   Co.'s  Appeal, 
125  Pa.  St.  232,  17  Atl.  427,  11  Am. 
St.  889. 

179  Cincinnati,  &c.  R.   Co.  v.  City 
of  Anderson,  139  Ind.  490,  38  N.  E. 
167,  47  Am.  St.  285;  Fort  Wayne  v. 
Lake  Shore,  &c.  R.  Co.  132  Ind.  558, 
32  N.  E.  215,  18  L.  R.  A.  367,  32  Am. 
St.    277;    Baltimore,   &c.   R.    Co.   v. 
North,  103  Ind.  486;  Winona,  &c.  R. 
Co.  v.  Watertown,  4  S.  Dak.  323,  56 
N.  W.  1077;  New  Jersey,  &c.  R.  Co. 
v.  Long  Branch,  39  N.  J.  L.  28;  Mil- 
waukee, &c.  R.  Co.  v.  Faribault,  23 
Minn.  167;  Prospect  Park,  &c.  Co.  v. 
Williamson,   91   N.   Y.   552;    Housa- 
tonic  R.  Co.  v.  Lee,  &c.  R.  Co.  118 
Mass.      391;      Elliott     Roads     and 
Streets  167,  168    (2d  Ed.,  §  319,  et 


seq.).  But  see  Illinois  Cent.  R. 
Co.  v.  Chicago,  141  111.  586,  30 
N.  E.  1044,  17  L.  R.  A.  530;  Little 
Miami,  &c.  R.  Co.  v.  Dayton,  23 
Ohio  St.  510;  Detroit,  &c.  R.  Co.  v. 
Detroit,  91  Mich.  444,  52  N.  W.  52. 

180  Lake  Shore,  &c.  R.  Co.  v.  Cin- 
cinnati, &c.  R.  Co.  116  Ind.  578,  19 
N.  E.  440. 

181  Northern    Pac.    R.    Co.    v.    St. 
Paul,  &c.  R.  Co.  1  McCrary  (U.  S.) 
302,  3  Fed.  702;  Pennsylvania  R.  Co. 
v.    Consolidation    Coal    Co.    55    Md. 
158.     In  Pennsylvania  Co.  v.  Lake 
Erie,  &c.  R.  Co.  146  Fed.  446,  it  is 
held  that  a  lessee  of  a  railroad  has 
such  an   interest  as  will  entitle  it 
to  maintain  an   injunction   against 
another  company  illegally  interfer- 
ing   with    the    enjoyment    of    the 
leased  property  by  an  unauthorized 
crossing.     But  in   cases  where  the 
interests  of  the  public  demand   it 
the    injunction    may    be    dissolved 
upon  the  filing  of  a  bond  to  pay 
damages  and  costs  adjudged  against 
it  in  the  condemnation  proceedings 
by  which  it  is  authorized  to  acquire 
title.     Northern  Pac.  R.  Co.  v.   St. 
Paul,  &c.  R.  Co.  2  McCrary  (U.  S.) 
260,  4  Fed.  688. 


§  G33]       ACTIONS  BY  AND  AGAINST  CORPORATIONS.          942 

trespass  without  irreparable  injury,  and  upon  this  ground  it  has  been 
held  that  it  will  not  lie  where  one  railroad  company  enters  upon  the 
roadbed  of  another  and  constructs  its  tracks  without  first  making 
compensation  as  required  by  law/82  and  the  same  court  has  held  that 
where  two  street  railway  companies  are  operating  their  respective 
roads  under  legal  authority,  their  roads  crossing  each  other  at  the 
intersection  of  two  streets,  the  mere  fact  that  one  of  them  is  pro- 
ceeding to  lay  a  double  track  at  the  crossing  will  not  entitle  the  other 
to  an  injunction,  where  no  irreparable  injury  is  shown  and  the  com- 
pany is  solvent  and  able  to  respond  in  damages.183  But  the  general 
rule  is  that  injunction  will  lie  where  compensation  is  not  paid  of 
tendered,184  and  it  seems  to  us  that  an  entry  under  claim  and  color 
of  right,  which  may  ripen  into  a  title,  is  not  a  mere  fugitive  trespass 
that  can  cause  no  irreparable  injury.185 

§'  633.  Enjoining  "strikers." — The  great  strike  of  the  members  of 
the  American  Eailway  Union  in  1894,  and  other  strikes  about  the 
same  time,  gave  rise  to  a  number  of  decisions  in  which  old  principles 
were  applied  to  a  comparatively  new  state  of  facts  by  the  courts  of 
equity,  thus  illustrating  the  rule  that  equity  will  keep  pace  with  the 
needs  of  society  and  accommodate  its  methods  of  procedure  to  the 
development  of  the  public  interests  by  applying  its  remedies  to  the 
varying  demands  for  equitable  relief.186  It  has  been  said  that  there  is 
no  such  thing  as  a  peaceable  and  lawful  strike,187  but  a  United  States 
court  of  appeals  has  taken  a  different  view,  holding  that  a  strike  is 
not  unlawful  if  it  is  merely  a  combination  of  employes  to  withdraw 

182  Mobile,  &c.  R.  Co.  v.  Alabama,        185  See  Webb  v.  Portland,  &c.  Co.  3 
&c.   R.   Co.   87  Ala.  520,   6   So.   407,     Sumner  (U.  S.)  189. 

and  cases  cited.  18e  See  Toledo,  &c.  R.  Co.  v.  Penn- 

183  Highland  Ave.  &c.  R.  Co.  v.  Bir-  sylvania  Co.  54  Fed.  746;   Southern 
mingham  Union  R.  Co.  93  Ala.  505,  Cal.  R.  Co.  v.  Rutherford,  62  Fed. 
9  So.   568.     See,  also,   Chicago,  &c.  796;   Joy  v.  St.  Louis,  138  I>.  S.  1, 
R.  Co.  v.  Illinois,  &c.  R.  Co.  113  111.  50,  11  Sup.  Ct.  243.    See,  also,  O'Neil 
156;    Pennsylvania   R.    Co.    v.    Na-  v.  Behanna,  182  Pa.  St.  236,  37  Atl. 
tional  Docks,  &c.  R.  Co.  56  Fed.  697.  843,  38  L.  R.  A.  382,  61  Am.  St.  702, 

184  Evans  v.  Missouri,  &c.  R.  Co.  64  and  note;   Gray  v.  Building  Trades 
Mo.   453;    Gardner  v.   Newburgh,   2  Council,  91  Minn.  171,  97  N.  W.  663, 
Johns    Ch.     (N.    Y.)     162;     Georgia  63  L.  R.  A.  753,  103  Am.  St.  477,  and 
Midland,  &c.  R.  Co.  v.  Columbus,  &c.  note. 

R.  Co.  89  Ga.  205,  15  S.  E.  305,  51  I8T  See  Farmers',  &c.  Co.  v.  North- 
Am.  &  Eng.  R.  Gas.  538;  High  Inj.  era  Pac.  R.  Co.  60  Fed.  803;  The 
§  391;  Elliott  Roads  and  Streets  Legal  Side  of  the  Strike  Question, 
185  (2dEd.,  §  242);  ante,  §  629.  33  Am.  L.  Reg.  (N.  S.  1894)  609, 

614. 


943  ENJOINING  "STRIKERS/*  [§  633 

from  the  service  of  their  employer  for  the  purpose  of  accomplishing 
some  lawful  purpose.188  Combinations  of  workmen  for  their  common 
benefit,  to  develop  skill  in  their  trade,  to  prevent  the  overcrowding 
thereof,  to  obtain  better  wages  than  they  might  be  able  to  obtain  in- 
dividually, and  to  accumulate  a  fund  for  these  purposes,  are  not 
necessarily  unlawful.  Nor,  as  a  general  rule,  is  it  unlawful — except 
in  so  far  as  it  involves  a  breach  of  contract,  for  which  an  injunction 
will  seldom,  if  ever,  be  granted — for  a  man  to  quit  the  service  of  his 
employer  and  bestow  his  labor  where  he  will.189  But  where  employes 
endeavor  to  enforce  their  demands  by  forcibly  preventing  others 
from  working  in  their  places,  or  by  destroying  property  or  preventing 
its  use,  a  court  of  equity  has  power  to  enjoin  them  and  may  enforce 
its  order  by  punishing  the  violators  for  contempt.  Conspiracies  to 
obstruct  or  interfere  with  the  business  and  management  of  railroad 
companies,  especially  when  the  carriage  of  mail  is  obstructed,  by 
threats,  intimidation  and  violence,  have  often  been  enjoined  as  a  vio- 
lation of  the  interstate  commerce  law,190  and  also  as  constituting  an 
obstruction  of  the  highways  of  interstate  commerce.191  But  these  are 
not  the  only  grounds  upon  which  strikers  may  be  enjoined.  An  in- 
junction may  be  granted  at  the  suit  of  a  railroad  company  upon  the 
ground  of  irreparable  injury  and  in  order  to  prevent  a  multiplicity 
of  actions.192  So,  in  a  proper  case,  the  court  may  even  grant  a  man- 

188  Arthur  v.  Oakes,  63  Fed.  310,  25  Elliott,  62  Fed.  801;   United   States 
L.  R.  A.  414.     See,  also,  Longshore,  v.       Workingmen's       Amalgamated 
&c.  Co.  v.   Howell,  26  Ore.  ,527,  38  Council,    54    Fed.    994,    affirmed    in 
Pac.  547,  28  L.  R.  A.  464,  and  note,  Workingmen's,      &c.       Council      v. 
46  Am.  St.  640.  United  States,   57   Fed.   85;    Water- 

189  See  Longshore,  &c.  Co.  v.  How-  house  v.  Comer,  55  Fed.  149,  19  L. 
ell,  26  Ore.  527,  38  Pac.  547,  28  L.  R.  A.  403. 

R.  A.  464,  46  Am.  St.  640;  Carew  v.  U1  Debs,  In  re,  158  U.  S.  564,  15 

Rutherford,  106  Mass.  1,  8  Am.  R.  Sup.  Ct.  900. 

287;  Reynolds  v.  Everett,  144  N.  Y.  """The  Legal  Side  of  the  Strike 

189,  39  N.  E.  72    (not  unlawful  to  Question,"   33  Am.   L.   Reg.    (N.   S. 

use    persuasion    to    induce    others  1894)    609;    Blindell   v.   Hagan,    54 

to  leave);  Arthur  v.  Oakes,  63  Fed.  Fed.  40,  affirmed  in  Hagan  v.  Blin- 

310;    Bohn   Mfg.    Co.    v.    Hollis,   54  dell,  56  Fed.  696;  Cceur  D'Alene,  &c. 

Minn.  223,  55  N.  W.  1119,  21  L.  R.  Co.  v.  Miners'  Union,  51  Fed.  260; 

A.  337,  40  Am.  St.  319.                          '  Lake  Erie,  &c.  R.  Co.  v.  Bailey,  61 

w  United  States  v.  Debs,  64  Fed.  Fed.  494;  Wick  China  Co.  v.  Brown, 

724;   Toledo,  &c.  R.  Co.  v.  Pennsyl-  164  Pa.  St.  449,  30  Atl.  261;    Mur- 

vania  Co.  54  Fed.  746,  19  L.  R.  A.  dock  v.  Walker,  152  Pa.  St.  595,  25 

395;   Southern  Cal.  R.  Co.  v.  Ruth-  Atl.  492,  34  Am.  St.  678;   Sherry  v. 

erford,  62  Fed.  796;  United  States  v.  Perkins,  147  Mass.  212,  17  N.  E.  307, 

Agler,  62  Fed.  824;  United  States  v.  9  Am.  St.  689. 


§  634] 


ACTIONS  BY  AND  AGAINST  CORPORATIONS. 


944 


datory  injunction.  Thus,  where  the  chief  officer  of  the  Brotherhood 
of  Locomotive  Engineers  had  issued  an  order  requiring  the  members 
thereof  who  were  in  the  employ  of  certain  railroad  companies  to  re- 
fuse to  handle  and  deliver  cars  or  freight  in  course  of  transportation 
from  one  state  to  another,  the  court  granted  a  mandatory  injunction 
compelling  him  to  rescind  it.193  As  we  have  already  stated,  and  as  most 
of  the  authorities  we  have  cited  hold,  the  violation  of  an  injunction 
against  strikers  may  be  punished  as  a  contempt.  It  has  been  held  that 
an  injunction  against  strikers  who  are  named  as  defendants  and  all 
others  who  aid  and  abet  them  is  binding  not  only  upon  all  who  are 
served  although  they  are  not  made  parties  to  the  suit,19*  but  also  upon 
others  of  the  class  designated  who  have  notice  of  the  injunction,  al- 
though they  are  not  served  with  a  copy  of  the  order.195  It  is  also  well 
settled  that  any  unlawful  interference  with  a  railroad  in  the  hands  of 
a  receiver  is  punishable  as  a  contempt,198  and  "picketing"  has  been 
held  to  constitute  a  violation  of  an  injunction.197 

§  634.  Injunction  at  suit  of  stockholder. — A  stockholder,  in  a 
proper  case,  may  enjoin  the  corporation  and  those  in  control  of  it 
from  acts  by  which  a  forfeiture  of  the  charter  will  be  incurred,  or 
from  other  acts  amounting  to  a  breach  of  the  trust  reposed  in  them 
by  the  stockholders.198  He  may  enjoin  the  making  of  material  and 


W3  Toledo,  &c.  R.  Co.  v.  Pennsyl- 
vania Co.  54  Fed.  730,  19  L.  R.  A. 
387.  See,  also,  Chicago,  &c.  R.  Co. 
v.  Burlington,  &c.  R.  Co.  34  Fed. 
481;  Coe  v.  Louisville,  &c.  R.  Co.  3 
Fed.  775;  High  Inj.  §  2;  Toledo,  &c. 
R.  Co.  v.  Pennsylvania  Co.  54  Fed. 
746,  19  L.  R.  A.  395;  Beadel  v. 
Perry,  L.  R.  3  Eq.  465;  Broome  v. 
New  York,  &c.  Co.  42  N.  J.  Eq.  141, 
7  Atl.  851. 

194  Toledo,  &c.  R.  Co.  v.  Pennsyl- 
vania Co.  54  Fed.  746 ;  United  States 
v.  Agler,  62  Fed.  824.  See,  also, 
United  States  v.  Elliott,  64  Fed.  27. 

19SLennon,  Ex  parte,  64  Fed.  320, 
affirmed  in  Lennon,  In  re,  150  U.  S. 
393,  14  Sup.  Ct.  123;  Rapalje  Con- 
tempt, 46;  Ewing  v.  Johnson,  34 
How.  Pr.  (N.  Y.)  202;  Waffle  v. 
Vanderheyden,  8  Paige  (N.  Y.)  45. 


See,  also,  United  States  v.  Debs,  64 
Fed.  724;  2  Beach  Mod.  Eq.  §  894. 

""Thomas  v.  Cincinnati,  &c.  R. 
Co.  62  Fed.  803;  United  States  v. 
Debs,  64  Fed.  724;  Secor  v.  Toledo, 
&c.  R.  Co.  7  Biss.  (U.  S.)  513;  Hig- 
gins,  In  re,  27  Fed.  443;  .  United 
States  v.  Kane,  23  Fed.  748;  Frank 
v.  Denver,  &c.  R.  Co.  23  Fed.  757. 
See,  also,  Arthur  v.  Oakes,  63  Fed. 
310;  Acker,  In  re,  66  Fed.  290. 

187  Atchison,  &c.  R.  Co.  v.  Gee,  139 
Fed.  582;  Allis-Chalmers  Co.  v.  Iron 
Molders'  Union,  150  Fed.  155. 

188Wilcox  v.  Bickel,  11  Neb.  154, 
8  N.  W.  436;  Bagshaw  v.  Eastern, 
&c.  R.  Co.  7  Hare  114;  Gamble  v. 
Queens  County,  &c.  Co.  123  N.  Y. 
91,  25  N.  E.  201,  9  L.  R.  A.  527; 
Pond  v.  Vermont  Valley  R.  Co.  12 
Blatchf.  (U.  S.)  280;  March  v.  East- 


945 


INJUNCTION   AT   SUIT    OF    STOCKHOLDER. 


[§    634 


fundamental  changes  in  the  original  contract  of  association,199  the 
diversion  of  corporate  funds  to  purposes  not  authorized  by  the  charter 
and  outside  of  the  objects  for  which  the  corporation  was  organized,200 
and  ultra  vires  acts  generally,  such  as  unauthorized  consolidations, 
leases,  or  the  like.201  He  may  prevent  the  payment  of  dividends  where 
no  money  has  in  fact  been  earned  from  which  to  pay  them,202  and  so, 
it  has  been  held,  where  losses  have  consumed  the  surplus  earnings  set 
apart  to  pay  them,203  or  where  the  stock  upon  which  dividends  are 
claimed  is  spurious.204  He  may  also  restrain  the  holding  of  a  corporate 
election,  in  a  proper  case,  if  great  and  irreparable  injury  to  him 
would  result  therefrom,205  and  the  illegal  voting  of  shares  in  further- 
ance of  a  conspiracy  to  get  control  of  the  corporation,206  or  the 
illegal  forfeiture  of  his  own  shares.207  So,  a  stockholder  of  a  railroad 
company  which  has  located  and  partially  constructed  its  lines  may 
maintain  a  bill  to  enjoin  a  rival  company  from  appropriating  the 
partially  completed  work  to  its  own  use,  through  the  collusion  of  the 


era  R.  Co.  40  N.  H.  548,  77  Am.  Dec. 
732.  But  in  order  to  warrant  such 
interference  there  must  be  a  gross 


31   Atl.   833,   28  L.   R.   A.   304;    see 
ante,  §§  376,  328,  406,  479,  493. 
202  Painesville,  &c.  R.  Co.  v.  King, 


abuse  of  its  powers,  which  will  re-    17  Ohio  St.  534;  Carpenter  v.  New 


suit  in  injury  to  the  complainant, 
or  the  acts  complained  of  must  be 
clearly  in  excess  thereof.  Union 
Pac.,  &c.  R.  Co.  v.  Lincoln  County,  3 
Dill.  (U.  S.)  300;  Jones  v.  Little 
Rock,  25  Ark.  301. 

189  Zabriskie  v.  Hackensack,  &c.  R. 
Co.  18  N.  J.  Eq.  178,  90  Am.  Dec. 
617;  Stevens  v.  Rutland,  &c.  R.  Co. 
29  Va.  545,  4  Thomp.  Corp.  §  4517. 

200  Marseilles  Land  Co.  v.  Aldrich, 
86  111.  504;   Kean  v.  Johnson,  9  N. 
J.  Eq.  401;   Baltimore,  &c.  R.  Co.  v. 
Wheeling,  13  Gratt.  (Va.)  40;  Dodge 
v.  Woolsey,  18  How.   TU.   S.)    331; 
Central   R.   Co.   v.   Collins,   40   Ga. 
582;  Cherokee,  &c.  Co.  v.  Jones,  62 
Ga.  276. 

201  Young  v.  Rountout,  &c.  Co.  61 
Hun   (N.  Y.)   619,  15  N.  Y.  S.  443  J 
Botts    v.    Simpsonville,    &c.    Co.    88 
Ky.   54,   10   S.   W.   134,   2   L.   R.  A. 


York,  &c.  R.  Co.  5  Abb.  Pr.  (N.  Y.) 
277;  Burnes  v.  Pennell,  2  H.  L.  Cas. 
497;  ante,  §317. 

203  Fawcett  v.  Laurie,  1  Dr.  &  Sm. 
192.  Where  a  specific  fund  has  been 
set  apart  to  pay  dividends,  and 
money  belonging  to  other  funds  is 
lost  the  dividends  must  be  paid. 
LeRoy  v.  Globe  Ins.  Co.  2  Edw.  Ch. 
(N.  Y.)  657. 

201  Underwood  v.  New  York,  &c.  R. 
Co.  17  How.  Pr.  (N.  Y.)  527. 

205  Walker  v.  Devereaux,  4  Paige 
(N.  Y.)  229;  Webb  v.  Ridgely,  38 
Md.  364;  Wright  v.  Bundy,  11  Ind. 
404;  Hilles  v.  Parrish,  14  N.  J. 
Eq.  380.  See,  also,  ante,  §  174. 

200  Moses  v.  Tompkins,  84  Ala.  613, 
4  So.  763;  Memphis,  &c.  R.  Co.  v. 
Woods,  88  Ala.  630,  7  So.  108,  7  L. 
R.  A.  605,  16  Am.  St.  81. 

207  Moore  v.  New  Jersey,  &c.  Co.  23 


594;    Small  v.  Minneapolis,  &c.  Co.     N.  Y?  St.  213,  5  N.  Y.  S.  192;  Moses 
45  Minn.  264,  47  N.  W.  797;  Byrne    v.  Tompkins,  84  Ala.  613,  4  So.  763. 
v.  Schuyler,  &c.  Co.  65  Conn.  336, 
ELL.  RAILROADS — 60 


§    635]  ACTIONS  BY   AND  AGAINST   CORPORATIONS.  946 

directors  of  his  own  company.208  But  a  court  of  equity  will  not  inter- 
fere by  injunction  to  control  the  discretion  of  the  officers  in  matters 
which  come  fairly  within  their  powers,  where  the  contemplated  acts 
do  not  amount  to  a  breach  of  trust,  but  it  appears  that  the  real 
ground  of  complaint  is  a  difference  of  opinion  as  to  what  the  interests 
of  the  corporation  require.209  And  the  alleged  invalidity  of  their  title 
has  been  held  not  to  be  sufficient  ground  for  restraining  de  facto 
directors  from  acting  as  such.210  The  interest  of  the  stockholder  does 
not,  ordinarily,  extend  to  the  acts  of  third  persons  with  reference  to 
the  corporate  property,  and  a  stockholder  is  not  entitled  to  an  in- 
junction to  restrain  slander  of  the  title  of  property  belonging  to  the 
corporation.211  And  even  where  a  stockholder  might  have  been  en- 
titled to  an  injunction  if  he  had  acted  in  time  or  if  he  had  not  taken 
part  or  acquiesced  in  the  act  of  which  he  complains,  his  acquiescence 
or  laches  may  estop  him  from  afterwards  maintaining  the  suit.212 

§  635.  Mandatory  injunctions — English  cases. — Where  the  pre- 
vention of  threatened  acts  by  injunction  is  sought,  together  with  the 
continuance  of  certain  other  acts,  a  court  of  equity,  having  acquired 
jurisdiction  for  one  purpose,  will  retain  the  suit  for  all  purposes  of 
relief,  and  may  compel  by  mandatory  injunction  the  permanent  or 
continuous  performance  of  affirmative  acts,  notwithstanding  there 
might  be  no  right  to  a  mandamus.213  In  suits  against  railroad  compa- 
nies the  English  courts  of  equity  have  not  only  enjoined  the  further 
commission  of  acts  complained  of  in  the  several  cases,  but  have  also 
required  the  company  to  do  many  affirmative  acts,  such  as  to  con- 
struct and  maintain  at  a  specific  point  a  first-class  depot  building,214 

208  Weidenfeld  v.  Sugar  Run  R.  Co.        2n  Langdon  v.  Hillside,  &c.  Co.  41 
48  Fed.  615,  51  Am.  &  Eng.  R.  Cas.     Fed.  609. 

505.  212See  note  in  97  Am.  St.  49,  50. 

209  Ellerman   v.    Chicago    Junction  And  see  generally,  ante,  §§  167,  328. 
R.,  &c.  Co.  49  N.  J.  Eq.  217,  23  Atl.  213  Wheeling  v.   Mayor,  1   Hughes 
287;   Hunter  v.  Roberts,  &c.  Co.  83  (U.  S.)  90.    See,  also.  Central  Trust 
Mich.  63,  47  N.  W.  131;  McWhorter  Co.  v  Moran,  56  Minn.   188,  57  N. 
v.  Pensacola,  24  Fla.  417,  5  So.  129,  W.  471,   29  L.  R.  A.  212;    Mounds- 
2  L.  R.  A.  504,  12  Am.  St.  220.    See,  ville  v.  Ohio  River  R.  Co.  37  W.  Va. 
also,   Converse  v.   Hood,   149   Mass.  92,  16  S.  E.  514,  20  L.  R.  A.  161,  and 
471,  21  N.  E.  878,  4  L.  R.  A.  521;  note. 

Woodruff  v.  Dubuque,  &c.  R.  Co.  30        2UHood  v.  North  Eastern  Co.  L. 

Fed.  91;  note  in  97  Am.  St.  43.  R.   8   Eq.   666.    See,   also,   Railroad 

810  Mozley  v.  Alston,  1  Phill.  790.        Comrs.   v.   Portland,   &c.   R.   Co.   63 

Me.  269,  18  Am.  R.  208. 


947 


RULE   IN   THE   UNITED    STATES ILLUSTRATIVE   CASES.     [§    636 


to  stop  all  trains  at  a  certain  station,215  to  build  a  side-track,216  and 
to  so  run  its  trains  as  to  furnish  convenient  facilities  for  passengers  and 
shippers  of  goods,217  all  this  upon  the  ground  that  these  were  common- 
law  duties  of  the  railroad  company  as  a  common  carrier.  It  is  doubt- 
ful if  the  courts  of  this  country  would  go  so  far  in  this  direction  as 
some  of  the  English  courts,218  but  mandatory  injunctions  have  been 
awarded  in  proper  cases.219 

§  636.  Rule  in  the  United  States — Illustrative  cases. — All  the  au- 
thorities agree,  that  where  a  specific  duty  is  prescribed  by  statute 
and  the  railroad  company  not  only  threatens  to  perpetrate  wrongs  for 
which  it  may  be  enjoined,  but  also  at  the  same  time  neglects  such 
duty,  it  may  be  compelled  to  perform  its  duty  by  mandatory  injunc- 
tion. Acting  under  the  authority  of  particular  statutes,  courts  of 
equity  have  by  injunction  compelled  the  defendant  railroad  company 
to  deliver  cattle  at  the  plaintiff's  stock-yard,220  to  deliver  carloads 
of  grain  consigned  to  him  upon  his  private  side-track  without  extra 
charge,221  to  carry  for  plaintiff  on  equal  terms  with  others,222  to 
restore  a  stream  of  water  to  its  natural  channel,223  and  to  remove  a 
wall  which  it  had  unlawfully  erected.224  A  railroad  company  may  also 
be  compelled  to  receive  and  handle  freight  delivered  to  it  by  a  connect- 
ing carrier  as  required  by  the  interstate  commerce  act,225  and  such 

220  McCoy  v.   Cincinnati,  &c.   Rail- 
road, 22  Am.  Law  Reg.  (N.  S.)  725. 

221  Vincent  v.  Chicago,  &c.  R.  Co. 
49  111.  33. 

222  Harris,  &c.  R.  Co.,  In  re,  3  C.  B. 
N.  S.  693.    But  see  Express  Cases, 
117  U.  S.  1,  6  Sup.  Ct.  542,  628. 

223  Corning  v.    Troy,   &c.   Factory, 
40  N.  Y.  191. 

224  Great  North,  &c.  R.  Co.  v.  Clar- 
ence R.  Co.  1  Collyer  507. 

225  Toledo,  &c.  R.   Co.  v.   Pennsyl- 
vania Co.  54  Fed.  730,  746,  53  Am. 
&  Eng.  R.  Gas.  293.   See,  also,  Inter- 
state, &c.  Com.  v.  Lehigh  Valley  R. 
Co.   49   Fed.   177;    Chicago,   &c.   Co. 
v.  Burlington,  &c.  Co.  34  Fed.  481; 
Chicago,   &c.  R.   Co.  v.   New  York, 
&c.  Co.   24  Fed.   516.     But  see  At- 
chison,   &c.    R.    Co.   v.    Denver,   &c. 
R.  Co.  110  U.  S.  667,  4  Sup.  Ct.  185. 


of  Lindsey  v.  Great  North- 
ern R.  Co.  10  Hare  664. 

216  Greene  v.  West  C.  Co.  L.  R.  13 
Eq.  44. 

217  Great  Northern  R.  Co.  v.  Man- 
chester R.  Co.  5  DeG.  &  S.  138. 

218  The    weight    of    authority    in 
America    is   against   extending   the 
powers  of  a  court  of  equity  to  en- 
force many  duties  which  are  not  im- 
posed by  the  charter  or  by  statute 
or  by  necessary  implication  there- 
from   upon    a     railroad     company. 
Northern  Pac.  R.  Co.  v.  Washington, 
142  U.  S.  492,  12  Sup.  Ct.  283.    But 
see,    as   te    enforcement   of    public . 
duties,  Rogers,  &c.  Co.  v.  Erie,  &c. 
Co.  20  N.  J.  Eq.  379;  American,  &c. 
Co.  v.  Consolidation  Co.  46  Md.  15. 

219  See  authorities  last  cited  in  last 
preceding   note;    also   post,    §§  636, 
1106,  and  see  §§  1092  n,  1564. 


637] 


ACTIONS  BY  AND  AGAINST  CORPORATIONS. 


948 


an  injunction  will  bind  the  agents  and  employes  of  the  company, 
and  takes  effect  as  to  them  as  soon  as  they  are  notified  thereof  with- 
out the  necessity  of  making  them  parties.226  A  railroad  company  may 
alsq  seek  relief  by  a  mandatory  injunction,  and  where  persons  were 
engaged  in  laying  a  railroad  track  upon  the  line  of  plaintiff's  road 
so  as  to  obstruct  and  prevent  the  operation  thereof,  an  injunction  was 
awarded  not  only  forbidding  the  further  obstruction  of  plaintiff's 
track,  but  also  commanding  the  removal  of  the  track,  already  laid.227 
So,  in  many  other  cases  parties  have  been  compelled  not  only  to  cease 
unlawful  acts,  but  also  to  undo  what  they  had  already  wrongfully 
done,  or  to  restore  the  plaintiff  to  his  original  situation  or  condition.228 
Mandatory  injunctions,  as  we  have  already  seen/29  have  likewise 
been  issued  against  "strikers."  An  injunction  which  is  preventive 
in  form  is  frequently  mandatory  in  effect  and  it  is  common  practice 
to  so  draw  the  order  and  thus  to  compel  an  act  to  be  done  by  enjoining 
the  defendant  from  refusing  to  do  it.230 

§  637.  Mandamus — Generally. — A  writ  of  mandamus  to  compel  a 
railroad  corporation  to  do  a  particular  act  in  constructing  its  road 
or  buildings  or  in  running  its  trains  can  be  issued  when  there  is  a 
specific  legal  duty  on  its  part  to  do  that  act,  and  clear  proof  of 
a  failure  to  perform  that  duty  by  the  corporation;231  but  not 


228  Toledo,  &c.  R.  Co.  v.  Pennsyl- 
vania Co.  53  Am.  &  Eng.  R.  Cas.  293. 

227  Henderson  v.  Ogden  City  R.  Co. 
7  Utah  199,  26  Pac.  286,  46  Am.  & 
Eng.  R.  Cas.  95. 

228  Chamberlain,  Ex  parte,  55  Fed. 
704;   Tucker  v.   Howard,  128  Mass. 
361;   Jamestown  v.  Chicago,  &c.  R. 
Co.  69  Wis.  648,  34  N.  W.  728;   To- 
ledo, &c.  R.  Co.  v.  Pennsylvania  Co. 
54  Fed.  730;  White  v.  Tidewater,  &c. 
Co.  50  N.  J.  Eq.  1,  25  Atl.  199;  Atchi- 
son,  &c.  R.  Co.  v.  Long,  46  Kan.  701, 
27  Pac.  182,  26  Am.  St.  167;  Chatta- 
nooga, &c.  R.  Co.  v.  Felton,  69  Fed. 
273. 

229  Ante,  §  633.    So,  in  California 
R.  Co.  v.  Rutherford,  62  Fed.  796. 

230  See  Delaware,  &c.  R.  Co.  v.  Cen- 
tral, &c.  Co.,  43  N.  J.  Eq.  71;  Lane 
v.  Newdigate,  10  Ves.  192  (in  which 


the  practice  is  said  to  have  origi- 
nated); Rogers  Locomotive,  &c. 
Works  v.  Erie  R.  Co.  20  N.  J.  Eq. 
379;  2  Beach  Mod.  Eq.  §  753. 

231  State  v.  Minneapolis,  &c.  R.  Co. 
39  Minn.  219,  39  N.  W.  153;  Osh- 
kosh  v.  Milwaukee,  &c.  R.  Co.  74 
Wis.  534,  43  N.  W.  489,  17  Am.  St. 
175;  State  v.  Chicago,  &c.  R.  Co. 
29  Neb.  412,  54  N.  W.  469;  Cummins 
v.  Evansville,  &c.  R.  Co.  115  Ind. 
417,  18  N.  E.  6;  Chicago,  &c.  R.  Co. 
v.  Suffern,  129  111.  274,  21  N.  E.  824; 
State  v.  New  Orleans,  &c.  R.  Co.  42 
La.  Ann.  138,  7  So.  226,  43  Am.  & 
Eng.  R.  Cas.  258.  It  is  irregular  to 
proceed  by  rule  to  compel  a  legal 
organization  to  perform  a  duty,  how- 
ever clearly  imposed  upon  it.  Such 
a  proceeding  ought  to  be  by  man- 
damus. Oliver  v.  Board  of  Luquida- 


949 


MANDAMUS GENERALLY. 


[§    637 


otherwise.232  Mandamus  is  an  extraordinary  remedy  and  is  resorted  to, 
as  a  general  rule,  only  where  there  is  no  ordinary  remedy  which  will  af- 
ford adequate  relief.  It  has  therefore  been  held  that  laws  extending  its 
operation  should  be  strictly  construed,233  although  the  general  rule  is 
that  remedial  statutes  should  receive  a  liberal  construction  so  as  to  "ad- 
vance the  remedy."234  Mandamus  is  frequently  resorted  to  as  against 
corporations,  and  is  a  peculiarly  apt  remedy  in  case  of  railroad  com- 
panies on  account  of  their  public  or  quasi  public  character.  Indeed,  it 
is  a  general  rule  that  when  a  corporation  devotes  its  property  to  a  pub- 
lic use,  and  for  that  reason  obtains  unusual  rights  and  powers,  it,  in  ef- 
fect, grants  to  the  public  an  interest  in  that  use  and  must  submit,  so 
far  at  least,  to  the  control  of  the  public  for  the  common  good.235 


tion,  40  La.  Ann.  321,  40  So.  166. 
Where  a  clear  legal  right  to  a  writ 
of  mandamus  is  shown  the  court  has 
no  discretion  to  refuse  the  writ.  Illi- 
nois Central  R.  Co.  v.  People,  143 
111.  434,  33  N.  E.  173, 19  L.  R.  A.  119. 
232  Northern  Pac.  R.  Co.  v.  Wash- 
ington Territory,  142  U.  S.  492,  12 
Sup.  Ct.  283;  Crane  v.  Chicago,  &c. 
R.  Co.  74  Iowa  330,  37  N.  W.  397, 
7  Am.  St.  479;  State  v.  Pensacola, 
&c.  R.  Co.  27  Fla.  403,  9  So.  89.  In 
absence  of  a  written  assignment 
mandamus  cannot  be  employed  to 
compel  a  corporation  to  transfer 
shares  of  stock  to  a  person  to  whom 
they  have  been  delivered  by  the 
former  owner.  Burnsville  Turnp.  Co. 
v.  State,  119  Ind.  382,  20  N.  E.  421, 
3  L.  R.  A.  265.  The  right  of  a  writ 
of  mandamus  to  compel  a  corpora- 
tion to  allow  stockholders  to  inspect 
its  books  is  in  the  discretion  of  the 
court.  Lyon  v.  American  Screw  Co. 
16  R.  I.  472,  17  Atl.  61.  Two  things 
must  concur,  a  specific  legal  right, 
and  the  absence  of  an  effectual  legal 
remedy,  to  warrant  the  issuance  of' 
a  mandamus  on  the  relation  of  any 
private  person.  State  v.  Patterson, 
&c.  R.  Co.  43  N.  J.  L.  505.  Mandamus 
will  not  lie  to  enforce  the  perform- 
ance of  private  contracts.  Florida 
Cent,  &c.  R.  Co.  v.  State,  31  Fla, 


482,  31  So.  103,  20  L.  R.  A.  419,  34 
Am.  St.  30. 

283  State  v.  New  Orleans,  &c.  R. 
Co.  42  La.  Ann.  138,  7  So.  226. 

^Tousey  v.  Bell,  23  Ind.  423; 
Smith  v.  Wilcox,  24  N.  Y.  353,  82 
Am.  Dec.  302;  Haydon's  Case,  3  Rep. 
(Coke)  7;  Broom  Leg.  Max.  59; 
Sutherland  ,Stat.  Constr.  §  207.  For 
this  reason  we  incline  to  the  opin- 
ion that  where  there  is  a  clear  legal 
right  and  no  means  of  enforcing  it 
except  by  mandamus,  a  statute  pro- 
viding for  that  remedy  should  be 
liberally  construed. 

235  Chicago,  &c.  R.  Co.  v.  Iowa,  94 
U.  S.  155;  Peik  v.  Chicago,  &c.  R. 
Co.  94  U.  S.  164;  Munn  v.  Illinois, 
94  U.  S,  113;  Pensacola  Tel.  Co.  v. 
Western  Union  Tel.  Co.  96  U.  S.  1; 
Hockett  v.  State,  105  Ind.  250,  5  N. 
E.  178,  55  Am.  R.  201;  Chesapeake, 
&c.  Co.  v.  Baltimore,  &c.  Co.  66  Md. 
399,  7  Atl.  809,  59  Am.  R.  167;  Nash 
v.  Page,  80  Ky.  539,  44  Am.  R.  490; 
People  v.  Budd,  117  N.  Y.  1,  22  N. 
E.  670,  682,  5  L.  R.  A.  559,  15  Am. 
St.  460;  Chicago,  &c.  R.  Co.  v.  Peo- 
ple, 56  111.  365,  8  Am.  R.  690;  People 
v.  Rome,  &c.  R.  Co.  103  N.  Y.  95,  8 
N.  E.  369;  Merrill  Mandamus,  §§  15, 
25,  27a.  See  post,  §§  699,  1036,  1564, 
1690;  also  ante,  §§  457,  458,  578. 


§  G38J 


ACTIONS  BY  AND  AGAINST  CORPORATIONS. 


950 


§  638.  Mandamus  to  compel  completion  and  operation  of  road. — 
The  writ  of  mandamus  has  been  awarded  to  compel  a  company  to 
operate  its  road  as  one  continuous  line,236  to  compel  the  completion  of 
the  road  which  the  corporation  was  chartered  to  build,237  to  prevent 
the  abandonment  of  a  part  of  its  road  after  its  completion,288  to  com- 
pel the  company  to  run  daily  trains,239  to  stop  all  regular  trains  at 
county  towns  as  required  by  statute,240  to  run  passenger  trains  to  the 
terminus  of  the  road,241  to  compel  the  erection  of  a  bridge,242  and  the 


^Union  Pac.  R.  Co.  v.  Hall,  91 
U.  S.  343. 

237  Farmers'  Loan,  &c.  Co.  v.  Hen- 
ning,  17  Am.  L.  Reg.  (N.  S.)  266; 
People  v.  Rome,  &c.  R.  Co.  103  N.  Y. 
95,  8  N.  E.  369. 

233  where  a  railroad  company  has 
abandoned  a  portion  of  its  line 
which  it  is  under  a  duty  to  main- 
tain, mandamus  will  lie  to  compel 
the  maintenance  and  operation  of 
such  portion  of  its  road.  Chicago, 
&c.  R.  Co.  v.  Crane,  113  U.  S.  424,  5 
Sup'.  Ct.  578;  Talcott  v.  Pine  Grove, 
1  Flipp.  (U.  S.)  145.  But  where  a 
railroad  company,  by  consolidation 
with  another  company,  became  the 
owner  of  two  lines  of  road  between 
certain  points,  it  was  held  that  it 
could  not  be  compelled  by  manda- 
mus to  maintain  and  operate  both 
lines  if  it  appears  that  all  public 
needs  are  served  by  the  operation 
of  a  single  line.  People  v.  Rome, 
&c.  R.  Co.  103  N.  Y.  95,  8  N.  E.  369. 
See,  also,  Chicago,  &c.  R.  Co.  v. 
State  (Neb.),  103  N.  W.  1087.  Where 
the  company,  owning  a  short  line  of 
railroad,  is  wholly  insolvent,  has 
neither  rolling  stock  nor  funds  with 
which  to  operate  its  road,  the  use  of 
which  has  been  abandoned  for  sev- 
eral months,  and  cannot  be  resumed, 
except  at  a  great  loss,  the  company 
will  not  be  compelled  by  mandamus 
to  replace  or  repair  its  track,  a  part 
of  which  has  been  torn  up,  as  such 
an  order  would  be  of  no  public  bene- 


fit. State  v.  Dodge  City,  &c.  R.  Co. 
53  Kan.  329,  36*  Pac.  755,  24  L.  R.  A. 
564. 

238  New  Brunswick,  &c.  R.  Co.,  In 
re,  17  New  Brunswick  (1  P.  &  B.) 
667. 

240  Illinois  Central  R.  Co.  v.  People,1 
143  111.  434,  33  N.  E.  173,  19  L".  R.  A.| 
119.    But  this  statute  was  held  in- 
valid  as   an  interference  with  the 
interstate  commerce  and  the  United 
States  mail  in  Illinois  Cent.  R.  Co.' 
v.  Illinois,  163  U.  S.  142,  16  Sup.  Ct.l 
1096.       Compare,      however,      Lake 
Shore,  &c.  R.  Co.  v.  Ohio,  173  U.  S. 
285,  19  Sup.  Ct.  465.  I 

241  Union  Pac.  R.  Co.  v.  Hall,  91  U. 
S.  343;  State  v.  Hartford,  &c.  R.  Co. 
29  Conn.  538.    See,  also,  Litchfield, 
&c.  R.  Co.  v.  People,  222  111.  242,  78 
N.    E.    589.     But    where    the    state 
charters  a  parallel  line  for  some  dis- 
tance  from   one   terminus   for    the 
carriage   of  passengers   exclusively, 
and  such  company  absorbs  the  busi- 
ness along  that  part  of  the  route  so 
that   the    receipts    from    passenger 
traffic  over  that  part  of  the  road  will 
not  pay  expenses  of  operation,  the 
railroad  company  is  under  no  obli- 
gation to  run  passenger  trains  there- 
on.   Commonwealth  v.  Fitchburg  R. 
Co.  12  Gray  (Mass.)  180. 

zta  People  v.  Boston,  &c.  R.  Co.  70 
N.  Y.  569;  State  v.  Savannah,  &c. 
Co.  26  Ga.  665;  State  v.  Wilmington 
B.  Co.  3  Harr.  (Del.)  312;  New  Or- 
leans, &c.  R.  Co.  v.  Mississippi,  112 


951      MANDAMUS   TO   COMPEL   COMPLETION   AND   OPERATION.       [§    638 


building  of  fences  and  cattle-guards  where  required  by  law,243  and  to 
compel  the  construction  of  the  road  across  streams  so  as  not  to  inter- 
fere with  navigation.244  It  has  also  been  granted  to  compel  a  railroad 
company  to  finish  its  track  to  the  terminus  specified  in  the  charter 
and  run  cars  thereon,245  notwithstanding  it  had  agreed  with  another 
common  carrier  not  to  do  so,246  to  compel  a  street  railway  company 
to  operate  its  road  in  accordance  with  the  provisions  of  the  ordinance 
under  which  it  was  constructed,247  to  compel  a  railroad  company  to 
deliver  grain  to  all  elevators  alike  on  its  road  where  it  was  in  the 
habit  of  delivering  grain  to  some  of  them  and  there  was  no  reason 
why  it  should  not  treat  all  alike,248  and,  in  general,  to  compel  the 
company  to  operate  its  road  and  exercise  its  franchises.249 


U.  S.  12,  5  Sup.  Ct.  19.  Mandamus 
will  not  lie  to  compel  a  railroad 
company  to  locate  its  station  at  a 
particular  point  within  the  limits 
of  a  town.  Florida  Central,  &c.  R. 
Co.  v.  State,  31  Fla.  482,  13  So.  103, 
20  L.  R.  A.  419,  34  Am.  St.  30. 

243  People  v.  Rochester,  &c.  R.  Co. 
76  N.  Y.  294. 

244  State  v.  Northeastern  R.  Co.  9 
Rich.  L.    (S.  C.)    247,   67  Am.  Dec. 
551. 

245Pepole  v.  Albany,  &c.  R.  Co.  24 
N.  Y.  261,  82  Am.  Dec.  295. 

248  State  v.  Hartford,  &c.  R.  Co.  29 
Conn.  538. 

247Potwin  Place  v.  Topeka  R.  Co. 
51  Kan.  609,  33  Pac.  309,  37  Am.  St. 
312,  and  note. 

248  People  v.  Chicago,  &c.  R.  Co.  55 
111.  95,  8  Am.  R.  631. 

249  See  People  v.  Albany,  &c.  R.  Co. 
24  N.  Y.  261,  82  Am.  Dec.  295;  King 
v.  Severn,  &c.  Railway  Co.  2  Barn. 
&  Aid.  646.    Under  the  New  Hamp- 
shire statute  prohibiting  the  oper- 
ation of  a  railroad  by  a  rival  and 
competing  company,  and  providing 
that  any  citizen  may  apply  for  an 
injunction  to  prevent  it,  a  citizen, 
as  such,  cannot  maintain  a  suit  for 
a  writ  of  mandamus  to  compel  one 


of  two  rival  and  competing  com- 
panies to  operate  its  own  road. 
State  v.  Manchester,  &c.  R.  Co.  62 
N.  H.  29.  The  supreme  court  of  a 
state  has  no  jurisdiction  to  compel 
an  interstate  railroad  company  to 
operate  its  road  within  the  state, 
during  a  general  strike,  on  the  alle- 
gation that  enough  competent  men 
are  willing  to  work  "for  reaspnable 
compensation."  State  v.  Great 
Northern  R.  Co.  14  Mont.  381,  36 
Pac.  458;  People  v.  Colorado  Central 
R.  Co.  42  Fed.  638;  State  v.  Re- 
publican Valley  R.  Co.  17  Neb.  647, 
24  N.  W.  329,  52  Am.  R.  424;  State 
v.  Paterson,  &c.  R.  Co.  43  N.  J.  L. 
505;  People  v.  New  York,  &c.  R. 
Co.  104  N.  Y.  58,  9  N.  E.  856,  58  Am. 
R.  484;  Railroad  Comrs.  v.  Portland, 
&c.  R.  Co.  63  Me.  269,  18  Am.  R. 
208;  State  v.  Jacksonville,  &c.  R. 
Co.  29  Fla.  590,  10  So.  590;  People 
v.  Chicago,  &c.  R.  Co.  130  111.  175, 
22  N.  E.  857.  For  an  extreme  case 
in  which  mandamus  was  awarded 
against  a  railroad  company  to  com- 
pel it  to  operate  its  road  notwith- 
standing a  strike,  see  "Mandamus  as 
a  means  of  settling  strikes,"  34  Am. 
L.  Reg.  &  Rev.  (2  N.  S.,  1895)  102. 


ACTIONS   BY   AND  AGAINST   CORPORATIONS.  952 

§  639.  Mandamus  to  compel  restoration  of  highway  and  construc- 
tion of  crossings  or  viaducts.250 — The  constitution  of  Illinois  pre- 
scribes that  "all  railroad  companies  shall  permit  connections  to  be 
made  with  their  track,  so  that  any  *  *  *  public  warehouse,  coal- 
bank,  or  coal-yard,  may  be  reached  by  the  cars  on  said  railroad." 
Where  the  switch  connection  to  which  the  owners  of  a  coal  mine  or 
other  specified  business  are  entitled  under  this  provision  is  improperly 
disconnected,  they  are  entitled  to  a  mandamus  to  compel  its  restora- 
tion.261 Where  the  statute  provides  that  railroads  may  construct  their 
roadbeds  along,  across,  or  upon  streets  or  other  highways,  on  condition 
that  they  restore  such  highways  to  their  former  state  of  usefulness,  a 
railroad  may  be  compelled  by  mandamus  to  restore  a  highway252  upon 
or  across  which  it  has  constructed  its  road,  if  it  neglects  to  do  so  within 
a  reasonable  length  of  time;253  and  this  is  so  notwithstanding  the 
street  sought  to  be  restored  lies  within  a  city  which  has  power  to  do 
the  work  and  recover  the  expense  thereof  from  the  company,254  and 
notwithstanding  an  action  to  compel  the  construction  of  crossings  is 
given  by  statute.255  So  where  the  statute  imposes  upon  a  railroad  the 
absolute  duty  to  construct  farm  crossings  their  construction  may  be 
compelled  by  mandamus,  unless  a  valid  excuse  for  neglecting  to  build 
them  can  be  shown.256  And  the  fact  that  the  statute  gives  the  occu- 
pant of  a  farm  the  right  to  recover  a  penalty  from  the  company  upon 

250  See  post,  §§  1092, 1096, 1106.  a    nuisance.     Moundsville    v.    Ohio 

251  Chicago,  &c.  R.  Co.  v.  Suffern,  Riv.  R.  Co.  37  W.  Va.  92,  16  S.  E. 
129  111.  274,  21  N.  E.  824.  Mandamus  514,  54  Am.  &  Eng.  R.  Cas.  538. 
will    issue   to    compel    the    replace-  253  Cummins  v.  Evansville,  &c.  R. 
ment  of  a  track  taken  up  in  viola-  Co.   115   Ind.   417,   13   N.  E.   6;    In- 
tion  of  the  company's  charter.   Rex  dianapolis,  &c.   R.   Co.  v.   State,   37 
v.  Severn,  &c.  R.  Co.   2  B.  &  Aid.  Ind.  489;   People  v.  Chicago,  &c.  R. 
646.  Co.  67  111.  118;    State  v.   Hannibal, 

252  Jamestown   v.   Chicago,   &c.    R.  &c.  R.  Co.  86  Mo.  13.    See  People  v. 
Co.   69  Wis.  648,  34  N.  W.   728.    A  Dutchess;  &c.  R.  Co.  58  N.  Y.  152; 
simple   permission   to   the    railroad  People  v.  New  York,  &c.  R.  Co.  74 
company   to    lay    its   track    in    the  N.  Y.  302. 

street  gives  it  no  authority  to   de-  ^Oshkosh   v.   Milwaukee,   &c.   R. 

stroy  the  street,  and  the  company  Co.  74  Wis.  534,  34  N.  W.  489,  17 

may  be  compelled  by  mandamus  to  Am.  St.  175. 

restore  the  highway  to  its  former  255  State  v.  Chicago,  &c.  R.  Co.  29 

condition    without    regard    to    any  Neb.  412,  45  N.  W.  469. 

statute     expressly     imposing     such  ^  State  v.  Chicago,  &c.  R.  Co.  79 

duty.   A  failure  to  build  and  main-  Wis.  259,  48  N.  W.  243,  12  L.  R.  A. 

tain   suitable  crossings  will  render  180. 

the  company  liable  for  maintaining 


953  MANDAMUS   TO    COMPEL    CARRIAGE   OF   FREIGHT.  [§    G40 

its  failure  to  construct  proper  crossings  will  not  deprive  him  of  the 
benefit  of  the  writ.267  Mandamus  has  been  held  proper  to  determine 
the  mode  in  which  a  railroad  company  shall  be  required  to  restore  a 
street  and  to  compel  it  to  perform  its  duty,  although  the  city  council 
has  not  yet  changed  the  established  grade  of  the  street  to  conform 
to  the  lawful  change  which  the  relator  claims  should  be  adopted.258 
The  writ  has  also  been  awarded  to  compel  a  railroad  company  to  con- 
struct a  bridge  or  viaduct  where  its  tracks  cross  a  street.259 

§  640.  Mandamus  to  compel  carriage  of  freight.260 — Where  a  rail- 
road company  wrongfully  refuses  to  receive  and  carry  freight,  to  the 
injury  of  the  public  generally,  a  writ  of  mandamus  may  be  issued 
at  the  suit  of  the  proper  public  officer  commanding  the  company  to  re- 
sume the  discharge  of  its  duties,  by  promptly  receiving,  transporting 
and  delivering  all  such  freight  as  is  offered  for  transportation,  on  the 
usual  and  reasonable  terms  and  charges.261  The  writ  has  been  awarded 
to  compel  the  company  to  treat  all  shippers  alike,262  and  to  deliver 
grain  to  all  elevators  similarly  situated  upon  its  line.263  But  in 
England  it  has  been  held  that  it  will  not  be  granted  to  compel  a  rail- 
road company  to  extend  equal  facilities  to  all  upon  similar  terms.264 
And  where  a  person  has  an  adequate  remedy  at  law  by  an  action  for 
damages  it  would  seem  that  he  ought  not  to  be  aided  by  the  extraordi- 
nary remedy  of  mandamus  to  redress  his  own  private  grievances  caused 
by  the  failure  of  the  company  to  carry  his  freight  upon  the  same 
terms  as  those  upon  which  it  carries  the  freight  of  others.265  It  may 

257  State  v.  Chicago,  &c.  R.  Co.  79  Co.  v.  State,  118  Ind.  194,  19  N.  E. 
Wis.  259,  48  N.  W.  243,  12  L.  R.  A.  604,    10   Am.    St.    114;    Central   Un. 
180.  Tel  Co.  v.  State,  123  Ind.  113,  24  N. 

258  State  v.  Minneapolis,  &c.  R.  Co.  E.  215;   Price  v.  Riverside,  &c.  Co. 
39  Minn.  219,  39  N.  W.  153.  56  Cal.  431. 

259  State  v.  St.  Paul,  &c.  R.  Co.  35  **  Chicago,  &c.  R.  Co.  v.  People,  56 
Minn.  131,  28  N.  W.  3,  59  Am.  R.  111.  365,  8  Am.  R.   690.    In  Mobile, 
313;    State  v.   Missouri,  &c.   R.  Co.  &c.    R.    Co.    v.    Wisdom,    5    Heisk. 
33  Kan.  176,  5  Pac.  772.  (Tenn.)  125,  the  company  was  com- 

260  See  post,  §  1564.  pelled  by  mandamus  to  accept  tax 
281  People  v.  New  York,  &c.  R.  Co.     receipts,    under   a   statute,    in    pay- 

28  Hun  (N.  Y.)  543.   See,  also,  Lara-  ment  of  fare  and  freight  charges, 

bee  Flour  Mills  Co.  v.  Missouri  Pac.'  2M  Robins,  Ex  parte,  3  Jur.  103. 

R.  Co.  (Kans.)  88  Pac.  72.  265  People  v.  New  York,  &c.  R.  Co. 

242  State  v.  Delaware,  &c.  R.  Co.  48  22  Hun  (N.  Y.)  533.  See,  also,  Crane 

N.  J.  L.  55,  57  Am.  R.  543.   See,  also,  v.  Chicago,  &c.  R.  Co.  74  Iowa  330, 

State  v.  Fremont,  &c.  R.  Co.  22  Neb.  37  N.  W.  397,  7  Am.  St.  479.    But 

313,  35  N.  W.  118;   Central  U.  Tel.  compare  Larabee  Flour  Mills  Co.  v. 


§  641]       ACTIONS  BY  AND  AGAINST  CORPORATIONS.          954 

be,  however,  where  the  company  refuses  to  perform  its  duty  as  a 
common  carrier  and  continually  discriminates  against  him  unjustly 
and  oppressively,  that  an  action  for  damages  will  not  afford  him  ade- 
quate relief,  and,  in  such  a  case,  he  might,  in  some  jurisdictions,  ap- 
ply for  a  writ  of  mandamus.  The  entire  matter  is  now  very  largely 
regulated  by  congressional  and  state  legislation. 

§  641.  Mandamus  to  compel  the  company  to  maintain  stations  and 
furnish  increased  facilities. — The  question  as  to  whether  mandamus 
will  issue  to  compel  the  re-establishment  of  an  abandoned  station,  or 
the  erection  and  maintenance  of  new  stations  at  points  where  they  are 
demanded  for  the  convenience  of  the  public  has  been  much  discussed. 
That  such  a  writ  may  be  issued  if  a  valid  statute  imposes  the  duty  of 
maintaining  a  station  at  that  point  admits  of  no  question,266  and  the 
courts  have  gone  far  in  construing  statutes  to  raise  such  an  obligation. 
In  a  Maine  case,  the  company's  charter  provided  "that  said  corpora- 
fton  *  *  *  shall  be  bound  at  all  times  to  have  said  road  in 
good  repair,  and  a  sufficient  number  of  engines,  carriages  and  vehicles 
for  the  transportation  of  persons  and  articles,  and  be  obliged  to  re- 
ceive at  all  proper  times  and  places,  and  convey  the  same."  The 
supreme  court  held  that  a  mandamus  should  issue  for  the  establish- 
ment of  a  station  at  a  point  designated  by  the  railroad  commissioners 
as  a  proper  and  necessary  place  for  the  receipt  and  discharge  of  pas- 
sengers and  freight.267  The  doctrine  has  been  advanced  that  the 
common  law  under  the  principle  that  it  is  the  duty  of  a  railway 
company  to  furnish  reasonably  sufficient  and  equal  facilities  to  the 
public,  whose  servant  it  is,  authorizes  courts,  by  mandamus,  to  compel 
the  erection  and  maintenance  of  new  stations  in  proper  cases.208 

Missouri  Pac.  R.  Co.  (Kans.)  88  Pac.  of  a  railway  station  established  for 

72.  twelve  years.    So  in   State  v.  New 

^  Commonwealth    v.    Eastern    R.  Haven,  &c.  R.  Co.  41  Conn.  134,  the 

Co.  103   Mass.   254,   4  Am.   R.   555;  company  was  compelled  by  manda- 

People  v.  Louisville,  &c.  R.  Co.  120  mus  to  resume  an  abandoned  sta- 

111.  48,  10  N.  E.  657;  Northern  Pac.  tion. 

R.  Co.  v.  Washington  Ter.,  142  U.  26T  Railroad  Commissioners  v.  Port- 

S.  492,  12  Sup.  Ct.  283;  Concord,  &c.  land,  &c.  R.  Co.  63  Me.  269,  18  Am. 

R.  Co.  v.  Boston,  &c.  R.  Co.  67  N.  R.  208. 

H.  464,  41  Atl.  263;    State  v.   New  288  People   T.   Chicago,   &c.   R.   Co. 

Haven,   &c.   R.    Co.    37   Conn.   153;.  130    111.    175;    State   v.    Republican 

State  v.  New  Haven,  &c.  R.  Co.  43  Valley  R.  Co.  17  Neb.  647,  24  N.  W. 

Conn.  351.     In  the  two  latter  cases  329,   52  Am.  R.   424.    In   McCoy  v. 

the  statute  forbade  the  abandonment  Cincinnati,   &c.    R.   Co.   13    Fed.   3, 


955 


MANDAMUS   TO    COMPEL   PERFORMANCE   OF   DUTIES.        [§    641 


In  a  case  before  the  supreme  court  of  Washington  Territory  it  ap- 
peared that  the  defendant  railroad  company  refused  to  stop  its  trains 
at  Yakima  City  at  any  time  or  for  any  purpose,  although  the  place 
contained  at  the  time  of  the  trial  a  resident  population  of  one  hundred 
and  fifty  persons,  and  maintained  a  flouring  mill,  two  hotels,  twenty- 
seven  dwelling  houses,  and  both  public  and  private  schools,  and  had 
been,  until  injured  by  unjust  discrimination  after  the  advent  of  the 
railroad,  three  times  as  large,  and  transacting  a  business  of  more  than 
$200,000  per  year.  The  only  facilities  provided  for  the  receipt  and 
discharge  of  either  passengers  or  freight  were  at  the  town  of  North 
Yakima,  four  miles  distant,  to  and  from  which  point  all  traffic  had 
to  pass  by  private  conveyance.  The  court  granted  a  writ  of  mandamus 
to  compel  the  railway  company  to  construct  a  depot  and  give  other 
railroad  facilities  at  the  town.269  But  upon  appeal  to  the  Supreme 
Court  of  the  United  States  this  decision  was  reversed,  Justices  Brewer, 
Field  and  Harlan  dissenting,270  and  the  court  held  that  mandamus 


the  United  States  Circuit  Court  in 
Ohio  issued  an  order  to  compel  the 
defendant  to  receive  and  deliver 
stock  at  the  plaintiff's  stockyard, 
although  the  defendant  had  a  con- 
tract with  the  proprietor  of  an  ad- 
joining stockyard  for  the  use  of  his 
yard  for  all  business  transacted  at 
that  point.  In  giving  his  decision, 
Judge  Baxter  remarked  that  by  ac- 
cepting its  charter,  a  railroad  under- 
takes to  erect  depots,  and  designates 
stopping  places  wherever  the  public 
necessities  require  them.  See,  also, 
Commonwealth  v.  Eastern  R.  Co. 
103  Mass.  254,  4  Am.  R.  555. 

268  Northern  Pac.  R.  Co.  v.  Terri- 
tory, 3  Wash.  Ter.  303,  13  Pac.  604, 
29  Am.  &  Eng.  R.  Cas.  82.  The  court 
says:  "In  the  absence  of  legislation 
providing  other  means  for  regulat- 
ing and  controlling  the  matter,  we 
have  no  doubt  of  the  power  of  a 
court  of  general  jurisdiction,  in  a 
proper  case,  to  compel  a  railroad  to 
extend  to  the  public  proper  facili- 
ties for  the  transaction  of  business." 

170  Northern     Pacific     R.     Co.     v. 


Washington  Ter.,  142  U.  S.  492,  12 
Sup.  Ct.  283.  See,  also,  People  v. 
New  York,  &c.  R.  Co.  104  N.  Y.  58, 
9  N.  E.  856,  58  Am.  R.  484.  In  his 
dissenting  opinion  in  the  former 
case,  Justice  Brewer  says:  "A  rail- 
road corporation  has  a  public  duty 
to  perform  as  well  as  a  private  in- 
terest to  subserve,  and  I  never  be- 
fore believed  that  the  courts  would 
permit  it  to  abandon  the  one  to  pro- 
mote the  other.  Nowhere  in  its 
charter  is  in  terms  expressed  the 
duty  of  carrying  passengers  and 
freight.  Are  the  courts  impotent  to 
compel  the  performance  of  this 
duty?  Is  the  duty  of  carrying  pas- 
sengers and  freight  any  more  of  a 
public  duty  than  that  of  placing  its 
depots  and  stopping  its  trains  at 
those  places  which  will  best  accom- 
modate the  public?  If  the  state  of 
Indiana  incorporates  a  railroad  to 
build  a  road  from  New  Albany 
through  Indianapolis  to  South  Bend, 
and  that  road  is  built,  can  it  be 
that  the  courts  may  compel  the  road 
to  receive  passengers  and  transport 


§  641]. 


ACTIONS  BY  AND  AGAINST  CORPORATIONS. 


956 


to  compel  a  railroad  company  to  do  a  particular  act  in  constructing  its 
road  or  buildings,  or  in  running  its  trains,  will  lie  only  where  there  is 
a  specific  duty  on  its  part  to  do  that  act,  and  clear  proof  of  a  breach 
of  that  duty;  and  that  no  common  law  duty  exists  on  the  part  of  a 
railroad  to  stop  its  trains  at  any  particular  point.271  Under  the  Illinois 
statute  it  has  been  held  that  a  railroad  company  may  be  compelled 
by  mandamus  to  stop  all  regular  trains  at  certain  stations  to  dis- 
charge and  receive  passengers  and  freight.272  But,  in  the  absence  of 
any  statutory  provision  upon  the  subject,  it  has  been  held  that  a  rail- 
road company  will  not  be  compelled  by  mandamus  to  furnish  in- 
creased passenger  facilities  by  running  any  particular  number  of 
trains,  especially  if  the  amount  of  travel  will  not  support  an  additional 
train.273  So,  it  has  been  held  that  a  railroad  company  may  discontinue 
a  station  in  the  exercise  of  its  discretion,  where  the  station  is  not 
needed,  and  that  mandamus  will  not  lie  to  compel  its  continuance.27* 


freight,  but  in  the  absence  of  a  spe- 
cific direction  from  the  legislature 
are  powerless  to  compel  the  road  to 
stop  its  trains  and  build  a  depot  at 
Indianapolis?  I  do  not  so  belittle 
the  power  or  duty  of  the  courts." 

271  Northern  Pac.  R.  Co.  v.  Wash- 
ington Ter.,  142  U.  S.  492,  12  Sup. 
Ct.  283.  To  the  same  effect  see  Peo- 
ple v.  Chicago,  &c.  R.  Co.  35  Am.  & 
Eng.  R.  Gas.  462,  reversed,  130  111. 
175,  22  N.  E.  857;  People  v.  New 
York,  &c.  R.  Co.  104  N.  Y.  58,  66, 
9  N.  E.  856,  58  Am.  R.  484;  Mobile, 
&c.  R.  Co.  v.  People,  132  111.  559,  24 
N.  E.  463;  Chicago,  &c.  R.  Co.  v. 
People,  152  111.  230,  38  N.  E.  562,  26 
L.  R.  A.  224;  Page  v.  Louisville,  &c. 
R.  Co.  129  Ala.  232,  29  So.  676;  Bon- 
ham  v.  Columbia,  &c.  R.  Co.  26  S. 
Car.  353;  St.  Louis,  &c.  R.  Co.  v. 
State,  61  Ark.  9,  51  S.  W.  570.  In 
the  absence  of  a  law  or  a  rule  of 
the  railroad  commission  prescrib- 
ing the  type  to  be  used  in  printing 
schedules  of  rates  to  be  posted  by 
railroad  companies  in  their  stations, 
the  supreme  court  cannot  by  man- 
damus direct  in  what  size  type  they 


shall  be  printed.  State  v.  Pensacola, 
&c.  R.  Co.  27  Fla.  403,  9  So.  89.  Man- 
damus will  lie  to  compel  a  railway 
company  to  pay  into  the  county 
court  the  amount  of  damages  as- 
sessed by  reason  of  the  location  and 
operation  of  Its  railway  across  the 
petitioner's  premises,  on  a  showing 
that  the  right  of  way  has  been  law- 
fully condemned,  the  damages  duly 
awarded,  and  no  appeal  taken  there- 
from. State  v.  Grand  Island,  &c.  R. 
Co.  27  Neb.  694,  43  N.  W.  419. 

272  Illinois,   &c.   R.   Co.   v.    People, 
143  111.  434,  33  N.  E.  173,  19  L.  R.  A. 
119.    See,  also,  New  Haven,  &c.  R. 
Co.  v.  State,  44  Conn.  376,  384. 

273  Ohio,  &c.  R.  Co.  v.  People,  129 
111.  200,  11  N.  E.  347;  People  v.  Long 
Island  R.  Co.  31  Hun  (N.  Y.)  125; 
Commonwealth  v.  Fitchburg  R.  Co. 
12  Gray  (Mass.)  180.  See,  also,  Peo- 
ple v.  Rome,  &c.  R.  Co.  103  N.  Y. 
95,  8  N.  E.  369;  People  v.  New  York, 
&c.  R.  Co.  104  N.  Y.  58,  9  N.  E.  856, 
58  Am.  R.  484. 

274  Chicago,    &c.    R.    Co.    v.    State 
(Neb.),  103  N.  W.  1087. 


957  WHEX   MANDAMUS    WILL   NOT   LIE.  [§    642 

§642.  When  mandamus  will  not  lie. — Mandamus  will  not  issue 
to  compel  the  performance  of  acts  which  are  not  clearly  within  the 
legal  duties  of  those  against  whom  the  writ  is  directed,  and  it  must 
appear  in  the  application  for  a  writ  of  mandamus  that  the  defendant 
is  under  legal  obligation  to  perform  such  acts,  and  that  the  petitioner 
has  a  legal  right  to  demand  their  performance.275  And  even  where  the 
duty  seems  clear  the  court  will  not  issue  a  mandamus  when,  if  issued, 
it  would  prove  unavailing,276  as  in  a  case  of  the  performance  of  duties 
involving  the  exercise  of  a  large  measure  of  good  faith  and  discre- 
tion on  the  part  of  the  corporation  and  its  agents.  For  this  reason 
courts  of  equity  hesitate  to  undertake  to  compel  a  railroad  corporation 
to  construct  or  to  complete  its  road,  since  the  proper  construction  of 
a  railroad  would  necessarily  involve  the  exercise  of  much  technical 
skill  and  judgment,  and  depend  largely  upon  the  good  faith  of  the 
parties  directing  the  work.277  So,  where  the  company  is  utterly  una- 
ble, by  reason  of  insolvency  or  the  like,  to  perform  its  duties  to  the 
public,  the  courts  will  not,  as  a  rule,  attempt  to  compel  it  to  do  so 
by  mandamus,  as  this  would  be  "a  vain  and  fruitless  thing."278  Some 
courts,  however,  have  issued  the  writ  notwithstanding  the  return  of 
the  company  that  it  had  no  funds  and  no  means  of  obtaining  any.279 

275  People  v.  Colorado  Cent.  R.  Co.  20  N.  J.  Ch.  82;  South  Wales  R. 
42  Fed.  638.  In  this  case  the  peti-  Co.  v.  Wythes,  5  De  G.,  M.  &  G.  880; 
tioner  appeared  "on  behalf  of  the  Ranger  v.  Great  Western  R.  Co.  1 
people  of  the  state  of  Colorado,"  but  Eng.  R.  &  Canal  Cas.  1,  51;  Wheat- 
failed  to  show  that  he  was  one  of  ley  v.  Westminster,  &c.  Coal  Co.  L. 
them.  See,  also,  People  v.  St.  Louis  R.  9  Eq.  538. 
Elec.,  &c.  R.  Co.  122  111.  App.  422.  m  State  v.  Dodge  City,  &c.  R.  Co. 

278  High  Mandamus,  §  14;   Merrill  53  Kan.  329,  36  Pac.  755,  24  L.  R.  A. 

Mandamus,    §    75.     The    court   will  564,  and  note;   Ohio,  &c.  R.  Co.  v. 

deny  an  application  for  writ  of  man-  People,  120  111.  200,  11  N.  E.  347; 

damus  to  compel  the  operation  of  a  Queen  v.   Ambergate,  &c.  R.   Co.  1 

road  to  a  point  beyond  its  jurisdic-  El.  &  Bl.  372;  Bristol,  &c.  R.  Co.,  In 

tion.   People  v.  Colorado  Central  R.  re,  L.  R.  3  Q.  B.  D.  10;   Queen  v. 

Co.  42  Fed.  638.  London,  &c.  R.  Co.  16  Ad.  &  E.  (N. 

277  Ohio,  &c.  R.  Co.  v.  People,  120  S.)  864. 

111.    200,    11    N.   E.    347;    Morawetz  m  Savannah,  &c.   Co.   v.   Shuman, 

Priv.  Corp.   (2d  ed.),  §  1136,  citing  91  Ga.  400,  17  S.  E.  937,  44  Am.  St. 

Ross  v.  Union  Pac.  R.  Co.  1  Woolw.  43;    Silverthorne  v.  Warren  R.  Co. 

26;    Fallen  v.  Railroad   Co.   1   Dill.  33  N.  J.  L.  173;  People  v.  Dutchess, 

(U.    S.)     121;    Danforth    v.    Phila-  &c.  R.  Co.  58  N.  Y.  152;   Queen  v. 

delphia,  &c.  R.  Co.  30  N.  J.  Eq.  12,  Birmingham,  &c.  R.  Co.  2  Ad.  &  E. 

and  cases  in  reporter's  note;  Heath-  (N.  S.)   47;  Queen  v.  Trustees,  &c. 

cote  v.  North  Staffordshire  R.  Co.  1  Ad.  &  E.   (N.  S.)   860.    See,  also, 


§  643] 


ACTIONS  BY  AND  AGAINST  CORPORATIONS. 


958 


There  is  some  reason  for  the  latter  practice,  especially  when  the  com- 
pany, by  its  own  fault,  has  placed  itself  in  such  a  position,  for  cir- 
cumstances may  change,  and,  in  any  event,  it  may  be  well  to  thus 
compel  the  company  to  make  a  bona  fide  effort  to  perform  its  duties 
and  comply  with  the  order.  If  it  is  then  found  to  be  impossible  the 
court  can  see  that  no  injustice  is  done  to  the  company  and  will  refuse 
to  punish  it  for  contempt.  Mandamus  will  not  lie,  ordinarily,  at  least, 
to  enforce  private  contracts  with  a  railroad  company,280  nor,  as  a  gen- 
eral rule,  in  any  case  where  there  is  an  adequate  remedy  at  law.281 
It  will  not  lie  to  prevent  the  exercise  of  a  lawful  discretion  with  which 
the  company  is  vested,282  nor  to  compel  a  judge  to  decide  in  a  par- 
ticular way  an  application  by  the  receivers  of  a  railroad  company  for 
authority  to  enter  into  an  agreement  for  the  partial  readjustment  of 
its  affairs.283  A  railroad  company  may  be  estopped  by  its  acts  to  claim 
the  benefit  of  a  writ  of  mandamus.  The  fact  that  a  railroad  company 
agreed  to  the  entry  of  a  judicial  order  as  to  a  crossing  by  it  over  the 
track  of  another  company  and  has  acted  under  it  is  a  sufficient  reason 
for  denying  a  writ  of  mandamus  to  set  aside  and  vacate  the  order.28* 

§  643.  Who  may  be  relator. — There  is  considerable  conflict  among 
the  authorities  as  to  whether  a  private  party  may  be  a  relator  in  a 
proceeding  for  a  mandamus  to  enforce  a  public  right.  The  attorney- 
general,  or  other  public  officer,  may  doubtless  apply  for  the  writ  in 
all  such  cases,285  but  not,  ordinarily,  unless  he  seeks  to  protect  some 
public  right  or  to  secure  some  public  interest.286  Some  of  the  courts 


Fort  Dodge  v.  Minneapolis,  &c.  R. 
Co.  87  Iowa  389,  54  N.  W.  243,  55 
Am.  &  Eng.  R.  Gas.  58  (holding  lack 
of  funds  no  reason  for  refusing  to 
compel  a  receiver  to  perform  a  legal 
duty,  such  as  constructing  a  cross- 
ing). 

280  State  v.  New  Orleans,  &c.  R.  Co. 
37  La.  Ann.  589;    Florida  Cent.  R. 
Co.  v.  State,  31  Fla.  482,  13  So.  103, 
20  L.  R.  A.  419,  34  Am.  St.  30;  State 
v.  Paterson,  &c.  R.  Co.  43  N.  J.  L. 
505. 

281  State  v.  Mobile,  &c.  R.  Co.  59 
Ala.  321. 

282  People  v.  New  York,  &c.  R.  Co. 
104  N.  Y.  58,  9  N.  E.  856,  58  Am.  R. 


484;  Florida,  &c.  R.  Co.  v.  State,  31 
Fla.  482,  13  So.  103,  20  L.  R.  A.  419, 
34  Am.  St.  30;  State  v.  Canal,  &c. 
R.  Co.  23  La.  Ann.  333;  Chicago,  &c. 
R.  Co.  v.  State  (Neb.),  103  N.  W. 
1087. 

283  Rice,  In  re,  155  U.   S.  396,  15 
Sup.  Ct.  149. 

284  Fort  Street  Union  Depot  Co.  v. 
State  R.,  &c.  Co.  81  Mich.   248,  45 
N.  W.  973r 

285  Merrill  Mandamus,  §  229. 

286  Attorney-General  v.  Albion,  &c. 
Inst.,  52  Wis.  469;  People  v.  Rome, 
&c.  R.  Co.  103  N.  Y.  95,  45  N.  W. 
973. 


959 


QUO   WARRANTO. 


[§    644 


also  hold  that  a  private  party  cannot  be  a  relator  unless  he  has  some 
private  interest  to  be  protected  or  some  particular  right  to  be  enforced 
independent  of  that  which  he  has  merely  as  one  of  the  general  pub- 
lic.287 But  the  weight  of  authority  is  to  the  effect  that  a  private  citi- 
zen may,  as  one  of  the  general  public,  be  relator  and  apply  for  a  man- 
damus to  enforce  a  public  right  or  duty,  due  to  the  public  at  large  and 
not  merely  to  the  government,  without  showing  any  special  and  pe- 
culiar interest.288  He  must,  however,  in  such  a  case,  show  that  he  is 
one  of  the  general  public  to  whom  the  duty  is  due  or  whose  rights  are 
injuriously  affected.289 

§644.  Quo  warranto. — We  have  elsewhere  considered  the  subject 
of  quo  warranto  as  a  means  of  forfeiting  the  charter  of  a  corporation 
and  as  a  remedy  for  abuse  of  powers  as  well  as  the  usurpation  of 
franchises.290  In  that  connection  we  also  considered,  to  some  extent, 
the  general  nature  of  the  proceeding,  the  jurisdiction  of  the  courts  and 
the  proper  parties  to  the  proceeding.  Little,  therefore,  remains  to 
be  said,  as  the  practice  is  so  far  regulated  by  different  statutory  pro- 
visions in  the  various  states  that  few  general  rules  can  be  laid 
down.  At  common  law  the  writ  of  quo  warranto  was  a  writ  of  right, 
but  in  modern  practice  it  has  been,  almost  everywhere,  superseded  by 
an  information  in  the  nature  of  a  quo  warranto,  which  is  a  civil  pro- 
ceeding and  is  governed  by  the  rules  of  civil  practice291  rather  than 


287  Mitchell  v.  Boardman,  79  Me. 
469;  Bobbett  v.  State,  10  Kan.  9; 
Smith  v.  Saginaw,  81  Mich.  123; 
Heffner  v.  Com.,  28  Pa.  St.  108; 
Merrill  Mandamus,  §  229. 

^Union  Pac.  R.  Co.  v.  Hall,  91 
U.  S.  343;  Attorney-General  v.  Bos- 
ton, 123  Mass.  460,  469;  State  v. 
Board,  &c.  92  Ind.  133;  Glencoe  v. 
People,  78  111.  382;  State  v.  Gracey, 
11  Nev.  223;  Chumasero  v.  Potts,  2 
Mont.  242;  State  v.  Francis,  95  Mo. 
44,  8  S.  W.  5;  State  v.  Brown,  38 
Ohio  St.  344;  State  v.  Van  Duyn,  24 
Neb.  586,  39  N.  W.  612;  State  v.' 
Ware,  13  Ore.  380,  10  Pac.  885; 
State  v.  Dayton,  &c.  R.  Co.  36  Ohio 
St.  434;  Savannah,  &c.  Co.  v.  Shu- 
man,  91  Ga.  400,  17  S.  E.  937,  44 
Am.  St.  43;  Wise  v.  Bigger,  79  Va. 


269;  State  v.  Hannibal,  &c.  R.  Co. 
86  Mo.  13;  State  v.  Weld,  39  Minn. 
426,  40  N.  W.  561;  Chicago,  &c.  R. 
Co.  v.  Suffern,  129  111.  274;  Merrill 
Mandamus,  §  23.  See  Crane  v.  Chi- 
cago, &c.  R.  Co.  74  Iowa  330,  37 
N.  W.  397,  7  Am.  St.  479,  and  note. 
See,  also,  Loraine  v.  Pittsburg,  &c. 
Co.  205  Pa.  St.  132,  54  Atl.  580,  61 
L.  R.  A.  502,  and  authorities  cited 
as  to  the  right  of  one  having  a  spe- 
cial interest. 

289  People  v.  Colorado,  &c.  R.  Co. 
42  Fed.  638. 

290  See  ante,  §§  53,  54,  55. 

291  People  v.  Cook,  8  N.  Y.  67,  59 
Am.  Dec.  451;  State  v.  Kupferle,  44 
Mo.  154,  100  Am.  Dec.  565;  Attorney- 
General  v.  Sullivan,  163  Mass.  446, 
40  N.  E.  843,  28  L.  R.  A.  455;  At- 


§  644]  ACTIONS   BY  AND  AGAINST  CORPORATIONS.  960 

those  relating  to  criminal  prosecutions,  although  it  is,  in  a  sense,  an 
extraordinary  remedy  and  is  usually  regulated  very  largely  by  statute. 
The  proceeding  will  not  lie  to  forfeit  the  charter  of  a  corporation  in 
a  foreign  court,282  but,  although  actions  to  recover  possession  of  real 
estate  must  be  brought  in  the  county  in  which  it  is  located,  quo  war- 
ranto  proceedings  for  usurping  the  franchise  of  being  a  corporation 
and  owning  and  using  land  in  one  county  for  railroad  purposes,  need 
not  necessarily  be  instituted  in  such  county.293  Such  proceedings 
have  been  held  proper  both  to  determine  the  rights  of  individuals  to 
corporate  franchises  and  to  determine  whether  franchises  properly 
granted  have  been  misused  and  forfeited,294  to  try  the  right  of  a  for- 
eign corporation  to  do  business  in  the  state,295  and  to  determine  the 
right  of  a  company  duly  incorporated  to  exercise  a  particular  fran- 
chise.296 So,  under  a  statute  providing  that  quo  warranto  proceed- 
ings may  be  instituted  against  a  corporation  "when  it  claims  a  fran- 
chise privilege  or  right  in  contravention  of  law,  such  proceedings  will 
lie  against  a  railroad  company  to  contest  its  claim  to  exercise  a  right 
or  privilege  in  state  canal  lands.297  Other  decisions  showing  when 
quo  warranto  will  or  will  not  lie  are  reviewed  elsewhere.298  And  in  a 
recent  case  it  is  held  that  no  state  has  any  right  to  forfeit  the  fran- 
chise of  a  railroad  company  for  making  unlawful  charges  upon  traffic 
within  the  provisions  of  the  interstate  commerce  law,  and  that  quo 
warranto  will  not  lie  to  prevent  a  railroad  company  from  making  un- 
lawful charges  for  services  where  the  patter  is  covered  by  a  statute 
which  provides  another  and  exclusive  remedy.299  As  we  have  seen 

chison,  &c.  R.  Co.  v.  People,  5  Col.  See,   also,    State  v.   Cincinnati,   &c. 

60;  Ames  v.  Kansas,  111  U.  S.  449,  R.   Co.   47   Ohio  St.   130,   23   N.  E. 

4  Sup.  Ct.  437.    Contra,  Donnelly  v.  928,  7  L.  R.  A.  319. 

People,  11.111.  552,  52  Am.  Dec.  459;  293  State    v.    Fidelity,    &c.*  Co.    39 

Territory  v.  Lockwood,  3  Wall.   (U.  Minn.  538,  41  N.  W.  108;    State  v. 

S.)  236.  Western,   &c.    Society,   47    Ohio    St. 

292  Ante,  §  55.  167,  24  N.  E.  392,  8  L.  R.  A.  129. 

293  Smith  v.  State,  140  Ind.  343,  39  ™  People    v.    Utica    Ins.    Co.    15 
N.  E.  1060.    See  Eel  River  R.  Co.  v.  Johns.  (N.  Y.)  353,  8  Am.  Dec.  243; 
State,  143   Ind.   231,  42  N.  E.   617;  State  v.  Citizens',  &c.  Asso.,  6  Mo. 
Eel  River  R.  Co.  v.  State,  155  Ind.  App.  163. 

433,  57  N.  E.  388.  20T  State  v.  Pittsburgh,  &c.  R.  Co. 

291  People    v.    Utica    Ins.    Co.    15  53  Ohio  St.  189,  41  N.  E.  205. 

Johns.  (N.  Y.)  353,  8  Am.  Dec.  243;  ^  See  ante,  §§  48-51. 

Petty  v.  Tooker,  21  N.  Y.  267;  State  M9  State  v.  Atchison,  &c.  R.  Co.  176 

v.    Milwaukee,   &c.    R.    Co.    45    Wis.  Mo.  687,  75  S.  W.  776,  63  L.  R.  A. 

579;  State  v.  Barren,  57  N.  H.  498.  761. 


961 


QUO    WARRANTO. 


[§    644 


the  proceedings  are  usually  instituted  on  behalf  of  the  state  by  the  at- 
torney-general, or,  in  some  jurisdictions,  by  the  prosecuting  attorney, 
but  in  most  jurisdictions,  private  persons  having  an  interest  in  the 
matter,  may  file  the  information,  with  leave  of  the  court.300  In  some 
jurisdictions  the  defendant  must  either  disclaim  or  justify,  and  it  is 
held  that  a  plea  of  not  guilty  or  non  usurpavit  is  not  good,301  but  in 
others  he  may  set  forth  as  many  defenses  as  he  may  have.302  The 
entire  matter  is  largely  regulated  by  statute.  If  the  information  is 
insufficient  a  demurrer  would  seem  to  be  proper.303 


300 19  Am.  &  Eng.  Ency.  Law  675, 
676;  7  Lawson  Rights,  Rem.  &  Pr., 
§§  40,  42,  43.  And  it  is  held  that  the 
attorney-general  cannot  maintain  a 
quo  warranto  proceeding  to  vindi- 
cate or  redress  merely  private  rights 
or  grievances.  State  v.  Atchison,  &c. 
R.  Co.  176  Mo.  687,  75  S.  W.  776,  63 
L.  R.  A.  761. 

801  Illinois,  &c.  R.  Co.  v.  People,  84 
111.  426;  Distilling,  &c.  Co.  v.  Peo- 
ple, 156  111.  448,  41  N.  E.  188,  47  L. 
R.  A.  200;  Attorney-General  v. 
Foote,  11  Wis.  14,  78  Am.  Dec.  689; 

ELL.  RAILBOADS — 61 


State  v.  Utter,  14  N.  J.  L.  84;  State 
v.  Barren,  57  N.  H.  498;  Buckman 
v.  State,  34  Fla.  48,  15  So.  697,  24 
L.  R.  A.  806. 

302  State  v.  Brown,  34  Miss.  688; 
People  v.  Stratton,  28  Cal.  382;  State 
v.  McDaniel,  22  Ohio  St.  354;   Peo- 
ple v.   Plymouth,  &c.   Co.   31   Mich. 
178;   Rex  v.  Autridge,  8  T.  R.  467. 

303  State  v.  Boal,  46  Mo.  528;  Com- 
monwealth v.  Commercial  Bank,  28 
Pa.  St.  383;  People  v.  Woodbury,  14 
Cal.  43;    Territory  v.  Lockwood,  3 
Wall.  (U.  S.)  236. 


CHAPTER  XXVI. 

REMOVAL   OF   CAUSES. 

Sec.  Sec. 

645.  When   removal   is  authorized    652.    Removal  where  federal  ques- 

— Statutes  now  in  force.  tion  is  involved. 

646.  What  are  suits  of  a  civil  na-     653.     Time  and  manner  of  making 

ture  under  the  removal  acts.  application  for  removal. 

647.  Parties.  654.     Effect  of  application  on  juris- 

648.  Rights  of  removal  as  affected  diction  of  state  and  federal 

by  amount  in  controversy.  court. 

649.  Diverse      citizenship      as      a     655.    Remanding     and     dismissing 

ground  for  removal.  cause. 

650.  Separable  controversy.  655a.  Remanding  —  Amendment  — 
650a.  Action   against  company   and  Waiver. 

employe.  656.     Pleading  and  practice  in  fed- 

651.  Prejudice  or  local  influence  as  eral  court  after  removal. 

a  ground  for  removal.  656a.  Recent  cases — Miscellaneous. 

§  645.    When  removal  is  authorized — Statutes  now  in  force. — The 

act  of  congress  of  March  3,  1887,  as  corrected  by  the  act  of  August 
13,  1888,1  defines  the  jurisdiction  of  the  circuit  courts  of  the  United 
States,  requiring  the  amount  or  value  of  the  matter  in  dispute  to 
exceed  two  thousand  dollars,  and  provides  for  the  removal  from 
any  state  court  to  the  circuit  court  of  the  United  States  for  the 
proper  district  of  "any  suit  of  a  civil  nature,  at  law  or  in  equity, 
arising  under  the  constitution  or  laws  of  the  United  States,  or  treaties 
made,  or  which  shall  be  made,  under  their  authority,  of  which  the 
circuit  courts  of  the  United  States  are  given  original  jurisdiction"  by 
the  first  section  of  such  act;  that  any  other  suit  of  a  civil  nature,  of 
which  the  circuit  courts  are  so  given  jurisdiction,  may  be  removed 
from  any  state  court  to  the  proper  circuit  court  by  the  defendant  or 
defendants  therein,  being  non-residents  of  that  state;  that  when  in 
any  suit  of  any  of  the  classes  specified  there  shall  be  a  controversy 
which  is  wholly  between  citizens  of  different  states,  and  which  can  be 
fully  determined  as  between  them,  then  either  one  or  more  of  the 
defendants  actually  interested  in  such  controversy  may  remove  the 

1  25  U.  S.  St.  at  L.  433. 

962 


963     SUITS  OF  A   CIVIL  NATURE  UNDEE  THE  REMOVAL  ACTS.      [§    646 

suit ;  that  suits  may  be  removed,  under  specified  circumstances,  on  ac- 
count of  prejudice  or  local  influence,  and  that  suits  between  citizens 
of  the  same  state  may  also  be  removed,  under  certain  circumstances, 
where  the  title  to  land  is  concerned  and  they  claim  under  grants  from 
different  states.  This  act  tends  to  restrict2  rather  than  to  extend  the 
right  of  removal,  as  given  by  previous  acts,  and  repeals  several  of  the 
older  acts,  although  it  leaves  some  of  them  still  in  force.3  The  only 
provisions  of  former  acts  still  in  force  which  seem  to  be  applicable  in 
any  case  in  which  a  railroad  company  is  interested  are  those  found  in 
sections  641  and  642  of  the  Eevised  Statutes  of  the  United  States 
relating  to  suits  or  criminal  prosecutions  "against  any  person  who  is 
denied  or  cannot  enforce  in  the  judicial  tribunals  of  the  state,  or  in 
the  part  of  the  state  where  such  suit  or  prosecution  is  pending,  any 
right  secured  to  him  by  any  law  providing  for  the  equal  civil  rights  of 
citizens  of  the  United  States  or  of  all  persons  within  the  jurisdiction 
of  the  United  States."  This  law  is  intended  to  carry  out  the  provisions 
of  the  Fourteenth  Amendment  to  the  United  States  Constitution,4 
and  is  directed  against  state  action  denying  civil  rights.5 

§  646.    What  are  suits  of  a  civil  nature  under  the  removal  acts. — 

As  most  of  the  provisions  for  the  removal  of  causes  authorize  the 
removal  only  where  the  suit  is  of  a  civil  nature,  it  is  important  to 
determine  what  is  meant  by  the  term  "suit  of  a  civil  nature."  It  has 
been  held  that  an  action  to  recover  ,a  penalty  for  the'  violation  of  a 
state  statute,  although  the  statute  expressly  provides  that  the  penalty 
shall  be  recovered  in  a  civil  action,  is  essentially  criminal  in  its  nature 

"Hanrick   v.   Hanrick,   153   U.   S.  Chicago,   &c.    R.    Co.    33    Fed.    114 ; 

192,  197,  14  Sup.  Ct.  835;   Smith  v.  Whelan  v.  New  York,  &c.  R.  Co.  35 

Lyon,   133    U.    S.   315,   10    Sup.   Ct.  Fed.  849;  Minnick  v.  Union  Ins.  Co. 

303;    Pennsylvania  Co.,    In   re,   137  40  Fed.  369.    But  see  Hills  v.  Rich- 

U.  S.  451,  454,  11  Sup.  Ct.  141.  mond,  &c.  R.  Co.  33  Fed.  81;   Fisk 

8  It  expressly  repeals  §   640  Rev.  v.  Henarie,  32  Fed.  417,  reversed  in 

St.  U.  S.,  and  the  last  paragraph  of  142  U.  S.  459,  12  Sup.  Ct.  207. 

§  5  of  the  act  of  March  3,  1874,  and  *  Strauder  v.   West  Virginia,   100 

all  laws  or  parts  of  laws  in  conflict  U.    S.   303;    Virginia  v.   Rives,   100 

with   its   provisions,    but   expressly  U.  S.  313. 

provides  that  it  shall  not  be  deemed  B  Alabama,  Ex  parte,  71  Ala.  363  ; 

to  repeal  §§  641,  642,  643,  or  722,  of  Virginia  v.   Rives,   100   U.   S.    313; 

title  24,  Rev.  St.  U.  S.,  or  §  8  of  the  Neal   v.   Delaware,   103   U.    S.   370; 

act  of  March  3,  1875.    It  has  been  State   v.    Chue   Fan,    42   Fed.    865; 

held  that  it  repeals  by  implication  Cooper  v.  State,  64  Md.  40,  20  Atl. 

the  act  of  March  2,  1867.    Short  v.  986. 


§  G46] 


REMOVAL   OF    CAUSES. 


964 


and  cannot  be  removed.6  So,  it  has  been  held  that  a  special  assessment 
proceeding  under  the  Illinois  law,  involving  the  exercise  of  the  tax- 
ing power,  is  not  a  "suit"  within  the  meaning  of  the  removal  act;7 
nor  is  a  claim  for  a  right  of  way  pending  before  the  board  of  county 
commissioners.8  But  it  seems  to  be  well  settled  that  proceedings  to 
determine  the  value  of  land  condemned  or  affected  by  a  taking  under 
the  power  of  eminent  domain  may  be  removed  in  a  proper  case.9  So 
mandamus,10  habeas  corpus,11  and  quo  warranto12  proceedings  have 
been  held  to  come  within  the  meaning  of  the  removal  acts.  Actions  in 
ejectment,13  and  replevin,14  and  those  begun  by  attachment15  have 


"Iowa  v.  Chicago,  &c.  R.  Co.  37 
Fed.  497;  Ferguson  v.  Ross,  38  Fed. 
161;  United  States  v.  Mexican,  &c. 
R.  Co.  40  Fed.  769;  Texas  v.  Day, 
&c.  Co.  41  Fed.  228.  See,  also,  Ames 
v.  Kansas,  111  U.  S.  449,  4  Sup.  Ct. 
437;  Boyd  v.  United  States,  116  U. 
S.  616,  6  Sup.  Ct.  524;  Herriman  v. 
Burlington,  &c.  R.  Co.  57  Iowa  187, 

9  N.  W.  378,  and  10  N.  W.  340;  Wis- 
consin v.  Pelican  Insurance  Co.  127 
U.  S.  265,  8  Sup.  Ct.  1370;  Southern 
R.'  Co.  v.  State   (Ind.  App.),  74  N. 
B.  174. 

7  Chicago,  In  re,  64  Fed.  897.  See 
and  compare  Union  Pacific  R.  Co.  v. 
Myers,  115  U.  S.  1,  5  Sup.  Ct.  1113; 
Upshur  Co.  v.  Rich,  135  U.  S.  467, 

10  Sup.  Ct.  651,  and  Jarnecke  Ditch, 
In  re,  69  Fed.  161. 

8  Fuller  v.  Colfax,  14  Fed.  177. 

8  Mississippi,  &c.  Boom  Co.  v.  Pat- 
terson, 98  U.  S.  403;  Searl  v.  School 
Dist,  124  U.  S.  197,  8  Sup.  Ct.  460; 
Union  Pacific  R.  Co.  v.  Myers,  115 
U.  S.  1,  5  Sup.  Ct.  1113;  Mineral 
Range  R.  Co.  v.  Detroit,  &c.  Co.  25 
Fed.  515;  Kansas  City,  &c.  R.  Co. 
v.  Interstate  Lumber  Co.  37  Fed. 
3;  Chicago  v.  Hutchinson,  11  Biss. 
(U.  S.)  484,  15  Fed.  129.  See,  also, 
Madisonville  Traction  Co.  v.  St. 
Bernard,  &c.  Co.  196  U.  S.  239,  25 
Sup.  Ct.  251;  Helena,  &c.  Co.  v. 
Spratt,  146  Fed.  310;  South  Dakota, 


&c.  R.  Co.  v.  Chicago,  &c.  R.  Co. 
141  Fed.  578.  As  to  when  a  separ- 
able controversy  is  presented  in  con- 
demnation proceedings,  see  post, 
§  650,  note  60. 

10  Kendall  v.  Unite'd  States,  12  Pet. 
(U.  S.)  524;  Washington  Imp.  Co. 
v.  Kansas  Pac.  R.  Co.  5  Dill.  (U.  S. 
C.  C.)  489.  See,  also,  People  v.  Colo- 
rado Cent.  R.  Co.  42  Fed.  638.  But 
compare  Rosenbaum  v.  Bauer,  120 
U.  S.  450,  7  Sup.  Ct.  633. 

"Holmes  v.  Jannison,  14  Pet.  (U. 
S.)  540;  Milligan,  Ex  parte,  4  Wall. 
(U.  S.)  2.  But  not,  it  seems,  under 
the  later  acts,  where  the  jurisdic- 
tion depends  on  the  value  of  the 
matter  in  dispute.  Kurtz  v.  Moffitt, 
115  U.  S.  487,  6  Sup.  Ct.  148;  Snow 
v.  United  States,  118  U.  S.  346,  354. 

12  Ames  v.  Kansas,  111  U.  S.  449, 
4  Sup.  Ct.  437;  Illinois  v.  Illinois 
Cent.  R.  Co.  33  Fed.  721. 

"Torrey  v.  Beardsly,  4  Wash.  (U. 
S.  C.  C.)  242;  Girard,  Ex  parte,  3 
Wall.  Jr.  (U.  S.)  263. 

14  Beecher  v.  Gillett,  1  Dill.  (U.  S. 
C.  C.)  308;  Dennistoun  v.  Draper,  5 
Blatchf.  (U.  S.)  336. 

"Sayles  v.  Northwestern  Ins.  Co. 
2  Curtis  (U.  S.)  212;  Barney  v. 
Globe  Bank,  5  Blatchf.  (U.  S.)  107; 
Keith  v.  Levi,  2  Fed.  743.  But  see 
Bentlif  v.  London,  &c.  Corp.,  ?4  Fed. 
667,  and  authorities  there  cited. 


965     SUITS   OF  A   CIVIL   NATURE   UNDER  THE  REMOVAL  ACTS.      [§'  G46 

been  removed  under  former  acts ;  but  it  has  been  held  that  a  suit  be- 
gun by  foreign  attachment,  without  personal  service,  cannot  be  re- 
moved under  the  last  act.16  It  is  said,  however,  in  another  case,  that 
the  court  in  the  decision  just  referred  to  erroneously  assumed  that 
there  was  no  distinction  in  this  regard  between  cases  originally  brought 
in  the  circuit  court  and  cases  removed  thereto,  and  that  the  circuit 
court  had  jurisdiction  of  the  suit  removed  after  the  state  court  had 
acquired  jurisdiction  by  foreign  attachment,  although  there  was  no 
personal  service.17  Many  years  ago  in  a  case  in  which  it  was  held  that 
a  proceeding  for  a  writ  of  prohibition  was  a  "suit"  within  the  meaning 
of  another  statute,  Chief  Justice  Marshall  said:  "The  term  is  cer- 
tainly a  very  comprehensive  one,  and  is  understood  to  apply  to  any 
proceeding  in  a  court  of  justice  by  which  an  individual  pursues  that 
remedy  in  a  court  of  justice  which  the  law  affords  him.  The  modes  of 
proceeding  may  be  various,  but,  if  a  right  is  litigated  between  parties 
in  a  court  of  justice,  the  proceeding  by  which  the  decision  of  the 
court  is  sought  is  a  suit."18  The  mere  fact  that  a  bill  or  petition  is 
filed,  however,  without  having  any  process  issued  or  giving  any  no- 
tice, and  without  any  appearance  by  the  adverse  party,  does  not  make 
the  proceeding  a  "suit"  within  the  meaning  of  the  removal  acts.19 
Neither  is  a  mere  auxiliary  proceeding  a  "suit"  within  the  meaning 
of  such  acts.20  But  a  proceeding  against  stockholders  to  obtain  an 
execution  for  the  amount  of  their  unpaid  stock,  under  the  Missouri 
statute,  after  a  return  of  nulla  bona  on  an  execution  against  the 
corporation,  has  been  held  to  be  a  "suit"  which  can  be  removed  by 
the  stockholders  on  the  ground  of  diverse  citizenship,  and  not  merely 
a  proceeding  auxiliary  to  the  suit  against  the  corporation.21 

18  Perkins  v.  Hendryx,  40  Fed.  657.  20  Barrow  v.  Hunton,  99  U.  S.  80; 

"Crocker    Nat.    Bank    v.    Pagen-  First    Nat.    Bank    v.    Turnbull,    16 

stecher,  44  Fed.  705.   See,  also,  Am-  Wall.    (U.    S.)    190;    Smith   v.    St. 

sinck  v.   Balderston,   41  Fed.   641;  Louis,    &c.    Co.    3    Tenn.    Ch.    350; 

Fales  v.  Chicago,  &c.  R.  Co.  32  Fed.  Weeks  v.  Billings,   55   N.   H.   371; 

673;  American  Finance  Co.  v.  Bost-  Poole  v.  Thatcherdeft,  19  Fed.  49; 

wick,   151   Mass.   19,   23   N.  B.   656.  Jackson  v.  Gould,  74  Me.  564;  Good- 

But  compare  Bentlif  v.  London,  &c.  rich   v.   Hunton,   29   La.   Ann.   372; 

Corp.,  44  Fed.  667,  and  authorities  Hockstadter  v.  Harrison,  71  Ga.  21. 

there  cited.  See,  also,  Lawrence  v.  Morgans,  &c. 

18Weston  v.  Charleston,  2  Pet.  (U.  R.  Co.  121  U.  S.  634. 

S.)  449,  464.  21  Lackawanna,  &c.  Co.  v.  Bates,  56 

u  See  West  v.  Aurora  City,  6  Wall.  Fed.     737,     overruling     Webber     v. 

(U.  S.)   139;    Iowa,  &c.  Co.,  In  re,  Humphreys,  5  Dill.  (U.  S.)  223.  See, 

2  McCrary  (U.  S.)  178.  also,  Bondurant  v.  Watson,  103  U. 


REMOVAL   OF   CAUSES. 


96G 


§647.  Parties. — One  who  is  not  a  party  to  a  cause  and  refuses 
to  become  a  party  of  record  is  not  entitled  to  have  the  cause  removed, 
although  he  may  be  interested  in  the  controversy.28  But  it  has  been 
held,  under  former  acts,  that  parties  properly  required  to  interplead, 
or  having  a  statutory  right  to  intervene,  which  they  have  attempted 
to  exercise,  may  have  the  cause  removed,  in  a  proper  case,  although 
the  state  court  refused  to  permit  them  to  intervene.23  Substituted 
parties  generally  stand  in  the  same  position,  with  regard  to  the  right 
of  removal,  as  those  whose  place  they  take.24  It  is  well  settled  that 
the  right  of  removal  can  neither  be  obtained  nor  prevented  by  joining 
merely  nominal  or  improper  parties  for  that  purpose.25  It  is  not  al- 
ways easy  to  determine,  however,  who  are  merely  nominal  parties 
and  who  are  necessary  parties  actually  interested  as  such  in  the  con- 
troversy.28 It  has  been  held  that  the  voluntary  joinder  of  a  number 


S.  281 ;  Pettus  v.  Georgia  R.,  &c.  Co. 
3  Woods  (U.  S.)  620;  Kalamazoo, 
&c.  Co.  v.  Snavely,  34  Fed.  823; 
Pelzer,  &c.  Co.  v.  Hamburg,  &c.  Ins. 
Co.  62  Fed.  1. 

22  Bertha  Zinc,  &c.  Co.  v.  Carico, 
61    Fed.    132;    Dill   Remov.    Causes 
(5th  ed.),J  101. 

23  Snow  "v.   Texas,   &c.   R.   Co.   16 
Fed.  1;  Hack  v.  Chicago,  &c.  R.  Co. 
23  Fed.  356;  Healy  v.  Prevost,  8  The 
Rep.  103.  See,  also,  Burdick  v.  Peter- 
son, 2  McCrary  (U.  S.)  135.   Contra, 
Williams  v.  Williams,  24  La.  Ann. 
55.    See,  also,  Olds  Wagon  Works  v. 
Benedict,  67  Fed.  1. 

21  Richmond,  &c.  R.  Co.  v.  Findley, 
32  Fed.  641;  Cable  v.  Ellis,  110  U. 
S.  389,  4  Sup.  Ct.  85;  Jefferson  v. 
Driver,  117  U.  S.  272,  6  Sup.  Ct.  729; 
Houston,  &c.  R.  Co.  v.  Shirley,  111 
U.  S.  358,  4  Sup.  Ct.  472;  Grand 
Trunk  R.  Co.  v.  Twitchell,  59  Fed. 
727. 

25  United  States  v.  Douglas,  113  N. 
Car.  190,  18  S.  B.  202;  Bates  v.  New 
Orleans,  &c.  R.  Co.  16  Fed.  294;  Ax- 
line  v.  Toledo,  &c.  R.  Co.  138  Fed. 
169;  Hatch  v.  Chicago,  &c.  R.  Co.  6 
Blatchf.  (U.  S.)  105;  Carneal  v. 
Banks,  10  Wheat.  (U.  S.)  181;  Bar- 


ney v.  Latham,  103  U.  S.  205;  Chat- 
tanooga, &c.  R.  Co.  v.  Cincinnati, 
&c.  R.  Co.  44  Fed.  456;  Wortsman 
v.  Wade,  77  Ga.  651,  4  Am.  St.  102; 
Danvers  Sav.  Bank  v.  Thompson, 
133  Mass.  182;  Powers  v.  Chesa- 
peake, &c.  R.  Co.  65  Fed.  129.  See 
and  compare  Merchants',  &c.  Co.  v. 
Ins.  Co.  151  U.  S.  368,  14  Sup.  Ct. 
367;  Arrowsmith  v.  Nashville,  &c. 
R.  Co.  57  Fed.  165;  Springer  v. 
Sheets,  115  N.  Car.  370,  20  S.  E. 
469. 

26  As  to  who  are  actually  inter- 
ested and  not  mere  nominal  parties, 
see  Knapp  v.  Railroad  Co.  20  Wall. 
(U.  S.)  117;  Myers  v.  Swann,  107 
U.  S.  546,  2  Sup.  Ct.  685;  Thayer  v. 
Life  Assn.,  112  U.  S.  717,  5  Sup.  Ct. 
355;  St.  Louis,  &c.  R.  Co.  v.  Wilson, 
114  U.  S.  60,  5  Sup.  Ct.  738;  Miller 
v.  Sharp,  37  Fed.  161;  Central  R. 
Co.  v.  Mills,  113  U.  S.  249,  5  Sup. 
Ct.  456;  Chicago,  &c.  R.  Co.  v.  Crane, 
113  U.  S.  424;  Douglas  v.  Richmond, 
&c.  R.  Co.  106  N.  Car.  65,  10  S.  E. 
1048;  Fox  v.  Mackay,  60  Fed.  4; 
Wilson  v.  Oswego  Twp.,  151  U.  S. 
56,  14  Sup.  Ct.  259;  Merchants',  &c. 
Co.  v.  Insurance  Co.  151  U.  S.  368, 
14  Sup.  Ct.  367.  As  to  who  are 


967 


AS   AFFECTED  BY  AMOUNT. 


[§    648 


of  complainants  to  enforce  a  common  liability  of  the  defendants  has 
the  same  effect  on  the  right  of  removal  on  the  ground  of  diverse  citi- 
zenship as  if  they  had  been  compelled  to  unite.27  But  the  court,  for 
the  purpose  of  determining  the  right  of  removal,  will  arrange  the 
parties  as  plaintiffs  or  defendants  according  to  their  actual  interest 
in  the  controversy,28  and  if  parties  are  collusively  joined  for  the  mere 
purpose  of  effecting  a  removal,  the  petition  may  be  refused,29  or  if 
the  cause  has  already  been  removed  the  court  may  remand  it.30  So, 
on  the  other  hand,  it  has  been  held  that  where  a  plaintiff  makes  a 
party  a  co-defendant  for  the  purpose  of  preventing  a  removal,  and, 
after  the  time  for  removal  is  past,  dismisses  as  to  such  party,  the 
cause  may,  nevertheless,  be  removed  upon  proper  application  by  a 
party  entitled  to  such  removal.31 

§  648.    Right  of  removal  as  affected  by  amount  in  controversy. — 

The  value  of  the  matter  in  dispute  must  exceed  two  thousand  dollars, 
exclusive  of  interest  and  costs.  It  is  not  sufficient  that  its  value  is 
exactly  two  thousand  dollars.32  Thus,  where  the  prayer  for  relief  in 
the  complaint  asked  for  "two  thousand  dollars  and  all  other  proper 
relief,"  and,  under  the  pleadings,  no  other  proper  relief  could  be  ob- 
tained, it  was  held  that  the  cause  could  not  be  removed.33  The  amount 


merely  nominal  parties,  see  Hatch 
v.  Chicago,  &c.  R.  Co.  6  Blatchf.  (U. 
S.)  105;  Arapahoe  Co.  v.  Kansas 
Pac.  R.  Co.  4  Dill.  (U.  S.)  277; 
Bates  v.  New  Orleans,  &c.  R.  Co. 
16  Fed.  294;  Bacon  v.  Rives,  106  U. 
S.  99,  1  Sup.  Ct.  3;  Taylor  Co.  v. 
Baltimore,  &c.  R.  Co.  35  Fed.  161; 
Over  v.  Lake  Erie,  &c.  R.  Co.  63 
Fed.  34;  Shattuck  v.  North  British, 
&c.  Ins.  Co.  58  Fed.  609. 

27  Merchants',  &c.  Co.  v.  Insurance 
Co.  151  U.  S.  368,  14  Sup.  Ct.  367; 
Corporation  v.  Winter,  1  Wheat.  (U. 
S.)  91. 

^Harter  v.  Kernochan,  103  U.  S. 
562;  Ayres  v.  Chicago,  101  U.  S.  184; 
Anderson  v.  Bowers,  40  Fed.  708. 
But  see  Springer  v.  Sheets,  115  N. 
Car.  370,  20  S.  E.  469. 

29  Cushman  v.  Amador,  &c.  Co.  118 
U.  S.  58,  6  Sup.  Ct.  926;  Sachse  v. 
Citizens'  Bank,  37  La.  Ann.  364. 


30  Williams  v.  Nottowa,  104  U.  S. 
209;  Little  v.  Giles,  118  U.  S.  596, 
7  Sup.  Ct.  32.  But  see  Deputron  v. 
Young,  134  U.  S.  241,  10  Sup.  Ct. 
539. 

"Powers  v.  Chesapeake,  &c.  R. 
Co.  65  Fed.  129;  Arrowsmith  v. 
Nashville,  &c.  R.  Co.  57  Fed.  165. 
But  see  Provident,  &c.  Society  v. 
Ford,  114  U.  S.  635,  5  Sup.  Ct  1104; 
Vimont  v.  Chicago,  &c.  R.  Co.  64 
Iowa  513,  17  N.  W.  31,  21  N.  W.  9. 

82  Tod  v.  Cleveland,  &c.  R.  Co.  65 
Fed.  145;  Baltimore  v.  Postal  Tel. 
Co.  62  Fed.  500;  Pittsburgh,  &c.  R. 
Co.  v.  Ramsey,  22  Wall.  (U.  S.)  322; 
Walker  v.  United  States,  4  Wall.  (U. 
S.)  163.  See  Weber  v.  Travelers' 
Ins.  Co.  45  Fed.  657. 

33  Baltimore,  &c.  R.  Co.  v.  Worman, 
12  Ind.  App.  494,  40  N.  E.  751.  See, 
also,  Barber  v.  Boston,  &c.  R.  Co. 
145  Fed.  52.  But  where  other  relief 


§  649] 


REMOVAL   OF    CAUSES. 


968 


is  to  be  determined  from  the  complaint,  declaration  or  bill,84  and  it 
seems  that  if  the  amount,  as  so  determined,  is  insufficient,  the  filing 
of  a  counterclaim  by  the  defendant  exceeding  that  amount  does  not 
entitle  him  to  remove  the  suit.35  This  rule,  if  it  can  be  sustained  at 
all  as  a  general  rule,  must  be  placed  upon  the  ground  that  the  de- 
fendant, having  voluntarily  submitted  his  claim  to  the  state  court  as 
a  plaintiff  in  the  cross-complaint,  cannot  for  that  reason  take  ad- 
vantage of  his  own  act  and  remove  the  suit  which  could  not  otherwise 
have  been  removed  by  him.  The  jurisdictional  amount  may  be  made 
up  of  several  distinct  claims  exceeding  two  thousand  dollars  in  the 
aggregate.36 

§  649.  Diverse  citizenship  as  a  ground  for  removal. — We  have  al- 
ready called  attention  to  the  provisions  of  the  removal  acts  in  regard 
to  removals  on  the  ground  of  diverse  citizenship.37  A  corporation,  as 
we  have  elsewhere  shown,38  is  regarded  as  a  citizen  of  the  state  in 
which  it  was  incorporated,  within  the  meaning  of  these  acts.39  The 


may  be  obtained  and  the  value  of 
the  matter  in  dispute  exceeds  two 
thousand  dollars  the  cause  may  be 
removed  although  the  money  judg- 
ment demanded  is  less  than  that 
sum.  Dickinson  v.  Union,  &c.  Co. 
64  Fed.  895. 

"Yarde  v.  Baltimore,  &c.  R.  Co. 
57  Fed.  913;  Gordon  v.  Longest,  16 
Pet.  (U.  S.)  97;  Western  Un.  Tel. 
Co.  v.  Levi,  47  Ind.  552.  In  an  ac- 
tion in  tort  the  amount  of  damages 
claimed  by  the  plaintiff  is  the  value 
of  the  matter  in  dispute.  Gordon 
v.  Longest,  supra;  Western  Un.  Tel. 
Co.  v.  Levi,  supra;  Louisville,  &c. 
R.  Co.  v.  Roehling,  11  111.  App.  264; 
Chicago,  &c.  R.  Co.  v.  Stone,  70 
Kan.  708,  79  Pac.  655.  It  is  also  held 
in  the  case  last  cited  that  the  re- 
moval cannot  be  defeated  by  amend- 
ment reducing  the  amount  after  a 
sufficient  petition  and  bond  have 
been  filed.  See,  also,  Stephens  v.  St. 
Louis,  &c.  R.  Co.  47  Fed.  530,  14  L. 
R.  A.  184;  Hayward  v.  Nordberg 
Mfg.  Co.,  85  Fed.  4. 


35  Bennett  v.  Devine,  45  Fed.  705; 
La  Montagne  v.  T.  W.  Harvey  Lum- 
ber Co.  44  Fed.  645;  Falls  Wire,  &c, 
Co.  v.  Broderick,  2  McCrary  (U.  S.) 
489.  Contra,  Clarkson  v.  Manson, 
18  Blatchf.  (U.  S.)  443;  Carson,  &c. 
Lumber  Co.  v.  Holtzclaw,  39  Fed. 
578.  Whether  the  amount  of  a  coun- 
terclaim may  be  added  to  plaintiff's 
claim  so  as  to  give  the  court  juris- 
diction is  said  to  be  so  doubtful  un- 
der the  authorities  as  to  require  the 
court  to  decline  jurisdiction.  Crane 
Co.  v.  Guanica  Centrale,  132  Fed, 
713. 

38  Marshall  v.  Holmes,  141  U.  S, 
589,  12  Sup.  Ct.  62;  Bernheim  v. 
Birnbaum,  30  Fed.  885.  See,  also, 
Brown  v.  Trousdale,  138  U.  S.  389, 
11  Sup.  Ct.  308. 

87  Ante,  §  645. 

38  Ante,  §  23. 

38  "Federal  Jurisdiction  of  Corpo- 
rations as  Citizens,"  36  Cent.  L.  J. 
333;  Marshall  v.  Baltimore,  &c.  R. 
Co.  16  How.  (U.  S.)  314;  Rundle 
v.  Delaware,  &c.  Canal  Co.  14  How. 


9G9 


DIVERSE   CITIZENSHIP   AS   A   GROUND   FOR   REMOVAL. 


[ 


citizenship  of  the  stockholders  is  immaterial.40  But  a  state  itself  is 
not  a  citizen  of  any  state,  and  where  it  is  the  real  party  in  interest, 
as  in  case  of  a  prosecution  in  its  name  on  the  relation  of  a  prosecuting 
attorney,  to  recover  a  statutory  penalty,  there  can  be  no  removal  on 
the  sole  ground  of  diverse  citizenship.41  We  have  also  shown  that  no 
state  can  deprive  a  foreign  corporation  of  the  right  of  removal  given 
by  congress.42  But  a  corporation  may  be  adopted  so  as  to  become  a 
domestic  corporation  and  a  citizen  of  the  state  adopting  it,43  or  it 
may  be  formed  by  concurrent  legislation  of  two  or  more  states  or 
consolidated  under  their  laws  so  as  to  become  a  citizen  of  each.4* 
The  mere  fact,  however,  that  it  carries  on  business,  or  is  authorized 
to  carry  on  business  or  hold  property  in  another  state  than  that  in 
which  it  is  incorporated,  does  not  make  it  a  citizen  of  such  other 
state.45  Neither  does  a  state  statute  requiring  a  foreign  corporation 


(U.  S.)  80;  Railway  Co.  v.  Whitton, 
13  Wall.  (U.  S.)  270;  Bonaparte  v. 
Camden,  &c.  R.  Co.  Bald.  (U.  S.) 
205;  Stanley  v.  Chicago,  &c.  R.  Co. 
62  Mo.  508;  W.  U.  Tel.  Co.  v.  Dick- 
inson, 40  Ind.  444,  13  Am.  R.  295; 
Louisville,  &c.  R.  Co.  v.  Letson,  2 
How.  (U.  S.)  497;  Ohio,  &c.  R.  Co. 
v.  Wheeler,  1  Black  (U.  S.)  286; 
Boom  Co.  v.  Patterson,  98  U.  S. 
403;  Quigley  v.  Cent.  Pacific  R.  Co. 
11  Nev.  350,  21  Am.  R.  757.  The 
citizenship  of  a  corporation  is  suffi- 
ciently disclosed  by  an  allegation 
that  it  is  a  corporation  duly  organ- 
ized under  the  laws  of  New  York. 
Dodge  v.  Tulleys,  144  U.  S.  451,  12 
Sup.  Ct.  728.  See,  also,  Robertson 
v.  Scottish,  &c.  Ins.  Co.  68  Fed.  173. 

40  Baltimore,  &c.   R.   Co.   v.   Cary, 
28  Ohio  St.  208;  Quigley  v.  Central 
R.  Co.  11  Nev.  350,  21  Am.  R.  757; 
Pomeroy  v.  New  York,  &c.  R.  Co.  4 
Blatch.   (U.  S.)   120;   Hatch  v.  Chi- 
cago, &c.  R.  Co.   6  Blatch.    (U.  S.) 
105;    Minnett  v.  Milwaukee,  &c.  R. 
Co.  3  Dill.  (U.  S.)  460. 

41  Southern   R.   Co.   v.   State,   165 
Ind.  613,  75  N.  E.  272. 

42  Ante,    §    23;    "Federal   Jurisdic- 
tion of  Corporation  as  Citizens,"  36 


Cent.  L.  J.  333;  Southern  Pac.  Co. 
v.  Denton,  146  U.  S.  202,  13  Sup.  Ct. 
44. 

43  Ante,  §  23.  We  do  not  mean, 
however,  that  the  mere  adoption  or 
naturalization  of  a  corporation  of 
another  state  will  necessarily  de- 
prive it  of  its  right  to  sue  or  be 
sued  in  the  federal  courts  as  a  citi- 
zen of  another  state. 

"Ante,  §§  26,  28.  See.  Colglazier 
v.  Louisville,  &c.  R.  Co.  22  Fed. 
568;  Wasley  v.  Chicago,  &c.  R.  Co. 
147  Fed.  608  (and  cannot  remove 
an  action  brought  in  either  on  the 
ground  of  diverse  citizenship) ;  Up- 
hoff  v.  Chicago,  &c.  R.  Co.  5  Fed. 
545,  and  compare  Nashua,  &c.  R. 
Co.  v.  Boston,  &c.  R.  Co.  136  TJ.  S. 
356,  10  Sup.  Ct.  1004,  with  Pacific 
R.  Co.  v.  Missouri  Pac.  R.  Co.  23 
Fed.  565,  20  Am.  &  Eng.  R.  Cas.  590. 
See,  also,  Fitzgerald  v.  Missouri 
Pac.  R.  Co.  45  Fed.  812;  Paul  v. 
Baltimore,  &c.  R.  Co.  44  Fed.  513; 
Oregon  Short  Line,  &c.  R.  Co.  v. 
Skottowe,  162  U.  S.  490,  16  Sup.  Ct. 
869;  Walters  v.  Chicago,  &c.  R.  Co. 
186  TJ.  S.  479,  22  Sup.  Ct.  941. 

"Martin  v.  Baltimore,  &c.  R.  Co. 
151  U.  S.  673,  14  Sup.  Ct.  533;  Guinn 


REMOVAL  OF   CAUSES. 


970 


to  have  an  agent  in  the  state,  upon  whom  process  can  be  served,  make 
it  a  citizen  of  that  state.46  And  it  is  stated  as  a  general  proposition 
that,  for  purposes  of  the  jurisdiction  of  federal  courts  a  corporation 
remains  a  citizen  of  the  state  by  which  it  was  created,  although  it  is 
afterwards  also  made  a  corporation  of  another  state.47  As  the  juris- 


r.  Iowa  Cent.  R.  Co.  14  Fed.  323; 
Holden  v.  Putnam,  &c.  Ins.  Co.  46 
N.  Y.  1,  7  Am.  R.  287;  Baltimore, 
&c.  R.  Co.  v.  Kountz,  104  U.  S.  5; 
Conn  v.  Chicago,  &c.  R.  Co.  48  Fed. 
177;  Pennsylvania  Co.  v.  St.  Louis, 
Ac.  R.  Co.  118  U.  S.  290,  6  Sup.  Ct. 
1094;  Allegheny  Co.  v.  Cleveland, 
&c.  R.  Co.  51  Pa.  St.  228;  Baltimore, 
&c.  R.  Co.  v.  Gary,  28  Ohio  St.  208; 
Baltimore,  &c.  R.  Co.  v.  Wightman, 
29  Gratt.  (Va.)  431. 

46  Chicago,  &c.  R.  Co.  v.  Minnesota, 
&c.  R.  Co.  29  Fed.  337;  Amsden  v. 
Norwich,  &c.  Ins.  Co.  44  Fed.  515; 
Fales  v.  Chicago,  &c.  R.  Co.  32  Fed. 
673 ;  Martin  v.  Baltimore,  &c.  R.  Co. 
151  U.  S.  673,  14  Sup.  Ct.  533;  West- 
ern Un.   Tel.   Co.   v.   Dickinson,   40 
Ind.  444,  13  Am.  R.  295;  Morton  v. 
Mutual,  &c.  Ins.  Co.  105  Mass.  141, 
7   Am..  R..  505.      But    see   Scott   v. 
Texas,  &c.  Co.  41  Fed.  225. 

47  Louisville,  &c.  R.   Co.  v.  Louis- 
ville  Trust   Co.    174   U.    S.    552,    19 
Sup.  Ct.  817;   St.  Louis,  &c.  R.  Co. 
v.  James,  161  U.  S.  545,  16  Sup.  Ct. 
621.      See,    also,    Hollingsworth    v. 
Southern  R.  Co.  86  Fed.  351.    Upon 
this  general  subject  Judge  Baldwin, 
in  his  American  Railroad  Law,  483, 
484,   says:     "A   corporation   formed 
by   the  incorporation    of   the   same 
persons   under   the   same  corporate 
name  by  several  states  may  sue  and 
be  sued  in  the  courts  of  each  as  a 
juridical  person  belonging  to  it.    It 
cannot,    when   described   as   a   citi- 
zen of  each  state,  sue  or  be  sued  by 
a  citizen  of  either  state  in  the  Cir- 
cuit Court  of  the  United  States.     A 
citizen  of  a  state  from  which  it  has 


not  received  incorporation  may  sue 
it  in  that  court  as  a  citizen  of  either 
of  those  from  which  it  has  received 
incorporation.  St.  Louis,  &c.  R.  Co. 
v.  James,  161  U.  S.  545,  562,  16  Sup. 
Ct.  621;  St.  Joseph,  &c.  R.  Co.  v. 
Steele,  167  U.  S.  659,  17  Sup.  Ct.  925; 
Nashua,  &c.  R.  Corp.  v.  Boston,  &c. 
R.  Corp.  136  U.  S.  356,  10  Sup.  Ct. 
1004.  In  each  of  the  latter  states, 
so  far  as  a  right  to  remove  a  cause 
commenced  in  a  state  court  into  the 
Circuit  Court  of  the  'United  States 
is  concerned,  as  well  as  in  the  cir- 
cuit court  of  any  district,  it  stands 
as  a  fellow  citizen  with  a  citizen  of 
the  state  in  which  it  was  first  in- 
corporated; the  legal  fiction  that  its 
shareholders  are  and  remain  all  citi- 
zens of  that  state,  and  so  that  it  is 
the  same  thing  as  an  association  of 
such  individual  citizens,  being  in- 
disputable. Southern  R.  Co.  v.  Al- 
lison, 190  U.  S.  326,  332,  336,  338,  23 
Sup.  Ct.  713;  Hollingsworth  v. 
Southern  R.  Co.  86  Fed.  353.  It 
would  seem  from  the  more  recent 
decisions  of  the  Supreme  Court  of 
the  United  States  not  only  that  no 
citizen  of  the  state  in  which  such 
a  company  was  originally  incorpo- 
rated can  sue  it  in  the  circuit  court 
held  within  a  state  from  which  it 
subsequently  received  incorporation, 
but  that  it  could  not  be  sued  in  a 
circuit  court  held  in  the  latter  state 
by  a  citizen  of  that  state  who  al- 
leges in  his  writ  that  it  is  a  citizen 
of  the  state  which  originally  incor- 
porated it.  As  to  him,  it  is  a  citi- 
zen of  his  own  state."  See  the  dis- 
cussion of  this  subject  in  Goodwin 


971 


DIVERSE    CITIZENSHIP   AS   A  GROUND   FOR   REMOVAL. 


[§  649 


dictional  clause  of  the  removal  act  refers  to  citizens  and  not  merely  to 
residents  of  different  states,  the  petition  for  removal  on  the  ground 
of  diverse  citizenship  should  show  that  the  controversy  is  between 
citizens  of  different  states,  and  not  merely  that  the  defendant  is  a 
non-resident  or  a  resident  of  a  different  state  from  the  plaintiff.48  It 
has  been  strongly  urged  that,  within  the  meaning  of  the  last  removal 
act,  a  corporation  can  only  remove  a  cause  to  the  federal  court  where 
it  is  a  resident  as  well  as  a  citizen  of  another  state.49  But  it  is  now 
well  settled  by  judicial  decision  that  in  order  to  be  a  "non-resident 
of  the  state"  in  which  suit  is  brought  within  the  meaning  of  this  act, 
the  defendant  need  only  be  a  corporation  created  by  the  laws  of  an- 
other state.50  Although  there  is  considerable  conflict  among  the  de- 
cisions of  the  different  circuit  courts  of  the  United  States,  as  well  as 
among  the  decisions  of  the  various  state  courts,  it  now  seems  to  be 
well  settled  by  the  decisions  of  the  Supreme  Court  of  the  United 
States,  as  well  as  by  the  weight  of  authority  generally,  that  the 
requisite  diversity  of  citizenship  must  exist  not  only  at  the  time  the 
petition  for  removal  is  filed,  but  also  at  the  time  the  suit  is  com- 
menced.51 But  it  has  been  held  in  a  recent  case,  contrary  to  the  rule 
which  prevails  where  the  removal  is  sought  upon  the  ground  of  a 
federal  question  or  where  the  question  is  as  to  a  separable  controversy, 


v.  New  York,  &c.  R.  Co.  124  Fed. 
358.  It  is  said  by  Judge  Baldwin  to 
be  doubtful  whether  the  main 
ground  on  which  this  decision  was 
placed  was  well  taken,  and  there 
seems  to  be  reason  for  his  criticism. 

48  Pennsylvania  Co.  v.  Bender,  148 
U.  S.  255,  13  Sup.  Ct.  591;  Chicago, 
&c.  R.  Co.  v.  Ohle,  117  U.  S.  123,  6 
Sup.  Ct.  632;  Mansfield,  &c.  R.  Co. 
v.  Swan,  111  U.  S.  379,  4  Sup.  Ct. 
510;  Brown  v.  Keene,  8  Pet.  (U.  S.) 
112;  Neel  v.  Pennsylvania  Co.  157 
U.  S.  153,  15  Sup.  Ct.  589;  Kansas 
City  So.  R.  Co.  v.  Prunty,  133  Fed. 
13,  66  C.  C.  A.  163;  Mexican  Cent. 
R.  Co.  v.  Duthie,  189  U.  S.  76,  23 
Sup.  Ct.  610. 

48  Residence  of  corporations  under 
the  removal  act,  by  Charles  R. 
Pence,  35  Cent.  Law  J.  285. 

50  Fales  v.  Chicago,  &c.  Co.  32  Fed. 
673;  Henning  v.  Western  U.  Tel. 


Co.  43  Fed.  97;  Martin  v.  Baltimore, 
&c.  R.  Co.  151  U.  S.  673,  676,  14  Sup. 
Ct  533;  Robertson  v.  Scottish,  &c. 
Ins.  Co.  68  Fed.  173.  The  receiver 
of  a  railroad  company,  being  a  citi- 
zen of  another  state,  may  remove  an 
action  brought  against  him  in  his 
official  capacity  for  death  by  wrong- 
ful act,  though  the  railroad  com- 
pany is  a  citizen  of  the  state  in 
which  the  action  is  brought.  Bris- 
enden  v.  Chamberlain,  53  Fed.  307. 
"La  Confiance,  &c.  v.  Hall,  137 
II.  S.  61,  11  Sup.  Ct.  5;  Crehore  v. 
Railroad  Co.  131  U.  S.  240,  9  Sup. 
Ct.  692;  Stevens  v.  Nichols,  130  U. 
S.  230,  9  Sup.  Ct.  518;  Indianapolis, 
&c.  R.  Co.  v.  Risley,  50  Ind.  60; 
Blackwell  v.  Lynchburg,  &c.  R.  Co. 
107  N.  Car.  217,  12  S.  E.  133.  See, 
also,  Laird  v.  Connecticut,  &c.  R. 
Co.  55  N.  H.  375,  20  Am.  R.  215. 


§    650]  REMOVAL   OF   CAUSES.  972 

that  the  diverse  citizenship  may  be  shown  in  the  petition  for  removal 
and  that  it  need  not  appear  in  the  complaint.52  So,  it  is  said  in  dis- 
tinguishing the  question  of  diverse  citizenship  from  the  ordinary  case 
of  a  federal  question  that  "it  is  obvious  that  in  the  instance  of  diverse 
citizenship  a  different  question  is  presented.  Plaintiff  may  run  his 
own  risk  in  respect  of  the  cause  of  action  on  which  he  proceeds,  but 
he  cannot  cut  off  defendant's  constitutional  right  as  a  citizen  of  a 
different  state  than  the  plaintiff  to  choose  a  federal  forum,  by  omit- 
ting to  aver  or  mistakenly  or  falsely  stating  the  citizenship  of  the 
parties.  And  this  must  be  so  also  as  to  federal  railroad  corporations."55 

§  650.  Separable  controversy. — The  latest  act  upon  the  subject  of 
the  removal  of  causes  restricts  the  right  of  removal  where  there  is  a 
separable  controversy,  which  was  formerly  given  to  one  or  more  of 
the  plaintiffs  or  defendants,  to  "one  or  more  of  the  defendants  ac- 
tually interested  in  such  controversy;"  but  the  decisions  as  to  what 
is  a  separable  controversy  apply  equally  well  to  both  acts.  This  sep- 
arable controversy  must  be  wholly  between  citizens  of  different  states 
and  must  also  be  such  as  can  be  fully  determined  as  between  them  ;54 
but  it  need  not  be  the  principal  controversy  in  the  case,  and  the 
number  of  controversies  is  immaterial.55  In  an  action  in  tort  against 
a  railroad  company  and  one  of  its  employes,  where  each  was  charged 
with  a  different  negligent  act  causing  the  injury  to  the  plaintiff,  it 
has  been  held  that  a  separable  controversy  was  presented  and  that 
the  suit  might  be  removed.56  But  it  has  been  held,  on  the  other  hand, 

82  Ysleta  v.  Canda,  67  Fed.  6.    The  158,   2    Sup.   Ct.    385;    Capital   City 

rule  seems  to  be  that  the  matter  is  Bank  v.  Hodgin,  22  Fed.  209;   The 

to  be  determined  from  the  face  of  Jarnecke  Ditch,  In  re,  69  Fed.  161, 

the    record    or   state   of   the  plead-  and     numerous     authorities     there 

ings  and  record,  including  the  peti-  cited;  National  Docks,  &c.  R.  Co.  v. 

tion  for  removal  at  the  time  of  the  Pennsylvania  R.   Co.   52   N.  J.   Eq. 

application.       Helena,     &c.     Co.     v.  58,  28  Atl.  71;    Torrence  v.  Shedd, 

Spratt,  146   Fed.   310;    Madisonville  144  U.  S.  527,  530,  12  Sup.  Ct.  726. 

Traction  Co.  v.  St.  Bernard,  &c.  Co.  "Farmers'  Loan,  &c.   Co.  v.  Chi- 

196  U.  S.  239,  25  Sup.  Ct.  251;  Ala-  cago,  &c.  R.  Co.  9  Biss.  (U.  S.)  133; 

bama  So.  R.  v.  Thompson,  200  U.  S.  Snow  v.   Smith,  4  Hughes   (U.   S.) 

206,  26  Sup.  Ct.  161.  204.    See,  also,  for  cases  in  which  it 

53  Texas,  &c.  R.  Co.  v.  Cody,  166  was  held  that  there  was  a  separable 

U.  S.  606,  17  Sup.  Ct.  703,  705.    See,  controversy,    Taylor    Co.    v.    Balti- 

however,  Oregon  Short  Line,  &c.  R.  more,  &c.  R.  Co.  35  Fed.  161;   Fos- 

Go.  v.  Skottowe,  162  U.   S.  490,  16  ter   v.    Chesapeake,   &c.    R.    Co.    47 

Sup.  Ct.  869.  Fed.  369. 

"Corbin  v.  Van  Brunt,  105  U.  S.  56Fergason  v.  Chicago,  &c.  R.  Co. 

576;    Shainwald  v.  Lewis,  108  U.  S.  63  Fed.  177;  Beuttel  v.  Chicago,  &c. 


973 


SEPARABLE   CONTROVERSY. 


[§   650 


that  there  is  no  separable  controversy  where  the  only  question  is  as 
to  the  priority  of  different  liens  on  the  same  property,07  even  though 
each  defendant  makes  a  separate  defense,58  or  where  land  is  sought 
to  be  condemned  as  against  both  the  lessor  and  lessee,59  or  where  a 
railroad  company  in  one  proceeding  files  a  petition  for  condemnation 
against  numerous  property  owners,60  or  where  two  corporations  are 
jointly  charged  with  trespassing  on  the  plaintiff's  land,  even  though 
one  of  the  defendants  claims  that  the  other  did  not  have  a  corporate 
existence  and  that  it  alone  committed  the  alleged  trespass,61  or  where 
a  sub-contractor  sues  both  a  railroad  company  and  the  principal  con- 
tractor under  a  statute  giving  contractors  and  material  men  a  lien 
on  the  railroad.62  The  question  whether  there  is  a  separable  contro- 
versy authorizing  a  removal  is  to  be  determined  by  the  state  of  the 
pleadings  or  record  at  the  time  of  the  application,  and  not  from  the 


R.  Co.  26  Fed.  50.  But  see  next  fol- 
lowing section. 

"Bissell  v.  Canada,  &c.  R.  Co.  39 
Fed.  225. 

58  Fidelity  Ins.  Co.  v.  Huntington, 
117  U.  S.  280,  6  Sup.  Ct.  733;  Young 
v.  Parker,  132  U.  S.  267,  10  Sup.  Ct. 
75. 

69  Bellaire  v.  Baltimore,  &c.  R.  Co. 
146  U.  S.  117,  13  Sup.  Ct.  16;  Kohl 
T.  United  States,  91  U.  S.  367. 

60  Perkins  v.  Lake  Superior,  &c. 
R.  Co.  140  Fed.  906.  In  the  case 
cited  the  company,  under  the  Wis- 
consin statute,  filed  a  petition  in  a 
court  of  the  state  against  numerous 
property  owners,  upon  which,  ac- 
cording to  the  statute,  there  should 
be  a  hearing  as  to  the  petitioner's 
right  to  condemn,  and,  if  such  right 
is  sustained,  for  the  appointment  of 
a  commission,  which,  on  request  of 
the  company  or  the  landowner,  shall 
appraise  any  piece  of  the  property 
described,  from  which  appraisal  an 
appeal  may  be  taken  to  the  court, 
and  tried  by  a  jury  as  in  ordinary 
law  actions.  The  court  held  that 
there  was  a  single  controversy  pre- 
sented as  to  the  right  to  condemn, 
to  be  determined  between  the  peti- 


tioner, on  one  side,  and  all  of  the 
parties  joined  as  defendants,  on  the 
other;  and  that  the  mere  fact  that 
a  defendant  was  the  owner  of  part 
of  the  lands  sought  to  be  taken  in 
severalty  did  not  create  a  separable 
controversy  between  him  and  the 
petitioner,  nor  entitle  him  to  re- 
move the  proceeding  into  a  federal 
court  on  the  ground  of  diversity  of 
citizenship.  See,  also,  Jarnecke 
Ditch,  In  re,  69  Fed.  161;  Le  Mars 
v.  Iowa  Falls,  &c.  R.  Co.  48  Fed. 
661.  But  compare  Pacific  R.  Re- 
moval Cases,  115  U.  S.  1,  5  Sup.  Ct 
1113;  Chicago  v.  Hutchinson,  11 
Biss.  (U.  S.)  484,  15  Fed.  129; 
Helena,  &c.  Co.  v.  Spratt,  146  Fed. 
310. 

81  Louisville,  &c.  R.  Co.  v.  Wange- 
lin,  132  U.  S.  599,  10  Sup.  Ct.  203. 

62  Ames  v.  Chicago,  &c.  R.  Co.  39 
Fed.  881.  See,  generally,  Mer- 
chants', &c.  Co.  v.  Insurance  Co.  151 
<U.  S.  368,  14  Sup.  Ct.  367;  St.  Louis, 
&c.  R.  Co.  v.  Wilson,  114  U.  S.  60, 
5  Sup.  Ct  738;  Thurber,  v.  Miller, 
67  Fed.  371;  Haire  v.  Rome  R.  Co. 
57  Fed.  321;  Sweeney  v.  Grand 
Island,  &c.  R.  Co.  61  Fed.  3;  Fox  v. 
Mackay,  60  Fed.  4. 


§  GoOa] 


REMOVAL   OF    CAUSES. 


974 


allegations  of  the  petition  for  removal  or  the  subsequent  proceedings.68 
Indeed,  it  is  held  that  it  must  be  determined  from  the  declaration  or 
pleadings  of  the  plaintiff,  and  that  a  defendant  cannot,  by  answer, 
raise  a  separable  controversy.64  The  rule  is  thus  stated  in  a  recent 
case.65  "As  this  court  has  repeatedly  affirmed,  not  only  in  cases  of 
joint  contracts,  but  in  actions  for  torts,  which  might  have  been 
brought  against  all  or  against  any  one  of  the  defendants,  separate  an- 
swers by  the  several  defendants  sued  on  joint  causes  of  action  may 
present  different  questions  for  determination,  but  they  do  not  neces- 
sarily divide  the  suit  into  separate  controversies.  A  defendant  has 
no  right  to  say  that  an  action  shall  be  several  which  a  plaintiff  elects 
to  be  joint.  A  separate  defense  may  defeat  a  joint  recovery,  but  it 
cannot  deprive  a  plaintiff  of  his  right  to  prosecute  his  own  suit  to 
final  determination  in  his  own  way.  The  cause  of  action  is  the  sub- 
ject-matter of  the  controversy,  and  that  is,  for  all  the  purposes  of  the 
suit,  whatever  the  plaintiff  declares  it  to  be  in  his  pleadings."68  The 
fact  that  one  of  two  joint  defendants  fails  to  answer  or  suffers  a  default 
does  not  make  the  controversy  a  separable  one  between  the  plaintiff 
and  the  other  defendant.67 

§  650a.  Action  against  company  and  employe. — The  question  has 
arisen  in  a  number  of  cases  as  to  whether  against  a  company  and  one 
or  more  of  its  employes,  or  against  a  lessor  and  lessee  company,  jointly 
can  be  removed  as  presenting  a  separable  controversy  especially  where 


63  Barney   v.    Latham,    103    U.    S. 
205;  Graves  v.  Corbin,  132  U.  S.  571, 
10    Sup.    Ct.    196;     The    Jarnecke, 
Ditch,   In   re,   69   Fed.    161;    Grand 
Trunk  R.  Co.  v.  Twitchell,  59  Fed. 
727. 

64  Ayres  v.  Wiswall,  112  U.  S.  187, 
5  Sup.  Ct.  90;  Louisville,  &c.  R.  Co. 
v.  Ide,  114  U.  S.  52,  5  Sup.  Ct.  735; 
Thurber  v.  Miller,  67  Fed.  371;  Na- 
tional Docks,  &c.  R.  Co.  v.  Pennsyl- 
vania R.  Co.  52  N.  J.  Eq.  58,  28  Atl. 
71;  Arrowsmith  v.  Nashville,  &c.  R. 
Co.  57  Fed.  165. 

85  Torrence  v.  Shedd,  144  U.  S.  527, 
530,  12  Sup.  Ct  726. 

68  Citing  Louisville,  &c.  R.  Co.  v. 
Ide,  114  U.  S.  52,  56,  5  Sup.  Ct.  735; 
Pirie  v.  Tvedt,  115  U.  S.  41,  43,  5 


Sup.  Ct.  1034, 1161;  Sloane  v.  Ander- 
son, 117  U.  S.  275,  6  Sup.  Ct.  730; 
Little  v.  Giles,  118  U.  S.  596,  601, 
602,  7  Sup.  Ct.  32;  Thome  Wire 
Hedge  Co.  v.  Fuller,  122  U.  S.  535, 
7  Sup.  Ct.  1265.  See,  also,  Thomas 
v.  Great  Northern  R.  Co.  147  Fed. 
83. 

87  Wilson  v.  Oswego  Twp.  151  U. 
S.  56,  14  Sup.  Ct.  259;  Putnam  v. 
Ingraham,  114  U.  S.  57;  Feison  v. 
Hardy,  114  N.  Car.  58,  429,  19  S.  E. 
91,  701.  So  held,  even  where  no 
process  was  served  against  one  of 
the  defendants  and  he  did  not  ap- 
pear. Patchin  v.  Hunter,  38  Fed. 
51;  Ames  v.  Chicago,  &c.  R.  Co.  39 
Fed.  881. 


975 


ACTION   AGAINST    COMPANY   AXD   EMPLOYE.  |§    GoOa 


one  object  of  the  joinder  appears  to  be  to  prevent  a  removal.  There  is 
some  conflict  among  the  authorities,  but  the  better  rule  is  that  where, 
as  in  most  jurisdictions  and  cases,  a  joint  action  may  be  maintained, 
the  case  cannot  be  removed  as  presenting  a  separable  controversy  even 
though  one  purpose  *of  the  joinder  may  have  been  to  prevent  a  re- 
moval, and  this  is  the  rule  now  sustained  by  the  great  weight  of 
authority.68  But  a  fraudulent  joinder  wrongfully  attempting  to  de- 
prive parties  of  their  rights  in  the  federal  courts  will  not  defeat  a 
removal  where  it  is  properly  shown.69  The  federal  court  finally  de- 
termines the  question  ;70  but  the  petition  must  state  facts  showing  the 
fraudulent  joinder,  and  not  mere  conclusions.71  The  general  subject 
has  received  careful  consideration  in  recent  decisions  of  the  supreme 
court  of  the  United  States,  from  which  we  quote  below.72 


""Charman  v.  Lake  Erie,  &c.  R. 
Co.  105  Fed.  449;  Chesapeake,  &c. 
R.  Co.  v.  Dixon,  179  U.  S.  131,  21 
Sup.  Ct.  67;  Powers  v.  Chesapeake, 
&c.  R.  Co.  169  U.  S.  92,  18  Sup.  Ct. 
264;  Alabama,  &c.  R.  Co.  v.  Thomp- 
son, 200  U.  S.  206,  26  Sup.  Ct.  161; 
Cincinnati,  &c.  R.  Co.  v.  Bohon,  200 
U.  S.  221,  26  Sup.  Ct.  166;  Louisville, 
&c.  R.  Co.  v.  Ide,  114  U.  S.  52,  5  Sup. 
Ct.  735;  Thomas  v.  Great  Northern 
R.  Co.  147  Fed.  83;  Lorrence  v. 
Shedd,  144  U.  S.  527,  12  Sup.  Ct. 
726;  Little  v.  Giles,  118  U.  S.  596,  7 
Sup.  Ct.  32;  Deere,  &c.  Co.  v.  Chi- 
cago, &c.  Co.  85  Fed.  876;  Illinois 
Cent  R.  Co.  v.  Jones,  118  Ky.  158, 
80  S.  W.  484;  Ayles  v.  Southern  R. 
Co.  (Ky.)  88  S.  W.  1048  (action 
against  two  companies).  See,  also, 
Martin  v.  St.  Louis,  &c.  R.  Co.  134 
Fed.  134;  Lake  Erie,  &c.  R.  Co.  v. 
Charman,  161  Ind.  95,  67  N.  E.  923. 
But  compare,  as  to  lessor  and  lessee, 
Yeates  v.  Illinois  Cent.  R.  Co.  137 
Fed.  943.  See,  generally,  Southern, 
R.  Co.  v.  Carson,  194  U.  S.  136,  24 
Sup.  Ct.  609. 

68  Moon  Remov.  of  Causes,  §  131; 
Desty's  Fed.  Proc.  §  97.  See,  also, 
Dudley  v.  Illinois  Cent.  R.  Co.  (Ky.) 
96  S.  W.  835. 


70  The  present  rule  seems  to  be 
that  the  petition  must  be  taken  as 
true  in  the  state  court.  Burlington, 
&c.  R.  Co.  v.  Dunn,  122  U.  S.  513,  7 
Sup.  Ct.  262  (tries  the  question  of 
fact) ;  Stone  v.  South  Carolina,  117 
U.  S.  430,  6  Sup.  Ct.  799;  Moon  Re- 
mov. of  Causes,  §  177. 

"Rutherford  v.  Illinois  Cent.  R. 
Co.  (Ky.)  85  S.  W.  199;  Illinois 
Cent.  R.  Co.  v.  Le  Blanc,  74  Miss, 
626,  21  So.  748. 

72  In  Alabama,  &c.  R.  Co.  v. 
Thompson,  200  U.  S.  236,  26  Sup.  Ct. 
161,  164  et  seq.,  it  is  said,  quoting 
from  Powers  v.  Chesapeake,  &c.  R. 
Co.  169  U.  S.  92,  18  Sup.  Ct.  264, 
265:  "It  is  well  settled  that  an  ac- 
tion of  tort,  which  might  have  been 
brought  against  many  persons  or 
against  any  one  or  more  of  them, 
and  which  is  brought  in  a  state 
court  against  all  jointly,  contains 
no  separate  controversy  which  will 
authorize  its  removal  by  some  of 
the  defendants  into  the  circuit  court 
of  the  United  States,  even  if  they 
file  separate  answers  and  set  up  dif- 
ferent defenses  from  the  other  de- 
fendants, and  allege  that  they  are 
not  jointly  liable  with  them,  and 
that  their  own  controversy  with 


§'  651] 


REMOVAL    OF    CAUSES. 


§  651.  Prejudice  or  local  influence  as  a  ground  for  removal. — The 
provisions  for  removal  where  there  is  a  separate  controversy  are  not 
applicable  where  the  removal  is  sought  upon  the  ground  of  prejudice 


the  plaintiff  is  a  separate  one;  for, 
as  this  court  has  often  said,  'a  de- 
fendant has  no  right  to  say  that  an 
action  shall  be  several  which  the 
plaintiff  seeks  to  make  joint.  A 
separate  defense  may  defeat  a  joint 
recovery,  but  it  cannot  deprive  a 
plaintiff  of  his  right  to  prosecute 
his  suit  to  final  decision  in  his  own 
way.  The  cause  of  action  is  the 
subject-matter  of  the  controversy, 
and  that  is,  for  all  the  purposes  of 
the  suit,  whatever  the  plaintiff  de- 
clares it  to  be  in  his  pleadings.' 
Pirie  v.  Tvedt,  115  U.  S.  41,  43,  5 
Sup.  Ct.  1034,  1161,  29  L.  Ed.  331, 
332;  Sloane  v.  Anderson,  117  U.  S. 
275,  6  Sup.  Ct.  730,  29  L.  Ed.  899; 
Little  v.  Giles,  118  U.  S.  596,  600, 
601,  7  Sup.  Ct  32,  30  L.  Ed.  269- 
271;  Louisville,  &c.  R.  Co.  v.  Wan- 
gelin,  132  U.  S.  599,  10  Sup.  Ct.  203, 
33  L.  Ed.  474;  Torrence  v.  Shedd, 
144  U.  .S.  527,  530,  12  Sup.  Ct.  726, 
36  L.  Ed.  528,  531;  Connell  v. 
Smiley,  156  U.  S.  335,  340, 15  Sup.  Ct. 
353,  39  L.  Ed.  443,  444.  It  is  also 
said  that  the  fact  that  by  answer  the 
defendant  may  show  that  the  lia- 
bility is  several  cannot  change  the 
character  of  the  case  made  by  the 
plaintiff  in  his  pleading  so  as  to  af- 
fect the  right  of  removal.  It  is  to 
be  remembered  that  we  are  not  now 
dealing  with  joinders  which  are 
shown  by  the  petition  for  removal, 
or  otherwise,  to  be  attempts  to  sue 
in  the  state  courts  with  a  view  to 
defeat  federal  jurisdiction.  In  such 
cases  entirely  different  questions 
arise,  and  the  federal  courts  may 
and  should  take  such  action  as  will 
defeat  attempts  to  wrongfully  de- 
prive parties  entitled  to  sue  in  the 


federal  courts  of  the  protection  of 
their     rights     in     those     tribunals. 

*  *    *    Does  this  become  a  sepa- 
rable controversy  within  the  mean- 
ing of  the  act  of  congress  because 
the   plaintiff   has   misconceived    his 
cause  of  action,  and  had  no  right 
to  prosecute  the  defendants  jointly? 
We  think,  in  the  light  of  the  adju- 
dications   above    cited    from    this 
court,   it  does  not.     Upon  the  face 
of  the  complaint — the  only  pleading 
filed  in  the  case — the  action  is  joint. 
It  may  be  that  the  state  court  will 
hold   it  not  to  be  so.     It  may  be 
(which  we  are  not  called  upon  to 
decide  now)   that  this  court  would 
so  determine  if  the  matter  shall  be 
presented  in  a  case  of  which  it  has 
jurisdiction.      But    this    does     not 
change  the  character  of  the  action 
which  the  plaintiff  has  seen  fit  to 
bring,  nor  change  an  alleged  joint 
cause  of  action  into  a  separable  con- 
troversy for  the  purpose  of  removal. 
The  case  cannot  be  removed  unless 
it  is  one  which  presents  a  separable 
controversy  wholly  between  citizens 
of  different  states.     In  determining 
this  question  the  law  looks  to  the 
case  made  in  the  pleadings,  and  de- 
termines   whether   the   state   court 
shall  be  required  to  surrender  its 
jurisdiction    to   the    federal    court. 

*  *    *    The    fact    that    the    state 
court   may   take   a   different   view 
from  the  courts  of  the  United  States 
of  the  common  law  as  to  the  char- 
acter of  such  actions,  and  the  right 
to  prosecute  them  in  form  joint  as 
well  as  several,  affords  no  ground 
of  removal."    See,  also,  Cincinnati, 
&c.  R.  Co.  v.  Bohon,  200  U.  S.  221, 
26  Sup.  Ct.  166. 


977      PREJUDICE  OR  LOCAL  INFLUENCE  GROUND  FOR  REMOVAL.    [§    651 


or  local  influence.73  The  act  of  March  3,  1887,  as  corrected  by  the 
act  of  August  13,  1888,  unlike  the  earlier  acts,  gives  the  plaintiff  no 
right  of  removal  upon  the  ground  of  prejudice  or  local  influence,  but 
it  permits  .one  of  several  defendants,  where  the  requirements  as  to 
citizenship  and  the  amount  in  controversy  are  satisfied,  to  obtain  a  re- 
moval,74 whereas  the  act  of  1867  required  all  the  defendants  to  join 
in  the  petition.  He  must,  however,  be  a  citizen  of  a  different  state 
from  that  in  which  the  suit  is  brought,75  and  it  has  been  held  that 
the  plaintiffs  must  all  be  citizens  of  the  state  in  which  the  suit  is 
brought.76  A  defendant  who  is  a  citizen  of  the  same  state  as  some 
of  the  plaintiffs  cannot  have  the  suit  removed  merely  upon  the  ground 
of  prejudice  or  local  influence  as  between  himself  and  other  defend- 
ants,77 nor  can  a  non-resident  defendant,  joined  with  another  defend- 
ant who  is  a  citizen  of  the  same  state  as  the  plaintiff,  remove  the 
cause  on  the  ground  of  prejudice  or  local  influence.7711  It  is  now 
settled,  after  some  conflict  among  the  authorities,  that  the  value  of 
the  matter  in  dispute,  exclusive  of  interest  and  costs,  must  exceed 
two  thousand  dollars.78  The  application  should  be  made  to  the  proper 


"Jefferson  v.  Driver,  117  U.  S. 
272,  6  Sup.  Ct.  729;  Young  v.  Parker, 
132  U.  S.  267,  10  Sup.  Ct.  75. 

74Haire  v.  Rome  R.  Co.  57  Fed. 
321;  Fisk  v.  Henarie,  32  Fed.  417; 
Whelan  v.  New  York,  &c.  R.  Co.  35 
Fed.  849.  See,  also,  Campbell  v. 
Collins,  62  Fed.  849.  It  makes  no 
difference  that  some  of  the  other 
defendants  are  residents  of  the  state 
in  which  the  suit  is  brought.  Jack- 
son, &c.  Co.  v.  Pearson,  60  Fed.  113. 

75  The  clause  authorizing  a  re- 
moval upon  the  ground  of  prejudice 
or  local  influence  does  not  apply 
where  one  party  is  an  alien.  Cohn 
v.  Louisville,  &c.  R.  Co.  39  Fed.  227; 
Grand  Trunk  R.  Co.  v.  Twitchell,  59 
Fed.  727. 

76Thouron  v.  East  Tenn.  &c.  R. 
Co.  38  Fed.  673;  Niblock  v.  Alex- 
ander, 44  Fed.  306;  Rike  v.  Floyd, 
42  Fed.  247.  This  is  true  at  least 
where  the  plaintiffs  are  all  jointly 
interested  against  the  non-resident 
defendant  who  seeks  the  removal. 
ELL.  RAILROADS — 62 


Young  v.  Parker,  132  U.  S.  267,  10 
Sup.  Ct.  75;  Gann  v.  Northeastern 
R.  Co.  57  Fed.  417. 

77Hanrick  v.  Hanrick,  153  U.  S. 
192,  14  Sup.  Ct.  835. 

77a  Cochran  v.  Montgomery  County, 
199  U.  S.  260,  26  Sup.  Ct.  58.  Cases 
removable  on  this  ground  "are  con- 
fined to  those  in  which  there  is  a 
controversy  between  a  citizen  or 
citizens  of  the  state  in  which  the 
suit  is  brought  and  a  citizen  or  citi- 
zens of  another  or  other  states,  and 
do  not  include  cases  wherein  the 
controversy  is  between  citizens  of 
the  same  state."  Southern  R.  Co.  v. 
Thomason,  146  Fed.  972;  Cleveland 
v.  Cleveland,  &c.  R.  Co.  147  Fed. 
171. 

,  "Pennsylvania  Co.,  Ex  parte,  137 
U.  S.  451,  11  Sup.  Ct.  141;  Carson, 
&c.  Lumber  Co.  v.  Holtzclaw,  39 
Fed.  578;  Malone  v.  Richmond,  &c. 
R.  Co.  35  Fed.  625;  Roraback  v. 
Pennsylvania  Co.  42  Fed.  420. 


§  652] 


REMOVAL   OF    CAUSES. 


978 


circuit  court  of  the  United  States  and  not  to  the  state  court.79  The 
act  provides  for  a  removal  to  the  proper  circuit  court  by  a  defendant 
"when  it  shall  be  made  to  appear  to  said  circuit  court  that  from 
prejudice  or  local  influence  he  will  not  be  able  to  obtain  justice  in  the 
state  court  in  which  the  suit  is  pending,  or  in  any  other  state  court 
to  which  the  said  defendant  may,  under  the  laws  of  the  state,  have 
the  right,  on  account  of  such  prejudice  or  local  influence,  to  remove 
it;"  but  it  does  not  prescribe  the  method  for  making  this  appear  to 
the  circuit  court.  This  is  usually  accomplished  by  the  affidavit  of  the 
party  seeking  the  removal.  It  is  the  better  and  safer  practice  to  state 
the  facts  showing  the  prejudice  or  local  influence,80  but  in  a  few  of 
the  circuits  it  has  been  held  sufficient  to  follow  the  language  of  the 
statute.81  It  is  also  held  in  some  circuits  that  the  defendant's  affidavit 
is  conclusive  and  cannot  be  controverted,82  but  we  think  the  better 
rule  is  that  the  court  may  receive  counter-affidavits  or  other  evidence 
as  to  the  existence  of  prejudice  or  local  influence.83 

§  652.  Removal  where  federal  question  is  involved. — As  we  have 
seen,  provision  is  made  for  the  removal  of  suits  "of  a  civil  nature,  at 
law  or  in  equity,  arising  under  the  constitution  or  laws  of  the  United 
States,  or  treaties  made  under  their  authority."  It  is  not  always 
easy,  however,  to  determine  when  a  suit  is  one  arising  under  the  con- 
stitution or  laws  of  the  United  States.  It  was  said  by  Chief  Justice 
Marshall  that  "a  case  in  law  or  equity  consists  of  the  right  of  the  one 


79  Williams  v.  Southern,  &c.  R.  Co. 
116  N.  Car.  558,  21  S.  E.  298;    South- 
worth  v.  Reid,  36  Fed.  451;  Huskins 
v.    Cincinnati,   &c.    R.    Co.    37    Fed. 
504;  Rome,  &c.  R.  Co.  v.  Smith,  84 
Ga.  238,  10  S.  B.  728;  Beyer  v.  Soper 
Lumber  Co.  76  Wis.  145,  44  N.  W. 
750,  833.    But  see  Short  v.  Chicago, 
&c.  R.  Co.  34  Fed.  225. 

80  Pennsylvania  Co.,  Ex  parte,  137 
IT.    S.    451,    11    Sup.    Ct.    141;     P. 
Schwenk  &  Co.  v.   Strang,  59  Fed. 
209;   Goldworthy  v.  Chicago,  &c.  R. 
Co.  38  Fed.  769;   Amy  v.  Manning, 
38    Fed.    536.     It    is    insufficient   to 
state  that  affiant  believes  and  has 
reason  to  believe  that  prejudice  and 
local     influence     exist.      Collins     v. 
Campbell,  62  Fed.  850;  Short  v.  Chi- 


cago, &c.  R.  Co.  33  Fed.  114.  See, 
also,  Niblock  v.  Alexander,  44  Fed. 
306. 

81  Whelan  v.  New  York,  &c.  R.  Co. 
35  Fed.  849;    Cooper  v.  Richmond, 
&c.  R.  Co.  42  Fed.  697. 

82  Cases  cited  in  last  note,  supra; 
also,  Huskins  v.  Cincinnati,  &c.  R. 
Co.  37  Fed.  504;  Brodhead  v.  Shoe- 
maker, 44  Fed.  518;   Hills  v.  Rich- 
mond, &c.  R.  Co.  33  Fed.  81. 

83Malone  v.  Richmond,  &c.  R.  Co. 
35  Fed.  625;  Short  v.  Chicago,  &c. 
R.  Co.  34  Fed.  225;  Carson,  &c.  Lum- 
ber Co.  v.  Holtzclaw,  39  Fed.  578; 
Robison  v.  Hardy,  38  Fed.  49.  See, 
also,  Walcott  v.  Watson,  46  Fed. 
529;  Pennsylvania  Co.,  Ex  parte, 
137  U.  S.  457,  11  Sup.  Ct.  143. 


979 


REMOVAL   WHERE   FEDERAL    QUESTION   IS   INVOLVED.       [§652 


party  as  well  as  the  other,  and  may  truly  be  said  to  arise  under  the 
constitution  or  a  law  of  the  United  States  whenever  its  correct  de- 
cision depends  on  the  right  construction  of  either."84  But  the  suit 
must  actually  arise  out  of  the  operation,  construction  or  application 
of  some  provision  of  the  constitution  or  laws  of  the  United  States,  and 
it  is  not  sufficient  that  during  its  progress  a  construction  of  the  con- 
stitution or  some  law  of  the  United  States  may  become  necessary.85 
If  the  only  right  claimed  by  the  plaintiff  is  under  a  state  law,  a  mere 
suggestion  in  his  bill  that  the  defendant  will  claim  that  such  law  is 
void  because  in  contravention  of  the  constitution  of  the  United  States 
will  not  entitle  the  defendant  to  remove  the  suit  upon  the  ground 
that  a  federal  question  is  involved.86  Among  the  suits  that  have  been 
held  removable  as  arising  under  the  constitution  or  laws  of  the  United 
States  are  those  in  which  the  question  as  to  whether  a  state  law  im- 
pairs the  obligation  of  a  contract  is  involved;87  suits  by  or  against  a 
corporation  created  by  congress  ;88  suits  against  receivers  appointed  by 
a  federal  court;89  and  suits  against  interstate  carriers  of  goods  for 
unjust  discrimination  and  excessive  charges  contrary  to  the  interstate 
commerce  law.90  On  the  other  hand,  an  application,  by  a  commis- 


84  Cohens    v.    Virginia,    6    Wheat. 
U.  S.)  264,  379.    See,  also,  Germania 
Ins.  Co.  v.  Wisconsin,  119  U.  S.  473, 
7  Sup.  Ct.  260;  New  Orleans,  &c.  R. 
Co.  v.  Mississippi,  102  U.  S.  135. 

85  Gold,  &c.  Water  Co.  v.  Keyes,  96 
U.  S.  199;   Carson  v.  Dunham,  121 
U.  S.  421,  7  Sup.  Ct.  1030;  Fitzger- 
ald v.  Missouri  Pac.  R.  Co.  45  Fed. 
812;  Iowa  v.  Chicago,  &c.  R.  Co.  33 
Fed.  391;   Illinois  Central  R.  Co.  v. 
Chicago,  &c.  R.  Co.  122  111.  473,  13 
N.   E.   140;    Dowell   v.   Griswold,   5 
Sawy.    (U.   S.)    39;    Starin  v.   New 
York,  115  U.  S.  248,  6  Sup.  Ct.  28. 

86  Tennessee  v.  Union,  &c.   Bank, 
152  U.  S.  454,  14  Sup.  Ct.  654. 

87  Smith   v.   Greenhow,   109   U.    S. 
669,  3  Sup.  Ct:  421;   People  v.  Chi- 
cago, &c.  R.  Co.  16  Fed.  706;  Illinois 
v.  Illinois  Cent.  R.  Co.  38  Fed.  721; 
State  v.  Port  Royal,  &c,  R.  Co.  56 
Fed.   333.     But  see   Hamilton   Gas- 
light, &c.  Co.  v.  Hamilton,  146  U.  S. 
258,  13  Sup.  Ct.  90;   Stein  v.  Bien- 


ville  Water  Co.  141  U.  S.  67,  11  Sup. 
Ct.  892. 

88  Pacific  Railroad  Removal  Cases, 
115  U.  S.  1,  5  Sup.  Ct.  1113;  Ames 
v.  Kansas,  111  U.  S.  449,  4  Sup.  Ct. 
437;  Union  Pac.  R.  v.  McComb,  1 
Fed.  799.  See,  also,  Martin  v.  St 
Louis,  &c.  R.  Co.  134  Fed.  134. 

""Jewett  v.  Whitcomb,  69  Fed. 
417;  Evans  v.  Dillingham,  43  Fed. 
177;  Texas,  &c.  R.  Co.  v.  Cox,  145 
U.  S.  593,  12  Sup.  Ct.  905;  Central 
Trust  Co.  v.  East  Tennessee,  &c.  R. 
Co.  59  Fed.  523;  Hardwick  v.  Kean, 
95  Ky.  563,  26  S.  W.  589.  But  the 
mere  fact  that  the  receiver  was  ap- 
pointed by  a  federal  court  does  not 
necessarily  make  all  actions  against 
him  removable  under  this  provision. 
Gableman  v.  Peoria,  &c.  R.  Co.  179 
U.  S.  335,  21  Sup.  Ct.  171. 

"Dowry  v.  Chicago,  &c.  R.  Co.  46 
Fed.  83.  See,  also,  State  v.  Port 
Royal,  &c.  R.  Co.  56  Fed.  333;  Len- 
non,  Ex  parte,  64  Fed.  320.  For 


652] 


REMOVAL   OF   CAUSES. 


980 


sioner  appointed  to  abolish  grade  crossings,  for  a  mandamus  to  com- 
pel a  railroad  company  to  obey  its  order  changing  the  location  of  the 
company's  tracks  has  been  held  not  to  be  removable  on  the  ground  that 
a  federal  question  was  involved.91  So,  a  suit  does  not  arise  under  the 
constitution  or  laws  of  the  United  States,  and  is  not  removable  on  that 
ground,  merely  because  it  requires  the  statutes  of  one  state  to  be  con- 
strued by  a  court  of  another  state.92  Nor  does  a  bill  in  equity  to  set 
aside  a  lease  by  a  corporation  of  one  state  to  a  corporation  of  another 
state  as  ultra  vires  and  void  and  obtain  an  accounting,  assert  or  raise 
any  federal  question.93  It  has  also  been  held  that  a  proceeding  to 
prevent  a  bridge  company  from  using  a  franchise  to  operate  a  rail- 
road in  a  public  street  does  not  involve  a  federal  question.94  A  suit 
is  not  removable  as  arising  under  the  laws  of  the  United  States  merely 
because  the  supreme  court  or  some  other  federal  court  has,  in  another 
case,  decided  the  questions  of  law  involved  ;95  but,  on  the  other  hand, 
it  has  been  held  that  a  proposition  of  law  which  has  once  been  de- 
cided by  the  supreme  court  of  the  United  States  can  no  longer  be 
treated  as  a  federal  question.96  The  fact  that  a  federal  question  is 
involved  must  appear  from  the  plaintiff's  own  statement  of  his  claim, 
and  where  it  is  not  so  made  to  appear  it  cannot  be  supplied  by  any 
allegation  in  the  petition  for  removal  or  the  subsequent  pleadings.97 


other  cases  removable  on  this 
ground,  see  Kansas  Pac.  R.  Co.  v. 
Atchison  R.  Co.  112  U.  S.  414,  5  Sup. 
Ct.  208;  Southern  Pac.  R.  Co.  v.  Cal- 
ifornia, 118  U.  S.  109,  6  Sup.  Ct.  993. 
"Woodruff  v.  New  York,  &c.  R. 
Co.  59  Conn.  63,  20  Atl.  17;  Dey  v. 
Chicago,  &c.  R.  Co.  45  Fed.  82. 

82  Chicago,  &c.  R.  Co.  v.  Wiggins 
Ferry  Co.  108  U.  S.  18,  1  Sup.  Ct. 
614. 

83  Central  R.  Co.  v.  Mills,  113  U.  S. 
249,  5  Sup.  Ct.  456. 

94  Commonwealth  v.  Louisville 
Bridge  Co.  42  Fed.  241. 

96  Leather  Manufacturers'  Nat. 
Bank  v.  Cooper,  120  U.  S.  778,  7 
Sup.  Ct.  777. 

88  Kansas  v.  Bradley,  26  Fed.  289. 
This  decision,  however,  seems  to  us 
to  be  questionable  and  in  conflict 
with  the  case  cited  in  the  last  pre- 


ceding note.  The  federal  courts  do 
not  make  the  laws  of  the  United 
States.  But  see  Arkansas  v.  Choc- 
taw,  &c.  R.  Co.  134  Fed.  106,  follow- 
ing the  case  first  cited  in  this  note 
and  citing  other  cases  which  have 
followed  it,  so  that  the  question 
now  seems  to  be  settled. 

87  Tennessee  v.  Union,  &c.  Bank, 
152  U.  S.  454,  14  Sup.  Ct.  654;  Chap- 
pell  v.  Waterworth,  155  U.  S.  102,  15 
Sup.  Ct.  34;  East  Lake  Land  Co.  v. 
Brown,  155  U.  S.  488,  15  Sup.  Ct. 
357;  Postal  Tel.  &c.  Co.  v.  Alabama, 
155  U.  S.  482,  15  Sup.  Ct.  192;  Hag- 
gin  v.  Lewis,  66  Fed.,  199;  Caples  v. 
Texas,  &c.  R.  Co.  67  Fed.  9;  Mitch- 
ell, &c.  Co.  v.  Worthington,  140  Fed. 
947;  Oregon  Short  Line  R.  Co.  v. 
Shotlowe,  162  U.  S.  490,  16  Sup.  Ct. 
869.  But  see,  where  the  corporation 
is  a  federal  corporation  and  the 


981 


TIME   AND   MANNER   OF    MAKING   APPLICATION. 


[§  563 


§  653.  Time  and  manner  of  making  application  for  removal. — Un- 
der the  act  of  March  3,  1887,  as  corrected  by  the  act  of  August  13, 
1888,  the  application  for  removal  upon  any  other  ground  than  that 
of  prejudice  or  local  influence  should  be  made  by  filing  a  petition  in 
the  state  court  ''before  the  defendant  is  required  by  the  laws  of  the 
state  or  the  rule  of  the  state  court  in  which  such  suit  is  brought  to 
answer  or  plead  to  the  declaration  or  complaint  of  the  plaintiff."  If 
no  application  is  filed  within  that  time  the  right  of  removal  is  lost.08 
But  it  is  held  that  the  petitioner  has  the  full  time  allowed  the  de- 
fendant in  which  to  answer  or  plead,  although  the  latter  may  demur 
or  answer  before  it  has  expired,"  and  that  where  an  amended  com- 
plaint is  filed  which  states  an  entirely  different  cause  of  action  in 
which  the  original  suit  is  merged  the  time  begins  to  run  from  the 
filing  Of  such  amended  complaint.100  The  application  comes  too  late, 
however,  if  not  filed  before  the  time  at  which  the  defendant  is  re- 
quired to  plead  to  the  jurisdiction  or  in  abatement,  even  though  it  is 
filed  before  the  time  at  which  he  is  required  to  plead  to  the  merits.101 
A  defendant  who  makes  no  application  for  removal  himself  cannot 
assign  as  error  the  action  of  the  court  in  denying  a  removal  upon  the 
application  of  other  defendants.102  So,  on  the  other  hand,  it  is  held 


question  is  as  to  diverse  citizenship. 
Texas,  &c.  R.  Co.  v.  Cody,  166  U.  S. 
606,  17  Sup.  Ct.  763.  See,  generally, 
Galveston  R.  v.  Texas,  170  U.  S.  226, 
18  Sup.  Ct.  603;  Boston,  &c.  Co.  v. 
Montana,  &c.  Co.  188  U.  S.  632,  23 
Sup.  Ct.  434. 

98  Price  v.  Lehigh,  &c.  R.  Co.  65 
Fed.  825;  Font  v.  Gulf,  &c.  Co.  47 
La.  Ann.  272,  16  So.  828;  Williams^ 
v.  Southern,  &c.  116  N.  Car.  558,  21* 
S.  E.  298;  Woolf  v.  Chisholm,  30 
Fed.  881;  Beyer  v.  Soper  Lumber 
Co.  76  Wis.  145,  44  N.  W.  750,  833. 
See,  also,  Houston,  &c.  R.  Co.  v. 
Shirley,  111  U.  S.  358,  4  Sup.  Ct. 
472;  Fletcher  v.  Hamlet,  116  U.  S. 
408,  6  Sup.  Ct.  426.  For  construction 
of  statute  and  rule  of  court  held  to 
govern,  see  First  Nat.  Bank  v.  A.  E. 
Appleyard  &  Co.  138  Fed.  939.  As  to 
sufficiency  of  petition  as  to  statement 
that  time  to  plead  had  not  arrived, 
see  Remington  v.  Central  Pac.  R. 


Co.  198  U.  S.  95,  25  Sup.  Ct.  577. 
See,  as  to  right  to  remove  by  acting 
promptly  after  amendment  of  com- 
plaint making  a  non-removable  case 
a  removable  one,  Myrtle  v.  Nevada, 
&c.  R.  Co.  137  Fed.  193;  and  by  re- 
newing application  after  it  appears 
that  a  party  was  fraudulently  joined 
and  no  cause  of  action  is  proved 
against  him.  Dudley  v.  Illinois 
Cent.  R.  Co.  (Ky.)  96  S.  W.  835; 
White  v.  Chicago,  &c.  R.  Co.  (Ky.) 
96  S.  W.  911. 

"•Tennessee,  &c.  Co.  v.  Waller,  37 
Fed.  545;  Gavin  v.  Vance,  33  Fed. 
84;  Conner  v.  Skagit,  &c.  Coal  Co. 
45  Fed.  802. 

100Mattoon  v.  Reynolds,  62  Fed. 
417;  Evans  v.  Dillingham,  43  Fed. 
177. 

101  Martin  v.  Baltimore,  &c.  R.  Co. 
151  U.  S.  673,  14  Sup.  Ct.  533. 

108  Merchants',  &c.  Co.  v.  Insurance 
Co.  151  U.  S.  368,  14  Sup.  Ct.  367; 


654] 


REMOVAL   OF    CAUSES. 


982 


that  objection  to  the  jurisdiction  of  a  United  States  circuit  court 
•over  a  suit,  otherwise  removable,  because  the  application  for  removal 
was  not  made  in  time,  is  waived  where  it  is  not  made  until  the  case 
is  taken  to  the  supreme  court  on  writ  of  error.108  The  application 
for  removal  upon  the  ground  of  prejudice  or  local  influence  may  be 
made  at  any  time  before  the  trial.  It  is  held,  however,  that  it  cannot 
be  made  after  one  trial  has  been  had  and  a  reversal  obtained,  and  it 
is  intimated  that  the  right  of  removal  must  be  exercised  before  or  at 
the  term  at  which  the  cause  "could  be  first  tried,  and  before  the  trial 
thereof,"  as  under  the  act  of  1875.104  Provision  is  also  made  in  the 
removal  act  for  the  filing  of  a  bond  in  certain  cases  and  a  copy  of 
the  record.105  It  has  been  held  that  the  petition  for  removal  forms 
part  of  the  record,  and  if  the  record,  including  the  petition,  shows 
that  the  case  is  one  of  federal  jurisdiction  it  is  sufficient.106  But  it 
is  said  that  an  additional  petition  presented  to  the  federal  court  with 
the  removal  papers,  alleging  facts  not  presented  to  the  state  court, 
will  not  confer  jurisdiction  on  the  federal  court,107  although  a  peti- 
tion may  be,  amended  in  the  latter  court  so  as  to  more  fully  state  the 
facts  which  appear  in  the  record  or  upon  which  the  statements  in  the 
original  petition  were  based.108 

§654.  Effect  of  application  on  jurisdiction  of  state  and  federal 
court. — When  a  proper  petition  and  bond  have  been  filed  in  the  state 
court,  it  is  the  duty  of  that  court  to  accept  the  same,  and  all  further 


Rand  v.  Walker,  117  U.  S.  340,  6 
Sup.  Ct.  769. 

103  Martin  v.  Baltimore,  &c.  R.  Co. 
151  U.  S.  673,  14  Sup.  Ct.  533.  See, 
also,  Tod  v.  Cleveland,  &c.  R.  Co.  65 
Fed.  145. 

1MFisk  v.  Henarie,  142  U.  S.  459; 
12  Sup.  Ct.  207.  See,  also,  Lookout 
Mountain  R.  Co.  v.  Houston,  32  Fed. 
711;  Davis  v.  Chicago,  &c.  R.  Co.  46 
Fed.  307.  But  compare  Huskins  v. 
Cincinnati,  &c.  R.  Co.  37  Fed.  504; 
Brodhead  v.  Shoemaker,  44  Fed. 
518;  Stix  v.  Keith,  90  Ala.  121,  7  So. 
423. 

108 1  Suppl.  U.  S.  Rev.  St.  613.  See 
Hayes  v.  Todd,  34  Fla.  233,  15  So. 
752;  Lucker  v.  Phoenix,  &c.  Co.  66 


Fed.  161;  Waite  v.  Phoenix  Ins.  Co. 
62  Fed.  769;  Austin  v.  Gagan,  39 
Fed.  626;  Foster  Fed.  Pr.  §  385. 
See,  also,  as  to  bond  and  approval, 
Groton,  &c.  Co.  v.  American,  &c.  Co. 
137  Fed.  284. 

108  Supreme  Lodge  v.  Wilson,  66 
Fed.  785.  See,  also,  Security  Co.  v. 
Pratt,  65  Conn.  161,  32  Atl.  396;  Cre- 
hore  v.  Ohio,  &c.  R.  Co.  131  U.  S. 
240,  9  Sup.  Ct.  692. 

107  Waite  v.  Phoenix  Ins.  Co.  62 
Fed.  769. 

JOB  powers  y  Chesapeake,  &c.  R. 
Co.  65  Fed.  129;  Carson  v.  Dunham, 
121  U.  S.  421,  7  Sup.  Ct.  1030.  See, 
also,  Hardwick  v.  Kean,  95  Ky.  563, 
26  S.  W.  589. 


983 


EFFECT   OF   APPLICATION   OX   JURISDICTION. 


'[§    654 


proceedings  therein  are  coram  non  judice.109  It  has  been  held  that  the 
filing  of  a  petition  for  removal,  without  objecting  to  the  jurisdiction 
of  the  state  court,  constitutes  a  general  appearance  and  operates  as  a 
waiver  of  defects  in  the  summons  or  service  thereof,110  but  we  think 
the  better  rule  is  that  a  special  appearance  for  the  purpose  of  ob- 
taining a  removal  does  not  operate  as  a  general  appearance  and  waiver 
of  such  defects.111  The  state  courts  have  generally  claimed  and  been 
conceded  the  right  to  examine  the  petition  and  record  and  determine 
whether  the  statutory  requirements  have  been  complied  with;112  but 
the  federal  courts  are  the  final  judges  of  their  own  jurisdiction,  and 
the  decision  of  a  state  court  is  not  conclusive  as  to  such  jurisdiction.113 


100  Gordon  v.  Longest,  16  Pet.  (U. 
S.)  97;  National  Steamship  Co.  v. 
Tugman,  106  U.  S.  118,  1  Sup.  Ct. 
58;  Hatch  v.  Chicago,  &c.  R.  Co.  6 
Blatchf.  (U.  S.  C.  C.)  105;  Stevens 
T.  Phoenix  Ins.  Co.  41  N.  Y.  149; 
Southern  Pac.  R.  Co.  v.  Harrison, 
73  Tex.  103,  11  S.  W.  168;  New  Or- 
leans, &c.  R.  Co.  v.  Mississippi,  102 
U.  S.  135;  Parker's  Admr.  v.  Clark- 
son,  39  W.  Va.  184,  19  S.  E.  431; 
Northern  Pac.  R.  Co.  v.  McMullen, 
86  Wis.  501,  56  N.  W.  629.  Partici- 
pating in  proceeding  in  the  state 
court  which  persists  in  detaining 
jurisdiction  after  removal,  is  not 
necessarily  a  waiver  of  the  removal. 
Home,  &c.  Ins.  Co.  v.  Dunn,  19  Wall. 
(U.  S.)  214;  McMullen  v.  Northern 
Pac.  R.  Co.  57  Fed.  16;  Northern 
Pac.  R.  Co.  v.  McMullen,  86  Wis.  501, 
56  N.  W.  629;  Waite  v.  Phoenix  Ins. 
Co.  62  Fed.  769;  Stanley  v.  Chicago, 
&c.  R.  Co.  62  Mo.  508;  Little  Rock, 
&c.  R.  Co.  v.  Iredell,  50  Ark.  388,  8 
S.  W.  21. 

110  Wabash  Western  R.  Co.  v.  Brow, 
€5  Fed.  941  (reversed,  however,  in 
164  U.  S.  271,  17  Sup.  Ct.  126)  j 
O'Donnell  v.  Atchison,  &c.  R.  Co.  49 
Fed.  689;  Farmer  v.  National,  &c. 
Assn.  138  N.  Y.  265,  33  N.  E.  1075. 

m  2  Elliott  Gen.  Pr.  §  474;  Garner 
v.  Second  Nat.  Bank,  66  Fed.  369; 
Goldey  v.  Morning  News,  156  U.  S. 


518,  15  Sup.  Ct.  559;  Ahlhauser  v. 
Butler,  50  Fed.  705 ;  Perkins  v.  Hen- 
dryx,  40  Fed.  657;  Davis  v.  Cleve- 
land, &c.  R.  Co.  146  Fed.  403,  hold- 
ing that  the  removal  does  not  pre- 
clude the  defendant  from  challeng- 
ing in  the  federal  court  the  jurisdic- 
tion of  the  state  court  over  the  per- 
son nor  from  claiming  exemption 
from  being  sued  in  a  state  other 
than  that  of  its  residence.  See,  also, 
Wabash,  &c.  R.  Co.  v.  Brow,  164  U. 
S.  271,  17  Sup.  Ct.  126;  Murray  v. 
Wilcox,  122  Iowa  188,  97  N.  W.  1087, 
64  L.  R.  A.  534,  101  Am.  St.  263. 

112  Baltimore,  &c.  R.  Co.  v.  New 
Albany,  &c.  R.  Co.  53  Ind.  597;  Cars- 
well  v.  Schley,  59  Ga.  17;  Burch  v. 
Davenport,  &c.  R.  Co.  46  Iowa  449, 
26  Am.  R.  150;  Larson  v.  Cox,  39 
Kans.  631,  18  Pac.  892;  Broadway 
Nat.  Bank  v.  Adams,  130  Mass.  431; 
Burlington,  &c.  R.  Co.  v.  Dunn,  122 
U.  S.  513,  7  Sup.  Ct.  1262;  Beadle- 
ston  v.  Harpending,  32  Fed.  644; 
Roberts  v.  Chicago,  &c.  R.  Co.  45 
Fed.  433. 

118  Wilson  v.  Western  Union  Tel. 
Co.  34  Fed.  561;  Baltimore,  &c.  R. 
Co.  v.  Koontz,  104  U.  S.  5;  Marshall 
v.  Holmes,  141  U.  S.  589,  12  Sup.  Ct. 
62;  Barrow  v.  Hunton,  99  U.  S.  80; 
Home,  &c.  Ins.  Co.  v.  Dunn,  19  Wall. 
(U.  S.)  214;  Knahtla  v.  Oregon,  &c. 
R.  Co.  21  Oreg.  136,  27  Pac.  91. 


§  654] 


REMOVAL  OF   CAUSES. 


984 


The  jurisdiction  of  the  federal  court  attaches  where  the  suit  is  re- 
movable, as  soon  as  the  statutory  requirements  are  complied  with, 
whether  the  state  court  makes  an  order  for  the  removal  or  not.114  An. 
order  for  the  removal  of  a  suit,  where  it  may  be  remanded,  merely 
suspends  the  jurisdiction  of  the  state  court,  and,  if  the  federal  court 
remands  the  case,  that  jurisdiction  will  be  resumed.115  The  general 
subject  of  this  section  was  under  consideration  by  the  Supreme  Court 
of  the  United  States  in  a  recent  case,  and  certain  propositions  were 
said  to  be  well  settled.  We  quote  from  the  decision  the  statement  of 
the  propositions  and  the  authorities  cited  in  the  note  below.116 


m  Wills  v.  Baltimore,  &c.  R.  Co. 
65  Fed.  532;  Shepherd  v.  Bradstreet 
Co.  65  Fed.  142;  Hayes  v.  Todd,  34 
Fla.  233,  15  So.  752;  Kern  v.  Huide- 
koper,  103  U.  S.  485;  Fisk  v.  Union 
Pac.  R.  Co.  6  Blatchf.  (U.  S.  C.  C.) 
362;  Chattanooga,  &c.  R.  Co.  v.  Cin- 
cinnati, &c.  R.  Co.  44  Fed.  456;  St. 
Anthony,  &c.  Co.  v.  King,  &c.  Co. 
23  Minn.  186,  23  Am.  R.  682;  Mc- 
Neal,  &c.  Co.  v.  Rowland,  &c.  Co. 
99  N.  Car.  202,  5  S.  E.  745,  6  Am.  St. 
513;  Mutual  D.  Ins.  Co.  v.  Langley, 
145  Fed.  415. 

115  Young  v.  Parker,  132  U.  S.  267, 
10  Sup.  Ct.  75;  Southern  Pac.  R. 
Co.  v.  Superior  Court,  63  Cal.  607. 

118  The  case  to  which  we  refer  is 
Madisonville  Traction  Co.  v.  St.  Ber- 
nard, &c.  Co.  196  U.  S.  239,  25  Sup. 
Ct.  251,  253,  where  the  court  says 
that  the  following  propositions  are 
well  settled: 

"1.  If  the  case  be  a  removable 
one;  that  is,  if  the  suit,  in  its 
nature,  be  one  of  which  the  circuit 
court  could  rightfully  take  juris- 
diction, then,  upon  the  filing  of  a 
petition  for  removal,  in  due  time, 
with  a  sufficient  bond,  the  case 
is,  in  law,  removed,  and  the 
state  court  in  which  it  is  pend- 
ing will  lose  jurisdiction  to  proceed 
further,  and  all  subsequent  proceed- 
ings in  that  court  will  be  void.  New 
Orleans,  M.  &  F.  R.  Co.  v.  Missis- 


sippi, 102  U.  S.  135,  141,  26  L.  ed. 
96,  98;  Baltimore,  &c.  R.  Co.  v. 
Koontz,  104  U.  S.  5,  14.  26  L.  Ed. 
643,  645;  National  S.  S.  Co.  v.  Tug- 
man,  106  U.  S.  118,  122,  1  Sup.  Ct.  58, 
27  L,.  Ed.  87,  89;  St.  Paul,  &c.  R. 
Co.  v.  McLean,  108  U.  S.  212,  216,  2 
Sup.  Ct.  498,  27  L.  Ed.  703,  704;  Cre- 
hore  v.  Ohio,  &c.  R.  Co.  131  ¥.  S. 
240,  243,  9  Sup.  Ct.  692,  797,  33  L. 
Ed.  354,  357;  Marshall  v.  Holmes, 
141  U.  S.  589,  595,  12  Sup.  Ct.  62,  35 
L.  Ed.  870,  872.  2.  After  the  pres- 
entation of  a  sufficient  petition  and 
bond  to  the  state  court  IH  a  remov- 
able case,  it  is  competent  for  the 
circuit  court,  by  a  proceeding  an- 
cillary in  its  nature — without  vio- 
lating §  720  of  the  Revised  Statutes 
(U.  S.  Comp.  Stat.  1901,  p.  581) 
forbidding  a  court  of  the  United 
States  from  enjoining  proceedings 
in  a  state  court — to  restrain  the 
party  against  whom  a  cause  has 
been  legally  removed  from  taking 
further  steps  in  the  state  court. 
French  v.  Hay,  22  Wall.  (U.  S.) 
252,22  L.  ed.  857;  Dietzsch  v.  Huide- 
koper,  103  U.  S.  494,  496,  497,  26  L. 
Ed.  497,  498;  Moran  v.  Sturgess,  154 
U.  S.  256,  270,  14  Sup.  Ct.  1019,  38 
L.  ed.  981,  985.  See,  also,  Sargent 
v.  Helton,  115  U.  S.  352,  6  Sup.  Ct. 
78,  29  L.  Ed.  413;  Harkrader  v.  Wad- 
ley,  172  U.  S.  165,  19  Sup.  Ct.  119,  43 
L.  Ed.  405;  Gates  v.  Bucki,  4  C.  C. 


985 


KEMANDING  AND  DISMISSING   CAUSE. 


[§    655 


§  655.  Remanding  and  dismissing  cause. — The  last  removal  act 
specifically  provides  for  remanding  suits  removed  on  the  ground  of 
prejudice  or  local  influence  as  to  defendants  not  affected  thereby, 
where  such  suits  can  be  fully  and  justly  determined  as  to  them  in 
the  state  court.117  It  is  also  provided  generally  in  that  portion  of 
section  5,  of  the  act  of  March  3,  1875,  which  still  remains  in  force, 
that,  "if  in  any  suit  commenced  in  a  circuit  court,  or  removed  from 
a  state  court  to  a  circuit  court  of  the  United  States,  it  shall  appear 
to  the  satisfaction  of  said  circuit  court,  at  any  time  after  such  suit 
has  been  brought  or  removed  thereto,  that  such  suit  does  not  really 
and  substantially  involve  a  dispute  or  controversy  properly  within  the 
jurisdiction  of  said  circuit  court,  or  that  the  parties  to  said  suit  have 
been  improperly  or  collusively  made  or  joined,  either  as  plaintiffs  or 
defendants,  for  the  purpose  of  creating  a  case  cognizable  or  remov- 
able under  this  act,  the  said  circuit  court  shall  proceed  no  further 
therein,  but  shall  dismiss  the  suit  or  remand  it  to  the  court  from 
which  it  was  removed  as  justice  may  require,  and  shall  make  such 
order  as  to  costs  as  shall  be  just."118  Objections  appearing  upon  the 
face  of  the  record  should  be  taken  advantage  of  by  motion  to  re- 


A.  116,  12  U.  S.  App.  69,  53  Fed.  969; 
Texas,  &c.  R.  Co.  v.  Kuteman,  4  C. 
C.  A.  503,  13  U.  S.  App.  99,  54  Fed. 
551;  Whitelaw,  Re,  71  Fed.  733,  738; 
Iron  Mountain  R.  Co.  v.  Memphis, 
37  C.  C.  A.  410,  96  Fed.  131;  James 
v.  Central  Trust  Co.  39  C.  C.  A.  126, 
98  Fed.  489.  3.  It  is  well  settled 
that  if,  upon  the  face  of  the  record, 
including  the  petition  for  removal, 
a  suit  does  not  appear  to  be  a  re- 
movable one,  then  the  state  court  is 
not  bound  to  surrender  its  jurisdic- 
tion, and  may  proceed  as  if  no  appli- 
cation for  removal  had  been  made. 
Stone  v.  South  Carolina,  117  U.  S. 
430,  432,  6  Ship.  Ct.  799,  29  L.  Ed. 
962,  963;  Carson  v.  Hyatt,  118  U.  S. 
279.  281,  6  Sup.  Ct.  1050,  30  L.  Ed. 
167,  168;  Burlington,  &c.  R.  Co.  v. 
Dunn,  122  U.  S.  513,  515,  7  Sup.  Ct. 
1262,  30  L.  Ed.  1159,  1160." 

117 1  U.  S.  Supp.  Rev.  St.  612. 

118 18  U.  S.  Stat.  at  L.  470;  1  Supp. 
U.  S.  Rev.  St.  83.  See,  also,  Ayres 


v.  Wiswall,  112  U.  S.  187,  5  Sup.  Ct. 
90;  Williams  v.  Nottawa,  104  U.  S. 
209;  Graves  v.  Corbin,  132  U.  S.  571, 
10  Sup.  Ct.  196;  Shepherd  v.  Brad- 
street,  65  Fed.  142;  Hamblin  v.  Chi- 
cago, &c.  R.  Co.  43  Fed.  401;  Texas, 
&c.  Co.  v.  Seeligson,  122  U.  S.  519, 
7  Sup.  Ct.  1261;  Pennsylvania  R. 
Co.  v.  Allegheny,  &c.  R.  Co.  25  Fed. 
113.  The  court  may  also  remand 
the  suit  for  failure  to  file  a  tran- 
script of  the  record  in  time,  but  this 
seems  to  be  largely  discretionary 
with  the  court.  St.  Paul,  &c.  R.  Co. 
v.  McLean,  108  U.  S.  212,  2  Sup.  Ct. 
498;  Lucker  v.  Phoenix,  &c.  Co.  66 
Fed.  161;  Removal  Cases,  100  U.  S. 
457;  Jackson  v.  Mutual  L.  Ins.  Co. 
3  Woods  (U.  S.)  413.  See,  gener- 
ally, as  to  when  the  case  should  be 
remanded,  Dishon  v.  Cincinnati,  &c. 
R.  Co.  133  Fed.  471;  Mystic  Milling 
Co.  v.  Chicago,  &c.  R.  Co.  132  Fed. 
289. 


655] 


REMOVAL   OF    CAUSES. 


986 


maud,116  and  a  party  by  going  to  trial  without  objection,  or  even  by 
undue  delay,  may  waive  his  right  to  have  the  cause  remanded  on 
account  of  mere  irregularities,  such  as  the  failure  to  file  the  petition 
for  removal  in  time,  or  the  like.120  But  it  is  said  that  when  the  rec- 
ord on  its  face  shows  that  the  court  has  jurisdiction,  the  want  of 
jurisdiction  should  be  shown  by  plea  in  abatement.121  The  court,  of 
its  own  motion,  should  remand  the  cause  where  it  appears  that  it  has 
no  jurisdiction  because  the  case  is  not  one  of  federal  cognizance,  and 
this  objection,  unlike  that  based  upon  a  mere  irregularity,  is  not, 
therefore,  waived  by  the  failure  to  make  it  in  the  first  instance.122  It 
has  been  held  that  a  case  which  has  been  properly  removed  cannot 
be  remanded  by  consent.123  The  state  court  cannot  review  the  action 
of  the  federal  court  in  remanding  the  suit,124  and  no  appeal  or  writ  of 
error  lies  from  the  order  of  the  circuit  court  remanding  the  suit.125 


"»Hoyt  v.  Wright,  4  Fed.  168; 
Martin  v.  Baltimore,  &c.  R.  Co.  151 
U.  S.  673,  14  Sup.  Ct.  533;  Tod  v. 
Cleveland,  &c.  R.  Co.  65  Fed.  145; 
Newman  v.  Schwerin,  61  Fed.  865. 

m French  v.  Hay,  22  Wall.  (U.  S.) 
238;  Ayres  v.  Watson,  113  U.  S.  594, 
5  Sup.  Ct.  641;  Carrington  v.  Flor- 
ida, &c.  R.  Co.  9  Blatchf.  (U.  S.) 
467;  Baltimore,  &c.  R.  Co.  v.  Ford, 
35  Fed.  170;  Wyly  v.  Richmond,  &c. 
R.  Co.  63  Fed.  487;  Martin  v.  Balti- 
more, &c.  R.  Co.  151  U.  S.  673,  14 
Sup.  Ct  533. 

121  Hoyt  v.  Wright,  1  McCrary  (U. 
S.)  130;  Clarkhuff  v.  Wisconsin,  &c. 
R.  Co.  26  Fed.  465;  Rumsey  v.  Call, 
28  Fed.  769.    See,  also,  Coal  Co.  v. 
Blatchf ord,   11   Wall.    (U.    S.)    172. 
The   burden   of   proof   is   upon   the 
petitioner,  and  if  it  does  not  clearly 
appear  that  the   federal   court  has 
jurisdiction,  the  cause  should  be  re- 
manded.   Carson  v.  Durham,  121  U. 
S.  421,  7  Sup.  Ct.  1030;.  Fitzgerald 
v.  Missouri  Pac.  R.  Co.  45  Fed.  812; 
Wolff  v.  Archibald,  14  Fed.  369. 

122  Cameron  v.  Hodges,   127   U.   S. 
322,  8  Sup.  Ct.  1154,  1156;  Brice  v. 
Sommers,  8  Chicago  Leg.  News  290; 
Mansfield,  &c.  R.  Co.  v.  Swan,  111 


U.  S.  379,  4  Sup.  Ct.  510;  Ferguson 
v.  Ross,  38  Fed.  161;  Jackson  v.  Al- 
len, 132  U.  S.  27,  10  Sup.  Ct.  9; 
Frisbie  v.  Chesapeake,  &c.  R.  Co.  57 
Fed.  1;  Bronson  v.  St.  Croix  Lum- 
ber Co.  35  Fed.  634.  See,  also,  Crane 
Co.  v.  Guanica  Centrale,  132  Fed. 
713.  The  supreme  court,  on  re- 
versal of  a  suit  because  the  circuit 
court  did  not  have  jurisdiction  on 
removal,  will  direct  the  circuit 
court  to  remand  it  to  the  state  court, 
without  allowing  any  amendment  of 
the  petition  for  removal  in  the  cir- 
cuit court.  Crehore  v.  Ohio,  &c.  R. 
Co.  131  U.  S.  240,  9  Sup.  Ct.  692; 
Hancock  v.  Holbrook,  112  U.  S.  229, 
5  Sup.  Ct.  115 ;  Jackson  v.  Allen,  132 
U.  S.  27,  10  Sup.  Ct.  9. 

123  Lawton  v.  Bliitch,  30  Fed.  -641. 
But  see  Wadleigh  v.  Standard,  &c. 
Ins.  Co.  76  Wis.  439,  45  N.  W.  109. 

124  Tilley  v.  Cobb,  56  Minn.  295,  57 
N.  W.  799;  Fitzgerald  v.  Fitzgerald, 
&c.  Co.  44  Neb.  463,  62  N.  W.  899. 

125  Morey  v.  Lockhart,  123  U.  S.  56, 
8   Sup.   Ct.    65;    Burlington,   &c.   R. 
Co.  v.  Dunn,  122  U.  S.  513,  7  Sup.  Ct. 
1262;    May  v.   State  Nat.   Bank,  59 
Ark.  614,  28  S.  W.  431;  Chicago,  &c. 
R.  Co.  v.  Gray,  131  U.  S.  396,  9  Sup. 


987  REMANDING AMENDMENT — WAIVEE.  [§    655a 

§  655a.  Remanding — Amendment — Waiver. — Where  a  cause  has 
been  removed  from  a  state  court  to  a  federal  court  on  the  ground  of 
diverse  citizenship  and  a  motion  to  remand  is  made  on  the  ground 
that  the  plaintiff  sues  as  an  assignee  of  a  chose  in  action  and  that  the 
petition  for  removal  does  not  show  the  citizenship  of  the  assignor, 
the  court  may  permit  such  petition  to  be  amended  so  as  to  show,  in 
accordance  with  the  fact,  that  the  citizenship  of  the  assignors  was 
such  as  to  give  jurisdiction.126  Defects  in  the  petition  for  removal  in 
matter  of  form  may  sometimes  be  waived  by  appearing  and  making 
an  issue  without  objecting  on  that  ground.  Thus,  it  is  held  in  a  re- 
cent case  that  merely  formal  defects,  such  as  that  the  petition  is  signed 
by  attorneys  of  another  state  and  not  by  attorneys  admitted  to  prac- 
tice in  the  court  in.  which  it  is  filed,  are  waived  by  appearing  in  the 
federal  court  and  moving  to  remand  on  another  ground,  namely,  that 
the  alleged  cause  for  removal  does  not  exist.127  So  it  has  been  held 
that  distinct  and  unambiguous  allegations  in  the  petition  for  re- 
moval, not  denied  in  any  pleading  of  the  plaintiff  or  put  in  issue  by 
him,  nor  contradicted  by  the  record,  are  to  be  taken  as  true  on  a 
motion  to  remand,  or  other  proceeding  challenging  the  jurisdiction  of 
the  federal  court.128  Where,  after  removal,  a  rule  was  granted  in  the 
federal  court  against  the  plaintiff  to  show  cause  why  the  case  should 
not  proceed,  it  was  held  that,  although  his  counsel  had  been  negligent, 
the  federal  court  was  not  authorized  to  enter  a  non-suit  and  dismissal 
and  judgment  and  execution  for  costs,  but  could  only  dismiss  the 
proceedings  and  remand  to  the  state  court.129  As  a  general  rule,  where 
the  jurisdiction  of  the  federal  court  is  doubtful,  and  that  of  the  state 
court  is  unquestionable,  the  federal  court  will  remand  the  case.130 
Mandamus,  rather  than  prohibition,  is  the  proper  remedy  where  the 

Ct.  793;  Birdseye  v.  Schaeffer,  140  Fed.  452  (reversed  on  other  grounds 

U.  S.  117,  11  Sup.  Ct.  885;  Rich-  in  201  U.  S.  1,  26  Sup.  Ct.  387).  See, 

mond,  &c.  R.  Co.  v.  Thouron,  134  U.  also,  Dishon  v.  Cincinnati,  &c.  R. 

S.  45,  10  Sup.  Ct.  517.  Co.  133  Fed.  471,  66  C.  C.  A.  345. 

12B  Muller  v.  Chicago,  &c.  R.  Co.  12°  Dawson  v.  Kinney,  144  Fed.  710. 

149  Fed.  939.  130Nash  v.  McNamara,  145  Fed. 

^Tomson  v.  Iowa,  &c.  Ass'n  541;  Ernst  v.  American,  &c.  Co. 

(Neb.),  110  N.  W.  997.  See,  also,  114  Fed.  981;  Fitzgerald  v.  Missouri 

Gerling  v.  Baltimore,  &c.  R.  Co.  151  Pac.  R.  Co.  45  Fed.  812,  820;  Kes- 

U.  S.  673,  14  Sup.  Ct.  533;  Ayres  singer  v.  VanNatta,  27  Fed.  890; 

v.  Watson,  113  U.  S.  594,  5  Sup.  Ct.  Groel  v.  United  Elec.  Co.  132  Fed. 

641;  Bryant  Bros.  Co.  v.  Robinson,  253,  265;  Dodd  v.  Louisville,  &c. 

149  Fed.  321.  Co.  130  Fed.  186,  198. 

128  Commonwealth   v.  Powers.  139 


§    656]  REMOVAL   OF   CAUSES.  988 

federal  circuit  court  refuses  to  remand  to  the  state  court  a  case  over 
which  such  federal  court  has  no  jurisdiction.181 

§  656.    Pleading  and  practice  in  federal  court  after  removal. — It 

is  not  necessary  to  file  new  pleadings  in  the  circuit  court  after  re- 
moval, if  the  pleadings  filed  in  the  state  court  are  in  proper  condi- 
tion for  the  trial  of  the  issue  between  the  parties.132  The  general 
rule  is  that  no  repleader  is  necessary  if  the  action  is,  in  its  nature, 
a  common-law  action;133  but  if  legal  and  equitable  causes  of  action 
or  defenses  are  united  under  the  state  practice  a  suit  may  be  recast  or 
separated  into  an  action  at  law  and  a  suit  in  equity,134  and  a  re- 
pleader  is  usually  necessary.135  The  rules  of  practice  in  the  federal 
court  govern  the  case,  in  general,  after  its  removal  ;136  but  the  federal 
circuit  courts,  on  the  law  side,  are  bound  to  follow  the  state  practice 
"as  near  as  may  be"  in  most  respects,  and  it  has  been  held  that  where 
a  receiver,  appointed  by  a  federal  court,  on  being  sued  in  a  state 
court  as  authorized  by  the  recent  Act  of  Congress,  removes  the  suit 
to  the  federal  court,  the  plaintiff  is  entitled  to  a  trial  by  jury  if  he 
would  have  been  entitled  to  such  a  trial  in  the  state  court.137  So, 
as  a  general  rule,  the  federal  circuit  court  will  follow  the  rulings  of 
the  state  court  made  in  the  case  before  its  removal.138  Where  service 
of  summons  has  been  set  aside  in  the  federal  court  after  removal,  on 

131  Ex  parte  Wisner,  203  U.  S.  449,    Paine,  119  U.  S.  561,  7  Sup.  Ct.  323. 
27  Sup.  Ct.  150.  See,  also,  Utah,  &c.  Co.  v.  De  Lamar, 

132  20  Am.  &  Eng.  Ency.  Law  1021;     145  Fed.  505. 

Gridley  v.  Westbrook,  23  How.  (U.  135  Hurt  v.  Hollingsworth,  100  U. 
S.)  218,  3  Cent.  L.  J.  13;  Detroit  v.  S.  100;  Whittenton,  &c.  Co.  v.  Mem- 
Detroit  City  R.  Co.  55  Fed.  569.  phis,  &c.  R.  Co.  19  Fed.  273;  La 

133  Thompson  v.   Railroad   Compa-  Mothe,    &c.    Co.    v.    National    Tube 
nies,  6  Wall.   (U.   S.)   134;    Dart  v.  Works,  15  Blatchf.  (U.  S.)   432. 
McKinney,  9  Blatchf.   (U.  S.  C.  C.)  136Henning  v.    Western    Un.    Tel. 
359;  Bills  v.  New  Orleans,  &c.  R.  Co.  Co.  40  Fed.  658. 

13  Blatchf.  (U.  S.)  227;  Partridge  v.  137Vany  v.  Receiver  of  Toledo,  &c. 

Phoenix,  &c.   Ins.   Co.  15  Wall.    (U.  R.  Co.  67  Fed.  379.   See,  also,  North 

S.)    573;    West  v.  Smith,  101  U.  S.  Alabama,  &c.  Co.  v.  Oraaan,  55  Fed. 

263.    But  court  may  permit  amend-  18. 

ed    pleading    to    be    filed.     United  13S  Bryant   v.   Thompson,    27    Fed. 

States,  &c.  Co.  v.   Board,   145   Fed.  881;   Davis  v.  St.  Louis,  &c.  R.  Co. 

144.  25  Fed.  786;   Duncan  v.  Gegan,  101 

134Fisk   v.   Union    Pac.    R.    Co.    8  U.    S.   810.    But  see   Spring  Co.   v. 

Blatchf.   (U.  S.  C.  C.)  299;  Perkins  Knowlton,  103  U.  S.  49.    See,  gener- 

v.  Hendryx,  23  Fed.  418;  Lacroix  v.  ally,  Moon   Remov.   of  Causes,  Ch. 

Lyons,  27  Fed.  403;  Foster  Fed.  Pr.  XV;  1  Desty's  Fed.  Proc.  562,  §  111. 
§  391.  See  Northern  Pac.  R.  Co.  v. 


989  RECENT  CASES — MISCELLANEOUS.          [§  656a 

motion  of  the  defendant,  the  court  may  permit  the  plaintiff  to  file  an 
amended  petition  and  order  summons  to  issue  thereon  in  a  proper 
case.139  And  where  a  cause  is  removed  in  which  the  state  court  was 
competent  to  grant  either  legal  or  equitable  relief  the  plaintiff  may 
elect  to  proceed  in  the  federal  court  either  at  law  or  in  equity,  but 
if  he  elects  to  proceed  in  equity  and  no  case  for  equitable  relief  is 
made  the  federal  court  cannot  retain  and  try  the  case  as  an  action 
at  law.140 

§  656a.  Recent  cases — Miscellaneous. — As  already  stated,  the  gen- 
eral rule  is  that  a  case  not  dependng  on  diversity  of  citizenship  cannot 
be  removed  as  arising  under  the  constitution  or  laws  of  the  United 
States  unless  the  same  appears  from  plaintiff's  statement  of  his  cause 
of  action ;  and  where  the  petition  alleged  a  cause  of  action  both  under 
a  federal  statute  and  under  a  state  law  it  was  held  for  the  court  to 
•eral  rule  is  that  a  case  not  depending  on  diversity  of  citizenship  cannot 
determine  under  which  the  action  was  maintainable,  if  at  all,  on  peti- 
tion to  remove  to  the  federal  court.141  A  proceeding  in  garnishment 
after  judgment,  under  the  Washington  statute  has  been  held  to  be 
a  civil  suit  in  which  an  issue  of  fact  is,  or  may  be,  joined  between 
the  plaintiff  and  garnishee,  and  is  removable  by  a  non-resident  gar- 
nishee,  where  the  jurisdictional  requisites  appear,  although  the  par- 
ties to  the  judgment  are  citizens  of  the  same  state.142  But  where  an 
action  is  brought  in  a  state  court  and  neither  party  is  a  citizen  or 
resident  of  the  state,  so  that  it  could  not  have  been  instituted  origi- 
nally in  the  federal  court,  such  action  is  not  removable.143  In  a  recent 

139  United  States  Fidelity,  &c.  Co.  action  would  be  one  arising  under 
v.  Board,  145  Fed.  144.     Denial  by  a   law   of   the    United    States,    and 
inferior  state  court  of  motion  to  va-  therefore     of     federal     cognizance, 
cate  service  of  summons  is  not  res  Citing  Starin  v.  New  York,  115  U. 
judicata  on  questions  of  validity  of  S.    248,    6   Sup.   Ct    28;    Carson   v. 
the  service  when  raised  in  federal  Dunham,  121  U.  S.  421,  7  Sup.  Ct. 
court  after  removal.    Remington  v.  1030.     See,   also,   that   right   must 
Central  Pac.  R.  Co.  198  U.  S.  95,  25  appear   from    plaintiff's   own   state- 
Sup.  Ct.  577.  ment    in    his    bill    or    declaration. 

140  Union  Stock  Yards  Co.  v.  Nash-  Cella  v.  Brown,  144  Fed.  742;  Mitch- 
ville  Packing  Co.  140  Fed.   701,  72  ell,  &c.  Co.  v.  Worthington,  140  Fed. 
C.  C.  A.  195.     See,  also,  Thompson  947. 

•v.  Railroad  Co.  6  Wall  (U.  S.)  134.        m Baker  v.  Dunwamish  Mill  Co. 

141  Hall  v.  Chicago,  &c.  R.  Co.  149     149  Fed.  612. 

Fed.   564,  also  holding  that  if  one  14S  Yellow   Aster   Min.,   &c.    Co.   v. 

construction  of  the  federal  statute  Crane  Co.  150  Fed.  580;  Wisner,  Ex 

-would  defeat  a  recovery  and  another  parte  (U.  S.)  27  Sup.  Ct.  150. 
sustain  it,  under  that  statute,  the 


§  656a] 


REMOVAL   OF   CAUSES. 


990 


case  it  is  held  that  even  if  an  allegation  in  the  complaint  of  a  switch- 
man against  a  railroad  company,  that  the  "cars  in  use  on  defendant's 
said  railway,  and  particularly  the  cars  on  which  plaintiff  was  injured, 
were  not  properly  equipped  with  automatic  couplers,  as  required  by 
law/'  necessarily  implied  a  reliance  on  the  Act  of  Congress,  requiring 
automatic  couplers,  still  a  removable  case  is  not  made  out,  sections  1 
and  2  of  the  act  of  March  2,  1893,  in  regard  to  safety  appliances 
showing  it  applies  only  to  carriers  engaged  in  interstate  commerce, 
and  neither  the  complaint  in  the  case,  nor  the  petition  for  removal 
showing  that  defendant  was  so  engaged,  nor  that  the  cars  in  question 
were  being  used  in  such  commerce.144  In  several  other  Texas  cases  it 
has  been  held  that  joint  petitions  of  defendants  would  not  justify  a 
removal  under  the  facts  shown.145  But  it  is  held  in  a  recent  South 
Carolina  case  that  both  defendants  must  join  in  a  petition  to  remove 
an  action  against  them  for  a  joint  tort  on  the  ground  that  they  are 
non-residents,  and  that  a  petition  by  one  of  them,  on  the  ground  of 
non-residence,  alleging  that  the  other  defendant  is  a  sham  defendant, 
joined  to  prevent  removal,  is  insufficient.146  A  lessee  under  a  long 
term  lease  of  a  railroad,  assuming  all  the  lessor's  obligations,  has 
been  held  the  real  party  to  a  suit  to  compel  a  grant  of  switch  con- 
nection in  accordance  with  a  stipulation  in  the  grant  of  the  right  of 
way,  and  entitled  to  intervene  and  remove  the  cause  to  the  federal 
court  on  the  ground  that  the  lessee  is  a  citizen  of  another  state.147 


144  International,  &c.  R.  Co.  v.  El- 
der (Tex.  Civ.  App.),  99  S.  W.  856. 

145  Texas,    &c.    R.    Co.    v.    Huber 
(Tex.),    92    S.    W.    832;    Eastin   v. 

Knox,  &c.  R.  Co.    (Tex.),  92  S.  W. 
838. 

146Baber  v.  Southern  R.  Co.  (S. 
Car.),  56  S.  E.  540.  See,  also,  Black- 
burn v.  Blackburn,  142  Fed.  901.  But 
see  Eastin  v.  Knox,  &c.  R.  Co. 
(Tex.),  92  S.  W.  838;  Iowa,  &c. 
Co.  v.  Bliss,  144  Fed.  446;  Slaughter 
v.  Nashville,  &c.  R.  Co.  (Ky.),  91  S. 
W.  744.  In  the  Kentucky  case  just 
cited  the  action  was  against  a  rail- 
road company  and  its  trainmaster, 
but  a  good  cause  of  action  was  not 
stated  as  against  the  trainmaster. 
See,  also,  as  to  whether  there  is  a 
separable  controversy  and  as  to  the 


right  of  removal  where  employer 
and  employe  are  joined,  Louisville, 
&c.  R.  Co.  v.  Vincent,  116  Tenn. 
317,  95  S.  W.  179;  Lanning  v.  Chi- 
cago, &c.  R.  Co.  196  Mo.  647,  94 
S.  W.  491;  Southern  R.  Co.  v.  Griz- 
zle, 124  Ga.  735,  53  S.  E.  244;  At- 
lantic Coast  Line  R.  Co.  v.  Bailey, 
151  Fed.  891;  Chicago,  &c.  R.  Co. 
v.  Stepp,  151  Fed.  908.  For  an 
action  by  an  employe  against  lessor 
and  lessee  held  removable,  see  Cur- 
tis v.  Cleveland,  &c.  R.  Co.  140 
Fed.  777.  See,  generally,  Chicago, 
&c.  R.  Co.  v.  Martin,  178  U.  S.  245, 
20  Sup.  Ct.  1055;  Cochran  v.  Mont- 
gomery County,  199  U.  S.  260,  26 
Sup.  Ct.  58. 

147  Chase   v.   Beech    Creek   R.    Co. 
144  Fed.  571.    But  see  as  to  parties 


991 


RECENT    CASES MISCELLANEOUS. 


[§  656a 


An  alien  non-resident  cannot  successfully  claim  the  privilege  of  re- 
moving an  action  commenced  against  him  in  a  state  court.148  The 
amount  in  controversy  must  be  sufficient  or  there  can  be  no  removal.149 
The  petition  for  removal  must  be  filed  in  due  time  ;150  but  it  is  held 
that  the  right  of  removal  arises  at  any  time,  during  the  progress  of  a 
case,  when,  by  a  change  in  the  pleadings  or  proceedings,  the  cause  is 
first  rendered  removable.151  Questions  as  to  the  necessity  for  filing 
bond  in  the  state  court  and  a  copy  of  the  record  in  the  federal  court, 
and  as  to  the  transfer  of  jurisdiction,  and  the  like,  have  already  been 
considered,  but  additional  recent  decisions  upon  these  questions  are 
cited  below.152  Several  very  recent  cases  upon  the  general  subject 
also  deserve  further  consideration.  In  one  of  them  it  is  held  that 
issues  of  fact  raised  by  a  petition  for  removal,  affecting  the  question 
of  removability,  are  cognizable  solely  by  the  circuit  court  to  which 
the  cause  is  sought  to  be  removed;  that  the  refusal  of  a  state  court 
to  grant  the  removal  does  not  affect  the  jurisdiction  of  the  federal 
court  which  attaches  as  matter  of  law  on  the  filing  of  a  sufficient  peti- 
tion and  bond  when  the  cause  is  removable,  and  that  where  such  re- 
moval has  been  effected  under  the  law  by  the  filing  of  a  sufficient 


brought  in  by  cross-complaint  and 
succeeding  to  rights  of  plaintiff, 
Nash  v.  McNamara,  145  Fed.  541. 

148  O'Conor  v.  State,  202  U.  S.  501, 
26  Sup.  Ct.  726. 

""Nashville,  &c.  R.  Co.  v.  Hill 
(Ala.),  40  So.  612;  Barber  v.  Bos- 
ton, &c.  R.  Co.,  145  Fed.  52;  Bara- 
taria  Canning  Co.  v.  Louisville,  ,&c. 
R.  Co.,  143  Fed.  113.  But,  as  al- 
ready shown,  this  is  usually  to  be 
determined  from  the  complaint, 
declaration,  or  bill.  Ante,  §  648.  See, 
also,  Roessler-Hasslacher,  &c.  Co.  v. 
Doyle,  142  Fed.  118;  City  of  Mem- 
phis v.  Postal  Tel.,  &c.  Co.  145  Fed. 
602;  South  Dakota,  &c.  R.  Co.  v. 
Chicago,  &c.  R.  Co.  141  Fed.  578, 
73  C.  C.  A.  176;  Southern  Cash,  &c. 
Co.  v.  National,  &c.  Co.  143  tfed. 
659.  As  to  evidence  held  sufficient 
to  show  that  employe  was  made  de- 
fendant for  sole  purpose  of  pre- 
venting removal,  and  right  to  in- 
quire into  same,  see  Wecker  v.  Na- 


tional Enameling,  &c.  Co.  204  U. 
S.  176,  27  Sup.  Ct.  184. 

""Bryson  v.  Southern  R.  Co.  (N. 
Car.),  54  S.  E.  434.  See,  also,  ante, 
§  653.  But  see  as  to  effect  of  stip- 
ulation granting  time,  Russel  v. 
Harriman  Land  Co.  145  Fed.  745, 
and  see  Sanderlin  v.  People's  Bank, 
140  Fed.  191. 

151  Barber  v.  Boston,  &c.  R.  Co. 
145  Fed.  52.  See,  also>  Robert  v. 
Pineland  Club,  139  Fed.  1001;  Pow- 
ers v.  Chesapeake,  &c.  Ry.  Co.  169 
U.  S.  92,  18  Sup.  Ct.  264. 

M2Mays  v.  Newlin,  142  Fed.  574; 
Mutual  Life  Ins.  Co.  v.  Langley, 
145  Fed.  415;  Preston  v.  McNeil 
Lumber  Co.  143  Fed.  555;  Wood- 
ward Lumber  Co.  v.  Vizard,  144 
Fed.  982;  Cincinnati,  &c.  R.  Co.  v. 
Curd  (Ky.),  89  S.  W.  140;  Johnson 
v.  Computing  Scale  Co.  139  Fed. 
380;  Lebensberger  v.  Scofield,  139 
Fed.  380;  Atlantic  Coast  Line  R.  Co. 
v.  Bailey,  151  Fed.  891. 


§  656a]  REMOVAL  OF  CAUSES.  992 

petition  and  bond,  the  federal  court  has  power,  on  a  bill  in  equity, 
to  enjoin  the  plaintiff  from  further  proceedings  in  the  cause  in  the 
state  court.153  In  another  it  is  likewise  held  that  where  the  cause 
is  properly  removed  from  the  state  court  into  the  federal  court  and 
the  plaintiff  undertakes  to  ignore  the  removal,  and  proceed  with  the 
prosecution  of  the  case  in  the  state  court,  the  federal  court,  having 
obtained  jurisdiction,  may  by  injunction  restrain  the  plaintiff  from 
such  threatened  action.154  In  another  it  is  held  that  the  removal  by 
one  of  two  defendants  of  a  cause  which  was  not  removable  because  of 
the  absence  of  a  separable  controversy  does  not  give  the  federal  court 
jurisdiction,  otherwise  than  to  remand,  and  that  it  should  be  re- 
manded at  any  stage,  either  at  the  instance  of  a  party  or  on  the 
court's  own  motion,  whenever  such  fact  appears.155  As  a  general  rule 
the  federal  courts  in  a  case  removed  from  a  state  court  will  not  sit  in 
review  of  any  act  done  by  that  court  prior  to  the  removal,156  but  in 
a  recent  case  it  is  held  that  where  the  state  court  acted  without  juris- 
diction a  different  rule  applies,  and  that  a  motion  to  quash  the  serv- 
ice on  a  defendant  who  has  not  entered  a  general  appearance,  which 
involves  the  question  of  jurisdiction  over  the  defendant,  although 
overruled  by  the  state  court,  may  be  renewed  after  removal.167  It 

153  Atlantic   Coast  Line  R.  Co.  v.  court  will  not  sit  in  review  of  any 
Bailey,   151   Fed.   891.  act  done  by  that  court  prior  to  the 

154  Chicago,  &c.  R.  Co.  v.  Stepp,  151  removal,  and   comity  dictates  that 
Fed.  908,  citing  Madisonville  Trac-  what  was  done  by  a  court  of   co- 
tion  Co.  v.  St.  Bernard  Mining  Co.  ordinate  jurisdiction  before  the  case 
196  U.  S.  239,  245,  25  Sup.  Ct.  251;  was   removed    is   entitled    to    great 
Mutual  Life  Ins.  Co.  v.  Langley,  145  respect,    and    the    decrees    of    such 
Fed.  415.  court  are  ordinarily  regarded  as  cor- 

155  International,    &c.     R.     Co.     v.  rect  adjudications  of  the  questions 
Hoyle,  .149    Fed.    180.      The    state  involved.    Where,  however,  the  state 
court,  it  is  held,  after  remand  can-  court  acted  without  jurisdiction,  a 
not  question  the  correctness  of  the  different    rule     unquestionably    ap- 
order  but  must  proceed  to  exercise  plies  (Loomis  v.  Carrington  [C.  C.] 
jurisdiction.     Feeney  v.  Wabash  R.  18  Fed.  97),  and  the  inaptitude  of 
Co.  (Mo.  App.),  99  S.  W.  477.  the   doctrine   of   res   adjudicata   is 

156  See    Bragdon    v.    Perkins,    &c.  plainly  apparent  in  a  case  such  as 
Co.   82   Fed.    338;    Mutual   Reserve  this,  where  the  defendant,  a  citizen 
Ass'n  v.  Phelps,  190  U.   S.  147,  23  of  another  state  having  withdrawn 
Sup.  Ct.  707.  Its  business  and  property  from  this 

15TLathrop,  &c.  Co.  v.  Interior  state,  has  the  absolute  right  to  re- 
Const.,  &c.  Co.  150  Fed.  666,  where  the  move  an  action  brought  against  it 
court  said:  "Beyond  doubt,  it  is  a  to  the  federal  court.  Such  a  right 
general  rule  that  the  federal  courts  unless  waived  by  general  appear- 
in  a  case  removed  from  the  state  ance,  or  otherwise  forfeited,  is 


993  RECENT  CASES — MISCELLANEOUS.          [§  G5Ga 

has  also  been  held  that  a  cause,  properly  removable,  on  being  removed 
will  not  be  remanded  because  of  irregularities  in  the  removal  proceed- 
ings, or  because  it  was  removed  under  the  wrong  statute,  and  that  an 
equity  suit,  after  such  removal,  must  proceed  according  to  the  equity 
rules  and  practice  of  the  federal  court.158  It  is  held  in  a  recent  case 
that  where  a  cause  is  removed,  notwithstanding  the  refusal  of  the 
state  court  to  grant  the  application  for  removal,  and  the  party  resist- 
ing it  appears  and  submits  himself  to  the  jurisdiction  of  the  federal 
court  and  takes  a  non-suit  and  consents  that  a  judgment  be  entered 
against  him,  although  he  had  asked  that  the  cause  be  remanded,  he 
cannot  thereafter  prosecute  the  same  suit  in  the  state  court,  but,  if 
entitled  to  proceed  in  the  state  court  at  all,  he  must  institute  a  new 
suit.159  As  a  general  rule,  however,  after  the  transfer  to  a  federal 
court,  the  plaintiff  may  dismiss  and  bring  a  new  action  in  the  state 
court,  and  it  has  been  held  that  it  is  immaterial  that  the  action  was 
not  dismissed  in  the  federal  court  until  after  the  new  action  had  been 
commenced  in  the  state  court,  provided  there  was  such  a  dismissal 
before  the  trial  of  the  second  action.160 

founded  upon  the  defendant's  alien-  Tortat  v.  Harden  Min.  &  Mfg.  Co. 

age  or  citizenship  of  another  state  (C.  C.),  Ill  Fed.  426." 

and  was  granted  by  an  act  of  Con-  15S  Bryant  Bros.  v.  Robinson,   149 

gress.      Under    such    circumstances  Fed.  321. 

no  state  is  permitted  by  its  action  "'Texas,   &c.    R.    Co.    v.     Huber 

to  abridge  or  nullify  a  right  grant-  (Tex.   Civ.  App.),   95   S.   W.   568. 

ed  pursuant  to  constitutional  law.  ie°S.  F.  Dana  &  Co.  v.  Blackburn 

(Ky.),  90  S.  W.  237. 
ELL.  RAILROADS — 63 


END  OF  VOLUME  I. 


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UNIVERSITY  OF  CALIPORKU 
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